(Cite as: 49 FR 5157)
NOTICES
DEPARTMENT OF COMMERCE
[C-351-021]
Certain Carbon Steel Products From Brazil; Preliminary Affirmative
Countervailing Duty Determinations
Friday, February 10, 1984
*5157
(Cite as: 49 FR 5157, *5157)
AGENCY: International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the
countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of certain
carbon steel
(Cite as: 49 FR 5157, *5157)
products. The estimated net subsidy is 27.42 percent ad valorem. Therefore, we have notified the United States
International Trade Commission (ITC) of our determinations. We are directing the U.S. Customs Service to suspend
liquidation of all entries of certain carbon steel products from Brazil which are entered, or withdrawn from warehouse,
for consumption, and to require a cash deposit or bond on these products in the amount equal to the estimated net
subsidy.
If these investigations proceed normally, we will make our final determinations by April 18, 1984.
EFFECTIVE DATE: February 10, 1984.
FOR FURTHER INFORMATION CONTACT: Mary S. Clapp, Alain Letort or Karen Nelson, Office of Investigations, Import
Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution
Avenue, NW., Washington, D.C. 20230, Telephone: (202) 377-2438, 377-5050, 377- 0167.
SUPPLEMENTARY INFORMATION:
(Cite as: 49 FR 5157, *5157)
Preliminary Determinations
Based upon our investigations, we preliminarily determine that there is reason to believe or suspect that certain benefits
which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being
provided to manufacturers, producers, or exporters in Brazil of certain carbon steel products. For purposes of these
investigations, the following programs are preliminarily found to confer subsidies:
- Government Provision of Equity Capital
- Government Assistance in Repaying Foreign Loans
- IPI Export Credit Premium
- Short-Term Financing (Resolution 674)
- Funding for Expansion through IPI Tax Rebates
- Resolution 68 (FINEX)
- Raw Materials (Iron Ore) Supplied at Government-Controlled Rates
We estimate the net subsidy to be 27.42 percent ad valorem.
Case History
On November 10, 1983, we received petitions from the United States Steel Corporation, Pittsburgh, Pennsylvania, on
behalf of the U.S. industries
(Cite as: 49 FR 5157, *5157)
producing hot- and cold-rolled carbon steel sheet, cut-to-length plate and plate in coils. In compliance with the filing
requirements of section 355.26 of the Commerce Regulations (19 CFR 355.26), the petitions allege that manufacturers,
producers, or exporters in Brazil of certain carbon steel products receive, directly or indirectly, benefits that
constitute subsidies within the meaning of section 701 of the Act, and that these imports are materially injuring, or
threatening to materially injure, a U.S. *5158
(Cite as: 49 FR 5157, *5158)
industry. The petition submitted by U.S. Steel covering cut-to-length hot-rolled carbon steel plate was withdrawn.
We found that the remaining petitions contained sufficient grounds upon which to initiate countervailing duty
investigations, and on November 30, 1983, we initiated such investigations (48 FR 55012). We stated that we expected to
issue preliminary determinations by February 3, 1984.
Since Brazil is a "country under the Agreement" within the meaning of section 701(b) of the Act, injury
determinations are required for these investigations. Therefore, we notified the U.S. International Trade Commission
(ITC) of our initiations. On December 27, 1983, the ITC determined that there is a reasonable indication that these imports
are materially injuring, or threatening to materially injure, a U.S. industry (49 FR 670).
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C., on December
16, 1983. On January 16, 1984, we
(Cite as: 49 FR 5157, *5158)
received responses to the questionnaire.
Scope of Investigations
The products covered by these investigations are hot-rolled carbon steel plate in coil, hot-rolled carbon steel
sheet, and cold-rolled carbon steel sheet (certain carbon steel products), which are described in Appendix I to the notice
of "Certain Carbon Steel Products from Mexico; Preliminary Affirmative Countervailing Duty Determinations
" in this issue of the Federal Register.
There are three known producers and exporters in Brazil of certain carbon steel products to the United States. We have
received information from the government of Brazil regarding Companhia Sideru>=1rgica Paulista (COSIPA),
Companhia Sideru>=1rgica Nacional (CSN), and Usinas Sideru>=1rgicas de Minas Gerais S.A. (USIMINAS), which
represented over 85 percent of exports of these products to the United States during the period of review. For purposes of
these preliminary determinations, our period of review is calendar 1982.
Analysis of Programs
Throughout this notice, references are made to general principles applied by the Department of Commerce to the facts of
the current investigations. These
(Cite as: 49 FR 5157, *5158)
principles are described in Appendix II to the notice of "Certain Carbon Steel Products from Mexico; Preliminary
Countervailing Duty Determinations" in this issue of the Federal Register (Appendix II).
