NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

Pig Iron From Brazil; Preliminary Results of Administrative Review of Countervailing Duty Order

Tuesday, February 15, 1983

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AGENCY: International Trade Administration, Commerce.

ACTION: Notice of preliminary results of administrative review of countervailing duty order.

SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty order on pig iron from Brazil. The review covers the period November 26, 1979 through December 31, 1980. As a result of the review, the Department has preliminarily determined the amount of the net subsidy to be 20.72 percent of the f.o.b. invoice price of the merchandise for the period November 26, 1979 through December 6, 1979, and 5.52 percent for the period December 7, 1979 through December 31, 1979, and 4.39 percent for the period January 1, 1980 through December 31, 1980. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: February 15, 1983.

FOR FURTHER INFORMATION CONTACT: Edward F. Haley or Larry T. Hampel, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On November 26, 1979, the Department of the Treasury ("Treasury") published in the Federal Register (44 FR 67554) a final countervailing duty determination concerning pig iron from Brazil. Effective that date, Treasury suspended liquidation of entries of the merchandise.

On April 4, 1980, the Department of Commerce ("the Department") published in the Federal Register (45 FR 23045) a countervailing duty order on the merchandise. The Department continued the suspension of liquidation and required a cash deposit of estimated countervailing duties on subsequent entries.

The Department published in the Federal Register of March 16, 1981 (46 FR 16921) a notice of intent to conduct administrative reviews of all outstanding countervailing duty orders, including Brazilian pig iron, not listed in any previous intent to review notice. As required by section 751 of the Tariff Act of 1930 ("the Tariff Act"), the Department has now conducted an administrative review of the countervailing duty order on pig iron from Brazil.

Scope of the Review

The merchandise covered by the review is merchant pig iron of basic, foundry, malleable, and low phosphorous grades, imported directly or indirectly from Brazil. Such imports are currently classifiable under item 606.1300 of the Tariff Schedules of the United States Annotated.

The review covers the period November 26, 1979 through December 31, 1980 and four programs found countervailable in the original investigation: preferential financing for exports, income tax exemptions for export earnings, the IPI export credit premium, and export financing under Resolution 331.

The review also covers seven additional programs that Treasury found were not usedduring the original investigatory period.
The Brazilian government provided insufficient information for the period November 26, 1979 through December 31, 1979. The Department therefore relied on information presented for the period January 1, 1980 through December 31, 1980 as the best information available. There were 22 known Brazilian exporters of this merchandise to the United States in 1980. The review is based on information covering 15 of those exporters, whose shipments represented 80 percent of Brazilian exports to the United States during 1980.

Analysis of Programs

(1) Preferential Financing for Exports. Under this program companies are declared eligible by the Department of Foreign Commerce of the Banco Central do Brasil ("CACEX") to receive working capital loans. These loans have a duration of up to one year. Each firm producing pig iron can obtain preferential financing for up to 20 percent of the value of its previous year's exports.

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We calculated the subsidy under this program for 1980 by multiplying the value of loans outstanding under the program during 1980 by the differential between the commercial interest rate and the preferential interest rate for each loan. For loans granted prior to the period, only that portion extending past January 1, 1980 was included in our Calculation. We similarly prorated loans extending past December 31, 1980. For the period November 26, 1979 through December 31, 1979, we calculated the subsidy by multiplying the loan utilization rate for 1980 by the weighted-average loan rate differentials in effect during the period November 27, 1978 through December 31, 1979.

The commercial rate for short-term working capital is the rate established by the Banco do Brasil for discounting sales of accounts receivable. We chose this as the benchmark rate because information provided by the Government of Brazil indicates that working capital is normally raised within the Brazilian financial system through the sale of accounts receivable. The commercial rate includes the tax on financial transactions, from which loans under the preferential financing program are exempt, and varied from 25.08 to 37.98 percent during the period November 27, 1978 through December 31, 1980.

During 1980, firms exporting pig iron had loans outstanding under Resolutions 515 (effective February 8, 1979), 583 (effective December 7, 1979), 602 (effective March 5, 1980), and 641 (effective October 22, 1980) of the Banco Central do Brasil. The effective annual rate for loans taken out under these resolutions ranged from 8.70 percent to 31.75 percent, and the differential between the commercial and preferential rates ranged from 3.50 percent to 17.50 percent. We calculated the benefit conferred by the program for the period November 26, 1979 through December 31, 1979 to be 3.49 percent ad valorem and 2.36 percent ad valorem for 1980.

With the publication of successor Resolution 674, effective January 22, 1981, there was an increase in potential benefits under the program. The effective rate of interest for loans under this resolution is 44 percent. The comparable rate for discounting sales of accounts receivable is 59.60 percent plus the 6.90 percent tax on financial transactions. The differential is 22.50 percent.

