NOTICES

                                     DEPARTMENT OF COMMERCE

                                            [C-351-405]

             Preliminary Affirmative Countervailing Duty Determination; Certain Cast-Iron
                                    Pipe Fittings From Brazil

                                    Wednesday, December 19, 1984

*49319
                                     (Cite as: 49 FR 49319, *49319)

AGENCY: Import Administration, International Trade Administration, Commerce.

ACTION: Notice.

SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the
  countervailing duty law are being provided 
                                     (Cite as: 49 FR 49319, *49319)

to manufacturers, producers, or exporters in Brazil of certain types of cast- iron pipe fittings. The estimated net
subsidy is 24.78 percent ad valorem and 21.18 percent ad valorem for bonding purposes.

We have notified the United States International Trade Commission (ITC) of our determination. We are directing the
U.S. Customs Service to suspend liquidation of all entries of certain cast-iron pipe fittings from Brazil that are
entered or withdrawn from warehouse for consumption, after the date of publication of this notice, and to require a cash
deposit or bond on entries of these products in the amount equal to the estimated net subsidy.

If this investigation proceeds normally, we will make our final determination by February 25, 1985.

EFFECTIVE DATE: December 19, 1984.

FOR FURTHER INFORMATION CONTACT:

Laurel LaCivita or Vincent Kane, Office of Investigations, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230; 
                                     (Cite as: 49 FR 49319, *49319)

telephone: (202) 377-3530 (LaCivita) or (202) 377-5414 (Kane).

SUPPLEMENTARY INFORMATION: .

  Preliminary Determination

Based upon our investigation, we preliminarily determine that there is reason to believe or suspect that certain benefits
which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being
provided to manufacturers, producers, or exporters in Brazil of certain cast-iron pipe fittings. For purposes of this
investigation, the following programs are found to confer subsidies:
- IPI Export Credit Premium and Export Tax;
- Income Tax Exemption for Export Earnings;
- Working Capital Financing for Exports (Resolutions 674 and 882); and
- Export Financing Under the CIC-CREGE 14-11 Circular.
We determine the estimated net subsidy to be 24.78 percent ad valorem and 21.18 percent ad valorem for bonding purposes.

Case History


                                     (Cite as: 49 FR 49319, *49319)

On September 18, 1984, we received a petition from the Cast-Iron Pipe Fittings Committee, on behalf of the U.S.
industry producing certain cast-iron pipe fittings. In compliance with the filing requirements of § 355.26 of our
regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in Brazil of certain
  cast-iron pipe fittings directly or indirectly receive benefits which constitute subsidies within the meaning of section
701 of the Act, and that these imports materially injure or threaten material injury to a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and
on October 9, 1984, initiated duty investigation, and on October 9, 1984, we initiated such an investigation (49 FR 28290).
We stated that we expected to issue a preliminary determination by December 12, 1984.
Since Brazil is a "country under the Agreement" with the meaning of section 701(b) of the Act, an injury
  determination is required for this investigation. Therefore, we notified the ITC of our initiation. On November 2, 1984,
the ITC determined that there is a reasonable indication that these imports materially injure or threaten material injury to a
U.S. industry (49 FR 37856).
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C. on October 18,
1984. On November 26, 1984, we 
                                     (Cite as: 49 FR 49319, *49319)

received a response to the questionnaire.

Scope of the Investigation

The products covered by this investigation are certain cast-iron pipe fittings, which are defined for purposes of this
proceeding as: cast-iron fittings, not malleable, other than alloy cast iron and other than for use with cast-iron soil pipe; or
cast-iron fittings, malleable, advanced in condition by operations or processes subsequent to the casting process, or if not
advanced, of other than alloy cast-iron as currently provided for in items 610.6240, 610.6500, 610.7000 and 610.7400 of
the Tariff Schedules of the United States, Annotated (TSUSA).
There is only one known producer and exporter in Brazil of certain cast-iron pipe fittings to the United States,
Fundicao Tupy, S.A., for which we have received information from the government of Brazil. For purposes of this
  preliminary determination, the period for which we are measuring subsidization ("the review period") is Fundicao
Typy, S.A.'s 1983 fiscal year--April 1, 1983 to March 31, 1984.