For purposes of these preliminary determinations, we are calculating a country-wide ad valorem subsidy rate. We
allocated the benefits received by respondents in 1982 over the total sales value or export value, as appropriate, of all
respondents.
Based on the reconsideration of methodology described in Appendix II, we have decided that it is appropriate to
reconsider whether government equity purchases in COSIPA and USIMINAS from 1977-1981 confer subsidies, and
whether these two companies were uncreditworthy during this period, because we previously made determinations
on these issues in the 1982 investigation of carbon steel plate from Brazil (49 FR 2568). We have decided
reconsideration is warranted since we have reexamined the methodology used in the 1982 investigation. By reconsidering
the issues, we will be able more accurately to measure the net subsidy during the period of investigation and avoid any
inconsistency in our treatment of CSN (a company that was not investigated in the 1982 plate case), USIMINAS and
COSIPA.
We have consistently held that government provision of, or assistance in obtaining, capital or debt does not per se confer a
subsidy. Government equity purchases or financial backing bestow a countervailable benefit only when it is
(Cite as: 49 FR 5157, *5158)
on terms inconsistent with commercial considerations. To determine if such action is commercially unsound, we review
and assess financial data for the company in question. Because of time constraints, we were unable to assess thoroughly
each company's financial situation for these preliminary determinations. Before reaching our final
determinations, we will conduct a considerably more comprehensive review, and also consider more fully what
factors are relevant to a determination of inconsistency with commercial considerations. For these preliminary
determinations only, we relied primarily on profit on sales, cash flow, current, and debt-equity ratios to determine if
government equity infusions were inconsistent with commercial considerations. For loans and loan guarantees, we
determined whether the company was "creditworthy." In making these determinations, we focused on cash flow and
other measures of each company's ability to meet its long-term debt obligations.
With regard to whether a company was a reasonable equity investment (a condition we have termed "equityworthiness"),
we focused on profitability and the long-term expectations for the company in question. Throughout the rest of this notice,
we will use the term "creditworthiness" to refer to both the company's equityworthiness and creditworthiness, even though
the two are not precisely the same.
For these preliminary determinations we assessed COSIPA's, USIMINAS' and CSN's
(Cite as: 49 FR 5157, *5158)
creditworthiness for the period 1977 through 1982. Based on the financial measurements outlined above, we preliminarily
find COSIPA and USIMINAS to be creditworthy in 1977 and 1978 and uncreditworthy between 1979 and 1982. For CSN,
we found the company to be creditworthy between 1977 and 1982.
Under section 771(6)(C) of the Act, the export tax imposed under the terms of the suspension agreement on carbon steel
plate from Brazil may be an allowable offset. We are seeking additional information to determine specifically which of
the products under investigation are subject to this tax. It appears that the tax is imposed on some forms of plate in coil.
Until we so determine, we will not offset the gross subsidy amount by those taxes.
In its responses, the government of Brazil provided data for the applicable period, including financial statements and
debt information for COSIPA, CSN, and USIMINAS.
Based upon our analysis to date of the petition and the responses to our questionnaire, we preliminarily determine the
following:
I. Programs Preliminarily Determined to Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil or
certain carbon steel products under the following programs.
(Cite as: 49 FR 5157, *5158)
A. Government Provision of Equity Capital
Sideru>=1rgica Brasileira S.A. (SIDERBRAS) is a government controlled corporation under the jurisdiction of the Ministry
of Industry and Commerce. Pursuant to Decree Law No. 6159 of December 6, 1974. SIDERBRAS became the holding
company for the federally owned steel corporations. SIDERBRAS is a major shareholder of nine Brazilian steel producers
and a minor shareholder of one small Brazilian steel producer.
SIDERBRAS has assumed certain debts for each of the companies in return for equity. All funds provided to these
companies are specifically for expansion projects and are not available for coverage of operating losses. The *5159
(Cite as: 49 FR 5157, *5159)
sources of SIDERBRAS' funds include: long-term loans obtained in the domestic and external financial markets, direct
investment provided by the National Treasury, and earnings remitted by its subsidiaries and related companies.
During 1977-1982, SIDERBRAS provided its steel firms with funds in the form of loans, grants or equity. The amounts
received include the loans made to COSIPA, CSN, and USIMINAS by the Banco Nacional do Desenvolvimento
Econo>=3mico e Social (National Bank for Economic and Social Development, or BNDES, formerly known as BNDE) and
assumed by the Brazilian government through SIDERBRAS.
(Cite as: 49 FR 5157, *5159)
These transactions are in effect debt-to-equity conversions by the government of Brazil.
As stated in the "Analysis of Programs" section of this notice, we have preliminarily determined that COSIPA and
USIMINAS were uncreditworthy in certain years. Consequently, the action of the government in taking an equity position
in these companies in those years is inconsistent with commerical considerations and confers a subsidy.
