NOTICES
DEPARTMENT OF COMMERCE
[C-351-021]
Certain Carbon Steel Products From Brazil; Final Affirmative Countervailing
Duty Determinations
Thursday, April 26, 1984
*17988
(Cite as: 49 FR 17988, *17988)
AGENCY: International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits that constitute subsidies within the meaning of the countervailing
duty law are being provided to manufacturers, producers, or exporters in Brazil of certain carbon steel products.
The net
(Cite as: 49 FR 17988, *17988)
subsidy is 36.48 percent ad valorem for COSIPA, 62.18 percent ad valorem for CSN, and 17.49 percent ad valorem for
USIMINAS. In addition, we have determined that critical circumstances exist with respect to the importation of certain
carbon steel products from Brazil. Therefore, we have notified the United States International Trade Commission (ITC)
of our determinations. We are directing the U.S. Customs Service to continue to suspend liquidation of all entries of
certain carbon steel products from Brazil that are entered, or withdrawn from warehouse, for consumption, on or after
November 12, 1983, and to require a cash deposit or bond on these products in the amount equal to the estimated net
subsidy.
EFFECTIVE DATE: April 26, 1984.
FOR FURTHER INFORMATION CONTACT: Mary S. Clapp, Andrew Debicki, or Alain Letort, 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, 377-5403, or 377-5050.
SUPPLEMENTARY INFORMATION:
(Cite as: 49 FR 17988, *17988)
Final Determinations
Based upon our investigations, we determine that certain benefits constituting 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 found to confer
subsidies:
1/8 Government Provision of Equity *17989
(Cite as: 49 FR 17988, *17989)
Capital
1/8 Government Guarantees on Long-Term Loans
1/8 Short-Term Export Financing (Resolution 674)
1/8 Export Financing under the CIC-CREGE 14-11 Circular
1/8 IPI Export Credit Premium
1/8 Funding for Expansion through IPI Tax Rebates
1/8 CDI Program (Exemption of IPI Tax and Customs Duties on Imported Equipment)
We determine the net subsidy to be 36.48 percent ad valorem for COSIPA, 62.18 percent ad valorem for CSN, and 17.49
percent ad valorem for USIMINAS.
Case History
On November 10, 1983, we received petitions from the United States Steel
(Cite as: 49 FR 17988, *17989)
Corporation ("U.S. Steel"), of Pittsburgh, Pennsylvania, on behalf of the U.S. industries producing hot- and cold-rolled
carbon steel sheet, cut-to-length plate and plate in coils. In compliance with the filing requirements of § 355.26 of our
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 constituting 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. industry. U.S. Steel
withdrew its petition covering hot-rolled carbon steel plate cut to length.
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 preliminarily determinations by February 3, 1984.
Since Brazil is a "county under the Agreement" within the meaning of section 701(b) of the Act, injury
determinations are required for these investigations. Therefore, we notified the 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
(Cite as: 49 FR 17988, *17989)
Brazil in Washington, D.C., on December 16, 1983. On January 16, 1984, we received a response to the questionnaire,
followed by supplementary responses on January 24, 25, and 27, and March 9, 1984.
On February 3, 1984, we preliminary determined that benefits constituting subsidies within the meaning of the
countervailing duty law were being provided to manufacturers, producers, or exporters in Brazil of certain
carbon steel products (49 FR 5157). On February 28, 1984, U.S. Steel amended the petitions to allege that critical
circumstances exist with respect to imports of certain carbon steel products from Brazil. On March 29, 1984, we issued
a notice of "Preliminary Affirmative Determinations of Critical Circumstances" (49 FR 13726). Both petitioner
and respondents filed briefs pertaining to these investigations prior to and after our preliminary determinations.
In addition, the following interested parties submitted written comments: Bethlehem Steel Corporation ("Bethlehem"), and
Republic Steel Corporation, Inland Steel Company, Jones & Laughlin Steel Incorporated, and Cyclops Corporation ("the
Four"). We received no requests for a public hearing.
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
(Cite as: 49 FR 17988, *17989)
(certain carbon steel products), which are described in the "Product Description Appendix" attached to this notice.
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). For purposes of
these final determinations, our period of review is calendar year 1982.
Analysis of Programs
Throughout this notice, we reference general principles applied to the facts of the current investigations. These principles
are described in the "Subsidies Appendix" attached to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from
Argentina; Final Affirmative Countervailing Duty Determination and Countervailing Duty Order" in this
issue of the Federal Register.
In its responses, the government of Brazil provided data for the applicable period, including financial statements and
debt information for COSIPA, CSN, and USIMINAS.
For purposes of these final determinations, we are calculating an ad valorem
(Cite as: 49 FR 17988, *17989)
subsidy rate for each company. We allocated the benefits received by each respondent in 1982 over the total sales value or
export value, as appropriate, of each respondent.
Based upon our analysis of the petition and the responses to our questionnaire, we determine the following:
I. Programs Determined To Confer Subsidies
We determined that subsidies are being provided to manufacturers, producers, or exporters in Brazil of certain carbon
steel products under the following programs.
A. Government Provision of Equity Capital. Siderurgia 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
majority shareholder of nine Brazilian steel producers and a minority shareholder of one small Brazilian steel producer.
During 1977-1982, SIDERBRAS provided its steel firms with funds in the form of loans, grants or equity. The amounts
received include loans made to COSIPA, CSN AND USIMINAS by the Banco Nacional do Desenvolvimento Econo>=3mico e
(Cite as: 49 FR 17988, *17989)
Social (National Bank for Economic and Social Development, or BNDES, formerly known as BNDE) and assumed by the
Brazilian government through SIDERBRAS. These transactions are in effect debt-to-equity conversions by the government
of Brazil. All funds provided to these companies are specifically for expansion projects and are not available to cover
operating losses.
We have consistently held that government provision of, or assistance in obtaining capital does not per se confer a subsidy.
Government equity purchases or financial backing bestow a countervailable benefit only when provided on terms
inconsistent with commercial considerations.
For purposes of these final determinations, we conducted a comprehensive review of the companies' financial data
and all other factors on the record relevant to a determination of inconsistency with commercial considerations. In
order to determine whether a company was a reasonable equity investment (a condition we have termed
"equityworthiness"), we focused on the rate of return on equity and long-term prospects for the companies in question for
the period 1977 through 1982. We examined financial ratios, profits and losses, and other factors, such as market demand
projections and *17990
(Cite as: 49 FR 17988, *17990)
current operating results, to evaluate a company's current and future ability to earn a reasonable rate of return on equity
investments.
Based on these factors, as applied to information on the record, we find COSIPA and CSN to be unequityworthy between
1977 and 1982, and USIMINAS to be
(Cite as: 49 FR 17988, *17990)
equityworthy between 1977 and 1979 and unequityworthy between 1980 and 1982. Consequently, the action of the
government in taking an equity position in these companies in those years is inconsistent with commercial considerations
and may confer a subsidy.
To calculate the benefit, we compared the companies' rates of return on equity with the average rate of return in Brazil
for the year in question. We then applied the "rate of return" shortfall to all purchases of equity that we consider to be
inconsistent with commercial considerations. For these final determinations, we used the nationwide rate of return
on equity in Brazil as published by Business Latin America. We determine the ad valorem benefit is 20.36 percent for
COSIPA, 24.5 percent for CSN, and 3.73 percent for USIMINAS.
B. Government Guarantees on Long-Term Loans. With respect to loans and loan guarantees, we determined whether the
companies under investigation were "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.
For purposes of these final determinations, we assessed the creditworthiness of COSIPA, CSN, and USIMINAS for the
period 1977 through 1982. Based on the financial measurements outlined above, we find COSIPA to be uncreditworthy
between 1977 and 1982, CSN to be creditworthy in 1977 and 1978 and uncreditworthy between 1979 and 1982, and
USIMINAS to be creditworthy between
(Cite as: 49 FR 17988, *17990)
1977 and 1979 and uncreditworthy between 1980 and 1982.
In 1982, the government of Brazil guaranteed a debenture that was floated by USIMINAS on the Japanese market. The
issuance was made in a period in which we consider USIMINAS to be uncreditworthy. To determine whether 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 a risk premium, as outlined in the Subsidies Appendix. Our analysis
showed that the loan guarantee was inconsistent with commerical considerations.
