NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

Final Affirmative Countervailing Duty Determination; Cabron Steel Plate From Brazil

Thursday, January 20, 1983

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AGENCY: International Trade Administration,

ACTION: Final Affirmative Countervailing Duty Determination.

SUMMARY: We have determined that certain benefits that constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of carbon steel plate. The estimated net subsidy is 11.75 percent ad valorem. The U.S. International Trade Commission (ITC) will determine within 45 days of the publication of this notice whether these imports are materially injuring, or threatening to materially injure, a U.S. industry.

The Department of Commerce (the Department) and the government of Brazil have entered into a suspension agreement. We continued the investigation at the request of the petitioners. If the final determination by the ITC is negative, the suspension agreement shall have no force or effect. If the final determination by the ITC is affirmative , the suspension agreement shall remain in force.

EFFECTIVE DATE: January 20, 1983.

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) 377-2786.

SUPPLEMENTARY INFORMATION:

Final Determination

Based upon our investigation, we have determined that certain benefits that 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 plate. The following programs are found to confer subsidies:
Industrialized Products Tax (IPI) export credit premium.
IPI rebates for capital investment.
Preferential working capital financing for exports: Resolution 674.
Industrial Development Council program.
We determine the estimated net subsidy on carbon steel plate from Brazil to be 11.75 percent ad valorem.

The Department and the government of Brazil have entered into a suspension agreement. If the ITC makes a final affirmative determination, the agreement will remain in force, and we will not issue a countervailing duty order as long as the requirements of section 704(f)(3)(B) of the Act are met.

Case History

On January 11, 1982, the Department received petitions from United States Steel Corporation, and counsel for Republic Steel Corporation, Inland Steel Company, Jones & Laughlin Steel, Inc., National Steel Corporation, and Cyclops Corporation (the Five), filed on behalf of the U.S. industry producing carbon steel plate. The petitions alleged that certain benefits that constitute subsidies within the meaning of section 701 of the Act are being provided, directly or indirectly, to manufacturers, producers, or exporters in Brazil of carbon steel plate. Counsel for the Five alleged that "critical circumstances" exist, as defined in section 703(e) of the Act. We found the petitions to contain sufficient grounds upon which to initiate a countervailing duty investigation and on February 1, 1982, we initiated a countervailing duty investigation (47 FR 5751).

We stated that we expected to issue a preliminary determination by April 6,

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1982. We subsequently determined that the investigation was " extraordinarily complicated", as defined in section 703(c) of the Act, and postponed our preliminary determination for 65 days until June 10, 1982 (47 FR 11738).

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 ITC of our initiation. On February 26, 1982, the ITC determined that there is a reasonable indication that these imports are materially injuring, or threatening to materially injure, a U.S. industry (47 FR 9087).

On February 18, 1982, we presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C. On April 22, 1982, we received the response to the questionnaire. A supplemental response was received on June 7, 1982.

On June 10, 1982, we issued our preliminary determination in this investigation (47 FR 26310). We stated in our preliminary determination that the government of Brazil was providing its manufacturers, producers, or exporters of carbon steel plate with benefits that constitute subsidies. The programs preliminarily determined to bestow subsidies were:

IPI export credit premium.
IPI rebates for capital investment.
Preferential working capital financing for exports: Resolution 674.

On August 24, 1982, the Department and the government of Brazil signed a suspension agreement, as provided for under section 704 of the Act. The agreement became effective with its publication in the Federal Register on September 7, 1982 (47 FR 39394). Under the agreement, the government of Brazil is required to offset completely by an export tax the amount of the net subsidy determined by the Department to exist on Brazilian exports of carbon steel plate to the United States. The petitioners are challenging this agreement in the Court of International Trade in the case of United States Steel Corp. v. United States, Court No. 82-10-01361.

By letters of September 21, 22 and 27, 1982, counsel for the Five, United States Steel and counsel for Bethlehem Steel, respectively, requested that the investigation be continued under section 704(g) of the Act. Therefore, we are required to complete the investigation and issue a final determination.

United States Steel submitted new allegations too late to offer the Department a reasonable opportunity to investigate prior to August 24, 1982. Following petitioners' request to continue the investigation, the Department presented a supplemental questionnaire on October 29, 1982 to the government of Brazil, which addressed these late allegations. The supplemental questionnaire addressed the following new programs:
Non-indexation of overdue accounts payable.
FINAME loans to producers of steel-making equipment.
Partial relief from payment of retirement benefits to employees.
Charcoal used in steel production.
Ferrovia do Aco, the "Steel Railway".
We received a response to that questionnaire on November 26, 1982.

Scope of Investigation

The product covered by this investigation is hot-rolled carbon steel plate manufactured in Brazil and exported, directly or indirectly, from Brazil to the United States. The term "carbon steel plate" covers hot-rolled carbon steel products, whether or not corrugated or crimped; not pickled; not cold- rolled; not in coils; not cut, not pressed, and not stamped to non- rectangular shape; 0.1875 inch or more in thickness and over 8 inches in width; as currently provided for in items 607.6615 or 607.94 of the Tariff Schedules of the United States Annotated (TSUSA); and hot- or cold-rolled carbon steel plate which has been coated or plated with zinc including any material which has been painted or otherwise covered after having been coated or plated with zinc, as currently provided for in items 608.0710 or 608.11 of the TSUSA. Semi-finished products of solid rectanglar cross section with a width at least four times the thickness in the as cast condition or processed only through primary mill hot rolling are not included. Companhia Siderurgica Paulista (COSIPA) and Usinas Siderurgicas de Minas Gerais S.A. (USIMINAS) are the only known exporters in Brazil of carbon steel plate to the United States. The period for which we are measuring subsidization is calendar year 1981. COSIPA's and USIMINAS' fiscal years coincide with the calendar year.