To calculate the benefit, we compared COSIPA's and USIMINAS' rates of return on equity with the average rate of return in
Brazil for the year in question. "We then apply the rate of return" shortfall to all purchases of equity which we consider
to be inconsistent with commercial considerations. For these preliminary determinations, we used the average
change in the yield indices of the Rio de Janeiro and Sa>=6o Paulo stock exchanges over the past 5.75 years. We
preliminarily determine the ad valorem benefit from this program to be 3.14 percent.
B. Government Assistance in Repaying Foreign Loans
The Banco Central do Brasil (BCB) is unable to supply Brazilian companies with sufficient hard currency to settle their
international debts because of the shortage of dollars in that country. The Aviso GB-588 program provides that
(Cite as: 49 FR 5157, *5159)
under certain circumstances the Brazilian government, through the BCB, will assume the obligations for hard currency
debts of state-owned companies which have overseas debt. Those companies are then required to pay the BCB in cruzeiros.
The cruzeiro amount is based upon the dollar exchange rate on the date of repayment, but until the BCB has renegotiated
the national debt the terms of repayment are unknown. Private companies that negotiate their own debt restructuring
directly with creditor banks are not included in this program.
COSIPA and CSN has some of their debt covered under this program during 1982 and 1983. USIMINAS participated in this
program in 1983. To date, there are no payback requirements for this debt moratorium, and it is unknown whether the
amount eventually repaid will be subject to indexing for inflation. Yet this debt is carried on the companies' books as a
liability, indicating that an obligation exists to repay the debt as some future date. Since the terms of the moratorium are
not yet known, we treated it as a zero-interest, short-term loan equal to the amount of principal and interest payable
during the review period. For our commercial benchmark, we used the published prime rate in Brazil to calculate a
benefit of 0.41 percent ad valorem.
C. IPI Export Credit Premium
(Cite as: 49 FR 5157, *5159)
Brazilian exporters of manufactured products are eligible for a tax credit on the Imposto so>=3bre Produtos
Industrializados (Tax on Manufactured Products, or IPI). The IPI export credit premium has been found to confer a benefit
in previous countervailing duty investigations involving Brazilian products. After having suspended this program in
December 1979, the government of Brazil reinstated it on April 1, 1981, in accordance with Ministry of Finance
"Portaria" (Notice) No. 270 (amended by Portaria No. 252 on November 29, 1982).
The IPI tax credit is a cash reimbursement from the government of Brazil to the exporter which is paid through the
bank involved in the export transaction. The tax credit is based on the "adjusted" f.o.b. value of the exported merchandise,
which is obtained by deducting from the invoice price of the merchandise any agent commissions, rebates or refunds
resulting from quality deficiencies or damage during transit, contractual penalties, and the value of imported inputs. In
order to receive the maximum export credit premium, the exporter must demonstrate that 75 percent of the added value
of the merchandise originated in Brazil. If this condition is not met, the f.o.b. invoice price is reduced only by the value
of the imported inputs when calculating the base upon which the IPI export credit premium is to be paid.
Subsequent to April 1, 1981, this credit premium was partially phased out according to a schedule negotiated between the
United States and Brazil pursuant to Article 14 of the Subsidies Code. The government of Brazil reduced
(Cite as: 49 FR 5157, *5159)
the benefit from 15 percent to 14 percent on March 31, 1982; from 14 percent to 12.5 percent on June 30, 1982; and from
12.5 percent to 11 percent on September 30, 1982. This program is scheduled to be eliminated by May 1, 1985.
In December 1983, we verified use of this program as part of the section 751 review of the countervailing duty
suspension agreement involving carbon steel plate from Brazil. We verified information regarding the use of the IPI
credit premium by COSIPA and USIMINAS on an earned basis (as opposed to a receipt basis) for 1982. The use rates
verified in that proceeding covered the IPI credit premiums accrued on all steel exports, including the products under
investigation. We calculated a use rate for CSN, which was not included in the section 751 review of carbon steel plate from
Brazil, according to the same method used for COSIPA and USIMINAS.
To calculate the benefit from this program we multiplied the average annual credit premium by the respective utilization
rates of the respondents to arrive at the effective credit premium rate for each respondent. We then weight-averaged these
effective rates by the respondents' respective share of exports to the United States of the products under investigation, and
calculated a net subsidy of 9.97 percent al valorem.
D. Short-term Financing (Resolution 674)
(Cite as: 49 FR 5157, *5159)
Steel products are eligible for financing under Resolution 674 of the Banco do Brasil. Under this program, companies are
declared eligible to receive working capital loans by the Carteira de Come.1rcio Exterior (Foreign Trade Bureau, or CACEX)
of the Banco do Brasil. These loans have a term of up to one year and are used to purchase inputs for the production of
export goods. Resolution 674 provides financing for 12 to 40 percent of the net export value, depending on the product.