Moreover, we obtained at verification lists of long-term loans in foreign currency received by each of the three companies
involved in these investigations under Resolutions 63 and 4131 of the Banco do Brasil. Because these long-term loans in
foreign currency were guaranteed by the government of Brazil in years during which the companies were
uncreditworthy, and evidence on the record suggests that government guarantees on foreign-currency loans are not
generally available in Brazil, we used the methodology for "Loans and Loan Guarantees to Uncreditworthy Companies"
described in the Subsidies Appendix to determine whether they were inconsistent with commerical considerations. Our
analysis indicates that these loans were made at preferential interest rates.
SIDERBRAS also guaranteed long-term loans in cruzeiros provided by BNDES and FINAME, which are described below in
sections II.B and C of this notice. Government guarantees are not countervailable if they are provided on equal
(Cite as: 49 FR 17988, *17990)
terms to a wide range of industries. We have no evidence to indicate that the government of Brazil guarantees these
loans only to a specific industry or group of industries. In addition, we note that the loan guarantees appear to be without
effect, since the guarantor is also the lender itself. Finally, we note that, in addition to the SIDERBRAS guarantee, all BNDES
loans are secured by company fixed assets to at least 130 percent of the loan value. We verified that each respondent's
fixed assets were more than sufficient to cover their outstanding long-term debt, including BNDES/FINAME loans. Since
even uncreditworthy companies can receive commerical interest rates on secured loans, we believe these guarantees
bestow no subsidy. Therefore, because we have no information that SIDERBRAS guarantees on BNDES/FINAME loans are
provided to a specific industry or group of industries, and because they do not appear to be provided on terms
inconsistent with commerical considerations, we determine that SIDERBRAS guarantees of BNDES/FINAME loans do not
confer a subsidy upon the products under investigation.
For loans with fixed interest rates, we applied the loan methodology for uncreditworthy companies described in the
Subsidies Appendix. For our discount rate, we calculated each company's weighted cost of capital by using nationwide debt
costs and rate of return on equity figures, which are described in more detail below.
We treated all loans with variable interest rates as short-term loans, and
(Cite as: 49 FR 17988, *17990)
compared the principal and interest a company would pay a normal commerical lender in any given year with amounts
actually repaid in that year under these loans.
For the benchmark rate, we used was the London Inter-Bank Offered Rate ("LIBOR") plus the highest observed commerical
spread and the risk premium as explained in the Subsidies Appendix.
We allocated the benefits from these guaranteed loans over the total sales of the products under investigation in 1982 and
calculated a subsidy of 0.20 percent ad valorem for COSIPA, 0.37 percent ad valorem for CSN, and 0.06 percent ad
valorem for USIMINAS.
C. Short-Term Financing (Resolution 674). Resolution 674 financing, administered by the Carteira do Come>=1rcio
Exterior (CACEX) of the Banco do Brasil, is a form of short-term borrowing to obtain working capital to purchase inputs for
the production of goods destined for export. Eligibility is determined on the basis of past exports or an acceptable export
plan. The amount of available financing is calculated by making a series of adjustments to the value of exports and is
denominated in dollars. During the review period, the interest rate ceiling on loans obtained under the program was 40
percent. COSIPA, CSN, and USIMINAS have participated in the program.
Following CACEX approval of their applications, participants in the program receive certificates representing portions of
the total dollar amount for which
(Cite as: 49 FR 17988, *17990)
they are eligible. The certificates may be presented to banks in return for cruzeiros at the exchange rate in effect on the
date of presentation. Use of a certificate establishes a loan obligation with a term of up to one year (360 days). Certificates
must be used within 12 months of the date of issue and loans incurred as a result of their use must be repaid within 18
months of that date.
Since Resolution 674 financing is contingent on export performance, and provides funds to participants at interest rates
lower than those available from commercial sources, we determine this program confers an export subsidy. To calculate
the subsidy, we used as our benchmark the national average discount rate of accounts receivable, as published in
Ana>=1lise/Business Trends. All three companies demonstrated that they discounted accounts receivable to raise
short-term capital.
In the past, we have used an uncompounded nominal discount rate of *17991
(Cite as: 49 FR 17988, *17991)
accounts receivable by the Banco do Brasil as our benchmark for Resolution 674 loans. We now feel that this rate is
inappropriate, since (1) compounding is necessary in order to equate the charges on a 90-day loan with an annual loan,
and (2) because it is our policy to use national average benchmarks for short-term loan analysis (see the Subsidies
Appendix). The national average discount rate of accounts receivable includes an average compensating balance required
by Brazilian banks. The facts gathered in this
(Cite as: 49 FR 17988, *17991)
investigation indicate that such compensating balances are a standard requirement for discounting accounts receivable.
We have evidence that no such compensating balances are required for Resolution 674 loans.
We calculated the benefit as of the date of repayment of the laon. We applied the difference between the benchmark and the
Resolution 674 rate to the amount of repayment. We allocated the resulting amount over the total value of all exports by
the companies under investigation. We calculated a subsidy rate of 4.61 percent ad valorem for COSIPA, 22.36 percent ad
valorem for CSN, and 1.82 percent ad valorem for USIMINAS.
D. Export Financing Under the CIC-CREGE 14-11 Circular. Under its CIC-CREGE 14-11 circular ("14-11"), the Banco do Brasil
provides 180- and 360-day cruzeiro loans for export financing, on the condition that companies applying for these loans
negotiate fixed-level exchange contracts with the bank. Companies obtaining a 360-day loan must negotiate exchange
contracts with the bank in an amount equal to twice the value of the loan. Companies obtaining a 180-day loan must
negotiate an exchange contract equal to the amount of the loan. In addition to requiring exchange contracts, the Banco do
Brasil requires that these loans be fully secured by collateral, which must be traceable property. The bank normally
requires that the value of collateral equal at least 130 percent of the amount of the loan. The bank also charges a
commission on all such loans.
(Cite as: 49 FR 17988, *17991)
All exporters of manufactured products with production cycles of less than 180 days may apply for these loans. The
maximum level of eligibility is based on the value of the applicant's exports in the previous year. Companies receiving
Resolution 674 loans have a maximum elegibility of 10 percent. All others have a maximum eligibility of 15 percent.
Although this progrram does in certain aspects appear to operate on a purely commercial basis, respondents have not
supplied sufficient data to support their assertion that commissions, exchange contract requirements and collateral
requirements serve to raise the effective rates on these loans to a level of comparability with those on short-term loans
from other commercial sources. Without sufficient information with which to quantify these additional charges, we must
compare unadjusted rates on 14-11 loans with our commercial benchmark as the best information available. This
comparison shows that the rate on 14- 11 loans is below the benchmark.
COSIPA and CSN have both obtained loans under this program. COSIPA took out a 14-11 loan in 1980. Owing to a dispute
between COSIPA and the Banco do Brasil, this loan was not repaid until April of 1983. We verified that the loan was repaid
at the contracted interest rate plus an annual penalty fee of one percent. The penalty fee was added to COSIPA's contract
rate for purposes of comparison with the benchmark. CSN's 14-11 loan was taken out in 1981 and rolled over in 1982 at the
same interest rate. This was treated as two
(Cite as: 49 FR 17988, *17991)
separate loans, each of which was compared to the appropriate benchmark for the period in question.
To calculate the subsidy, we compared the interest rates charged with the appropriate benchmarks and applied the
difference to the principal amounts. We allocated the results over the total value of exports for COSIPA and CSN. This
yielded an ad valorem subsidy rate of 0.33 percent for COSIPA, 0.79 percent ad valorem for CSN, and 0.00 percent ad
valorem for USIMINAS.
E. IPI Export Credit Premium. 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 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
(Cite as: 49 FR 17988, *17991)
inputs. In order to receive the maximum export credit premium, the exporter must demonstrate that 75 percent of the
value added 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 in accordance with Brazil's commitment
pursuant to Article 14 of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General
Agreement on Tariffs and Trade ("the Subsidies Code"). The government of Brazil reduced 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.
We have used 11 percent as the nominal rate of the IPI export credit premium for the entire period of investigation. This is
consistent with our policy that we may recognize program-wide changes in a subsidy program that occur after the period
of investigation but prior to the preliminary determination.
We verified information regarding the use of the IPI credit premium by COSIPA, CSN, and USIMINAS on an earned basis (as
opposed to a receipt basis) for 1982. The utilization rates verified cover the IPI credit premiums accrued on all steel
exports, including the products under investigation.