Analysis of Programs

In its responses, the government of Brazil provided data for the applicable periods. Throughout this notice, general principles and conclusions of law applied by the Department of Commerce to the facts of this investigation are described in detail in Appendices 2 and 4, which appeared with the notice of "Final Affirmative Countervailing Duty Determinations: Certain Steel Products from Belgium" (47 FR 39304).

I. Programs Determined To Confer Subsidies

We have determined that subsidies are being provided under the programs described below to manufacturers, producers, or exporters in Brazil of carbon steel plate.

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 carbon steel plate 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. 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 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. Since the companies involved in this investigation import large quantities of slab, they received substantially less than a 15 percent benefit on the gross value of many shipments. Our preliminary determination on this program was based on IPI credits received from July 1, 1981 to December 31, 1981, divided by the value of exports for the same period. We noted at the time two concerns: (1) That the subsidy may have been understated, and (2) that the import of slab may have been a temporary phenomenon. At verification, the first 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 in the preliminary

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determination bore little relation to the IPI credits received during the same period.

We stated in our preliminary determination that we would ascertain whether the use of imported slab, a major factor in reducing the level of subsidy from this program, was a temporary situation. At verification, we examined imports of slab and determined that COSIPA, which was responsible for 80 percent of the exports of carbon steel plate from Brazil, was still importing substantial quantities of slab which, having entered under duty drawback, must be further manufactured and exported.

To calculate the value of the IPI credits, we sampled COSIPA's and USIMINAS' receipts of IPI credits and traced each to the appropriate shipment. We established that a substantial portion of plate shipments are made with imported slab which enters subject to duty drawback, the value of which is deducted from the value of the shipment before the IPI is calculated. 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 shipment rather than the date of receipt and did not take into account the devaluation of the cruzeiro between the date of shipment and the date of receipt in accordance with section 771(6)(B) of the Act. Instead of the 5.40 percent ad valorem subsidy reported in our preliminary determination, we calculated a subsidy value during 1981 of 11.05 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, we have made a proportional reduction in our calculation above. On this basis, we calculated a current ad valorem export subsidy of 8.10 percent.

B. 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 due 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. COSIPA and USIMINAS received benefits under this program from 1977 to 1981. With the enactment of Decree Law 1843 (December 1980), COSIPA and USIMINAS must now pay the IPI tax to the government which in turn rebates 95 percent to SIDERBAS, the government holding company to which COSIPA and USIMINAS belong, to increase its capital.

We consider the amount rebated each year as an united capital 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 United States).

In making the calculation for our preliminary determination, we took the amount of the rebate received in each year, converted the cruzeiro value to dollars by using the average exchange rate for the year, and used as the discount rate for each year the average LIBOR (London Interbank Offered Rate) plus the prevailing spread over LIBOR in Brazil in that year. The grants were amortized over 15 years and the total benefit for 1981 was divided by the total value of sales, converted into dollars using the average exchange rate for 1981.

We chose the above method for our preliminary determination because at that time we did not have sufficient information to employ the indexing procedure that establishes the rate of return on long-term cruzeiro debt instruments in Brazil. At verification we learned that government bonds and long-term cruzeiro loans are fully indexed to the inflation rate in Brazil and have fixed real interest rates. The index used is the ratio established for the Readjustable Bonds of the National Treasury (ORTN). In the case of a loan, the cruzeiro value is converted to an ORTN value by using the ORTN index rate in the month of receipt. The stream of principal and interest payments over the life of the loan is then calculated in ORTN and when a payment is made, the ORTN value due is converted into cruzeiros at the ORTN index rate in the month of payment. Based on this information, we have recalculated the benefit from these grants in accordance with Appendix 2. 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% on ORTN-indexed 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 0.67 percent.

C. Preferential Working Capital Financing for Exports: Resolution 674.

Under this program, companies are declared eligible to receive working capital 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. The maximum dollar eligibility under this program is established by CACEX and is stated on the "Certificado de Habilitacao" issued to recipients. We have determined 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. To determine the value of loans in existence under this program during the 1981 fiscal year, we prorated under this program during the 1981 fiscal year, we prorated any loans that straddled other fiscal years. For loans taken out in fiscal year 1980, only that portion extending into fiscal year 1981 was included in our calculation. Any fiscal year 1981 loans extending into fiscal year 1982 were similarly adjusted. We then divided the total value of these loans by the total value of exports of the two 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 as the commercial rate for the acquisition of short-term working capital. We have used this comparison because information provided by the government of Brazil indicates that,

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within the Brazilian financial system, working capital is normally raised through the sale of accounts receivable. Currently, the annual 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 1.73 percent.

D. 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 these benefits pending the completion of the project. The government of Brazil stated in its response that neither COSIPA nor USIMINAS received such benefits during 1981. Consequently, we preliminarily determined that this program was not used.

During verification we discovered that benefits had been received in 1981 under this program. We consider this subsidy a savings on current expenses and have allocated the entire benefit to the year received. For equipment puchased during 1981, we added the savings in import duties and in IPI taxes and divided the benefit received by the total sales of the companies under investigation. We calculated the ad valorem benefit of this subsidy to be 1.25 percent.

II. Programs Determined Not to Confer Subsidies

We have determined that subsidies are not being provided under the following programs described below to manufacturers, producers, or exporters in Brazil of carbon steel plate.

A. Government Purchase of Equity.

The government of Brazil has owned a portion of the equity in USIMINAS and COSIPA since they were established in the 1950's and 1960's respectively. This ownership takes several institutional forms but consists chiefly of shares owned by SIDERBRAS and the National Bank for Economic Development (BNDE). Currently, COSIPA is 99.9 percent owned by government entities (81.5 percent SIDERBRAS, 12.4 percent BNDE, 6.0 percent others) and USIMINAS is 80.7 percent owned by them (34.3 percent SIDERBRAS, 46.4 percent BNDE). Nippon Steel has owned shares in USIMINAS since it was established and currently holds 17.3 percent of the equity. Neither company's stock is freely traded. Between the years 1977-81, COSIPA made a profit in only one year, 1978. USIMINAS has made a profit in all but one of these years, 1979, which was a difficult year financially for COSIPA, USIMINAS and any other company with substantial foreign currency debt, because of a 30 percent devaluation of the cruzeiro in December 1979.