The net export value is calculated by taking numerous deductions from the export value of the merchandise, including
agent commissions, contractual penalties or refunds, exports denominated in cruzeiros, imported inputs over 20 percent
of the export value, and a deduction for the company's trade deficit as a percentage of the value of its exports. In addition,
any growth in the cruzeiro value of exports over the previous year will reduce the value of the benefit as a percentage of
the current year's exports. All respondents have significant deductions which result in a reduction in the maximum
amount of financing available.
*5160
(Cite as: 49 FR 5157, *5160)
In 1982, steel companies could obtain this financing for up to 20 percent of the net f.o.b. value of the previous year's
exports, at interest rates below those available commercially. Use of this financing is not restricted or allocated by
product. CACEX determines the maximum dollar eligibility of each exporter under this program; the dollar limit is stated
on the "Certificado de Habilitac>=9a>=6o" issued to the recipient.
(Cite as: 49 FR 5157, *5160)
We preliminarily determine that such financing confers an export subsidy since it is contingent upon export performance.
We allocate the benefit of these loans over the total value of all exports by the companies under investigation.
As in previous Brazilian countervailing duty cases, we used the rate established by the Banco do Brasil for
discounting sales of accounts receivable as the commercial rate for the acquisition of short-term working capital. We have
used this comparison because information provided by the government of Brazil indicates that, within the Brazilian
financial system, working capital is normally raised through the sale of accounts receivable. When these loans were
granted, the nominal discount rate for accounts receivable was 59.6 percent, plus a 6.9 percent tax on financial
transactions (Imposto so>=3bre Operac>=9o>=6es Financeiras, or IOF) The subsidy is the difference between the
effective interest rate actually received under Resolution 674 and the effective commercial rate of 85.55 percent (a
nominal rate of 66.5 percent).
The interest rate on loans under Resolution 674 is approximately 40 percent with interest payable semiannually and the
principal fully payable on the due date of the loan. The effective rate of interest for these loans is 44 percent. The Brazilian
government provides an exemption from the IOF tax for these dollar loans. Therefore, the differential between these two
types of financing is 41.55 percent (85.55-44.0). We calculated the benefit of 674 financing based on the date of
replacement of the loan. The amount repaid is
(Cite as: 49 FR 5157, *5160)
multiplied by the differential, 41.55 percent. This results in an export subsidy of 2.80 percent ad valorem.
E. Funding for Expansion Through IPI Tax Rebates
Decree Law 1547 (April 1977) provides funding for expanding the Brazilian steel industry through a rebate of the IPI, a
value added tax imposed on sales at each stage of the production process. For steel products, the value added tax is 5
percent.
When it was originally enacted in 1977, the IPI tax applied to all domestic sales transactions. In 1979, the value added tax
was eliminated for all producers except those in 14 product sectors, including tobacco, automobiles, spirits and alcohol,
ceramics, rubber, and steel. The tax rate is different for each of the specified product sectors.
The full IPI tax is now paid by each respondent and none of the respondents receives any rebates. Under the new provision
(Decree Law 1843 of December 1980), the rebates are made to SIDERBRAS as increases in capital. We do not consider funds
received by SIDERBRAS to be subsidies to its subsidiaries unless these are passed on to them. The funds which were passed
on are discussed elsewhere in this notice. We preliminarily determine that COSIPA, CSN and USIMINAS did not receive
countervailable benefits under this program in 1982.
(Cite as: 49 FR 5157, *5160)
However, to the extent that companies received countervailable benefits prior to 1981, we are including benefits from
prior years which extend into the period of these investigations. Therefore, we calculate an ad valorem subsidy rate of 1.84
percent.
F. Resolution 68 (FINEX)
Resolution 68 of the Conselho Nacional do Come>=1rcio Exterior (National Council for Foreign Commerce, or CONCEX)
provides that CACEX may grant subsidized export loans through the resources of the Fundo de Financiamento a>= 2
Exportac>=9a>=6o (Export Finance Fund, or FINEX). Financing for a minimum of 180 days is available at a maximum
level of 85 percent of the f.o.b. invoice price, plus freight and insurance. In order to obtain this financing, an exporter must
demonstrate that the foreign purchaser has pre-paid 15 percent of the invoice price. The responses state that under this
program, an exporter transfers the appropriately secured account receivable to the Banco do Brasil, or to a local bank, and
discounts the value depending on the terms of payment. The payment on the account receivable is made directly to the
bank in dollars. This type of financing is considered an advance on hard currency receivables and is not subject to the IOF
tax.
The responses indicate that no FINEX loans were received on shipments to
(Cite as: 49 FR 5157, *5160)
the United States. However, we verified in the recent antidumping investigations involving hot-rolled carbon steel
plate and sheet from Brazil (49 FR 3102) that USIMINAS had received some FINEX financing on the products under
investigation. For the purposes of these preliminarily determinations we determine that this program provides
preferential financing on exports and, therefore, confers a countervailable benefit on the products under investigation.
