Cotton Yarn From Brazil; Final Results of Administrative Review of

Countervailing Duty Order

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AGENCY: International Trade Administration, Commerce.

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

SUMMARY: On November 2, 1983, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on cotton yarn from Brazil. The review covers the period January 1, 1982 through December 31, 1982.

We gave interested parties an opportunity to comment on the preliminary results. After review of all timely comments received, the Department has determined the net subsidy during the period of review to be 15.16 percent.

EFFECTIVE DATE: April 18, 1984.

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 Novermber 2, 1983, the Department of Commerce ("the Department") published in the Federal

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Register (48 FR 50592) the preliminary results of its administrative review of the countervailing duty order on cotton yarn from Brazil (42 FR 14089, March 15, 1977). The Department has now completed that administrative review, in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act").

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.

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.

In this review, we have followed the calculation methods used in the notice of preliminary results of this review. At the same time, the Department recognizes that there may be other reasonable methods of measuring benefits for our use in this and other cases. Specifically, in the preliminary affirmative countervailing duty determination on certain carbon steel products from Brazil (49 FR 5157, February 10, 1984), we adopted several new methods. The Department has asked for comments on that proposed methodology.
The preliminary results in this review of the order on cotton yarn were published and comments received prior to the Department's publication of the preliminary determination on certain carbon steel products. We believe it is inappropriate to apply the new methodology in this section 751 review until the methodology is adopted, possibly in the final determination in the pending steel case. Further, future aceptance of the methodology does not indicate that the existing methodology is not also a reasonable way to calculate the benefits. (See also notice of final results of administrative review on float glass from Belgium, 47 FR 32467, July 27, 1982.)

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received timely comments from the petitioner, the American Yarn Spinners Association, Inc.

Comment 1: The petitioner contends that, for purposes of calculating the cash deposit of estimated countevailing duties attributable to the preferential financing program, the Department used noncontemporaneous interest rates to measure the differential between the commercial and the preferential rates. The Department compared a commercial rate in effect on January 3, 1983 with a preferential rate in effect on June 10, 1983.

Department's Position: We used the latest information available in determining the cash deposit rate. In the recent section 736(c) review of the antidumping case in carbon steel wire rod from Brazil, the respondents submitted information that the interest rate charged in June 1983 by the Banco do Brasil for discounting accounts receivable was slightly lower than the rate charged in January. (See Post-hearing Brief of Companhia Siderurgica Belgo-Mineira and Companhia Siderurgica da Guanabara-Cosigua, February 13, 1984, at 7.) The difference does not affect the weighted-average margin.

Comment 2: The petitioner contends that exporters of cotton yarn do not pay the export tax to offset the IPI credit premium until well after receipt of the credit. Such a lag constitutes an interest free loan to the exporters, i.e., a countervailable benefit. Moreover, because of the high rate of inflation, the delayed payment of the tax is worth far less in real terms than the amount of IPI credit premium exporters receive.

Department's Position: We agree in part. In our notice of preliminary results we stated that the IPI credit premium has been offset by an export tax since June 26, 1981. We have since discovered that, while this tax has been imposed since June, 1981, it was not collected until December 1982.
We consider that lag in collection to have conferred a benefit to the producers equivalent to an interest free loan, in the amount of the tax owed, rolled over monthly until the tax was actually paid. Under current practice, the offset tax is to be paid 45 days after the end of the month in which the shipment earning the premium occurred. For purposes of calculating the benefit, we consider the interest free loan to begin on the date the tax was due, 45 days after the end of the month of shipment.
As a commercial benchmark we have used the monthly Banco do Brasil rate for discounts of accounts receivable. The monthly rate in 1982 was 4.97 percent. We calculated the ad valorem benefit to be 7.76 percent. For purposes of the cash deposit of estimated countervailing duties, we believe the tax is now collected within the 45 days and the potential benefit under this program therefore is zero.

Comment 3: The petitioner argues that the Department can only really answer the issues in Comment 2 through verification.

Department's Position: The Department maintains that neither section 751 of the Tariff Act nor the Commerce Regulations requires verification of information submitted in the course of an administrative review. We have long held that verification in section 751 administrative reviews is discretionary. See, e.g., "Final Results of Administrative Review of Countervailing Duty Order" on bicycle tires and tubes from Korea (48 FR 32205, July 14, 1983). The Department has appealed the decision of the Court of International Trade requiring the Department to verify in every review (A1 Tech Specialty Steel v. United States, Slip Ops. 83-119 and 83-120 (November 21, 1983)).

Committee 4: The petitioner contends that the offset tax on exports of cotton yarn to the United States, even if immediately paid, would not eliminate the subsidy benefit conferred by the IPI program, since exporters of cotton yarn continue to receive cash payments for exports to other countries.

Department's Position: The petitioner's contention assumes that the money received from subsidies on exports of cotton yarn goes into a common fund from which companies can draw to continue subsidizing exports of cotton yarn to the United States. The petitioner's argument maintains that an export subsidy on particular shipments of a particular product, exported to a particular country, benefits the sales of other shipments of that product or other products to other countries. We disagree. An export subsidy provides an incentive encouraging sales to the particular export market. To neutralize the incentive, the Department assesses a countervailing duty equal to the subsidy. If one ignores the incentive effect and accepts that the money received from the export subsidy goes into a commond fund, then the export product or market to which the sunsidy is actually tied receives no more benefit from the subsidy than any other product or market. We would have to allocate the benefit attributable to all types of subsidies on all products to all countries (including the domestic market) over total sales of all products to all countries

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(including to domestic market) when determining countervailing duties.
The Department believes it is more logical to assume that subsidies are designed to benefit the market to which they are tied and that a rational business will use those benefits accordingly. Thus, by collecting an offset tax to exports of cotton yarn to the United States, the Government of Brazil has eliminated a subsidy benefit on exports to the United States and removed any unfair incentive to export to the United States.

Comment 5: The petitioner argues that, for purposes of determining the cash deposit of estimated countervailing duties, the Department must consider the effect that alleged new subsidies provided after the review period will have on exporters of cotton yarn. By ignoring this possible effect, the Department has applied a double standard, since the Department took into account reported changes in the preferential financing program after the review period that lowered the estimated countervailing duty deposit rate and is unwilling to do the same for changes that increase the deposit rate.

Department's Position: In determining the potential benefit attributable to the preferential financing program, we had firm information with which to calculate a rate for estimated duty deposit purposes, while we did not have sufficient information for the alleged new programs. Furthermore, we have no knowledge that exporters of cotton yarn received benefits from these programs established in 1983. The Department will consider in the next administrative review any possible subsidies to exporters of cotton yarn resulting from these new programs.

Final Results of the Review

Based on our analysis of the timely comments, we determine the aggregate net subsidy to be 15.16 percent for the period January 1, 1982 through December 31, 1982. On August 3, 1981, the International Trade Commission ("the ITC") notified the Department that the Government of Brazil 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 would be material injury or threat of material injury to an industry in the United States if the order were revoked, the Department will instruct the Customs Service to assess countervailing duties in the amount of estimated duties required to be deposited on all unliquidated entries of Brazilian cotton yarn 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.
Further, 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 2.72 percent of the entered value on all shipments of cotton yarn 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 intends to begin immediately the next administrative review.
The Department encourages interested parties to review the public record and submit applications for protective orders, if desired, as early as possible after the Department's receipt of the information in the next 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).
Dated: April 12, 1984.

Alan F. Holmer,
Deputy Assistant Secretary, for Import Administration.