In the 1977-81 period, both companies experienced significant growth financed largely through debt, but also by government equity infusions. COSIPA's growth has been more substantial, and it has been the greater beneficiary of the government equity purchases. Most of this equity funding has come from government purchases of SIDERBRAS' equity, which in turn has purchased equity in its subsidiaries.

The petitioners alleged that these equity infusions are capital grants which constitute subsidies, in that they are investments in unprofitable companies without expectations of a reasonable return. They further alleged that prudent investors would not invest in COSIPA and USIMINAS, that government investment is "on terms inconsistent with commercial considerations," and that the government purchase of equity is "the grant of funds * * * to cover operating losses." As set forth in Appendix 2, where such allegations were made we looked to see whether the companies concerned appeared to present sound investment opportunities when an investment was made.

USIMINAS has a history of being profitable. For the one year in the recent past when it was not, 1979, that failure was largely attributable to the cruzeiro devaluation.

For COSIPA, the losses have been frequent in recent years, but the government of Brazil stated that this was largely because of the strain placed on the company's resources by expansion. To support its claim that COSIPA is a commercially sound investment, the Brazilian government cited a 1975 feasibility study prepared by the World Bank regarding COSIPA's Phase III expansion project, which included a financial and commercial analysis of the project. Some of the conclusions of that analysis were as follows: (1) "the project provides a * * * rate of return (after taxes) of 10.7 percent in constant terms;" (2) "the company's financial position is expected to allow reaonable dividends after project completion;" and (3) "by 1982, the first full year of Stage III production, net profits * * * as a percentage of average equity * * * would be about 12 percent." In the context of its analysis, the World Bank report noted the substantial increase in steel consumption in Brazil during the previous two decades, particularly for flat products. In addition, COSIPA has been able to attract loans from numerous foreign private banks from the 1970's to the present.

Because of USIMINAS' record of profits in recent years and the returns reasonably expected by the government of Brazil when COSIPA's expansion project began, we have determined that the purchase of equity in these companies by the government is not "inconsistent with commercial considerations."

B. Long-Term Loans.

We stated in our preliminary determination that we required addditional information on long-term loans to COSIPA and USIMINAS before making a determination on the allegation that such loans confer subsidies. At verification, we examined several foreign currency loans, both guaranteed and unguaranteed by the government, and found that guarantees apparently made no difference in the terms of the loans and 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 BNDE and FINAME, a program of BNDE for the purchase of capital equipment manufactured in Brazil, are fully indexed and are made at fixed real interest rates ranging from 5 to 11 percent, depending on the time and the program under which the loan was granted. FINAME loans are granted through commercial banks rather then directly from BNDE and carry higher real interest rates than BNDE loans. Because long-term financing in cruzeiros is available in Brazil only through government-controlled financial institutions such as BNDE, we do not have a benchmark in Brazil for fixed interest rate long-term loans to compare with the interest rates on these loans. However, since these loans are indexed by ORTN, the interest rates are real interest rates. This allows us to constuct a benchmark based on the real interest *2572 rates of the only private long-term loans commercially available in Brazil--the foreign currency loans mentioned above. 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 BNDE and FINAME loans were made. We then compared that average real interest rate-plus-spread to the rates at which the long-term BNDE and FINAME loans were made. Our comparison showed that all the BNDE and FINAME loans to COSIPA and USIMINAS were made at rates above the benchmark, which indicates that they were not made at preferential rates. We will monitor loans made by BNDE and FINAME to COSIPA and USIMINAS in future section 751 administrative reviews in order to evaluate whether such loans were made at preferential rates.

C. Investment Credit to the Corporate Income Tax.

Brazilian tax law allows any corporation that owes corporate income taxes to elect to apply up to 51 percent of its corporate income taxes owed to the government to specified investment funds. The investment funds generally are for the economic development of certain regions, industries or national interests (e.g., the Amazon, the Northeast, fisheries, tourism and reforestation). The steel industry is not among the targeted sectors. If a corporation elects to direct the taxes it owes to the government into one or more of the specified investment funds, it receives stock for its investment in those funds. Upon receipt of the stock, which must be held at least five years, the investment is included in the equity holdings of the corporation. COSIPA and USIMINAS have taken part in this program, but not during the applicable period. We have determined that election to participate in this program does not constitute a subsidy to carbon steel plate, however, since all corporations which pay corporate income taxes are eligible to participate in the program on equal terms.

D. 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 not 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 has stated 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 LIBOR rates. As such, we have determined that the discounting of foreign exchange accounts receivable under these conditions is not a subsidy.

E. Purchase of Inputs from a Related Company.

Companhia Siderurgica Nacional (CSN) is a member of the SIDERBRAS group and both COSIPA and USIMINAS have purchased slab from CSN. The petitioners alleged that CSN received the same types of subsidies from the government as COSIPA and USIMINAS and that subsidies to CSN are consequently indirect subsidies to COSIPA and USIMINAS.

The government of Brazil stated that COSIPA's and USIMINAS' purchases the slab from CSN have ended and this slab was not used in producing carbon steel plate. We have verified information that this situation was temporary and that the last purchase of CSN slab by COSIPA was in August 1981 and by USIMINAS in June 1981.

F. Transportation Subsidies.

The Brazilian government stated that COSIPA and USIMINAS receive no preferential rates when using railroads and ports. At verification, we found no evidence that any programs exist which give preferential freight or insurance rates to steel exporters.

G. Income Tax Deductions for Employee Training and Meals.

COSIPA and USIMINAS have tax deductible training programs for which they may take special deductions for training costs, and COSIPA also has a program for which it may take special deductions for employee meals. The maximum deduction for training costs is 10 percent of taxes owed, and for meals 5 percent of taxes owed, although the combined deduction may not exeed 10 percent of taxes owed. Neither company received any benefits under these programs during the applicable period.