(Cite as: 49 FR 17988, *17991)
We multiplied the most recent nominal rate of the credit premium by the respective utilization rates of the respondents to
arrive at the effective credit premium rate for each respondent, and calculated a net subsidy of 7.50 percent ad valorem
for COSIPA, 10.78 percent ad valorem for CSN, and 8.71 percent ad valorem for USIMINAS.
F. Funding for Expansion Through IPI Tax Rebates. Decree Law 1547, enacted in April 1977, provides funding for
approved expansion projects in the Brazilian steel industry through a rebate of the IPI, a value-added tax imposed on
domestic sales. The IPI tax is an indirect tax and, as such, is passed on to the consumer. A steel company collects this tax
on sales as an agent for the government, and does not pay the tax itself. Decree Law 1547 is a mechanism by which a steel
company is permitted to collect funds due the government and then receive a 95 percent tax rebate. The program does not
involve the rebate of *17992
(Cite as: 49 FR 17988, *17992)
payments made from the company's own funds.
Originally, the IPI tax applied to all domestic sales transactions. In 1979, the value-added tax was eliminated except for
producers in 14 industry sectors, including tobacco, automobiles, spirits and alcohol, ceramics, rubber, and steel. The tax
rate is different for each of the specified industry sectors; for steel products, the value-added tax is 5 percent.
A Brazilian steel compnay may deposit 95 percent of the net IPI tax due in a special account with the Banco do Brasil. The
amounts deposited are to be
(Cite as: 49 FR 17988, *17992)
applied to steel expansion projects. When rebated to the firms, they constitute tax-free capital reserves that must
eventually be converted into subscribed capital. COSIPA, CSN, and USIMINAS received benefits under this program from
1977 to 1981.
Under Decree Law 1843 (enacted in December 1980), the companies must now pay the full IPI tax to the government,
which in turn rebates 95 percent to SIDERBRAS in the form of capital increases.
Therefore COSIPA, CSN and USIMINAS did not receive countervailable benefits directly from this program in 1982. Yet we
consider the funds received by SIDERBRAS to be subsidies to its subsidiaries for those years when these companies were
unequityworthy and these funds were passed on to them in the form of equity infusions (discussed in section I.A of this
notice).
In order to calculate the benefit attributable to this program, we used the weighted cost of capital formula explained in the
Subsidies Appendix. Since we could not find company-specific long-term debt costs for the period under investigation, we
used national average debt costs as the best information available. For those years in which the companies were
considered creditworthy, we used the prime interest rate, as published in Morgan Guaranty Trust's World Financial
Markets. We chose the national average prime rate because we could find neither average commercial long-term cruzeiro
interest rates nor the national average discount rate of accounts receivable (our
(Cite as: 49 FR 17988, *17992)
preferred short-term interest rate). With regard to the equity variable in the weighted cost of capital formula, we used the
nation average rate of return on equity, as taken from Business Latin America data. We weight-averaged the debt and
equity variables by each company's respective debt-to-total-capitalization and equity-to-total-capitalization ratios. Using
our grant methodology for rebates received through 1981, we calulated an ad valorem subsidy rate of 3.21 percent for
COSIPA, 3.06 percent ad valorem for CSN, and 2.95 percent ad valorem for USIMINAS.
G. The CDI Program (Exemption of IPI Tax and Customs Duties on Imported Equipment). Under Decree Law 1428, the
Conselho do Desenvolvimento Industrial (Industrial Development Council, or CDI) provides 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 the 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 the repeal still receive these benefits pending completion of the project.
(Cite as: 49 FR 17988, *17992)
Although in our preliminary determinations we reversed our prior findings that this program was countervailable,
we ascertained at verification that receipt of this benefit is limited to projects in fourteen industries approved by the
government. Based on the record of these and earlier Brazilian countervailing duty investigations, we have no
evidence that this requirement does not allow the government to target benefits to particular companies. Accordingly, we
determine the CDI program confers a subsidy on the products under investigation. We expensed the benefit in the year of
receipt and calculated a net subsidy of 0.45 percent ad valorem for COSIPA, 0.37 percent ad valorem for CSN, and 0.22
percent ad valorem for USIMINAS.
II. Programs Determined Not To Confer Subsidies
We determine that subsidies are not being provided to manufacturers, producers, or exporters in Brazil of certain
carbon steel products under the following programs.
A. Raw Materials (Iron Ore) Supplied at Government-Controlled Rates. Petitioner alleges that Brazilian steel producers
benefit from government policies that maintain domestic iron ore prices at levels sustantially below international prices.
In our preliminary determinations, we found that the price controls on iron ore provided a benefit to "a specific
enterprise or
(Cite as: 49 FR 17988, *17992)
industry" on the basis of our belief that "the steel industry is by far the dominant user" of iron ore, and that the control led
to the "provision of . . . goods at preferential rates."
Upon further investigation, we found that the price controls on iron ore apply to sales by four producers of iron ore in
Brazil. The producers subject to price control consistently sell iron ore at prices that are below the set maximum
prices. Producers not subject to price controls sell iron ore at even lower prices. In addition, one of the Brazilian steel mills
under investigation owns its own iron ore mine. That mill produces all the iron ore it consumes, and sells its excess ore
production on the open market.
Based on this information, we determine that market forces rather than government-mandated price controls set the prices
of iron ore in Brazil. Therefore, we determine that the price control do not constitute the "provision of goods or
services" [section 771(5)(B)(ii) of the Act] at preferential rates and do not confer a subsidy on producers of the products
under investigation.
Because iron ore is not supplied at preferential rates, we need not address the issue of whether our preliminary
determination that price controls on iron ore provided a benefit to a specific enterprise or industry was correct.
B. BNDES Financing. Long-term financing in cruzeiros is available in Brazil only through government-controlled
financial institutions, such as BNDES and its subsidiary FINAME (see section II.C of this notice infra). BNDES provides
(Cite as: 49 FR 17988, *17992)
long-term financing for the purchase of capital equipment and for expansion projects. These 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. We verified that BNDES loans were made available to a broad
range of economic sectors throughout Brazil, e.g., agriculture and agro-industry, capital goods, consumer goods, civil
engineering, energy, infrastructure, and transportation. Therefore, we determine that BNDES loans are generally available
and do not confer a subsidy.
C. FINAME Loans. The Age>=3ncia Especial de Financiamento Industrial (Special Agency for Industrial Financing, or
FINAME), a subsidiary of BNDES, provides long-term cruzeiro financing for the purchase of capital equipment
manufactured in Brazil.
We verified that FINAME loans were provided to a broad range of industries throughout Brazil, such as agriculture,
*17993
(Cite as: 49 FR 17988, *17993)
chemicals, minerals, energy, electronics, pulp and paper, and transportation. Because FINAME loans are generally
available, we determine they do not confer a domestic subsidy.
D. Government Assistance in Repaying Foreign Loans (Aviso GB-588). Aviso GB- 588 is an internal government
communication providing that, under certain circumstances, the government of Brazil will assume obligations on the
direct dollar debt of companies unable to meet such overseas debt as it comes due.
(Cite as: 49 FR 17988, *17993)
Under the program, the Banco do Brasil assumes payments due overseas lenders with funds provided by the Central Bank
(Banco Central do Brasil). The assumed payments are converted into cruzeiro loans from the Banco do Brasil to the
companies. The program is open to any company that has incurred such debt subject to a government guarantee. COSIPA,
CSN, and USIMINAS have participated in the program.
Since the Aviso GB-588 program, one of several measures designed to deal with Brazil's overall hard currency debt
problems, is available to all companies unable to meet scheduled payments on government guaranteed direct dollar debt,
it does not operate to the sole benefit of any one industry or group of industries. Consequently, we consider this program
to be generally available and therefore not countervailable.
E. Rail Rate Subsidies Based on Payment in Steel. Petitioner alleges that barter agreements, under which Brazilian steel
mills pay the Rede Ferrovia>= 1ria Federal (Brazilian Federal Railways, or RFFSA) for freight charges with steel, result in
preferential rail transport rates for Brazilian steel producers. Petitioner further alleges that Brazilian steel producers may
derive independent benefits from a system of preferential rail transport rates.