Analysis of Programs


                                     (Cite as: 49 FR 49319, *49319)

Throughout this notice, we refer to certain general principles applied to the facts of the current investigation. 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,"
which was published in the April 26, 1984, issue of the Federal Register (49 FR 18006).
Consistent with our practice in preliminary determinations, where a response to an allegation denies the existence of
a program, receipt of benefits under a program, or eligibility of a company or industry under a program, and the Department
has no persuasive evidence showing that the *49320
                                     (Cite as: 49 FR 49319, *49320)

response is incorrect, we accept the response for purposes, of the preliminary determination. All such responses, are
subject to verification. If the response cannot be supported at verification, and the program is otherwise countervailable, the
program will be considered a subsidy in the final determination.
In its response, the government of Brazil provided data for the applicable period, including financial statements and debt
information for Fundicao Tupy, S.A.
Based upon our analysis of the petition and the responses to our questionnaire, we preliminarily determine the following:


                                     (Cite as: 49 FR 49319, *49320)

I. Programs Determined To Confer Subsidies

We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of
certain cast-iron pipe fittings under the following programs:

A. IPI Export Credit Premium and Export Tax

Brazilian exporters of manufactured products are eligible for a tax credit on the Impo>=3sto sobre produtos Industrializados
(Industrialized Products Tax, or IPI). The IPI export credit premium, a cash reimbursement paid to the exporter upon the
export of otherwise taxable industrial products, 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).
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 
                                     (Cite as: 49 FR 49319, *49320)

  Brazil gradually reduced the benefit from 15 percent to 11 percent in the March to September period of 1982. We divided
the credits earned by Fundicao Tupy, S.A. in fiscal year 1983 over the value of that company's exports in that year, and
calculated a net subsidy of 10.6 percent ad valorem.
However, it is our policy to take into account program-wide changes announced before the preliminary determination
   for cash-deposit purposes. On September 12, 1984, the government of Brazil instituted Portaria No. 176, which
reduced the IPI Export Credit premium to 9 percent effective on November 1, 1984, and to 7 percent effective on December
1, 1984. Therefore, we preliminarily determine the rate shall be 7 percent ad valorem for bonding purposes.

B. Income Tax Exemption for Export Earnings

Under Decree-Laws 1158 and 1721, exporters of cast-iron pipe fittings are eligible for an exemption from income tax
on a portion of profits attributable to export revenue. Because this exemption is tied to exports and is not available for
domestic sales, we preliminarily determine it to confer a subsidy. Fundicao Tupy, S.A. took an exemption from income tax
payable in 1983 on a portion of export profits earned in 1982. We multiplied that portion by the normal corporate tax rate,
and allocated the benefits over the total value of 1983 exports to calculate a subsidy rate of 0.99 percent ad valorem.

                                     (Cite as: 49 FR 49319, *49320)


C. Working Capital Financing for Exports (Resolutions 674 and 882)

Resolution 882 financing, administered by the Carteira do Come>=1rcio Exterior (CACEX) of the Banco do Brasil, is a form of
short-term lending of working capital to purchase inputs for the production of goods destined for export. On January 1, 1984,
Resolution 882 superseded Resolution 674, under which such financing was previously granted. Eligibility for 674/882
financing is determined on the basis of past export performance or of an acceptable export plan. The amount of available
financing is calculated by making a series of adjustments to the dollar value of exports. Following CACEX approval of their
applications, participants in the program receive certificates representing portions of the total dollar amount for which 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.
The interest rate ceiling was raised from 40 to 60 percent on loans obtained under the program on June 11, 1983. On January
1, 1984, Resolution 882 changed the interest rate to full monetary correction plus 3 percent, with 
                                     (Cite as: 49 FR 49319, *49320)

the interest and principal payable in one lump sum at the expiration of the loan.
Since Resolution 674/882 financing is contingent on export performance, and provides funds to participants at interest rates
lower than those available from commercial sources, we preliminarily determine that this program confers an export
subsidy.
Although the government of Brazil stated in its response that Fundicao Tupy, S.A. participated in this program, it failed
to provide the Department with adequate information concerning its Resolution 674/882 loans. Therefore, using the best
information available, we attributed the maximum benefit allowable under this program to Fundicao Typy, S.A.
Respondent reports that the maximum amount that can be borrowed under this program is 22 percent of the previous year's
exports. Consequently, we assumed that Fundicao Typy, S.A. borrowed an amount equal to 22 percent of their fiscal 1982
exports on the first day of the review period, and repaid it on the last day of their fiscal year. We used the compounded
minimum nominal discount rate on accounts receivable (not reflecting compensating balances), as our benchmark for these
loans. We allocated the benefit over the total value of all exports and calculated a subsidy rate of 6.89 percent ad valorem.
(For further discussion of this benchmark, see Final Affirmative Countervailing Duty Determination; Oil Country
Tubular Goods from Brazil, 49 FR 46570).