The government of Brazil stated that under applicable tax law any manufacturer, without sectoral or regional preference, may take above deductions for training and meal expenditures for employees. Consequently, we have determined that the benefits conferred under this program are not countervailable because they are generally available on equal terms.

H. Non-Indexation of Overdue Accounts Payable.

U.S. Steel alleged that public sector companies, such as COSIPA and USIMINAS, have substantial overdue debts with private suppliers, and that these companies are not required to index the value of late payments to private sector companies while such a requirement exists for late payments by the private sector to public sector companies. U.S. Steel argues that such preferential treatment confers a subsidy to state- owned companies. The government of Brazil stated that no standard accounting principle exists for indexing accounts payable nor is there a special provision which provides preferential treatment for late payments by public sector companies. The terms for payment and adjustments for inflation are negotiated with individual suppliers and are specifically indicated in contracts with suppliers. The government of Brazil provided several examples of such contracts entered into by COSIPA, some of which provided for indexing from the date of sale and others which required indexing only if payment was late. Based on this information, we have determined that the provisions for indexing accounts payable in Brazil do not confer a subsidy to state-owned steel companies.

I. FINAME Loans to Producers of Steel-Making Equipment.

U.S. Steel alleged that long-term FINAME loans to producers of steel-making equipment are made at preferential rates and that these subsidized loans provide indirect subsidies to producers of carbon steel plate.

We have determined that long-term FINAME loans to COSIPA and USIMINAS are not made at preferential rates (see discussion on Long-Term Loans). The government of Brazil has stated that FINAME loans to producers of steel-making equipment are made according to the same criteria and at approximately the same rates as to all other sectors. Therefore, we have determined that there is no indirect subsidy to producers of carbon steel plate from FINAME loans granted to producers of steel-making equipment.

III. Programs Determined Not To Be Used

We have determined that the following programs which were listed in the notice of "Initiation of Countervailing Duty Investigation" were not used by manufacturers, producers,

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or exporters in Brazil of carbon steel plate.

A. Income Tax Exemption for Export Earnings.

Exporters of carbon steel plate 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 income tax statements to determine if any benefit was received in fiscal year 1981. Since neither COSIPA nor USIMINAS had a taxable profit in fiscal year 1980, neither company was eligible to receive benefits under this program.

B. 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 has stated that the steel industry in Brazil has been developed primarily to supply the domestic market. Since manufacturers of carbon steel plate export only a small portion of their production, they are not in a position to make the required export commitment. In addition, because COSIPA and USIMINAS have large trade deficits, they are effectively ineligible for this program and did not receive any benefits in 1981.

C. Preferential Financing for the Storage of Merchandise 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. Neither COSIPA nor USIMINAS used this program because both companies' exports are manufactured to order and there is no need to warehouse their merchandise.

D. 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. Since neither COSIPA nor USIMINAS used the accelerated depreciation provisions to reduce its tax liabilities in its fiscal year 1980 income tax statement, no benefit was received in fiscal year 1981.

E. 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 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 COSIPA nor USIMINAS used Resolution 68 to finance exports of carbon steel plate to the United States in 1981.

F. Partial Relief from Payment of Retirement Benefits to Employees.

Two major pension funds exist in Brazil to provide retirement benefits for employees: PIS for private sector employees and PASEP for public sector employees. PIS is funded through employer contributions and PASEP through an earmarked portion (1 percent) of the state value-added (ICM) tax. U.S. Steel alleged that employees of state-owned companies such as COSIPA and USIMINAS are members of PASEP, and that these companies receive a subsidy because they can partially finance their contributions for employees by using a portion of the ICM tax they have collected on sales while private sector companies, whose employees are members of PIS, must fully finance contributions for employees from their own resources.

The government of Brazil stated that employees of COSIPA and USIMINAS are not participants in the PASEP program. This program is mainly for municipal, state and federal employees, and COSIPA and USIMINAS are treated as private enterprises in this regard, and as such are participants in the PIS program. Therefore, we have determined that no subsidy is conferred to manufacturers, producers or exporters of carbon steel plate under this program.

G. Charcoal Used in Steel Production.

U.S. Steel alleged that government incentives for reforestation and the expansion of charcoal production for use as a fuel in the steel industry confer indirect subsidies to the production of carbon steel plate. The government of Brazil stated that neither COSIPA nor USIMINAS use wood charcoal to produce steel. Thus, we have determined that no benefit to carbon steel plate is conferred under this program.

H. Ferrovia do Aco, the "Steel Railway".

U.S. Steel alleged that construction of a steel railway by the government, solely to benefit steel companies, constitutes a subsidy. They claim that the railway was designed to reduce the reliance on trucking and thus reduce transportation costs.

The government of Brazil stated that no section of this railway is in operation. Since no companies, steel or otherwise, have yet used this railway, we have determined that no benefit was received by manufacturers, producers or exporters of carbon steel plate.

IV. Program Determined To Be No Longer in Existence

We have determined that the following program which was listed in the notice of "Initiation of Countervailing Duty Investigation" 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.

Petitioners' Comments

In addition to comments made at the hearing, in pre- and post-hearing briefs, and with respect to the suspension agreement, U.S. Steel submitted further comments (after their request for a continuation of the investigation) on October 29 and November 19, 1982. Counsel for Bethlehem Steel submitted additional comments on November 23, 1982. All comments applicable to this final determination are addressed below.

Comment 1

The petitioners state that the absence of private investment in COSIPA and USIMINAS in recent years is a stong indication that government investment is inconsistent with commercial considerations and therefore

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countervailable. In addition, petitioners argue that in measuring the reasonableness of an investment, the standard should be whether the government could have obtained a higher return at comparable risk, while the Five claim that the Department's preliminary determination of this issue was inconsistent with its own standards as set forth in Appendix B to the notice of "Preliminary Affirmative Countervailing Duty Determinations: Certain Steel Products from Belgium" (47 FR 26300).

