NOTICES
DEPARTMENT OF COMMERCE (DOC)
[C-351-062]
Pig Iron From Brazil; Preliminary Results of Administration Review of Countervailing Duty Order
Wednesday, November 30, 1983
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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 pig iron from Brazil. The review covers the period January 1, 1981 through December 31, 1981.
As a result of the review, the Department has preliminarily determined the aggregate net subsidy for the period to be 9.36 percent ad valorem. Interested parties are invited to comment on these preliminary results.
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EFFECTIVE DATE: December 2, 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 July 7, 1983, the Department of Commerce ("the Department") published in the Federal Register (48 FR 31280) the final results of its last administrative review of the countervailing duty order on pig iron from Brazil (45 FR 23045, April 4, 1980) 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.
Scope of the Review
Imports covered by the review are shipments of Brazilian pig iron of basic, foundry, malleable, and low phosphorous grades. Such merchandise is currently classifiable under item 606.1300 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 financing under CIC-CREGE 14-11; (5) partially- indexed long-term loans; (6) Fundo de Democratizacao do Capital das Empresas ("FUNDECE"); (7) fiscal benefits for special export programs; (8) tax reductions on equipment used in export production ("CIEX"); (9) incentives for trading companies (Resolution 643); and (10) preferential financing for the storage of merchandise destined for export (Resolution 330).
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 pig iron 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 this 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 33.48 percent to 66.50 percent during the period January 15, 1980 through December 31, 1981.
During 1981, the eight companies covered by this review had loans outstanding under Resolutions 583 (effective December 7, 1979), 602 (effective March 5, 1980), and 674 (effective January 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 ranged from 7.09 percent to 22.50 percent. We calculated the benefit conferred by the program for 1981 to be 3.78 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 (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 1981, and found a weighted average use rate of 27.91 percent. Since this rate is greater than the reduced maximum eligibility rate, we used the new maximum eligibility rate of 15 percent to calculate the potential benefit. We multiplied the current 4.50 percent interest rate differential by 15 percent to find a potential benefit under this program of 0.68 percent ad valorem.
(2) Income Tax Exemptions for Export Earnings
Exporters of pig iron 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 2.76 percent ad valorem for 1981.
Exports of pig iron 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 pig iron to the U.S. (Resolution 699), completely offsetting the benefit received under this program. Therefore, pig iron 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 in 1981 of 1.61 percent. Currently, the tax collected on exports of pig iron 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-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 pig iron 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 rate and the preferential interest rate on each loan.
Using the preferential rate for
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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 0.24 percent ad valorem.
(5) Partially-Indexed Long-Term Loans
Producers of pig iron are eligible for loans from the National Bank for Economic Development ("BNDE") and FINAME, a program of BNDE for the purchase of capital equipment manufactured in Brazil. Generally, these loans are fully indexed to the inflation rate in Brazil and are made at fixed real interest rates. The index used for these loans is the ratio established for the Readjustable Bonds of the National Treasury ("ORTN"). Principal and payments are calculated in ORTNs, and are converted at the current ORTN-cruzeiro exchange rate.
Under a program no longer in operation, BNDE granted loans, some through FINAME, that are adjusted at only 20 percent of the variation in ORTN each year. When a fully-indexed loan is granted, the ORTN balance is calculated at the ORTN-cruzeiro exchange rate prevailing at the time the loan is granted. This ORTN balance remains constant while the cruzeiro balance fluctuates with the changes in the ORTN-cruzeiro exchange rate. With the partially-indexed loans this procedure applies only until the cruzeiro balance has increased 20 in any given year. At that point the cruzeiro blance is held constant and the ORTN balance is adjusted by the fluctuations in the exchange rate. At the beginning of each year the process is repeated for each outstanding loan. All payments are calculated at the ORTN-cruzeiro exchange rate prevailing on the day the payment is made. Because of the 20 percent cap the principal decreases in real terms, and thus the interest paid by the loan recipient is also less than it would be with a fully indexed loan.
One company covered by this review had a partially-indexed loan with an outstanding balance during 1981. This company went through a bankruptcy reorganizaton in 1981 and made no payments, principal or interest, during the review period. We have no information on whether principal and interest payments were resumed after 1981, nor have we information on whether such a practice is normal procedure for a Brazilian bankruptcy reorganization. Therefore, we used the best evidence otherwise available.
To calculate the benefit we treated the suspension of repayment in 1981 as a one year loan holiday and expensed it in 1981. The terms of the loan called for thirty-two quarterly constant principal payments at an annual interest rate of 5 percent. Three payments were made in 1980. We calculated the quarterly payments, in ORTN's, that would have been made in 1981 on a fully-indexed loan for the same amount. We converted these amounts into cruzeiros at the ORTN- cruzeiro exchange rate prevailing on the date the payment was due. We totaled the four amounts and divided by total sales for that company. We then weighted this by the company's share of exports to the U.S. to find an ad valorem benefit of 0.97 percent.
(6) 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.
We also examined the following programs and preliminarily find that exporters of pig iron 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. Incentives for Trading Companies (Resolution 643).
D. Preferential Financing for the Storage of Merchandise Destined for Export (Resolution 330).
Preliminary Results of Review
As a result of the review, we preliminarily determine the aggregate net subsidy to be 9.36 percent ad valorem for the period of review. The Department intends to instruct the Customs Service to assess countervailing duties of 9.36 percent of the f.o.b. invoice price on any shipments exported on or after January 1, 1981 and on or before December 31, 1981.
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 4.65 percent.
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 4.65 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 the date of publication of the final results of this administrative review. 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.
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: November 23, 1983.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.