Cotton Yarn From Brazil; Preliminary Results of Administrative Review of
Countervailing Duty Order
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AGENCY: International Trade Administration, Commerce. SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty
order on cotton yarn from Brazil. The review covers the period January 1, 1982 through December 31, 1982.
As a result of the review, the Department has preliminarily determined the aggregate net subsidey for the period
to be 7.40 percent ad valorem. Interested parties are invited to comment on these preliminary results.
EFFECTIVE DATE: November 2, 1983.
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countervailing duty order on cotton yarn from Brazil (42 FR 14089, March 15, 1977) 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.
The review covers the period January 1, 1982 through December 31, 1982, and five programs that we
previously found countervailable: (1) Preferential financing for exports, (2) income tax exemptions for export
earnings, (3) the export credit premium for the Industrial Products Tax ("IPI"), (4) fiscal benefits for special
export programs, and (5) preferential export financing under CIC-CREGE 14-11.
The review also covers twelve additional programs that the petitioner alleged confer subsidies on exports of
Brazilian cotton yarn.
ACTION: Notice of preliminary results of administrative review of countervailing duty order.
FOR FURTHER INFORMATION CONTACT:Lorenza Olivas or Brian Kelley, Office of Compliance, International
Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On August 2, 1983, the Department of Commerce ("the Department") published in the Fedral Register (48 FR 34999) the final results of its last administrative review of the
Scope of the Review
Imports covered by the review are shipments of Brazilian cotton yarn. Such merchandise is currently classifiable
under items 300.6000 through 302.9800 of the Tariff Schedules of the United States Annotated.
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 cotton yarn could obtain preferential financing for up
to 40 percent of its previous year's exports.
We calculated the subsidy under this program by multiplying the principal outstanding under the program during
1982 by the differenctial 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, 1982 in our
calculation. We similarly prorated loans extending past December 31, 1982.
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 the Government of Brazil provided
information indicating 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 financing program are exempt; the rate was 66.50 percent during 1982.
During 1982, firms exporting cotton yarn had loans outstanding under Resolution 674 (effective January 22,
1981) of the Banco Central do Brasil. The effective annual rate for loans granted under this resolution was 44
percent and the differential between the commercial and preferential rates therefore was 22.50 percent. We
calculated the benefit conferred by the program for 1982 to be 5.91 percent ad valorem.
On February 21, 1983, the Government of Brazil reduced the maximum eligibility for preferential financing under
Resolution 674 from 40 percent of the previous year's exports to 30 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.
To estimate the potential benefit and cash deposit of estimated countervailing duties for this program, we
summed the prorated value of loans outstanding during 1982, and found a weighted average used rated of
27.41 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 1.23 percent ad valorem.
(2) Income Tax Exemptions for Export Earnings
Exporters of cotton yarn 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 0.17 percent ad valorem for 1982.
(3) IPI Export Credit Premium
Exporters of cotton yarn 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. During the period of review the Brazilian government made three reductions in the maximum
level of the IPI credit premium. The first, on March 31, 1982, reduced the level from 15 percent to 14 percent;
the second, on June 30, to 12.50 percent; and the most recent, on September 30, to 11 percent.
Since June 26, 1981, the Brazilian government has been collecting an export tax on exports of cotton yarn to
the U.S. (Resolution 699), completely offsetting the benefit received under this program. Therefore, we
preliminarily determine that no net subsidy was attributable to this program during the period of review.
Currently, the tax collected on exports of cotton yarn 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) Fiscal Benefits for Special Export Programs
Under Decree Law 1219 of May 15, 1972, any firm that produces manufactured products is eligible to receive
benefits from the Commission for the Granting of Fiscal Benefits for Special Export Programs ("BEFIEX"), as
long as the company makes an appropriate export commitment. Under Decree No. 77,065, a company can
receive a reduction of 70 percent to 90 percent of the import duties and IPI tax on the import of machinery and
equipment necessary to meet the approved export commitment. Cotton yarn exporters are eligible for benefits
under this program, and one of the exporters for which we have data received benefits during 1982. We divided
the amount of the benefits received by the total 1982 exports covered by the response, and found an ad
valorem benefit under this program of 1.26 percent during 1982.
(5) Preferential Export Financing Under CIC-CREGE 14-11
CIC-CREGE 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 cotton yarn participated in this program in 1982.
To calculate the amount of benefit conferred under the program, we multiplied the prorated principal
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outstanding during 1982 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 was 11.50 percent. We preliminarily determine the benefit conferred by the
program to be 0.06 percent ad valorem.
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.
As provided by section 751(a)(1) of the Tariff Act, the Department intends to instruct the Customs Service to
collect a cash deposit of estimated countervailing duties of 2.72 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 this 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).
(6) Other Programs
We also examined the following programs and preliminarily find that exporters of cotton yarn did not use them
during 1982.
A. Tax Reduction on Equipment Used in Export Production ("CIEX")
B. Fundo de Democratizacao do Capital das Empresas
C. Gold Draft of Exportation
D. Preferential Export Financing under Resolution 68 of the National Council for Foreign Commerce ("FINEX")
E. Preferential Financing for the Storage of Merchandise Destined for Export (Resolution 330)
F. Incentives for Trading Companies (Resolution 643)
G. Partially-Indexed Long-Term Loans
H. Accelerated Depreciation for Capital Goods Manufactured in Brazil
I. Fundo National de Participadoes ("FUNPAR")
J. Export Promotion Financing ("PROEX")
K. Import Substitution ("PROISM")
L. Green-Yellow Drawback
Preliminary Results of the Review
As a result of the review, we preliminarily determine the aggregate net subsidy to be 7.40 percent ad valorem
for the period January 1, 1982 through December 31, 1982.
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 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.
Dated: October 26, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.