DOC Position

The Department is required to determine whether government equity purchases are inconsistent with commercial considerations at the time made. The presence or absence of private investment is not dispositive of the issue. The Department remains consistent with the standards set forth in Appendix 2.

These standards on equity did not change substantially from the position the Department set forth in Appendix B. If a company has a record of profitability, as does USIMINAS, we do not normally consider government purchase of equity based on that record to be inconsistent with commercial considerations. In the case of COSIPA, there is a recent history of losses. Accordingly, we examined whether government purchase of equity was inconsistent with commercial considerations.

As noted in our preliminary determinations, there is evidence on the record (a 1975 World Bank appraisal of COSIPA's Phase III expansion) that COSIPA would achieve a respectable level of profitability once the expansion project was completed. On this basis, we preliminarily determined that the government's purchase of equity in COSIPA was not inconsistent with commercial considerations. Because we did not consider government purchase of equity in COSIPA and USIMINAS a subsidy, we did not make a comparison with the average rate of return on equity investment in Brazil. We use this standard as a measure of the amount of a subsidy after we have determined that the government purchased equity is on terms inconsistent with commercial considerations, not as the criterion for determining whether government equity purchases constitute a subsidy.

Petitioners have noted press reports of 1976 and 1977 World Bank analyses that were critical of COSIPA's expansion project, and they claim that the 1975 World Bank report relied on by the Department is no longer valid. These analyses are discussed in some detail in an April 1981 draft World Bank project audit report of COSIPA's Phase II expansion project, which also includes a financial analysis of the Phase III expansion project. Apparently these reports strongly criticized COSIPA's management in handling the Phase II expansion project, which led to financial difficulties for the company. The 1981 draft World Bank report states that these management problems were expeditiously corrected and that COSIPA's financial picture has improved. While the effects of these financial problems are still being felt, and COSIPA in 1981 was a riskier investment than in 1975, the World Bank in its appraisal of Phase III indicates that the Phase III expansion was a viable commercial venture from 1975 to 1981 and it continues to expect that the ongoing Phase III expansion project will bring a respectiable return once fully operational. We will monitor the financial performance of COSIPA in future section 751 administrative reviews in order to evaluate whether equity purchases made in the future are inconsistent with commercial considerations.

Comment 2

U.S. Steel claims that private Brazilian investors are, as a rule, willing to provide loans to a company but are almost never willing to provide equity capital. Consequently, the Department must follow its practice of examining the provision of capital and loans in the context of the capital market of the country of the recipients and make a determination that, in Brazil, the provision of equity capital to COSIPA and USIMINAS is "on terms inconsistent with commercial considerations."

DOC Position

Both the provision of loans and the purchase of equity involve risk-taking for which there should be a commensurate rate of return. Generally, purchasing equity is riskier than making a loan and the provider of the capital expects a higher rate of return on an equity purchase. If it is expected that an equity purchase will provide an adequate return, then the purchase of that equity is not "on terms inconsistent with commercial considerations."

A company's choice of how to raise capital or the factors influencing a provider of that capital either to purchase equity or make a loan are not at issue. There may well be a host of institutional or legal factors which influence where and in what form capital is provided to various companies in a particular country. The relevant question is whether, given the relative riskiness of purchasing equity, the expected return was sufficient to warrant the risk.

In Brazil, the capital market consists of three main actors: the government, private Brazilian investors and foreign investors. The relative strength of these actors and the Brazilian government's definition of its national interests have influenced where capital is invested and by whom. The Department cannot rule on these circumstances; it can only examine whether in a particular case there have been benefits provided that constitute subsidies. With respect to the government purchase of equity in COSIPA and USIMINAS, we have determined that no subsidy was conferred.

Comment 3

U.S. Steel alleges that the government of Brazil has been providing loss coverage through its equity purchases in COSIPA, since the company has experienced frequent losses in recent years while receiving equity from the government. U.S. Steel argues that, under the Act, funds provided for loss coverage constitute a countervailable subsidy regardless of whether the terms of the equity purchases were consistent with commercial considerations.

DOC Position

Since funds for loss coverage are noted separately under the Act, it is necessary to examine this potential subsidy on its own rather than simply considering the equity purchases. This does not mean, however, that equity purchases in a company experiencing losses necessarily constitute funds to cover those losses rather than a sound commercial investment. In this regard, the losses experienced by COSIPA were moderate and it was reasonable to assume at the time of the government purchases of equity that the company could provide a fair return on the investment. Further, COSIPA was making investments at the time that far exceeded the amount of the equity purchases, while the amount of the losses was much less than the amount of the government equity purchases. Strong evidence to the contrary would be needed to alter a conclusion that the equity purchases represented an investment and did not involve the coverage of the losses incurred.

Comment 4

U.S. Steel and the Five state that artificially low rates of depreciation prior to 1981 understate COSIPA's losses, creating a distortion which COSIPA itself belatedly recognized in

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its 1981 financial statements. Further, the petitioners suggest that such depreciation methods have overstated the profits of USIMINAS.

DOC Position

In its 1975 financial statements, COSIPA notes that it adopted the system of depreciation, criticized by the Five, based on "criteria approved by an independent consulting engineering company." The Department will not second- guess the validity of this depreciation method, which is legally permissible in Brazil. In its 1981 financial statement, COSIPA noted a change in its depreciation method based on a standardization of accounting practices within the SIDERBRAS group. Without commenting on the accuracy of the prior practice, it noted that the new system sought "to conform the estimated economic useful lives with the international parameters adopted in similar companies." As a result of this change, COSIPA experienced a considerable depreciation cost in 1981 with a significant negative effect on its profitability. USIMINAS notes in its 1981 financial statements that the change in depreciation methods established by SIDERBRAS in 1981 represented a shift from an 8-year to a 15-year estimate of the useful life of mill assets. Thus, the shorter depreciation schedule used by USIMINAS prior to 1981 led to higher depreciation costs and lower profits in those years.