We compare the rate at which the account receivable was discounted with the average commercial rate as found in
Communication 331 for dollar-denominated loans. We use the short-term loan methodology to calculate the benefit which
we then divided by the total value of exports to the United States and calculate an ad valorem subsidy of 0.02 percent.
G. Raw Materials (Iron Ore) Supplied at Government-Controlled Rates
Petitioner alleges that Brazilian steel producers benefit from government policies which maintain domestic iron-ore prices
at levels substantially below international prices. Respondents reply that the price of iron ore is subject to government
prices controls and that these prices apply to all transactions, regardless of whether the seller or buyer is a state enterprise
or private sector company.
(Cite as: 49 FR 5157, *5160)
Although iron ore nominally is available to all industries on similar terms, we believe the steel industry is by far the
dominant user of this input. Thus, in reality the price control on iron ore provides a benefit to "a specific enterprise or
industry." This is unlike the situation discussed in our final determinations on softwood lumber from Canada (48 FR
24159) and anhydrous and aqua ammonia from Mexico (48 FR 28522). There we determined that the input concerned was
not used solely by a "specific . . . group of enterprises or industries."
Since the benefit is used only by a specific industry, we then considered whether it was a countervailable domestic subsidy.
We believe that a controlled price is the "provision of goods and services" (section 771(5)(B)(ii) of the Act). Thus, it is a
subsidy if provided at "preferential rates." As recognized in footnote 3 of section II.A of our final determination in
softwood lumber from Canada (48 FR 24159), the number of users of iron ore is so limited that the normal standard of
preferentiality--more favorable to some users than to others within the jurisdiction--cannot be applied. This being so, we
concluded that international prices for iron ore provided the appropriate benchmark for measuring the level of the
subsidy. We preliminarily determine that this program confers a countervailable benefit. We calculate an ad valorem
subsidy of 9.24 percent.
(Cite as: 49 FR 5157, *5160)
*5161
(Cite as: 49 FR 5157, *5161)
II. Programs Preliminary Determined Not To Confer Subsidies
We preliminarily determine subsidies are not being provided to manufacturers, producers, or exporters in Brazil of
certain carbon steel products under the following programs.
A. BNDES Financing
Long-term financing for the purchase of capital equipment, and long-term loans for expansion projects, are available from
BNDES. Loans are available to private as well as state-controlled enterprises for a maximum of 20 years, and require an
analysis of the economic viability of the project and the ability of the borrower to service the debt. All BNDES loans must
be secured to the level of at least 130 percent of the value of the loan.
For creditworthy companies, we have determined (as we have in past investigations and reviews) that fully-indexed BNDES
loans bestow no benefit, because they are not given on terms inconsistent with commercial considerations.
We also find, for these preliminary determinations, that these loans confer no benefit upon uncreditworthy
companies because of the required security, and because they are not given on terms inconsistent with commercial
(Cite as: 49 FR 5157, *5161)
considerations. However, we will examine more fully the nature of the security and the terms of the loans at verification.
B. FINAME Loans
Long-term financing in cruzeiros is available in Brazil only through government-controlled financial institutions, such
as BNDES and the Age>=3ncia Especial do Financiamento Industrial (Special Agency for Industrial Financing, or FINAME),
a subsidiary of BNDES. This financing is available 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 ORTN. FINAME loans are granted through commercial banks
rather than directly from BNDES and carry higher real interest rates than BNDES loans.
In past Bazilian steel investigations, we determined that fully indexed FINAME loans are generally available since they are
not provided to a specific industry or group of industries, or to companies in specific regions, and consequently do not
confer a countervailable domestic subsidy. All FINAME loans provided to public enterprises--including COSIPA, CSN, and
USIMINAS--are fully indexed. Therefore, we preliminarily determine that these loans did not
(Cite as: 49 FR 5157, *5161)
confer a subsidy upon the producers of products under investigation.
C. Government Loan Guarantees
In 1982, USIMINAS received a Brazilian government guarantee on a debenture issued on the Japanese market. The
issuance was made in a period in which we consider USIMINAS to be uncreditworthy. To determine if a countervailable
benefit was bestowed by the guarantee, we compared the terms of the debenture with the highest terms on a debenture
issuance in Japan during 1982, plus the risk the premium. Our preliminary analysis indicates that the terms of the yen
debenture guaranteed by the Brazilian government were less favorable than our benchmark. However, before making our
final determinations, we will investigate this Brazilian loan guarantee further.
