48 FR 9901

NOTICES

DEPARTMENT OF COMMERCE

Preliminary Results of Administrative Review of Countervailing Duty Order; Non-Rubber Footwear From Brazil

Wednesday, March 9, 1983

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AGENCY: International Trade Administration, Commerce.

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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 non-rubber footwear from Brazil. The review covers the period December 7, 1979 through December 31, 1980. As a result of the review, the Department has preliminarily determined the amount of the net subsidy to be 4.77 percent of the f.o.b. invoice price of the merchandise for the period December 7, 1979 through December 31, 1979 and 3.48 percent for 1980. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: March 9, 1983.

FOR FURTHER INFORMATION CONTACT: Lorenza Olivas or Laura Kneale, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On September 12, 1974, the Department of the Treasury ("Treasury") published in the Federal Register (39 FR 32903) a final countervailing duty determination concerning non-rubber footwear from Brazil. The notice stated that the Government of Brazil had provided bounties or grants on the manufacture, production or exportation of such merchandise within the meaning of section 303 of the Tariff Act of 1930 ("the Tariff Act"). On January 1, 1980, the provisions of title I of the Trade Agreements Act of 1979 became effective. On January 2, 1980, the authority for administering the countervailing duty law was transferred from Treasury to the Department of Commerce ("the Department").

On January 4, 1980, T.D. 80-13 was published in the Federal Register (45 FR 1013) announcing the suspension of liquidation of all entries of such footwear exported from Brazil on or after December 7, 1979, and entered, or withdrawn from warehouse, for consumption on or after January 4, 1980. The Department published in the Federal Register of May 13, 1980 (45 FR 31455), a notice of intent to conduct administrative reviews of all outstanding countervailing duty orders. As required by section 751 of the Tariff Act, the Department has now conducted an administrative review of the countervailing duty order on non- rubber footwear from Brazil.

Scope of the Review

The merchandise covered by the review is non-rubber footwear, imported directly or indirectly from Brazil. Such imports are currently classifiable under items 700.0500 through 700.4575, 700.5400 through 700.5673, and 700.7200 through 700.9500 of the Tariff Schedules of the United States Annotated.

The review covers the period December 7, 1979, through December 31, 1980, and four programs found countervailable in the original investigation: preferential financing for exports, income tax exemptions for export earnings, and two export credit premiums, for the Goods Circulation Tax ("ICM") and the Industrial Products Tax ("IPI"). The review also covers eight programs which, although not included in the original investigation, are now alleged by the petitioner to confer subsidies on exports of non-rubber footwear from Brazil.

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 at preferential rates. These loans have a duration of up to one year. Each firm producing non-rubber footwear can obtain preferential financing for up to 40 percent of the value of its previous year's exports.

We calculated the subsidy under this program by multiplying the value of loans outstanding under the program during the period by the differential between the commercial interest rate and the preferential interest rate for each loan. In the absence of specific export data for the last three weeks of 1979, we calculated the outstanding principal for all of 1979 and included the portion of loans granted prior to 1979 that extended past January 1 of that year. For 1980, we prorated loans extending past December 31, 1980.

The commercial rate for short-term working capital is the rate established by the Banco do Brasil for discounting sales of accounts receivable. We choose 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 26.40 to 37.98 percent during the period January 1, 1978, through December 31, 1980.

During the period of review, firms exporting non-rubber footwear had loans outstanding under Resolutions 515 (effective February 8, 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 to 31.75 percent and the differential between the commercial and preferential rates ranged from 6.23 to 17.70 percent. We calculated the benefit conferred by the program to be 4.00 percent ad valorem for the period December 7, 1979 through December 31, 1979, and 2.32 percent ad valorem for the period December 7, 1979 through December 31, 1979, and 2.32 percent ad valorem for the period January 1, 1980 through December 31, 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 72.00 percent plus the 4.60 percent tax on financial transactions. The differential is 32.6 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 the review period, and found an actual use rate of 22.46 percent. We then multiplied the differential between the new benchmark commercial and preferential interest rates by the loan use rate to find a potential benefit under this program of 7.32 percent ad valorem.

(2) Income Tax Exemptions for Export Earnings. Exporters of non-rubber footwear 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 therefore preliminarily determine the benefit from this program to be 0.43 percent ad valorem for the period December 7, 1979 through December 31, 1979, and 9.82 percent ad valorem for the period January 1, 1980 through December 31, 1980.

(3) IPI Export Credit Premium. The Brazilian government eliminated the IPI credit premium on December 7, 1979, but reinstated it on April 1, 1981. As a result, this program provided no benefit during the review period. Currently, the

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Government of Brazil collects a tax on exports of non-rubber footwear to the United States 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) ICM Export Credit Premium. This program, which provided Brazilian companies with an overrebate of a state value-added tax on goods destined for export, was eliminated by Convention 01-79 on January 12, 1979. Therefore, this program provided no benefit during the review period.