Comment 5

U.S. Steel contends that the government's true rate of return on its equity purchases can be measured only if all other government subsidies to COSIPA and USIMINAS are subtracted out. Further, U.S. Steel states that, when relying on the 1975 World Bank report concerning COSIPA, the Department must consider the extent to which World Bank predictions of COSIPA's future profitability depended on the existence of such government subsidies.

DOC Position

To subtract out all government assistance from a company's income statement before determing whether government purchases of equity constitute a subsidy would be to judge the government's investment behavior by a different standard than that used for private investors. The purchase of equity by the government of Brazil is not a subsidy per se. In order to determine whether government equity purchases are on terms consistent with commercial considerations, it is necessary to look at the reasonableness of an investment from the viewpoint of the private investor. One assumes that a private investor, when assessing the prospects of a reasonable return on an investment, would consider any government subsidies an important factor in his investment decision. Those government subsidies may be separately countervailable, but the investment made with those subsidies taken into account may itself be reasonable.

The World Bank, in its 1975 report on COSIPA's Phase III expansion project, did not address the question of government subsidies in its evaluation of the financial merits of the project. Primarily, the World Bank discussed the growing market for steel in Brazil, COSIPA's capabilities for handling a project that was designed to help meet that demand, and the anticipated rate of return which justified the World Bank's investment in the project.

Comment 6

U.S. Steel and the Five assert that in calculating the net subsidy under Resolution 674 financing, the Department used an incorrect benchmark. They state that the rate for discounting accounts receivable is not a proper benchmark because that market is "illiquid" and the Department must factor in the resulting high 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; that the Department should follow the standards of Paragraph (k) of Annex A of the Subsidies Code when determining such a benchmark, or use as a 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 annual 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 COSIPA and USIMINAS, the market is not "illiquid". During the period of investigation 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 the receivable minus the discount rate, the tax on financial transactions (IOF) and a small commission. Third, Paragraph (k) does not apply in this analysis. It is concerned with official export credits for medium- and long-term loans. Resolution 674 financing is not comparable to such export financing. Lastly, in 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 7

Counsel for Bethlehem Steel contends that the investment subsidy from credit to the corporate income tax program is countervailable, even though generally available.

DOC Position

We have determined that this program is not countervailable because it is generally available on equal terms to all industries in Brazil. For our position on generally available programs see Appendix 4.

Comment 8

U.S. Steel and counsel for Bethlehem Steel argue that, without the availability of long-term cruzeiro loans from BNDE and FINAME, firms would have to borrow short-term. In particular, they claim that a short-term line of credit can be transformed into a longer-term arrangement because short-term financing is often rolled over, effectively turning it into long-term, variable-rate financing. Therefore, in the absence of a benchmark for long- term cruzeiro loans, the Department should use as a benchmark the interest rate on short-term cruzeiro loans, which serve as a measure of long-term interest rates.

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DOC Position

We do not consider short-term interest rates and long-term interest rates comparable because they reflect different types of borrower needs and different degrees of risk on the part of the lender.

A short-term line of credit, even if constantly renewed over a long period of time, is still short-term financing. It provides working capital on an ongoing basis, and the borrower's need, the lender's risk and the rate of interest are subject to constant re-evaluation which may lead to readjustments. Such is not the case with a long-term loan. At the outset, need and risk must be determined. Generally, funds from a long-term loan are disbursed early on to finance major expenditures, such as capital equipment with a long useful life, and a borrower cannot meet these needs through short-term credit lines.

Further, short-term interest rates may be very volatile, reflecting ongoing changes in the credit markets and government monetary policy. Long-term interest rates change more gradually and, as one would expect, the rise in interest rates for short-term borrowing in Brazil since early 1981 has also led to a notable, through less dramatic, rise in the real interest rate on long- term loans.

Comment 9

U.S. Steel and counsel for Bethlehem Steel allege that explicit and implicit guarantees from the Brazilian government with regard to loans obtained from non-governmental sources by COSIPA and USIMINAS constitute countervailable benefits.

DOC Position

Government ownership of a firm does not implicitly guarantee the debt of the firm, and thus does not confer per se a subsidy. An explicit loan guarantee by the government, however, bestows a benefit to the extent that the recipient of the guaranteed loan pays less for the debt than it would have absent the guarantee. In the cases of COSIPA and USIMINAS, we found that, while some of the long-term loans to the two companies obtained in foreign currency were explicitly guaranteed by the Brazilian government, others were guaranteed by the companies' own assets. Loans explicitly guaranteed by the Brazilian government carried terms no more favorable than loans guaranteed by company assets. Therefore, we determine that the guarantee of COSIPA's and USIMINAS' loans by the Brazilian government does not provide a countervailable benefit.

Comment 10

U.S. Steel contends that the benefits received by COSIPA and USIMINAS since at least 1975 on imported machinery under the CDI program reduce the cost of capital equipment and therefore are capital subsidies. Thus, the Department should follow its standard practice and allocate such benefits over several years.

DOC Position

The benefits under this program are a reduction of taxes. It is the Department's policy to expense tax-based benefits in a single year rather than carry them forward.

Comment 11

Counsel for Bethlehem Steel has noted that with the decline in imports of steel into Brazil in 1982, it is unlikely that the import content of exports of carbon steel plate, in 1982, has exceeded the 25 percent level that would lead to a reduction in the value of the IPI export credit premium on these exports. Accordingly, counsel urged that we use the nominal rate of the IPI export credit premium, verified by the Department to be received by carbon steel plate manufacturers in 1982, in determining the benefits bestowed under this program.