D. Rail Rate Subsidies Based on Payment in Steel
Petitioners allege that Brazilian steel mills pay the Rede Ferroviaria Federal (the federal railway or RFF) for rail freight
charges with steel, and that RFF uses this steel to pay the state-owned PETROBRAS company for fuel. Petitioners also allege
that Brazilian steel producers in general may receive preferential rates on steel shipments.
(Cite as: 49 FR 5157, *5161)
Respondents claim that RFF had accounts receivable outstanding from COSIPA and CSN, and also had accounts payable to
PETROBRAS, the state-owned fuel company. They further claim that in settling its debt with PETROBRAS, RFF assigned the
accounts receivable from COSIPA and CSN to PETROBRAS, and arranged for COSIPA and CSN to settle these accounts in the
form of steel to INTERBRAS, the trading company of PETROBRAS. All parties involved signed a contract and the cost of the
steel products, valued on the basis of list price, was offset against the assigned debt. The price charged for the steel is
controlled by the fixed price for all commercial transactions, and the rail rates charged are published. PETROBRAS then
resold the steel received in payment at the prevailing world market price. It appears that all companies involved in these
transactions acted in accordance with normal commercial considerations.
The government of Brazil maintains that producers of certain carbon steel products do not receive any preferential
treatment for use of rail facilities and that any barter agreements between COSIPA, CSN, and USIMINAS and the RFF are
based on the list prices of the merchandise being traded. It appears that the companies involved in this transaction acted in
accordance with commercial considerations. No preference was mandated by the Brazilian government or provided by the
individual companies. Therefore, we preliminarily determine that this program confers no countervailable benefit upon
respondents.
(Cite as: 49 FR 5157, *5161)
E. Exemption of IPI Taxes and Duties on Imported Equipment
The Conselho do Desenvolvimento (Industrial Development Council, or CDI) provides, pursuant to Decree Law 1428, for
the exemption of 80 to 100 percent of the customs duties and 80 to 100 percent of the IPI tax on certain imported
machinery for projects approved by the CDI. The recipient must demonstrate that the machinery or equipment for which
an exemption is sought was not available from a Brazilian producer. The investment project must be deemed to be feasible
and the recipient must demonstrate that there is a need for added capacity in Brazil.
Decree Law 1726 repealed this program in 1979. Subsequently, no new projects were eligible for these benefits. However,
companies whose projects were approved prior to repeal may still receive these benefits pending completion of the
project.
In prior cases the Department found this program to be countervailable. However, based upon information obtained by
the Department in its verification of other cases which indicates that this program is generally available, we now
preliminarily determine that this program is not countervailable.
F. Export Financing Under CIC-CREGE 14-11
(Cite as: 49 FR 5157, *5161)
All exporters of manufactured products with production cycles of under 180 days are eligible to apply to the Banco do
Brasil for export financing under the CIC-CREGE 14-11 program. The bank's eligibility criteria are based on the value of the
applicant's exports in the previous year. For companies receiving loans under Resolution 674, the maximum financing
available is 10 percent, and for all other companies the maximum is 15 percent of the value of the applicant's exports in the
previous year.
In December 1983, we verified this program as part of the section 751 review of the countervailing duty suspension
agreement involving carbon *5162
(Cite as: 49 FR 5157, *5162)
steel plate from Brazil. Under this program, a company obtains a loan with the Banco do Brasil in return for agreeing to
exchange a certain amount of U.S. currency with the Banco do Brasil, thus giving the bank a secure source of the foreign
currency needed to meet reserve requirements. The Banco do Brasil charges a commission on these loans. Furthermore,
the loans are secured with collateral up to at least 170 percent of the value of the loan. There is no fixed interest rate for
loans under this program, and the bank has complete discretion in making these loans. The government of Brazil
provides no resources to the bank to enable it to perform these operations, nor does it set the interest rates. In the absence
of any government action or direction, we have preliminarily determined that no countervailable benefit is conferred.
In prior cases the Department found this program to be countervailable.
(Cite as: 49 FR 5157, *5162)
However, based upon additional information obtained by the Department in its verification of other cases and upon further
consideration, we now preliminarily determine that this program is not countervailable.
G. Supplier Credits
Petitioner alleges that payments to suppliers by state-owned companies in Brazil are not adjusted for inflation, and
that such non-indexation of overdue accounts payable can constitute a substantial benefit in Brazil's highly
inflationary economy. Respondents claim that the government of Brazil does not mandate or direct any preferential
treatment for late payments by public sector companies. Instead, contracting parties may decide whether accounts
payable are indexed. In the absence of any government action or direction, we have preliminarily determined that no
countervailable benefits are bestowed through preferential buyer credits.
H. Simultaneous Devaluation and Imposition of Export Taxes
Petitioner alleges that early in 1983, the government of Brazil devalued the cruzeiro in order to stimulate exports, and
concurrently imposed an export tax on a number of products in order to offset the benefits of the devaluation.
