NOTICES

DEPARTMENT OF COMMERCE

[C-351-037]

Certain Castor Oil Products From Brazil; Final Results of Administrative Review of Countervailing Duty Order

Thursday, September 8, 1983

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AGENCY: International Trade Administration.

ACTION: Notice of final results of Administrative review of countervailing duty order.

SUMMARY: On May 16, 1983, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on certian castor oil products from Brazil. The review covers the period January 1, 1980 through December 31, 1980. The notice stated that the Department had preliminarily determined the net subsidy for 1980 to be 2.22 percent ad valorem.

We gave interested parties an opportunity 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.

EFFECTIVE DATE: September 8, 1983.

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

SUPPLEMENTARY INFORMATION:

Background

On May 16, 1983, the Department of Commerce ("the Department") published in the Federal Register (48 FR 21982) the preliminary results of its administrative review of the countervailing duty order on certian castor oil products from Brazil (42 FR 8634, March 16, 1976). The Department has now completed that Administrative review, in accordance with section 751(a)(1) of the Tariff Act of 1930 ("the Tariff Act")

Scope of the Review

Imports covered by the review are shipments of Brazilian hydrogenated castor oil products and 12-hydroxystearic acid. Such merchandise is currently classifiable under items 178.2000, 490.2650 and 490.2670 of the Tariff Schedules of the United States Annotated.

The review covers the period January 1, 1980 through December 31, 1980, and three programs: preferential financing for exports, income tax exemptions for export earnings, and an export credit premium for the Industrial Products Tax ("IPI").

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received timely comments from the Government of Brazil.

Comment 1: The Government of Brazil argues that the Department has overstated the benefit from the income tax exemption for export earnings. Brazilian federal tax laws permit corporations to invest 26 percent of 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 diminshed 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" of frozen concentrated orange juice from Brazil (48 FR 8839, March 2, 1983).

Comment 2: 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 operations of the whole firm and not just to exports. Further, an exemption from 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

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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.

Comment 3: 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, both of which permit non-excessive rebate of indirect taxes.

Department's Position: We have addressed this issue in other countervailing duty cases on Brazilian products. See, e.g., notice of "Final Affirmative Countervailing Duty Determination" for prestressed concrete steel wire strand from Brazil (48 FR 4516, February 1, 1983). In those determinations we stated that although the IOF is an indirect tax paid on financial transactions, including the discounting of accounts receivable, we do not consider this fact relevent. Since we consider the discounting of cruzeiro-denominated accounts 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 4: The Government of Brazil argues that benefits from the preferential financing are realized by a borrower at the time loans are repaid. Consequently, the Department should calculate the net subsidy based upon the date of repayment of such loans, similar to the Department's treatment of long-term 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 loans rather than for assignment to the period in which the loan was received. We agreed with their argument and prorated the benefits throughout the life of the loan. We believe this to be a reasonable method for allocating these benefits and do not believe that the Government of Brazil has demonstrated that their current approach is more reasonable than their past approach.

Final Results of the Review

After consideration of the timely comments, we determine that aggregate net subsidy to be 2.22 percent ad valorem for the period January 1, 1980 through December 31, 1980. The Department will instruct the Customs Service to assess countervailing duties of 2.22 percent of the f.o.b. invoice price on any shipments of the merchandise exported on or after January 1, 1980 and on or before December 31, 1980.

On February 21, 1983, the Government of Brazil reduced the maximum eligibility for preferential financing under Resolution 674 from 20 percent of the previous year's exports to 15 percent, which is lower than the average usage rate of 16.38 percent. Effective January 3, 1983, the Banco do Brasil increased its discount rate to 72 percent. In addition, the Government of Brazil increased the effective preferential interest rate for export financing from 44 percent to 69 percent and lowered the IOF from 4.50 percent to 1.50 percent on June 10, 1983 (Resolutions 832 and 830, respectively). Adding the 1.50 percent IOF to the 72 percent rate for discounting accounts receivable, the adjusted benchmark commercial interest rate is 73.50 percent. As a result, the differential between the commercial benchmark rate and the preferential interest rate is 4.50 percent. Using the adjusted interest differential and assuming, in the absence of knowledge of current usage levels, that Brazilian producers of certain castor oil products borrow the maximum amount to which they are legally entitled since February 21, 1983, we find the potential benefit under the preferential financing for export program to be 0.69 percent rather than 5.48 percent as presented in our preliminary results.

Therefore, as provided by section 751(a)(1) of the Tariff Act, the Department will instruct the Customs Service to collect a cash deposit of estimated countervailing duties of 0.82 percent of the entered value on any 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 now intends to conduct the next administrative review.

The Department encourages interested parties to review the public record and submit applications for protective orders as early as possible after the Department's receipt of the requested information.

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: August 31, 1983.

Alan F. Holmer,

Deputy Assistant Secretary for Import Administration.

[FR Doc. 83-24511 Filed 9-7-83; 8:45 am]

BILLING CODE 3510-25-M