DOC Position

General statistics of imports of steel into Brazil are not a relevant indicator of the import content of carbon steel plate exports. The average import content of total exports does not determine the amount of the IPI export credit premium received on exports of a product. The deduction for imported slab in the calculation of the amount of the IPI export credit premium received is done on a shipment-by-shipment basis. The amount of the benefit received under this program is the sum of the IPI credits earned on all shipments divided by the total value of those shipments.

Further, we cannot take into account conjecture about what may have occurred with respect to the import content of a company's carbon steel plate exports in 1982. Whatever the situation, it will be addressed during a section 751 administrative review.

Respondent's Comments

Comment 1

The respondent claims that IPI rebates for capital investment under Decree Law 1547 are not countervailable for the following three reasons. First, as a result of a revamping of legislation concerning the IPI tax that began in 1979, the IPI tax is currently applicable to only fourteen product sectors and exemption from the tax is the rule while the obligation to pay is the exception. Thus, the elimination of the tax is the generally available situation and the reduction of the tax on any of the remaining sectors subject to it does not constitute a subsidy. Second, since the IPI tax is paid by the Brazilian steel producers, the funds for the rebates do not originate from the government of Brazil. Thus, the rebates do not constitute subsidies. Third, the rebates are generated solely by domestic, not export, sales and it is not within the purview of the U.S. countervailing duty law to countervail benefits received on production not destined for the United States.

DOC Position

The IPI tax is an indirect tax and as such is passed forward to the consumer. A steel company collects this tax on sales as the agent for the government; the company does not, itself, pay the tax. Decree Law 1547 is a mechanism by which a steel company is permitted to collect funds due the government and then receive a 95 percent rebate of the taxes due. The program does not involve the rebate of payments made from the company's own funds.

Not all steel companies receive this rebate. Although the same level of IPI tax is applicable to all steel products, only companies producing certain priority products, with approved expansion projects, can receive the rebate. Fabricators of steel products, such as pipe and tube manufacturers who purchase coil, are not eligible for the rebate. Even COSIPA and USIMINAS have not been eligible for the rebates since December 1980, when Decree Law 1843 directed that rebates of the IPI tax collected on sales by state-owned steel companies go to SIDERBRAS. Thus, the rebates are not generally available within the steel sector and represent a selective benefit to priority producers.

These rebates, when received, are applied to capital investment projects. The IPI tax is collected on domestic sales and the rebate is simply a mechanism to raise capital for the companies that receive them. That the rebates are generated only by domestic sales does not alter the fact that they benefit all production, including exports.

Comment 2

The respondent claims that the IPI rebates, which are capital contributions that eventually become equity shares, are one method of fulfilling the government's capital commitments to the Phase II and Phase III expansion

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programs of COSIPA and USIMINAS. They further claim that these funds were invested for the same purposes and under the same assumptions concerning the viability of COSIPA and USIMINAS as the government purchases of equity which the Department has determined do not constitute subsidies.

DOC Position

The Department has determned that government purchases of equity in COSIPA and USIMINAS were not made "on terms inconsistent with commercial considerations."

We made this determination based upon an analysis of the government's investment in each of these companies in which it, through SIDERBRAS, acted as an individual investor expecting a reasonable return on its investment. Although funds derived from the IPI rebates for capital investment also become equity, and in the case of COSIPA and USIMINAS most of the equity shares go to the government, we have determined that government equity shares derived from this program are grants and are countervailable.

Decree Law 1547 established a mechanism for generating capital funds to expand the steel sector and meet certain priority needs. Under this program, the government gives grants to both privately-owned and state-owned steel companies. When issued, equity shares derived from these funds are distributed proportionately to current shareholders in accordance with their ownership of the company's outstanding shares. Accordingly, the government receives no equity in privately-owned companies that receive these grants.

Further, these grants are earned through domestic sales performance, not disbursed based upon separate investment decisions as to the amount, the need and the appropriate timing of equity purchases. That state-owned steel companies received grants and the government received equity in this manner does not make it any less a subsidy. The subsidy nature of a program to aid the steel sector does not change depending upon who owns the steel companies. An indication that the government of Brazil has sought to give greater direction to the use of these funds going to state-owned companies can be seen in Decree Law 1843. With this law, COSIPA, USIMINAS and other state-owned steel companies no longer receive these rebates; instead, the rebates earned by their sales go to fund the investments of SIDEBRAS, the government steel holding company. SIDEBRAS may use these funds where it chooses, investing in a particular company more or less than the amount it has generated, or none at all. Our determination that the government purchase of equity was not countervailable concerned the purchases of equity by SIDEBRAS; it was not a general determination concerning government equity acquired by whatever means.

Comment 3

The respondent claims that, absent a showing of immediate competitive advantage by the Department, we must allocate in equal installments the face value of the grants received from the IPI rebates for capital investment over the full useful life of the assets purchased, as required by the legislative history and the Court of International Trade in Michelin Tire Corporation v. United States, 2 C.I.T. 143 (1981). Respondent further alleges that the use of the present value methodology for the calculation of grant benefits violates Article 4(2) of the Subsidies Code in that the U.S. government will collect countervailing duties in excess of the face value of a grant.

DOC Position

We have allocated these grants over the full useful life of the assets purchased in accordance with Michelin Tire Corporation v. United States, Slip Op. 82-115 (December 15, 1982). In this case, the Court did not rule how the Department should allocate the benefit from a grant over the useful life of the asset. The Court did, however, suggest that a method which recognizes the time value of money be "an acceptable and recognizable means of analyzing financial benefit" from a grant. The present value concept is such a recognized principle of financial analysis and its use is fully consistent with the Subsidies Code and U.S. countervailing duty law. So long as the present value (in the year of grant receipt) of the amounts allocated over time does not exceed the face value of the grant, the amount countervailed will not exceed the total net subsidy.

Comment 4

The respondent claims that the government of Brazil has the right to exempt loans received under Resolution 674 from the IOF tax because it is the exemption of an indirect tax on the financing of products for export.