(5) Tax Reductions on Equipment Used in Export Production. Decree Law No. 1248 of December 2, 1975, authorizes the Commission for Export Incentives ("CIEX") to provide a reduction of up to 90% of the import duty and IPI tax on equipment and machinery imported by a company that makes minimum export commitments. One footwear exporter received a benefit under this program in 1980. Dividing this benefit by total exports of non-rubber footwear in 1980, we preliminarily determine an ad valorem benefit of 0.03 percent from this program. Because we have no information with regard to this program for 1979, we preliminarily applied the 0.03 percent benefit to that period as the best information available.

(6) Preferential Export Financing under CIC-CREGE 14-11. CIC-CREGE 14-11 is a program operated by the Banco do Brasil which provides preferential financing to exporters, who are then required to maintain a minimum fixed level of foreign exchange contracts with the Banco do Brasil. Exporters of non-rubber footwear participated in this program in 1980.

The Government of Brazil, in its questionnaire response, argues that the Banco do Brasil operates this program as a commercial endeavor in which it can make a profit and ensure access to foreign currency, satisfying its government- mandated foreign exchange obligations. However, the Brazilian government has not yet provided the Department with sufficient evidence to enable us to determine whether this program is operated in a manner consistent with commercial considerations. Therefore, we preliminarily determine this program to confer a subsidy.

To calculate the amount of benefit conferred under the program, we multiplied the prorated value of loans outstanding during 1980 by the differential between the commercial and preferential interest rates on each loan. Using the preferential rates for each loan (provided by the Brazilian government) and again using the rates for discounting accounts receivable as the commercial rates, the differential between the commercial and preferential rates ranged from 6.98 to 43.5 percent. We preliminarily determine the benefit conferred by the program to be 0.30 percent ad valorem for the period January 1, 1980 through December 31, 1980. We once again applied the 1980 rate to the portion of 1979 covered by the review as the best information available.

(7) Incentives for Trading Companies. Under Resolution 643, trading companies can obtain preferential export financing. One exporter of non-rubber footwear used the services of a trading company in 1980. However, the Government of Brazil did not provide us with information on whether the trading company received preferential financing on this transaction. Therefore, we calculated the benefit by multiplying the estimated loan amount by the estimated preferential interest rate differential. We estimated the loan amount by multiplying the amount of exports which the footwear exporter shipped through the trading company by the rate of maximum eligibility for preferential financing on exports of non-rubber footwear (40 percent). For the interest rate differential, we used the weighted-average differential for loans received in 1980 under Resolutions 602 and 641 (7.54 percent). We preliminarily determine the ad valorem benefit under this program to be 0.01 percent in 1980 and applied that figure to 1979.

(8) Fundo de Democratizacao do Capital das Empresas. This program, which provided Brazilian companies with export financing, was funded by the U.S. government through the Alliance for Progress. Under section 701(a) of the Tariff Act, the Department must determine whether "a country under the Agreement" or "a person who is a citizen or national of such a country, or a corporation, association, or other organization organized in such a country" is providing a subsidy with respect to a class or kind of merchandise. The United States, however, is not a "country under the Agreement," as defined by section 701(b). Therefore, the program is not countervailable.

(9) Other Programs. We also examined the following programs and preliminarily find them not to have been used by exporters of non-rubber footwear during the period of review:
a. The Commission for the Granting of Fiscal Benefits for Special Export Programs ("BEFIEX").
b. Preferential Financing for the Storage of Merchandise Destined for Export under Resolution 330.
c. Gold Draft of Exportation.
d. Export Credit Financing ("FINEX").

Preliminary Results of the Review

As a result of our review, we preliminarily determine that the aggregate net subsidy conferred during the period December 7, 1979 through December 31, 1979 is 4.77 percent ad valorem, and 3.48 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 4.77 percent of the f.o.b. invoice price on all shipments of Brazilian non-rubber footwear exported on or after December 7, 1979 and on or before December 31, 1979. The Department will instruct the Customs Service to assess countervailing duties of 3.48 percent for the f.o.b. invoice price on all shipments exported on or after January 1, 1980 and on or before December 31, 1980.

All unliquidated entries of this merchandise which were exported from Brazil before December 7, 1979 shall be liquidated at the applicable rates set forth in Federal Register notices dated May 17, 1977 (44 FR 28791), July 3, 1979 (44 FR 38839), September 28, 1979 (44 FR 55825), and February 26, 1980 (45 FR 12413).

Effective July 26, 1982, the Government of Brazil subjected exports of non- rubber footwear to the United States to an offseting export tax of 8 percent of the f.o.b. invoice price. Because of the increase in potential benefits under the preferential financing program and the reduction under the offsetting export tax, we calculate the potential aggregate net subsidy to be 0.48 percent. The Department considers this rate, since it is less than 0.50 percent, to be de minimis. Therefore, the Department intends to instruct the Customs Service to waive the collection of a cash deposit of estimated countervailing duties, as provided by section 751 (a)(1) of the Tariff Act, 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 waiver 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 disclosure and/or a hearing within 10

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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: March 4, 1983.

Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.