Respondents acknowledge that COSIPA and CSN have concluded barter arrangements involving RFFSA, PETROBRAS (the
state-owned fuel company), and INTERBRAS, PETROBRAS's trading company subsidiary. COSIPA and CSN use RFFSA to
transport
(Cite as: 49 FR 17988, *17993)
their products. RFFSA purchases fuel from PETROBRAS. At the time of the arrangements, COSIPA and CSN owed funds to
RFFSA. RFFSA assigned its receivables due from COSIPA and CSN to PETROBRAS. This occurred at the same time
INTERBRAS was interested in obtaining steel for export. COSIPA and CSN agreed to satisfy the accounts transferred to
PETROBRAS by providing INTERBRAS with steel. The price to INTERBRAS for the steel was then offset against the amounts
due PETROBRAS under the receivables assigned by RFFSA.
The steel products involved in these transactions were valued on the basis of current list prices plus a percentage based on
estimated price increases expected to occur during the interim between the dates of contract and delivery. Subject to
certain controls imposed by the government on all commercial transactions in Brazil, the price or value placed on
steel sold to INTERBRAS by COSIPA and CSN was negotiated in accordance with CSN's and COSIPA's normal commercial
practice. There is no evidence that these transactions have resulted in preferential rail rates for COSIPA or CSN. Aside from
assigning its receivables to PETROBRAS, RFFSA has had a secondary role in those arrangements and has not received any
steel for its own use. There is no indication that Brazilian steel producers derive preferential benefits through these
arrangements either as a result of government direction or concessions by RFFSA.
We also found no evidence that Brazilian steel producers benefit from a
(Cite as: 49 FR 17988, *17993)
system of preferential rail transport rates. Rates charged by RFFSA are published. There is no differential between export
and domestic transactions. We established at verification that rail freight charges paid by Brazilian steel producers match
those on the published rate tables. Consequently, we determine that Brazilian steel producers do not benefit from
preferential rail rates either directly or as a result of the barter arrangement involving their accounts payable to RFFSA.
F. Supplier Credits (Non-Indexation of Accounts Payable). 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 freely decide whether accounts payable are to be indexed. At verification, we ascertained that certain
contracts with suppliers contained a monetary correction clause and others did not. We saw no evidence of any
government direction that supplier contracts not be indexed. In the absence of any evidence that non-indexation of
accounts payable is mandated by the government, we determine that no countervailable benefits are bestowed to the
products under investigation.
G. Simultaneous Devaluation and Imposition of Export Taxes. Petitioner alleges
(Cite as: 49 FR 17988, *17993)
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. 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 deliberately to 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 purposefully to benefit selected
untaxed exports, we do not consider its actions as conferring a countervailable subsidy.
H. Certain Labor Programs. Petitioner alleges the government of Brazil
(Cite as: 49 FR 17988, *17993)
has provided assistance for the training and career development of steel industry personnel.
We verified that the government of Brazil 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 that
were determined not to confer countervailable benefits in Carbon Steel Plate from Brazil (48 FR 2568 (January 20,
1983)) because they are generally available. Accordingly, we determine that this program does not confer a subsidy.
I. Certain Fiscal Incentives. Petitioner alleges that CSN received certain "fiscal incentives" mentioned in CSN's annual report
for 1982. During verification, we ascertained that these fiscal incentives *17994
(Cite as: 49 FR 17988, *17994)
consisted of a corporate tax credit from a previous year for equity investments made by CSN in a regional airline and a
regional development credit company in Brazil. This corporate tax credit is a standard deduction on Brazilian tax
forms and can be taken by any company that makes equity investments in regional development projects approved by the
government of Brazil. We verified that the corporate tax credit is available to all companies throughout Brazil.
Therefore, we determine that the program does not confer a subsidy on the products under investigation.
J. Certain Donations and Grants. Petitioner alleges that CSN received certain
(Cite as: 49 FR 17988, *17994)
"donations and grants" mentioned in CSN's annual report for 1982. We verified that these donations and grants consisted of
a gift of furniture and medical supplies to the CSN hospital by a private foundation. Accordingly, we determine that this
donation does not confer a subsidy upon the products under investigation.
K. Electricity Used in Steel Production. Petitioner alleges that Brazilian steel producers benefit from subsidized electricity.
We verified that the respondents pay for the electricity they consume according to published, non- preferential rates. We
therefore determine electric rates in Brazil do not confer a subsidy upon the products under investigation.
III. Programs Determined Not To Be Used
We 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." We intend to
re-examine these programs during any administrative review that may occur under section 751 of the Act.
A. Government Funds To Cover Operating Losses. Evidence currently on the record provides no basis for determining the
government of Brazil has provided funds to cover the operating losses of companies in the SIDERBRAS group.
(Cite as: 49 FR 17988, *17994)
Equity infusions into respondent steel companies were provided for expansion and are addressed in section I.A., supra.
Accordingly, we determine respondents have not benefited from government action to cover operating losses.
B. Local Tax Incentives/Special Tax Deductions for SIDERBRAS. In its response, the government of Brazil states that
there are no local tax measures that 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 other are profitable. However, such benefits received by CSN on its 1980
earnings extended only through 1981, because these are tax benefit that would be allocated solely to the year of receipt.
This concession was repealed shortly thereafter and this program no longer exists. Accordingly, we 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 which exempts a portion of profits attributable to export
revenue from income tax. We verified that, since respondents either reported no taxable income or were unprofitable
during the period for which we
(Cite as: 49 FR 17988, *17994)
are measuring subsidization, they were not in a position to take advantage of this program. Therefore, we find no
countervailing benefits to respondents 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 Brazilian tax laws. We verified that none of the respondents availed themselves 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 the
companies manufactured products to order during the review period and such products were not placed in bonded
warehouses. Accordingly, we determine that respondents did not use this program during the period for which we are
measuring subsidization.
F. The BEFIEX program. The Commissa>=6o para a Concessa>=6o de Benefi>=1cios Fiscais a Programas Especiais de
Exportac>=9a>=6o (Commission for the Granting of Fiscal Benefits to 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 importation of machinery,
equipment, apparatus, instruments, accessories
(Cite as: 49 FR 17988, *17994)
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.
We verified that none of the respondents 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. Moreover, receipt of
fiscal incentives under CDI program described supra makes a company ineligible for BEFIEX incentives.
G. Apo>=3io a>=2 Exportac>=9a>=3o (PROEX). Petitioner alleges that a new line of short-term credit for exports was
established under the Apo>=3io a>=2 Exportac>=9a>=3o (PROEX) program of BNDES. We found no evidence that the
respondents have participated in 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. We verified that none of the products under
investigation was exported by trading companies during the period in investigation.
I. Raw Materials (Charcoal and Slab) Supplied at Perferential Rates. 1.
(Cite as: 49 FR 17988, *17994)
Charcoal. Petitioner alleges that the government of Brazil has given fiscal incentives to encourage the expansion of
charcoal production through reforestation. we ascertained during our verification that the Brazilian steel industry does not
use wood charcoal in the steel production process.
2. Slab. Petitioner also alleges that Brazilian producers of hot- and cold- rolled sheet and plate in coil will soon be using
subsidized slab from SIDERBRAS' Tubarao mill. We verified that neither COSIPA, CSN, nor USIMINAS purchased slab from
the Tubarao mill 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 imports of coal.
During verification, despite our repeated requests, we were unable to obtain any sort of documentation on the Praia Mole
port. However, *17995
(Cite as: 49 FR 17988, *17995)
documentation submitted after verification by Bethlehem confirms the allegation in the petition. According to this
documentation, the Praia Mole facility is located at Ponta Tubara>=6o near Vito>=1ria in the state of Espi>= 1rito Santo.
Its purpose is to allow the Companhia Sideru>=1rgica de Tubara>= 6o (CST), Ac>= 9ominas, and USIMINAS to import coal
and export iron ore and steel. This documentation also indicates that Praia Mole, which is currently about half-completed,
was not used for the importation of coal before May 1983 or for the exportation of steel before December 1983.
Accordingly, we
(Cite as: 49 FR 17988, *17995)
determine no countervailable benefits were bestowed upon the products under investigation during the period for which
we are measuring subsidization.
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.
Since Decree Laws 2036 and 2100 establishing these programs were not in effect during the period for which we are
measuring subsidization, they fall outside the scope of this investigation.