(Cite as: 49 FR 5157, *5162)
Petitioner claims these joint actions constitute a selective devaluation designed to favor certain exports over others.
Although the government of Brazil announced a 30 percent "maxi-devaluation" on February 21, 1983, and
subsequently adjusted several export taxes, we do not consider this to confer a countervailable benefit for two reasons.
First, in order for a selective devaluation to occur, there must be a multiple exchange rate system. There is no such system
in Brazil. The devaluation included no provisions to protect certain industries or groups of industries from the effects
of the devaluation.
Second, the presumption that the government applied an export tax selectively to confer a benefit requires evidence that it
did so to deliberately favor the export of some products over others. Governments set tax rates for various reasons; e.g.,
to raise revenue, and to inhibit the export of certain goods in order to dampen upward pressure on domestic prices created
by devaluation. Absent evidence that the government imposed selective export taxes to purposefully benefit non-taxed
exports, we do not consider them to confer a countervailable subsidy.
I. Certain Labor Programs
Petitioner alleges that the government of Brazil has provided assistance for
(Cite as: 49 FR 5157, *5162)
the training and career development of steel industry personnel.
The government of Brazil responds that it has not provided funds or other forms of assistance for the training and
career development of steel industry personnel, other than income tax deductions for employee training and meals which
were determined not to confer countervailable benefits in Carbon Steel Plate from Brazil, January 20, 1983 (48 FR
2568). Accordingly, we preliminarily determine that this program does not confer a subsidy.
III. Programs Preliminarily Determined Not To Be Used
We preliminarily determine that manufacturers, producers or exporters in Brazil of certain carbon steel products did
not use the following programs, listed in the notice of "Initiation of Countervailing Duty Investigations."
A. Government Funds To Cover Operating Losses
Based on evidence currently on the record, the government of Brazil has not provided any funds to cover the
operating losses of the companies in the SIDERBRAS group. Equity infusions by SIDERBRAS were provided for expansion
and are addressed in section I.A., supra. Accordingly, we preliminarily determine this program was not used by
respondents.
(Cite as: 49 FR 5157, *5162)
B. Local Tax Incentives/Special Tax Deductions for SIDERBRAS
In its response, the government of Brazil states that there are no local tax measures which benefit respondents. As a
result of a special concession by the government, CSN was allowed to use the losses of other companies in the SIDERBRAS
group to offset its profits for income tax purposes in 1980. The government conceded this special dispensation to
compensate for the fact that within the SIDERBRAS group, some companies consistently incur losses while others are
profitable. However, such benefits received by CSN on its 1980 earnings, extended only through 1981. This concession was
repealed shortly thereafter and this program no longer exists. Accordingly, we preliminarily determine that this program
was not used by respondents during the period for which we are measuring subsidization.
C. Export Profits Exemption From Corporate Income Tax
Pursuant to Decree Laws 1158 and 1721, exporters of certain carbon steel products are eligible to participate in this
program, under which some profits attributable to export revenue are exempt from income tax.
We preliminarily determine that none of the respondents have used this income
(Cite as: 49 FR 5157, *5162)
tax exemption during the period of investigation.
D. Accelerated Depreciation for Equipment
Pursuant to Decree Law 1137, any company which purchases Brazilian-made capital equipment and has an expansion
project approved by the CDI may depreciate this equipment at twice the rate normally permitted under tax laws.
We preliminarily determine that none of the respondents used the accelerated depreciation provisions of this program.
E. Resolution 330 of the BCB
BCB Resolution 330 provides financing for up to 80 percent of the value of the merchandise placed in a specified bonded
warehouse and destined for export. Exporters of certain carbon steel products would be eligible for financing under this
program. However, COSIPA, CSN, and USIMINAS did not use this program because each company produces export sales
to order and their products are not placed in a warehouse. Accordingly, we preliminarily determine that respondents did
not use this program during the period for which we are measuring subsidization.
(Cite as: 49 FR 5157, *5162)
F. The BEFIEX Program
The Commissa>=6o para a Concessa>=6o de Benefi>=1cios Fiscais a Programas Especiais de Exportaca>=6o (Commission
for the Granting of Fiscal Benefits to *5163
(Cite as: 49 FR 5157, *5163)
Special Export Programs, or BEFIEX) is authorized by Decree Law 77065 to reduce by 70 to 90 percent import duties and
the IPI tax on the import of machinery, equipment, apparatus, instruments, accessories and tools necessary for special
export programs approved by the Ministry of Industry and Trade. Further, imports of components, raw materials and
intermediary products may benefit from a reduction of 50 percent of import duties and IPI.
No respondent receives benefits through this program. Most of the merchandise produced by the respondents is sold in
Brazil, and they are not able to make the required export commitments. Accordingly, we preliminarily determine that
respondents did not use this program during the period for which we are measuring subsidization.