To estimate the potential benefit and cash deposit of estimated countervailing duties for this program, we summed the prorated value of loans outstanding during 1980, and found an actual utilization rate of 21.84 percent. We then multiplied the differential between the new benchmark commercial and preferential interest rates by the loan utilization rate to find a potential benefit under this program of 4.91 percent ad valorem.

(2) Income Tax Exemptions for Export Earnings. Exporters of pig iron are eligible under this program for exemption from income tax of the percentage of profit attributable to export revenue. The Brazilian government calculates the tax-exempt fraction of profit as the ratio of export revenue to total revenue. The benefit equals the product of the amount of tax-exempt profit and the prevailing 35 percent corporate income tax rate. We preliminarily determine the benefit from this program to be 2.03 percent ad valorem for the period.

(3) IPI Export Credit Premium. The Brazilian government eliminated the IPI export credit premium on December 7, 1979, but reinstated it on April 1, 1981. Therefore, this program provided no benefit during the period December 7, 1979 through December 31, 1980. For the period November 26, 1979 through December 6, 1979, however, we preliminarily determine the benefit to be 15.2 percent ad valorem, the rate established for this program in the final countervailing duty determination. Currently, the Government of Brazil collects a tax on exports of pig iron to the U.S. which fully offsets the benefit received under this program. Therefore, for purposes of the cash deposit of estimated countervailing duties, the potential subsidy under this program is zero percent.

(4) Export Financing Under Resolution 331. Resolution 331 is a set of rules and regulations established by the Brazilian government enabling banks, for export transactions, to discount accounts receivable denominated in foreign currency. Beyond establishing these enabling rules, the government has no further involvement. The rules do not affect the setting of discount rates on such loans. Banks that act as intermediaries in export transactions operate under the rules if they choose to do such discounting.

In the final determination Treasury found that this program was a subsidy by comparing the discount rate for foreign currency accounts receivable to the discount rate for cruzeiro-denominated accounts receivable. The facts before us now indicate that such a comparison is inappropriate. Cruzeiro rates are not a proper basis for judging whether discount rates for hard currency receivables confer any benefit. Market rates for the hard currency in question provide the correct basis for comparison.

The Government of Brazil provides no funds to banks to enable them to discount such receivables, nor does it establish the discount rates. The rate of discount reflects commercial considerations of the banks themselves. As such, we preliminarily determine that the discounting of foreign exchange accounts receivable under the rules of Resolution 331 does not constitute a subsidy.

(5) Other Programs. Treasury found seven additional programs were not used during the original investigatory period. We preliminarily find that those programs were not used during the review period. The programs are:
(1) Excessive remission on export of indirect taxes other than IPI.
(2) Preferential export financing provided under Resolution 68.
(3) Preferential financing provided for the storage of goods under Resolution 330.
(4) Special tax credits available to firms located in Brazil's less developed regions.
(5) Accelerated depreciation for plant and equipment manufactured in Brazil.
(6) Exemption from payment of duties and value-added taxes on plant and equipment imported for the production of pig iron for export.
(7) Benefits under the "Entreposto Aduaneiro" system, which permits small producers of manufactured products to receive both a remission of the IPI tax and tax credits immediately upon the sale of a product to licensed trading companies, rather than at the time of export.

Preliminary Results of the Review

As a result of our review, we preliminarily determine that the aggregate net subsidy conferred during the period November 26, 1979 through December 6, 1979, is 20.72 percent ad valorem, 5.52 percent ad valorem for the period December 7, 1979 through December 31, 1979, and 4.39 percent ad valorem for the period January 1, 1980 through December 31, 1980. Accordingly, the Department intends to instruct the Customs Service to assess countervailing duties of 20.72 percent of the f.o.b. invoice price on all shipments of Brazilian pig iron entered, or withdrawn from warehouse, for consumption on or after November 26, 1979, and exported prior to December 7, 1979. For merchandise exported on or after December 7, 1979 through December 31, 1979, and for merchandise exported on or after January 1, 1980 through December 31, 1980, the

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Department will instruct the Customs Service to assess countervailing duties of 5.52 and 4.39 percent, respectively, of the f.o.b. invoice price.

Further, as provided by section 751(a)(1) of the Tariff Act, we intend to instruct the Customs Service to collect a cash deposit of estimated countervailing duties of 6.94 percent of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of the current review. This deposit requirement shall remain in effect until publication of the final results of the next administrative review.

Interested parties may submit written comments on these preliminary results within 30 days of the date of publication of this notice and may request disclsoure and/or a hearing within 10 days of the date of publication. Any hearing, if requested, will be held 45 days after the date of publication or the first workday thereafter. Any request for an administrative protective order must be made no later than 5 days after the date of publication. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in such written comments or at a hearing.

This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and § 355.41 of the Commerce Regulations (19 CFR 355.41).
Dated: February 10, 1983.

Judith H. Bello,
Acting Deputy Assistant Secretary for Import Administration.