Therefore, for the Department to determine the interest-rate subsidy by considering the IOF tax an integral part of the commercially-available rate (considering exemption of the IOF tax a subsidy) is contrary to the GATT and U.S. law.

DOC Position

We addressed this issue in our preliminary determination. Our analysis has not changed since that time.

Comment 5

The respondent argues that the Department, based upon information for 1982 it has verified, must make adjustments in the amount of net subsidy determined to exist under Resolution 674 financing and the IPI export credit premium. Otherwise, the Department overstates the amount of subsidy conferred on 1982 exports.

DOC Position

When conducting an investigation to determine the existence and extent of subsidization, we choose an appropriate period of investigation. In this case, the period for which we are measuring subsidization is calendar year 1981. Normally, the period of investigation provides the most current information available. We recognize that for any one company the level of benefit from a particular subsidy program (such as Resolution 674 financing) may change after the period of investigation and that in some cases this may be known prior to the final determination. But, we cannot make adjustments for that program when complete information is unavailable for determining the amount of subsidization in its entirety from any of the several programs that a company may be eligible for and use. For this reason, we determine the estimated net subsidy based on the period of investigation. Changes in the amount of benefit a company receives from a program subsequent to the period of investigation, whether that increases or decreases the level of subsidization, can be adjusted for during a section 751 administrative review.

However, when there is a fundamental change in the benefit from a program after the period of investigation (or after the review period in a section 751 administrative review), which is applicable to all recipients, we take cognizance of that change if we have been able to confirm that the change has occurred and if there is no reason to believe that there has been a shift of these benefits to other programs. We then announce the adjustment in the rate for the deposit of estimated countervailing duties in the next notice published in the normal course of the proceeding. In the case of the IPI export credit premium, there have been three verified reductions in the maximum available benefit during 1982. Currently, the rate is 11 percent as opposed to the

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15 percent rate that prevailed during most of 1981. Using 1981 information on the amount of benefit received, we have made a proportional reduction in the amount of estimated net subsidy from this program.

Comment 6

The respondent argues that the Department's calculation of the benefit from the IPI export credit premium on the basis of the IPI credits earned on the date of export of each shipment rather than on the actual date of receipt by the company of the IPI credits for each shipment reflects an improper interpretation of section 771(6)(B) of the Act. Further, respondent claims that this procedure will result in the collection of countervailing duties in excess of the benefit actually received, which is contrary to the Subsidies Code and U.S. countervailing duty law.

Respondent states that because of the ongoing devaluation of the cruzeiro, the Department, in order to determine the dollar value of the benefit to the company on each export shipment, should convert the cruzeiro amount of the IPI credits into dollars at the exchange rate on the date of their receipt rather than at the exchange rate on the date of shipment. This procedure allegedly would not involve use of an impermissible offset and would allow a precise measure of the effects of devaluation on the veal value of the IPI credits received, since it would compare dollar-value received to dollar-denominated exports and take into account economic realities in Brazil.

DOC Position

The language in the Act concerning permisible offsets in unabiguous. Under section 771(6)(B), an offset is allowed for "any loss in the value of the subsidy resulting from its deferred receipt, if the deferral is mandated by Government order." In the case of the IPI export credit premium, no such government mandate exists. Delays in a company's receipt of the IPI credits are purely administrative, frequently the result of a company's delayed application for it. When a company applies for the IPI credits it must determine the amount for which it is eligible by using the exchange rate in effect on the date of shipment, even if application is made months later and the exchange rate has changed substantially.

Further, a company quotes its export prices in dollars but receives cruzeiros. The amount of cruzerios received is determined at the exchange rate in effect when the exchange contract for the shipment is negotiated. This occurs on or before the date of shipment. Any change in the exchange rate after the date of shipment has no effect on the cruzeiro amount to be received by the company for either the IPI credits or the gross value of the shipment, their exchange value in terms of dollars having already been predetermined.

Negative Determination of Critical Circumstances

Counsel for the Five alleged that imports of carbon steel plate from Brazil present "critical circumstances." Under section 355.29 and 355.33(b) of the Department's regulations, critical circumstances exist when the alleged subsidies include an export subsidy inconsistent with the Agreement 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.

In our preliminary determination we found, based upon the most recent information then available, that critical circumstances did not exist for carbon steel plate from Brazil. Information is now available on all entries made prior to the suspension of liquidation ordered on June 17, 1982 by our preliminary affirmative countervailing duty determination. In addition to the data used in our preliminary determination, we have examined import statistics from May through July 1982, because many entries made prior to June 17, 1982, may not have been included in U.S. import statistics before July. Based on these data, we have determined that critical circumstances do not exist for carbon steel plate from Brazil.

Verification

In accordance with section 776(a) of the Act, we verified the data used in making our final determination. During this verification, we followed normal procedures, including inspection of documents, discussions with company and government officials and inspection of manufacturers' records.

Administrative Procedures

The Department has offered interested parties an opportunity to present oral views in accordance with its regulations (19 CFR 355.35). A public hearing was held on July 16, 1982. In accordance with the Department's regulations (19 CFR 355.34(a)), written views have been received and considered.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non- privileged and non-confidential 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. The ITC will determine within 45 days of the publication of this notice whether imports of carbon steel plate from Brazil are materially injuring, or threatening to materially injure, a U.S. industry. If the ITC determines that material injury, or threat of material injury, does not exist, the suspension agreement will be voided and this proceeding will be terminated. If, however, the ITC determines that such injury does exist the suspension agreement shall remain in effect in accordance with its terms.

In the event the suspension agreement is violated, the Department, in accordance with section 703(i) of the Act, will direct the U.S. Customs Service to suspend liquidation of all entries, or withdrawals from warehouse, for consumption of this merchandise and will issue a final countervailing duty order as required by section 704(i)(1)(C) of the Act. This determination is published in accordance with section 705(d) of the Act.

Lawrence J. Brady,

Assistant Secretary for Trade Administration.

January 11, 1983.