G. Apo>=3io a>=2 Exportacao (Proex)
Petitioner alleges that a new line of short-term credit for exports was established under the Apo>=3io a>=2
Exportac>=2a>=9o (Proex) program of BNDES. Respondents state that none of the respondents have been declared
eligible
(Cite as: 49 FR 5157, *5163)
under this program. Theefore, we preliminarily determine that respondents did not use this program during the period for
which we are measuring subsidization.
H. Incentives for Trading Companies
Petitioner alleges that CSN and USIMINAS distribute their export sales through such intermediaries as trading companies,
and that under Resolution 643 of the BCB, trading companies can obtain export financing similar to that obtained by
manufacturers under Resolution 674.
Respondents state that no benefits were received under this program by the exported products. Accordingly, we
preliminarily determine that this program was not used by respondents for the period in which we are measuring
subsidization.
I. Raw Materials (Charcoal and Slab) Supplied at Preferential Rates
1. Charcoal
Petitioner alleges that the government of Brazil has given fiscal incentives to encourage the expansion of charcoal
production through reforestation.
(Cite as: 49 FR 5157, *5163)
Respondents claim that the Brazilian steel industry does not use wood charcoal to produce steel.
2. Slab
Petitioner also alleges that Brazilian producers of hot- and cold-rolled sheet and plate in coils will soon be using subsidized
slab for SIDERBRAS' Tubara>=6o mill. Resondents reply that neither COSIPA, CSN, nor USIMINAS purchased slab from the
Tubara>=6o mill during the period of investigation. Therefore, we preliminarily determine that respondents did not use
subsidized charcoal or slab during the period of investigation.
J. Construction of Ports
Petitioner alleges that Brazil's Third National Development Plan (1980-85) provides for the construction of a port at
Praia Mole designed mainly for the export of steel products and the import of coal. The government of Brazil denies
this allegation. Therefore, we preliminarily determine that this program is not used by the respondents. However, we will
seek additional information on the use of this port by other industries before making our final determinations.
(Cite as: 49 FR 5157, *5163)
K. Certain Labor Programs for Employees of State Enterprises
Petitioner alleges that the government of Brazil has restricted fringe benefits and pay levels of public employees, and
that these restrictions confer a countervailable benefit on steel products manufactured in Brazil by state- owned
companies.
We preliminarily determine that these programs were not used by respondents during the period for which we are
measuring subsidization. Although Decree Laws 2036 and 2100 were not in effect during this period, we may examine
them and other similar legislation in any annual reviews required under section 751 of the Act.
IV. Program for Which Additional Information is Needed
Fiscal Incentives, Donations and Grants
Petitioner alleges that CSN received a certain amount of "fiscal incentives, donations and grants" as stated in its 1981/82
Statement of Sources of Funds. In order to determine whether these funds were conferred under programs addressed
above, additional information is required. We will seek this
(Cite as: 49 FR 5157, *5163)
information from the government of Brazil and CSN during our verification.
Verification
In accordance with section 776(a) of the Act, we will verify the information used in making our final determinations.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries
of certain carbon steel products from Brazil which are entered, or withdrawn from warehouse, for consumption, on or
after the date of publication of this notice in the Federal Register and to require a cash deposit or bond for each such entry
of this merchandise of 27.42 percent ad valorem.
This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determinations. In addition, we are making
available to the ITC all
(Cite as: 49 FR 5157, *5163)
nonprivileged and nonconfidential information relating to these investigations. We will allow the ITC access to all
privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information,
either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary
for Import Administration.
The ITC will make its determinations of whether these imports are materially injuring, or threatening to materially
injure, a U.S. industry before the latter of 120 days after the Department makes its preliminary affirmative
determinations or 45 days after the Department makes its final affirmative determinations.
Public Comment
In accordance with section 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to
afford interested parties an opportunity to comment on these preliminary determinations at 10 a.m. on March 21,
1984, at the U.S. Department of Commerce, Room 3708, 14th Street and Constitution Avenue NW., Washington, D.C.
20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for
Import Administration, Room 3099B, at the above address within 10
(Cite as: 49 FR 5157, *5163)
days of this notice's publication.
Requests should contain: (1) the party's name, address, and telephone number; (2) the number of participants; (3) the
reason for attending; and (4) a list of the issues to be discussed. In addition, prehearing briefs in at least 10 copies must be
submitted to the Deputy Assistant Secretary by March 16, 1984. Oral presentations will be limited to issues raised in the
briefs. All written views should be filed in accordance with 19 CFR 355.34, within 30 days of this notice's publication, at the
above address and in at least 10 copies.
*5164
(Cite as: 49 FR 5157, *5164)
Dated: February 3, 1984.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 84-3703 Filed 2-9-84; 8:45 am]
BILLING CODE 3510-DS-M