L. The CIEX Program. Decree Law 1428 authorizes the Comissa>=6o para Incentivos a>=2 Exportac>=9a>=6o
(Commission for Export Incentives, or CIEX) to reduce import taxes and the IPI tax up to 10 percent on certain equipment
for use in export production. During verification, we ascertained this program serves the same purpose as the BEFIEX
program, but is aimed at small companies with low production and trade volumes. Respondents demonstrated that they
received similar benefits under the CDI program, which disqualifies them from receiving CIEX benefits. Accordingly, we
determine none of the respondents received benefits under this program.
M. Resolution 68 (FINEX) Financing. Resolution 68 of the Conselho Nacional do Come>=1rcio Exterior (CONCEX) provides
that CACEX may draw upon the resources
(Cite as: 49 FR 17988, *17995)
of the Fundo de Financiamento a>=2 Exportac>=9a>=6o (FINEX) to extend export loans to foreign buyers of Brazilian
goods. The loans are denominated in dollars and have a minimum term of 180 days. FINEX financing is arranged through
an exporter, who must demonstrate that the foreign buyer has pre-paid at least 15 percent of the invoice price of the goods
in question. The exporter receives the cruzeiro equivalent of the loan to the foreign buyer at the exchange rate prevailing
on the date these funds are received. When the loan comes due, the lending bank receives the principal plus interest in
dollars directly from the foreign buyer. The bank also retains any cruzeiro gains resulting from exchange rate fluctuations.
Though Resolution 68 loans are apparently intended primarily to facilitate export sales to developing countries or
non-traditional markets, we identified one such loan made in relation to the sale by USIMINAS of a product under
investigation to a U.S. buyer. However, the due date for repayment of this loan fell outside the period of review. Since
FINEX financing provides loans for export purposes at rates lower than those for comparable commercial loans, this loan
should be examined during any administrative review that may occur under section 751 of the Act.
IV. Export Taxes
(Cite as: 49 FR 17988, *17995)
On March 13, 1984, the government of Brazil informed us that it had imposed a 27.42 percent export tax on the
products under investigation. The government of Brazil requested that any subsidy found in the final
determination be offset by this export tax, if the Department would not agree to enter into a suspension agreement
covering these products.
Because this export tax was imposed outside the period of investigation and after the preliminary determinations,
it has no effect on the net subsidy amount. We may take into account any export taxes paid before the final
determination for purposes of setting the cash deposit only. In this case, because of the late imposition of the export
tax, we were unable to verify that it was paid. Consequently, we are not taking it into account in setting the cash deposit
rate. We will consider it, however, during any administrative review that may occur under section 751 of the Act.
The government of Brazil has requested that we offset the net subsidy by the amount of the export tax on plate in coil
imposed under the terms of the suspension agreement on carbon steel plate. We verified that this export tax was not paid
during the period of investigation; therefore, it has no effect on the net subsidy amount. Because we are proposing to
terminate the suspension agreement on carbon steel plate, we do not believe it is appropriate to take the export tax into
account for cash deposit purposes.
Also, we are concerned that, under past subsidy agreements, Brazil has not
(Cite as: 49 FR 17988, *17995)
always collected required export taxes on time. Such past non-collection casts doubt on Brazil's future timely
collections of export taxes. Second, the Brazilian press has reported that the 27.42 percent export tax "would be ploughed
back into the domestic steel industry to help finance expansion and modernization programs." Such reports raise concern
that even if collected, export taxes may be funneled back to Brazilian steel companies. In our next administrative review
under section 751 of the Act, we will consider whether or not to allow an export tax offset. In making such
determination, we will consider, among other factors, whether the export tax has been paid, the timeliness of
payment, and whether the payments have been funneled back into the steel industry.
Petitioner's Comments
Comment 1: Petitioner argues that iron ore produced internally in integrated facilities provides the same subsidy as iron
ore subject to government- controlled prices since the transfer price is the same as the controlled price.
DOC Response: Assuming arguendo that petitioner's theory is correct, because we found that government-mandated price
controls do not confer a subsidy, the internal transfer of iron ore at similar prices does not confer a subsidy.
Comment 2: Petitioner contends that the method we used in our preliminary
(Cite as: 49 FR 17988, *17995)
determinations to calculate the nationwide rate of return on equity was based incorrectly on the average change in
stock market yield indices and ignores payment of dividends.
DOC Position: In our preliminary determinations, we relied on the average change in stock market yield indices as
best information available. For purposes of our final determinations, we have used the average rate of return on
equity in Brazil for our calculations.
Comment 3: Petitioner asserts that the Department should have used the average rate of return on equity for major
Brazilian firms compiled by Moody's as the nationwide rate of return on equity.
DOC Position: We decided to use the nationwide average rate of return on equity excerpted from Business Latin America
because it is much broader-based than the rate compiled by Moody's. Moody's rate is an average of the rates of return on
equity of 47 blue-chip Brazilian firms, whereas Business Latin America publishes a national average rate of return on
equity for all industries.
Comment 4: Petitioner argues that the Department should not use ORTN [FN1] to *17996
(Cite as: 49 FR 17988, *17996)
adjust certain subsidy amounts expressed in real terms, because the rate of increase of ORTN significantly understates
inflation.
FN1 ORTN = Obrigac>=9o>=6es Reajusta>=1veis do Tesouro Nacional (Readjustable
(Cite as: 49 FR 17988, *17996)
Bonds of the National Treasury)
DOC Position: It is irrelevant whether the ORTN adjustment rate is a true reflection of inflation in Brazil, because this
index is universally used in that country for "monetary correction" purposes and represents the normal commercial
practice of that country. Consequently, we used the ORTN adjustment rate whenever we were comparing data expressed in
real terms with ORTN-adjusted data.
Comment 5: Petitioner contends that the fact that private lenders in Brazil are unwilling to make long-term cruzeiro
loans demonstrates that BNDES loans were made on terms inconsistent with commercial considerations.
DOC Position: Because BNDES loans are generally available, we need not address the issue of their commercial soundness.
Comment 6: Petitioner argues that we should use rolled-over short-term cruzeiro interest rates as a benchmark for
long-term loans in cruzeiros.
DOC Position: Since we determine that BNDES/FINAME loans are generally available, we do not have to address whether
these loans are made at non- commercial rates.
Comment 7: Petitioner argues that the benchmark for Resolution 674 loans should properly be the commercial interest
rate for short-term working capital loans.
DOC Position: In this and other cases involving Brazilian products, we have
(Cite as: 49 FR 17988, *17996)
verified that trade bill discounts represent the primary means in Brazil for obtaining short-term working capital loans.
Therefore, we have used the average short-term trade bill discount rates for Brazil published by Ana>= 1lise/Business
Trends as our benchmark for short-term loans.
Comment 8: Petitioner asserts that by using the proration method (as opposed to the payment method), the Department
significantly understated the benefit from Resolution 674 financing.
DOC Position: As discussed in section I.C of this notice, we have calculated the benefits from this program as of the date of
repayment.
Comment 9: Petitioner argues that if the Department's policy is to take into account program-wide changes after the period
of investigation that are favorable to respondents (such as the decrease in the nominal rate of the IPI export credit
premium), it should also take into account changes that are unfavorable to respondents, such as purchases of subsidized
slab from the Tubara>=6o steel mill by CSN and USIMINAS.
DOC Position: As a general rule, we may take into account program-wide changes which occur after the period of
investigation and before the preliminary determination if we have verified information on the change and the
magnitude of the resulting subsidy. We have verified the decrease in the nominal rate of the IPI export credit premium,
and have information, such as domestic slab usage, necessary for our subsidy calculations. We do not have verified
(Cite as: 49 FR 17988, *17996)
information to take into account other changes, such as the change in the Resolution 674 interest rate, and the purchase of
allegedly subsidized slab from Tubara>=6o.
Comment 10: With respect to the Aviso GB-588 program, petitioner contends the Department should assume that
respondents are not making any principal or interest payments on their loans.
DOC Position: Since we found this program to be generally available, we do not need to address the issue of repayment.
Respondents' comments
Comment 1: Respondents argue that the Department should have entered into a suspension agreement with the
government of Brazil when the latter imposed an export tax on the products under investigation in the amount of the
estimated net subsidy after the preliminary determinations.
