*49320

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 certain castor oil products from Brazil. The review covers the period January 1, 1981 through December 31, 1981.

As a result of the reviews, the Department has preliminarily determined the aggregate net subsidy for the period to be 3.75 percent ad valorem. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: October 25, 1983.

FOR FURTHER INFORMATION CONTACT:Peggy Clarke 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 September 8, 1983, the Department of Commerce ("the Department") published in the Federal Register (48 FR 40534) the final results of its last administrative review of the countervailing duty order on certain castor oil products from Brazil (42 FR 8634, March 16, 1976) and announced its intent to conduct the next review. As required by section 751(a)(1) of the Tariff Act of 1930 ("the Tariff Act"), the Department has now conducted that administrative review.

*49321

Scope of the Review

Imports covered by the review are shipments of Brazilian hydrogenated castor oil 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, 1981 through December 31, 1981 and ten programs: (1) Preferential financing for exports; (2) income tax exemptions for export earnings; (3) the export credit premium for the Industrial Products Tax ("IPI"); (4) preferential export financing under CIC-CREGE 14-11; (5) accelerated depreciation for capital goods manufactured in Brazil; (6) fiscal benefits for special export programs; (7) tax reductions on equipment used in export promotion ("CIEX"); (8) preferential export financing under Resolution 68 ("FINEX"); (9) incentives for trading companies (Resolution 643); and (10) partially-indexed long-term loans.

Analysis of Programs

(1) Preferential Financing for Exports

Under this program, the Department of Foreign Commerce of the Banco Central do Brasil ("CACEX") declares companies eligible to receive working capital loans at preferential rates. These loans have a duration of up to one year. During the period of review, each firm producing castor oil products could obtain preferential financing for up to 20 percent of the value of its previous year's exports.

We calculated the subsidy under this program by multiplying the principal outstanding under the program during 1981 by the differential between the commercial interest rate and the preferential interest rate for each loan. For loans granted prior to the period, we included only that portion extending past January 1, 1981 in our calculation. We similarly prorated loans extending past December 31, 1981.

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 ("the IOF"), from which loans under the preferential program are exempt; the rate varied from 37.98 percent to 66.50 percent during the period April 28, 1980 through December 31, 1981.

During 1981, Brasway S.A. Industria e Commercio ("Brasway") and Sociedade Algodocira do Nordeste do Brasil ("Sanbra"), the two companies covered by this review, had loans outstanding under Resolutions 602 (effective March 5, 1980) and 674 (effective Janaury 22, 1981) of the Banco Central do Brasil. The effective annual rate for loans granted under these resolutions ranged from 26.39 percent to 44 percent and the differential between the commercial and preferential rates therefore ranged from 11.60 percent to 22.50 percent. We calculated the benefit conferred by the program for 1981 to be 1.58 percent ad valorem.

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. 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 (Resolution 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.

To estimate the potential benefit and cash deposit of estimated countervailing duties for this program, we summed the prorated value of loans outstanding during 1981, and found a weighted average use rate of 7.95 percent. This rate is lower than the reduced annual amount manufacturers can borrow. We then multiplied the current 4.50 percent interest rate differential by the weighted average loan use rate to find a potential benefit under this program of 0.36 percent ad valorem.

(2) Income Tax Exemption for Export Earnings

Exporters of certain castor oil products 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 0.02 percent ad valorem for 1981.

(3) IPI Export Credit Premium

Exports of certain castor oil products are eligible for the maximum IPI export credit premium. A percentage of the f.o.b. invoice price of the exported merchandise is reimbursed in cash to exporters through the bank involved in the export transaction. The Brazilian government eliminated the IPI export credit premium on December 7, 1979, but reinstated it on April 1, 1981.

