48 FR 31280
NOTICES
DEPARTMENT OF COMMERCE
[C-351-062]
Pig Iron From Brazil; Final Results of Administrative Review of Countervailing Duty Order
Thursday, July 7, 1983
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AGENCY: International Trade Administration, Commerce.
ACTION: Notice of final results of administrative review of countervailing duty order.
SUMMARY: On February 15, 1983, the Department of Commerce published in the Federal Register the preliminary results of its administrative review of the countervailing duty order on pig iron from Brazil. The review covered the period November 26, 1979 through December 31, 1980. The notice stated that the Department had preliminarily determined the net subsidy to be 20.72 percent ad valorem for the period November 26, 1979 through December 6, 1979; 5.52 percent ad valorem for the period December 7, 1979 through December 31, 1979; and 4.39 percent ad valorem for 1980.
Interested parties were invited to comment on the preliminary results. After review of all timely comments received, the final assessment rates are the same as those presented in the preliminary results of review. Because of an increase in January 1983 in the benchmark commercial interest rate in Brazil, we have changed the cash deposit of estimated countervailing duties required on future entries from that proposed in the preliminary results.
EFFECTIVE DATE: July 7, 1983.
FOR FURTHER INFORMATION CONTACT:Edward Haley or Larry Hampel, Office of Compliance, Room B-099, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On February 15, 1983, the Department of Commerce ("the Department") published in the Federal Register (48 FR 6754) the preliminary results of its administrative review of the countervailing duty order on pig iron from Brazil (45 FR 23045, April 4, 1980). The Department has now completed that administrative review.
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 previously found countervailable: Preferential financing for exports, income tax exemptions for export earnings, the Industrial Products Tax ("IPI") export credit premium, and export financing under Resolution 331. The review also covers seven additional programs found not to be used during the review period.
Analysis of Comments Received
Interested parties were invited to comment on our preliminary results. The Department received written comments from an importer, Rio Doce America, Inc., from the Government of Brazil, and from one of the petitioners, Jim Walter Resources, Inc.
Comment 1:
Rio Doce argues that in February 1983, the Brazilian government imposed export duties of 10 to 20 percent on 57 products, including pig iron. Because these duties neutralized the subsidies, no cash deposit of estimated countervailing duties is appropriate on future shipments of Brazilian pig iron.
Department's Position:
In February 1983, the Government of Brazil instituted temporary export taxes on certain products to control the effects of the maxi-devaluation of the cruzeiro; however, such tax has no application to the calculation of a net subsidy because it is not "specifically intended to offset the subsidy received," as required by section 771(6)(C) of the Tariff Act of 1930 ("the Tariff Act").
Rio Doce argues that Resolution 331 does not provide for the discounting of letters of credit, in contrast to other forms of accounts receivable, for exports from Brazil, and the Department should consider this point in determining whether export financing under Resolution 331 confers a benefit on exports of Brazilian pig iron.
Department's Position:
In our preliminary results, we determined that transactions conducted under resolution 331 were based only upon commercial determinations by Brazilian banks, and that the Government of Brazil was not involved in financing such transactions. For this reason, the Department determined that discounting of foreign exchange accounts receivable of any form under Resolution 331 does not constitute a
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countervailable subsidy. It is therefore unnecessary to consider whether or not such discounting actually occurs on the particular instruments of payment covered.
Comment 3:s
Rio Doce contends that assessments and cash deposits of estimated contervailing duties on shipments of Brazilian pig iron are discriminatory, noting that the Department does not impose countervailing duties or cash deposits on pig iron from Canada. For this reason, Rio Doce argues that cash deposits of estimated countervailing duties should not be required.
Department's Position:
Once a countervailing duty order is established with regard to a given product from a particular country, the Department must impose countervailing duties equal to the amount of the net subsidy conferred on that product. To our knowledge, there has never been a determination that exports of Canadian pig iron benefit from any subsidy, although the Department currently administers an antidumping finding regarding Canadian pig iron. As for cash deposits of estimated countervailing duties, these are required by section 751(a)(1) of the Tariff Act.
Jim Walter has asked if the offsetting export tax imposed by the Government of Brazil is 15.2 percent, which equals the benefit of the IPI export credit premium as stated in our preliminary results, whether the effective date and rate of the tax are the same as the effective date and rate of the reinstated IPI export credit premium, and, if not, what were the effects during periods where the IPI export credit premium was in effect but the export tax was not.
Department's Position
In its final determination, the Department of the Treasury established the subsidy rate of 15.2 percent ad valorem for the
IPI export credit premium. We are using this rate for the period November 26, 1979 through December 6, 1979, the
portion of this review period during which the program remained in effect.
From December 7, 1979 through March 31, 1981, the Brazilian government did not grant an IPI export credit premium on shipments of pig iron to the United States. Therefore, no benefits were attributable to this program for the remainder of the period covered by this review. The IPI export credit premium was reinstated on April 1, 1981, and the offsetting export tax was imposed in June 1981. We will evaluate any benefit resulting from differences in the export tax and IPI export credit premium rates, and any benefits which may have accrued in the interim between reinstatement of the program and imposition of the export tax, during the course of our next administrative review of this order.
Comment 5:
Jim Walker argues that the seven programs found by the Department not to have been used through 1980 may have been used beginning in 1981.
Department's Position:
We agree. In the next administrative review, the Department will again examine the use of these programs.
The Government of Brazil argues that the Department has overstated the benefit from the income tax exemption for export earnings . Brazilian tax laws permit corporations toinvest 26 percent of the taxes owed in certain specified corporations. The Brazilian government claims that this provision results in an effective reduction of the corporate income tax rate, which directly diminishes the benefit from the income tax exemption.