DOC Position: Under secion 704 of the Act, we have discretion to enter into a suspension agreement only if we find that
suspension of the investigation is in the public interest and effective monitoring by the United States is practicable. The
legislative history of the Act stresses that sus pension "is an unusual action which should not become the normal means of
disposing of cases" [S. Rep. No. 96-249, 96th Cong., 1st Sess. 54 (1979)]. Moreover, we
(Cite as: 49 FR 17988, *17996)
recently proposed to terminate two export tax suspension agreements with Brazil, largely because the government did
not collect the required export taxes for up to five months [49 FR 11864 (March 28, 1984)]. Under these circumstances, we
exercised our discretion not to enter into an export tax suspension agreement.
Comment 2: Respondents argue that since the IPI export credit premium will terminate in April 1985, we should include in
our final determinations instructions to adjust the deposit rates downward on goods exported after that date.
DOC Position: We cannot take into account program-wide changes that have not yet been implemented. When the phaseout
of the IPI export credit premium actually takes place, we will take it into account in any administrative review that may
occur under section 751 of the Act.
Comment 3: The Department should take into account the reduced value of the IPI export credit premium to the
respondents because of sometimes lengthy delays incurred in receiving this benefit.
DOC Position: Under section 771(6)(B) of the Act, an offset is allowed for "any loss in the value of the subsidy resulting from
its deferred receipt, if the deferral is mandated by Government order." In the case of the IPI export credit premium, no
such government mandate exists. Delays in a company's receipt of IPI credits are purely administrative, frequently the
result of a
(Cite as: 49 FR 17988, *17996)
company's tardy application for the benefit. No offset is allowed in such a case.
Comment 4: Respondents argue, with reference to IPI tax rebates for capital investments, that the rebate or elimination of
an industry-specific tax such as the IPI constitutes a generally available benefit and therefore does not confer a subsidy.
DOC Position: Not all steel companies receive this rebate. Although the same level of IPI tax is applicable to all steel
products, only companies producing certain priority products and whose expansion projects are government-approved
can receive the rebate. Fabricators of steel products, such as pipe and tube manufacturers who purchase coil, are not
eligible for the rebate. COSIPA, CSN, and USIMINAS themselves have not been eligible for the rebates since December
1980, when Decree Law 1843 directed that rebates of the IPI tax collected on sales by state-owned steel companies accrue
to SIDERBRAS. Therefore, the rebates are not generally available and constitute a selective benefit to targeted producers.
Comment 5: Respondents argue that since IPI tax rebates for capital investment are paid only on goods sold in the
domestic market, no products exported to the United States benefit from the rebate and therefore no subsidy is conferred.
DOC Position: We disagree. That the rebates are generated by domestic sales
(Cite as: 49 FR 17988, *17996)
only does not alter the fact that they benefit all production, including exports.
Comment 6: Respondents contend that since IPI tax rebates are provided in the form of capital contributions and may not
be used to cover losses or pay dividends, the Department should treat them as equity infusions made on terms not
inconsistent with commercial considerations.
*17997
(Cite as: 49 FR 17988, *17997)
DOC Position: Prior to December 1980, IPI tax rebates flowed directly to the companies in the form of grants; we therefore
treated them as grants. After December 1980, the rebates went directly to SIDERBRAS for purposes of increasing its capital
investments in steel companies. We treated all equity infusions from SIDERBRAS into the steel companies as equity
purchases, to which we applied our equity methodology (see section I.A of this notice).
Comment 7: Regarding IPI tax rebates, respondents argue that the Department, in its preliminary calculations,
overestimated the net subsidy in calculating a "real rate of return" by comparing the ORTN adjustment rate to the prime
rate for short-term borrowing. Such a "real rate of return," it is alleged, does not reflect verified long-term cruzeiro loan
rates or the Department's own information on rates of return.
DOC Position: Because there is no commercial market for long-term loans in Brazil, we must turn to short-term interest
rates in constructing our weighted
(Cite as: 49 FR 17988, *17997)
cost of capital. This short-term rate must be expressed in the same terms (real or nominal) as the rate of return on equity.
Since the rate of return on equity is expressed in real terms, the interest rate must be adjusted likewise.
Comment 8: Respondents contend we should take into account the increase of the interest rate on Resolution 674 financing
to ORTN plus up to three percent, which was enacted in compliance with IMF requirements.
DOC Position: To calculate a change in interest rate of a preferential loan program that occurred after the period of
investigation, we need concurrent information on benchmark interest rates. We asked respondents for this information,
but they did not submit it in time for us to take into account the change in the Resolution 674 interest rate.
Comment 9: Respondents contend that the Imposto So>=3bre Operac>=9o>=6es Financeiras (IOF) is an indirect tax on
the production of goods for export, that the exemption of loans under Resolution 674 from this tax is not a subsidy, and
that if we determine that Resolution 674 financing provides a subsidy, we should consider this exemption as part of that
subsidy.
DOC Position: We disagree. The IOF is an indirect tax paid on domestic financial transactions. However, this fact is not
relevant. Since we are considering the discounting of a cruzeiro-denominated receivable, a transaction upon which the IOF
is paid, as the commercial alternative to Resolution 674 loans, it is entirely appropriate that we include the exemption of
Resolution
(Cite as: 49 FR 17988, *17997)
674 loans from the IOF as part of the subsidy in order to measure the full benefit provided under this program.
Comment 10: Respondents argue that the Department mistakenly considered Resolution 68 (FINEX) financing to confer a
subsidy since the terms of this financing are not inconsistent with commercial considerations.
DOC Position: For the reasons explained in section III.M of this notice, we will examine this issue during any administrative
review that may occur under section 751 of the Act.
Comment 11: Respondents contend that government loan guarantees did not result in preferential rates on long-term loans
contracted by respondents or on debentures floated on the international financial markets.
DOC Position: We disagree. During the period in which respondents were found to be uncreditworthy, government loan
guarantees enabled these companies to take out long-term loans in foreign currencies or float debentures in international
financial markets on terms inconsistent with commercial considerations.
Comment 12: Respondents argue the Department erred in finding government equity infusions in the Brazilian steel
companies to be inconsistent with commercial considerations by focusing on a restricted number of financial ratios and
ignoring the broader industrial and financial context in which these companies operate.
(Cite as: 49 FR 17988, *17997)
DOC Position: In making our final determinations of equityworthiness for COSIPA, CSN, and USIMINAS, we reviewed
all pertinent information on the record, including that provided by the respondents during verification in support of their
claims that the companies should be considered creditworthy and equityworthy. This information included the financial
statements for the relevant time periods as well as reports and projections pertaining to the companies' operations.
In arriving at these determinations, we considered all factors on the record that had a bearing on the past, current,
and future financial operations of the respondents. Such factors, where available, included the overall market demand for
steel, factory productivity, the progress of expansion programs, plant capacity utilization, financial resources,
management assessments, and effects of inflation on operations.
In developing the appropriate financial ratios and judging of the results of these ratios, we again took into account the
relevant factors. After we examined all these factors, we gave primary consideration to the rate of return on equity for
prior periods as well as projected rates of return in making our equityworthiness determinations.
Comment 13: Respondents submit that a review of the performance of each of the respondents over the past 15 years
demonstrates a history of profitability, losses being the exception rather than the rule.
(Cite as: 49 FR 17988, *17997)
DOC Position: Although the three companies earned some profits between 1967 and 1977, all three showed very low or
negative profits from 1977 onwards. Since a private invester will focus on a company's most recent performance as an
indication of future earning trends, we considered the more recent years to be more important to our analysis of
equityworthiness. Moreover, a demonstration of profits or earnings alone is not sufficient for a company to be
equityworthy. The rate of earnings per unit of equity, and not the absolute level of earnings, is a far more important
determinant of a company's performance. In our equity methodology, we place much greater weight on the rate of return
on equity than the absolute level of profits or losses.
Comment 14: Respondents argue that once an investment project is initiated, a company cannot halt its expansion plan
because of temporary economic conditions lest it lose its initial investment.
DOC Position: We agree that temporary economic fluctuations should not affect the reasonableness of an equity
investment, as long as a company is strong enough to ride out these fluctuations. However, the evidence on the record
suggests that the three companies' performance is largely the result of more permanent changes in conditions, such as
worldwide overcapacity in steel, price controls on domestic sales of steel, and weak financial conditions of the companies.
In such situations, we consider that further equity investments in these companies were inconsistent with commercial
considerations.
(Cite as: 49 FR 17988, *17997)
Comment 15: Respondents submit that the Department cannot use the same standard of equityworthiness when analyzing a
company in a period of expansion as when considering an outdated mill going through a period of contraction.