                                     (Cite as: 49 FR 49319, *49320)


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 in the form of
tangible 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.
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 882 loans have a maximum eligibility of 10 percent. All *49321
                                     (Cite as: 49 FR 49319, *49321)

others have a maximum eligibility of 15 percent.
Although this program does in certain aspects appear to operate on a commercial basis, the government of Brazil did not
supply sufficient data, 
                                     (Cite as: 49 FR 49319, *49321)

either in previous cases or in its current response, to support its 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 nominal rates on 14-11 loans with our commercial benchmark, i.e., the
nominal discount rate of accounts receivable, as the best information available. This comparison shows that the rate on 14-11
loans is below the benchmark.
Fundicao Tupy, S.A. obtained loans under this program. To calculate the benefit, we compared the interest rates charged
with the appropriate benchmark and applied the difference to the principal amounts. We then allocated the benefit over the
total value of Fundicao Tupy's exports, which resulted in a subsidy rate of 6.3 percent ad valorem.

II. Programs Determined Not To Confer a Subsidy

A. Income Tax Deductions for Foreign Selling Expenses

The petition alleges that the government of Brazil offers income tax deductions for foreign selling expenses, although
such deductions are not 
                                     (Cite as: 49 FR 49319, *49321)

allowed for equivalent domestic expenses.
The government of Brazil states in its response that income tax deductions for foreign selling expenses are granted under
the same general criteria as equivalent domestic expenses, and that such expenses are deductible, if justified by accounting
records, regardless of where the expense occurred. The government of Brazil further notes that Fundicao Tupy, S.A. uses
a wholly-owned commercial subsidiary in the United States, so that the deductibility of expenses in the United States is
irrelevant.
Because the deductions are apparently available for all selling expenses, we preliminarily determine this program not to be a
subsidy.

III. Programs Determined Not To Be Used

We preliminarily determine that manufacturers, producers or exporters in Brazil of certain cast-iron pipe fittings
did not use the following programs, listed in our notice: Initiation of a Countervailing Duty Investigation: Cast-Iron
Pipe Fittings from Brazil (49 FR 40431).

A. IPI Tax Rebates for Capital Investment

Decree-Law 1547, enacted in April 1977, provides funding for approved 
                                     (Cite as: 49 FR 49319, *49321)

expansion projects in the Brazilian steel industry through a rebate of the IPI, a value-added tax imposed on domestic sales.
The government of Brazil stated in its response that steel fabricators, and producers of pipes and pipe fittings, are not
eligible for IPI rebates under Decree-Law 1547. Accordingly, we preliminarily determine that this program was not used by
the producers of the products under investigation.

B. Resolution 330 of the Banco Central do Brasil

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 cast-iron pipe fittings would be eligible for financing under this
program. However, the government of Brazil stated in its response that Fundicao Tupy, S.A. did not participate in this
program during the review period. We preliminarily determine that this program was not used.

C. Resolution 68 (FINEX) Financing

Resoultion 68 of the conselho Nacional do Come>=1rcio Exterior (CONCEX) provides that CACEX may draw upon the
resources of the Fundo de Financiamento a>=2 Exportac>=9ao (FINEX) to extend dollar-denominated loans to foreign
buyers 
                                     (Cite as: 49 FR 49319, *49321)

of Brazilian goods. Financing is granted on a transaction-by-transaction basis.
In its response, the government of Brazil stated that the respondents did not receive Resolution 68 financing on
transactions with the United States during the review period. We preliminarily determine that this program was not used by
the producers of the products under investigation.

D. 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 domonstrate that the machinery or equipment for which an
exemption is sought was not available from a Brazilian producer. The investment project must be deemed to be feasible and
the recipient must demonstrate that there is a need for added capacity in Brazil.
The government of Brazil stated in its response that Fundicao Tupy, S.A. did not receive incentives under this program
during the review period. We preliminarily determine that this program was not used by the producers of the 
                                     (Cite as: 49 FR 49319, *49321)

products under investigation.

E. The BEFIEX Program

The Comissao para a Concessao de Beneficios Fiscais a Programas Especiais de Exportacao (Commission for the Granting of
Fiscal Benefits to Special Export Programs, or BEFIEX) grants at least three categories of benefits to Brazilian exporters:
- Under Decree-Law 77.065, BEFIEX may reduce by 70 to 90 percent import duties and the IPI tax on the importation of
machinery, equipment, apparatus, instruments, accessories and tools neccessary for special export programs approved by
the Ministry of Industry and Trade, and may reduce by 50 percent import duties and the IPI tax on imports of components,
raw materials and intermediary products;
- Under article 13 of Decree No. 72.1219, BEFIEX may extend the carry-forward period for tax losses from 4 to 6 years; and
- Under article 14 of the same decree, BEFIEX may allow special amortization of pre-operational expenses related to
approved projects.
In its response, the government of Brazil stated that the respondent did not participate in this program. Accordingly, we
preliminarily determine that this program was not used during the review period.