Department's Position:
We disagree. As a threshold matter, we could only consider an adjustment if those other tax provisions result in a diminished benefit. In this case, the amount a company invests does not diminish the amount of the tax exemption available for export revenue. Therefore, no offset is appropriate. See also, notice of "Suspension of Investigation" on frozen concentrated orange juice from Brazil (48 FR 8839, March 2, 1983).
Comment 7:
The Government of Brazil claims that benefits derived from the income tax exemption for export earnings should be allocated over total revenue rather than export revenue. Under this program, a Brazilian exporter receives an exemption from income tax liabilities at the end of the fiscal year based upon the ratio of export to total revenue, provided that the firm has made an overall profit. The Brazilian government argues that, because the determining factor in a firm's eligibility for this benefit is its overall profitability for a given year, the benefit accrues to the operation of the whole firm and not just to exports. Further, an exemption of an income tax calculated on this basis cannot directly affect the price of the exported product alone; it must have a general effect on all prices, both domestic and export. Thus, by allocating the benefits only to export revenue, the Department overstates the value of the subsidy.
Department's Position:
The Government of Brazil has made this argument before in section 751 administrative reviews of countervailing duty orders on other Brazilian products. See, e.g., notice of "Final Results of Administrative Review" of certain scissors and shears from Brazil (47 FR 10266, March 10, 1982). In those reviews we responded that, when a firm must export to be eligible for benefits under a subsidy program, and when the amount of the benefit received is tied directly or indirectly to the firm's level of exports, that program is an export subsidy. The fact that the firm as a whole must be profitable to benefit from this program does not detract from the program's basic function as an export subsidy. Therefore, the Department will continue to allocate the benefits under this program over export revenue instead of total revenue.
The Government of Brazil claims that, in calculating the interest differential under the program of preferential financing for exports, the exemption of loans received under Resolution 674 from the tax on financial transactions ("the IOF") should not be considered. The IOF is an indirect tax on the financing used for the purchase of physically incorporated inputs. For the Department to determine the interest rate subsidy on preferential loans by considering the IOF tax an integral part of the commercially-available rate (i.e., considering exemption from the tax a subsidy) is contrary to the GATT and U.S. law.
Department's Position:
Although the IOF is an indirect tax paid on financial transactions including the discounting of accounts receivable, we do not consider this fact relevant. Since we consider the discounting of a cruzeiro-denominated account receivable as the commercial alternative to Resolution 674 loans, it is appropriate that we include the exemption of Resolution 674 loans from the IOF as part of the measurement of the full benefit provided under this program.
Comment 9:
The Government of Brazil argues that benefits from the preferential financing are realized by a borrower at the time the loans are repaid. Consequently, the
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Department should calculate the net subsidy based upon the date of repayment of such loans rather than prorate the benefit over the duration of the loans.
Department's Position:
In the notice of final results of review of the countervailing duty order on certain scissors and shears from Brazil, we noted that the Government of Brazil argued for the allocation of benefits from these loans throughout the life of the loan rather than for assignment to the period in which the loan was received. We agreed with the argument and prorated the benefits throughout the life of the loan. We stated that, when each year there is a substantial growth in the value of exports over the previous year, the allocation of the whole loan to the period in which it was received can overstate the value of the benefit. Similarly, the allocation of the whole loan to the period in which it is repaid can understate the value of the benefit. Therefore, we do not agree with the Brazilian government's current argument.
Comment 10:
The Government of Brazil argues that the methodology used to calculate the interest rate differential for preferential financing for the period November 26, 1979 through December 31, 1979 is not appropriate. The Department should use 1980 calculations as best evidence for the five-week 1979 period, as it did for all other programs.
Department's Position:
In the absence of specific data necessary to calculate the outstanding loan principal during the 1979 period, we applied the
1980 loan use rate (as a percentage of exports) to the covered portion of 1979. We did not similarly apply the 1980 interest
rate differential, because we had sufficient data to calculate the actual daily differentials for loans outstanding during the
last five weeks of 1979.
The weighted-average of these daily rates, multiplied by the 1980 loan use rate, constituted the best evidence available of
the actual benefit for the 1979 period.
Final Results of the Review
After consideration of all comments received, the final assessment rates are the same as those published in the preliminary
results of the review. We determine the net subsidy to be 20.72 percent ad valorem for the period November 26, 1979
through December 6, 1979, 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 will
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 on or before December 6, 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
Department will instruct the Customs Service to assess countervailing duties of 5.52 percent and 4.39 percent,
respectively.
Effective January 3, 1983, the Banco do Brasil increased its discount rate to 72 percent. In addition, the tax on financial
transactions was reduced to 4.6 percent effective January 11, 1983. As a result, the benchmark commercial interest rate is
76.6 percent, and the differential between the benchmark rate and the preferential rate is 32.6 percent. After adjusting for
the increased interest differential, we find the potential benefit under the preferential financing for exports program to be 7.12 percent,
rather than the 4.91 percent reported in our preliminary results.
Therefore, as provided for by section 751(a)(1) of the Tariff Act, we will instruct the Customs Service to collect a cash
deposit of estimated countervailing duties of 9.15 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 this notice.
This deposit requirement shall remain in effect until publication of the final results of the next administrative
review. The Department is now beginning the next administrative review of the order.
The Department encourages interested parties to review the public record and submit applications for protective orders, if
desired, as early as possible after the Department's receipt of the information in the next administrative review.
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: June 30, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.