DOC Position: Although a private investor may be willing to wait longer for a return on investment in an expanding
company, he will eventually require a reasonable rate of return in relation to other investment opportunities in that
country. Indeed, because he may see no return in earlier *17998
(Cite as: 49 FR 17988, *17998)
years, he will expect a higher rate of return in later years. Given the conditions mentioned in Respondents' Comment 14, it
does not appear that the three companies would be able to generate a reasonable rate of return within a reasonable period
at the time some of the government equity infusions were made.
Comment 16: Respondents submit that the government of Brazil does not provide budget contributions or other
funding for the CIC-CREGE 14-11 program, which generates sufficient revenues to cover its long-term operating costs.
Respondents therefore contend that, under Annex A of the Subsidies Code, paragraphs (j) and (k), this program does not
confer a subsidy.
DOC Position: As discussed in section I.D of this notice, we determine that program is countervailable. Our
determination is based primarily on respondents' failure to provide sufficient information to verify that the program
does not provide preferential loans to exporters and covers its long-
(Cite as: 49 FR 17988, *17998)
term operating costs. Moreover, our uniform practice on this issue has been to calculate the subsidy provided under a
preferential loan program by comparing the preferential rate to the commercially available rate, rather than to the cost of
the funds to the government. As previously stated in our "Notice of Final Affirmative Countervailing Duty
Determination" regarding Ceramic Tile from Mexico (47 FR 20012), "(r)egardless of what effects the Illustrative List of
Export Subsidies may have on U.S. law otherwise, the uniform past practice on this issue in comparison with the legislative
history of the Trade Act requires us to calculate the bounty or grant provided under a preferential loan program on the
basis of a comparison between the preferential rate and the commercially available rate rather than on the basis of a
comparison with the cost of funds to the government."
Comment 17: Respondents suggest that the building of infrastructure, such as the port at Praia Mole, is a normal
government function and cannot confer a subsidy.
DOC Position: Since the port facilities at Praia Mole were not used during the period of investigation, the issue is moot. We
reserve the right to reexamine Brazilian government involvement in the construction of the Praia Mole port in any
administrative review that may occur under section 751 of the Act.
Comments by Interested Parties
(Cite as: 49 FR 17988, *17998)
Comment 1: The Four argue that certain accounting practices followed by the Brazilian steel companies in their financial
statements are not in accordance with generally accepted accounting principles in the United States, and that such
practices give a misleading picture of the respondents' financial health by overvaluing assets and profits and undervaluing
liabilities and losses.
DOC Position: We accepted the financial statements of the respondents, which were presented in accordance with the
generally accepted accounting principles in Brazil. These statements, which were audited by independent accounting
firms, were used in determining the creditworthiness and equityworthiness of the three companies.
Although the financial statements were not prepared in accordance with U.S. accounting principles, we analyzed the
financial reporting practices in Brazil, and found them to be reasonable given the high rate of inflation in that country.
Comment 2: The Four argue that government equity infusions in the Brazilian steel companies should be countervailed as
grants to cover operating losses.
DOC Position: This issue is moot as we are countervailing government equity infusions in the companies under
investigation during the period in which they were found to be unequityworthy. To countervail the very same funds under
the heading of loss coverage would be double counting. See also the DOC Position
(Cite as: 49 FR 17988, *17998)
on Comment 14 to the Subsidies Appendix.
Comment 3: Bethlehem contends that if the Department persists in using the discount of accounts receivable rate as
benchmark for the Resolution 674 financing, it should add an appropriate risk premium to the effective rate.
DOC Position: As stated in the Subsidies Appendix, we do not believe it is appropriate to add a risk premium to short-term
loan benchmarks.
Comment 4: The Four oppose the Department's use of the Banco do Brasil's discount of accounts receivable rate as the
benchmark for Resolution 674 export financing because it is lower than the rate of inflation in Brazil.
DOC Position: For short-term loans, we use an appropriate national average commercial benchmark, regardless of its
position relative to the rate of inflation in the country involved. We note that, especially in highly inflationary economies,
real interest rates have been negative at times.
Comment 5: With respect to the Aviso GB-588 program, Bethlehem argues that respondents are unlikely to repay their
foreign loans, as all three companies lack sufficient current assets to meet their current debts. Bethlehem argues, therefore,
that the Department should treat these loan moratoria as grants.
DOC Position: Since we determined this program to be generally available, we do not need to address this issue.
Comment 6: With respect to the Aviso GB-588 program, Bethlehem contends that "repayment"provision must be excluded
from the calculation of each company's
(Cite as: 49 FR 17988, *17998)
rate of return for purposes of calculating the subsidy arising from government equity infusions.
DOC Position: Since we determine this program to be generally available, we do not need to address this issue.
Comment 7: Should the Department persist in using the loan methodology for the Aviso GB-588 program, Bethlehem
maintains that the appropriate benchmark is the highest effective short-term interest rate plus a risk premium.
DOC Position: Since we determine this program to be generally available, we do not need to address this issue.
Comment 8: The Four object to the Department's subtraction of an inflation index from the interest rate to calculate the
discount rate for Brazil, since the effective cost of money includes the anticipated inflation rate.
DOC Position: We subtracted the ORTN adjustment rate from the nominal interest rate to make our initial calculations in
real terms. We adjusted these figures to nominal terms in the second step of our calculations using the ORTN adjustment
rate.
Comment 9: Bethlehem and the Four argue that the Department's risk premium for Brazil was grossly understated,
which led to a preliminary finding that USIMINAS's 1982 Japanese debenture was not floated on non-commercial
terms despite a government guarantee. Bethlehem suggests the Department should have used Brazilian rather than
Japanese debenture rates.
(Cite as: 49 FR 17988, *17998)
DOC Position: For purposes of these final determinations, we have based our analysis of this program on Japanese
debenture rates and the risk premium outlined in the Subsidies Appendix. Using this methodology, we found that the loan
guarantee of the yen-denominated debenture was inconsistent with commerical considerations. The debenture in question
was denominated in yen and floated in Japan. We compared this debenture with other yen-denominated debentures in
Japan, in keeping with our long-standing practice of taking a benchmark from the country in which the loan was made,
whenever possible (see the Subsidies Appendix for our policy on benchmarks for foreign loans).
Comment 10: Bethlehem argues that Brazilian steel producers benefit from *17999
(Cite as: 49 FR 17988, *17999)
preferential rail rates on bulk shipments of iron ore.
DOC Position: Since no allegation concerning preferential rail rates on bulk shipments of iron ore was received prior to the
preliminary determinations, we did not include it in our investigations. This matter should be addressed in any
subsequent review that may occur under section 751 of the Act.
Comment 11: Regarding Resolution 330 financing for export warehousing, Bethlehem contends that contrary to their
assertions, respondents must have warehoused steel for export because of bad weather in Brazil which allegedly
delayed export shipments by three to five weeks.
DOC Position: We saw no evidence at verification that such warehousing took place, or that loans under this program were
received by the companies
(Cite as: 49 FR 17988, *17999)
under investigation.
Comment 12: Bethlehem asserts that because exports of steel from Brazil by trading companies surged in 1983, it is
reasonable to assume that some exports of Brazilian steel to the U.S. benefited from incentives to trading companies.
DOC Position: Since our period of investigation is 1982, the issue need not be addressed until any administrative review
that may occur under section 751 of the Act.
Verification
In accordance with section 776(a) of the Act, we verified all the information used in making our final determinations.
Suspension of Liquidation
In accordance with section 703(d) of the Act, on February 10, 1984, we instructed the U.S. Customs Service to suspend
liquidation of all entries of certain carbon steel products from Brazil (49 FR 5157). On March 29, 1984, because we
issued a notice of "Preliminary Affirmative Determinations of Critical Circumstances" (49 FR 13726), we
retroactively ordered the suspension of liquidation to November 12, 1983. As of the date of publication of this
(Cite as: 49 FR 17988, *17999)
notice in the Federal Register, the liquidation of all entries, or withdrawals from warehouse, for consumption of this
merchandise will continue to be suspended and the Customs Service shall require an ad valorem cash deposit or bond for
each such entry of this merchandise as follows:
-------------------------------------------------------------------------------
Manufacturer/producer/exporter Ad valorem rate (percent)
-------------------------------------------------------------------------------
COSIPA .................................................................. 36.48
CSN ..................................................................... 62.18
USIMINAS ................................................................ 17.49
All other manufacturers/producers/exporters ............................. 36.95
-------------------------------------------------------------------------------
This suspension will remain in effect until further notice.