Since June 26, 1981, the Brazilian government has been collecting an export tax on exports of castor oil products to the U.S. (Resolution 699), completely offsetting the benefit received under this program. Therefore, castor oil exporters received a benefit under this program for three months during 1981. We divided the value of IPI credits received during that period by 1981 exports and found an ad valorem benefit of 2.13 percent. Currently, the tax collected on exports of castor oil to the U.S. continues to fully offset 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) Preferential Export Financing Under CIC-GREGE 14-1

CIC-GREGE 14-11 is a program operated by the Banco do Brasil that 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 castor oil products participated in this program in 1981.

To calculate the amount of benefit conferred under the program, we multiplied the prorated principal outstanding during 1981 of each loan by the differential between the commercial and preferential interest rates on each loan. Using the preferential rate for each loan (provided by the Brazilian government) and again using the rate for discounting accounts receivable as the commercial rate, we found that the differential between the commercial and preferential rates ranged from 6.98 to 11.50 percent. We preliminarily determine the benefit conferred by the program to be 0.02 percent ad valorem.

(5) Accelerated Depreciation for Capital Goods Manufactured in Brazil

This program allows companies that purchase Brazilian-made capital equipment as part of an approved expansion project to depreciate this

*49322

equipment at twice the rate normally permitted under Brazilian federal tax laws. The benefit of such a program is reduced taxable income and a subsequent reduction in tax liabilities. Sanbra used this program for the 1980 tax year. We determined the amount by which depreciation under this program exceeded normal depreciation. Sanbra had a loss, not accounted for by the accelerated depreciation, and paid no taxes during 1981. Therefore, we preliminarily determine the benefit conferred by this program to be zero percent.
We believe this program also affects the tax loss carry-forward provided for in Brazilian tax law. By increasing the total loss for the year, it would increase the amount available for carry-forward and thus reduce future tax liability. The benefit from this would be the difference between the loss with normal depreciation and with the accelerated depreciation, realized in future profitable years. We preliminarily determine that this would not affect the benefit for 1981.

(6) Other Programs

We also examined the following programs and preliminarily find that exporters of castor oil products did not use them during 1981.
A. Fiscal Benefits for Special Export Programs ("BEFIEX")
B. Tax Reductions on Equipment Used in Export Production ("CIEX")
C. Preferential Export Financing Under Resolution 68 of the National Council for Foreign Commerce ("FINEX")
D. Incentives for Trading Companies (Resolution 643)
E. Partially-Indexed Long-Term Loans

Preliminary Results of the Review

As a result of the review, we preliminarily determine the aggregate net subsidy to be 3.75 percent ad valorem for the period of review. The Department intends to instruct the Customs Service to assess countervailing duties of 3.75 percent of the f.o.b. invoice price on any shipments exported on or after January 1, 1981 and entered, or withdrawn from warehouse, for consumption on or before August 2, 1981.
On August 3, 1981, the International Trade Commission ("the ITC") notified the Department that the Brazilian government had requested an injury determination for this order under section 104(b) of the Trade Agreements Act of 1979. Should the ITC find that there is material injury or threat of material injury to an industry in the United States, the Department will instruct the Customs Service to assess countervailing duties in the amount of the estimated duties required to be deposited on all unliquidated entries of this merchandise entered, or withdrawn from warehouse, for consumption on or after August 3, 1981, and through the date of the ITC's notification to the Department of its determination.
Because of the changes in these programs described above, we preliminarily determine the potential subsidy, for purposes of the cash deposit of estimated countervailing duties, to be 0.40 percent. The Department considers any rate less than 0.50 percent ad valorem to be de minimis.
As provided by section 751(a)(1) of the Tariff Act, the Department intends to instruct the Customs Service to waive cash deposits of estimated countervailing duties on all shipments of certain Brazilian castor oil products entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative 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 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: October 18, 1983.

Alan F. Holmer,

Deputy Assistant Secretary, Import Administration.

[FR Doc. 83-28929 Filed 10-24-83; 8:45 am]

BILLING CODE 3510-25-M

48 FR 49320-02, 1983 WL 107138 (F.R.)
END OF DOCUMENT

Copr. (C) West 1999 No Claim to Orig. U.S. Govt. Works

Term