Final Affirmative Determination of Critical Circumstances
Where, as in this case, petitioners have alleged the existence of critical circumstances, section 705(a)(2) of the Act
requires us to include in our final determination "a finding as to whether--(A) the subsidy is inconsistent with
(Cite as: 49 FR 17988, *17999)
the Agreement, and (B) there have been massive imports of the class or kind of merchandise involved over a relatively
short period."
A. Consistency with the Subsidies Code. We have determined that the government of Brazil provides export subsidies
on the merchandise under investigation. As we noted in our preliminary determinations of critical circumstances
(49 FR 13726), Article 9 of the Subsidies Code prohibits the use of export subsidies on non-primary products. When given
by developed countries, such subsidies are inconsistent with the Subsidies Code and are actionable under its dispute
settlement provisions. However, Article 14 provides an exception for developing countries, provided they do not use
"export subsidies on their industrial products . . . in a manner which causes serious prejudice to the trade or production of
another signatory" (Article 14 § 3). For a developing country like Brazil, then, the issue is whether we find export
subsidies causing "serious prejudice" to U.S. steel trade or production. Under section 771(7)(C)(iii) of the Act, the ITC
evaluates all relevant economic factors bearing on the state of the industry, including actual and potential decline in
output, sales, market share, profits, productivity, return on investment, and capacity utilization. Thus, in making its
preliminary and final injury determinations, the ITC considers trade and production in the United States. We
conclude that, in principle, serious prejudice can exist where material injury to a U.S. industry occurs by reason
(Cite as: 49 FR 17988, *17999)
of imports benefiting from export subsidies.
Based upon the information in the record and the ITC's affirmative preliminary determination of December 27,
1983, we conclude that serious prejudice exists within the meaning of Article 14 § 3 [if the ITC's final determination
should be negative, our critical circumstances finding will become moot; in any event, under section 705(a)(4)(A) of the
Act, the ITC must make its own affirmative determination of critical circumstances to effect our affirmative finding].
Therefore, we find that Brazil's export subsidies on certain steel products are inconsistent with the Subsidies Code.
We stress that this finding is limited to the facts of these cases and the application of Article 14 § 3 of the Subsidies Code.
This finding draws no conclusion, and none should be inferred, with respect to the commitment made by the government
of Brazil under Article 14 § 5 of the Subsidies Code. Under Article 14 § 5, developing countries are urged to "enter into a
commitment to reduce or eliminate export subsidies when the use of such export subsidies is inconsistent with its
competitive and development needs." Article 14 § 6 precludes any signatory from taking countermeasures pursuant to the
provisions of Parts II and VI of the Subsidies Code against any export subsidies of such developing country, to the extent
that the subsidies in question are covered by a commitment made under Article 14 § 5.
Parts II and VI of the Subsidies Code concern notification of subsidies and
(Cite as: 49 FR 17988, *17999)
international dispute settlement. Significantly, Article 14 § 6 does not affect actions taken under Part I of the Subsidies
Code, concerning domestic countervailing duty proceedings.
We have considered comments provided by counsel for respondents, and consulted with the Office of the United States
Trade Representative. We concluded that, as a matter of law, we may find a developing country's export subsidies that
cause "serious prejudice" to be inconsistent with Article 14 §3 and, therefore, the Subsidies Code, for purposes of our
critical circumstances determination. We again note that our finding does not indicate any view regarding Brazil's
commitment under Article 14 §5 of the Subsidies Code.
B. Massive Imports. Information on the record indicates that imports of the merchandise under investigation have
increased dramatically. In considering this question, we compared the monthly average of imports from Brazil during
the period of July through October 1983, with the monthly average of imports for the period of November 1983 through
January 1984, the three months between our receipt of the petition and our preliminary determinations. These
comparisons show that the import volume of hot-rolled plate in coil increased by 316 percent, hot-rolled
*18000
(Cite as: 49 FR 17988, *18000)
sheet increased by 84 percent, and cold- rolled sheet increased by 22 percent.
Normally, we would also analyze imports from prior years in order to determine whether increased imports over a short
period could be attributable to factors
(Cite as: 49 FR 17988, *18000)
such as seasonal flows and, therefore, may not constitute massive imports over a short period of time for the purposes of
section 705(a)(2). In this case, we have not done so because Brazil is a comparatively new entrant in the U.S. market
with consequently low levels of exports of these products to the U.S. in 1981 and 1982.
Based on our comparisons of figures for the periods set forth above, we are persuaded that there have been massive
imports of hot-rolled carbon steel plate in coil, hot-rolled carbon steel sheet, and cold-rolled carbon steel sheet
over a short period of time.
For the reasons discussed above, we find that critical circumstances exist within the meaning of section 705(a)(2) of the
Act. We note that, pursuant to section 705(b)(4) the ITC makes its own determinations regarding critical
circumstances. Therefore, pending the ITC's final determination, the suspension of liquidation of entries for a period
of 90 days prior to our preliminary determinations shall remain in effect.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determinations. In addition, we are
making available to the ITC all non- privileged and non-confidential information relating to these investigations.
(Cite as: 49 FR 17988, *18000)
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 determination whether these imports are materially injuring, or threatening to materially
injure, a U.S. industry within 45 days of the publication of this notice.
If the ITC determines that material injury or the threat of material injury does not exist, this proceeding will be terminated
and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or
cancelled. If, however, the ITC determines that such injury does exist, we will issue an countervailing duty order,
directing Customs officers to assess a countervailing duty on certain carbon steel products from Brazil entered,
or withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the net subsidy amount
indicated in the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d).
Dated: April 18, 1984.
(Cite as: 49 FR 17988, *18000)
William T. Archey,
Acting Assistant Secretary for Trade Administration.
Product Description Appendix
For purposes of the investigations:
1. The term "carbon steel plate in coil" covers the following hot-rolled carbon steel products. Hot-rolled carbon
steel plate in coils is a flat-rolled carbon steel product in coils, 0.1875 inch or more in thickness and over 8 inches in width,
currently provided for in item 607.6610 of the Tariff Schedules of the United States, Annotated (TSUSA).
2. The term "hot-rolled carbonsteelsheet" 1 covers the following hot-rolled carbon steel products. Hot-rolled
carbon steel sheet is a flat-rolled carbon steel product, whether or not corrugated or crimped and whether or not
pickled; not cold-rolled; not cut, not pressed, and not stamped to non- rectangular shape; not coated or plated with metal;
0.1875 inch or more in thickness and over 8 inches in width and pickled, as currently provided for in item 607.8320 of the
TSUSA; or under 0.1875 inch in thickness and over 12 inches in width, whether or not pickled, as currently provided for in
items 607.6710, 607.6720, 607.6730, 607.6740, or 607.8342 of the TSUSA. Please note
(Cite as: 49 FR 17988, *18000)
that the description of hot-rolled carbon steel sheet includes some products classified as plate in the TSUSA.
3. The term "cold-rolled carbon steel sheet" [FN1] covers the following cold- rolled carbon steel products. Cold-rolled
carbon steel sheet is a flat-rolled carbon steel product, whether or not corrugated or crimpled, whether or not painted or
varnished and whether or not pickled; not cut, not pressed and not stamped to non-rectangular shape; not coated or plated
with metal; or 12 inches in width, and 0.1875 or more in thickness, as currently provided for item 607.8320 of the TSUSA;
or over 12 inches in width and under 0.1875 inches in thickness; as currently provided for in items 607.8350, 607.8355,
or 607.8360 of the TSUSA. Please note that the description of cold-rolled carbon steel sheet includes some products
classified as "plate" in the TSUSA.
FN11 "Sheet" is a generic term used in the steel industry for certain flat- rolled products. We have used the terms
"hot-rolled carbon steel sheet" and "cold-rolled carbon steel sheet" for purposes of clarity. These products are also
known as "hot-rolled carbon steel flat-rolled products" and "cold-rolled carbon steel flat-rolled products."
[FR Doc. 84-11297 Filed 4-25-84; 8:45 am]
(Cite as: 49 FR 17988, *18000)
BILLING CODE 3510-DS-M