                                     (Cite as: 49 FR 49319, *49321)


F. The CIEX Program

Decree-Law 1428 authorized the Comissao para Incentivos a>=2, Exportac>=9ao (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. In its
response, the government of Brazil stated that Fundicao Tupy, S.A. did not receive any benefits under this program.
Accordingly, we preliminarily determine that this program was not used by the producers of the products under
investigation.

*49322
                                     (Cite as: 49 FR 49319, *49322)

G. Accelerated Depreciation for Capital Goods Manufactured in Brazil

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. According
to the government of Brazil, Fundicao Tupy, S.A. did not participate in this program during the review period. We
preliminarily determine that this program was not used.

H. Local Tax Incentives

                                     (Cite as: 49 FR 49319, *49322)


Petitioner alleges that the respondent benefited from certain unspecified local tax measures and incentives in Brazil. In
its response, the government of Brazil states that it knows of no local tax measures that would benefit the respondents.
Because we have no information that indicates that Tupy may have received local tax benefits, we preliminarily determine
this program not to be used.

I. Incentives for Trading Companies

Petitioner alleges that the respondent distributes its export sales through such intermediaries as trading companies, and that
under Resolution 643 of the Banco Central do Brasil, trading companies can obtain export financing similar to that obtained
by manufacturers under Resolution 674/882. In its response, the government of Brazil stated that the respondent was
ineligible for participation in this program, because such participation is precluded by receipt of Resolution 674/882
financing. Accordingly, we preliminarily determine that this program was not used during the review period.

J. Government Guarantees on Long-Term Loans


                                     (Cite as: 49 FR 49319, *49322)

Petitioners allege that the respondents benefited from certain government guarantees on long-term foreign-currency loans.
In its response, the government of Brazil states that Fundicao Tupy, S.A. received no government guarantees on
long-term foreign currency loans. Therefore, we preliminarily determine this program not to be used by the producers of the
products under investigation.

K. The PROEX Program

Petitioner alleges that short-term credits for exports were established under the Programa de Financiamento a Producao
para a Exportacao (PROEX). previously referred to as the Apolio a Exportacao program. In its response, the government of
  Brazil stated that Fundicao Tupy, S.A. did not participate in this program during the review period. Accordingly, we
preliminarily determine this program not to be used.

IV. Programs for Which Additional Information Is Needed

A. The Foundry Plan

Petitioner alleges that Fundicao Tupy, S.A. receives incentives under the 
                                     (Cite as: 49 FR 49319, *49322)

Third Basic Plan of Scientific and Technological Development, which calls for the "strengthening of indigenous foundries with
the active participation of the government."
In its response, the government of Brazil claims that the Basic Plan of Scientific and Technological
Development--1980-1985 (PBDCT) does not provide benefits or specific assistance to companies or other entities. It further
states that the PBDCT is a policy statement intended to stimulate use of private and public sector resources in scientific and
technological development, and that any support for scientific and technological development of the sectors named in the
PBDCT is provided in the normal programs of other government entities and is not specified in the PBDCT.
Petitioner submitted a copy of the Third Basic Plan of Scientific and Technological Development for the Sub-Sector of
Foundry (Iron, Steel and Non- Ferrous Metals). Although this document lists objectives, justifications, trustees, beneficiaries
and budget allocations for programs designed to strengthen indigenous foundries, it does not provide sufficient information
to determine if the program confers a countervailable benefit or if it was used by the respondent company.
We therefore intend to seek further information concerning this program.

B. Program for Pilot Industries
                                     (Cite as: 49 FR 49319, *49322)


Petitioner alleges that the government of Brazil established special provisions for granting fiscal and financial benefits for
pilot industrial plants.
The government of Brazil responded that Decree-Law 1137 established such a program December 7, 1970, which was
administered by the Conselho de Desenvolvimento Industrial (CDI) under the provisions of Resolution No. 22 of October 24,
1972. The fiscal programs under Decree-Law 1137 and CDI Resolution No. 22 were terminated by Decree-Law 1726 on
December 7, 1979. The government of Brazil further states that the Fundicao Tupy, S.A. received no fiscal benefits under
the pilot industries program of CDI, nor did it receive any financial assistance under this program relating to the products
under the investigation.
Because it is possible that the respondent company received financial assistance under this program for products such as
cast-iron, which are not subject to the investigation, but are integral to the production of the subject merchandise, we will
seek further information concerning this program.

Suspension of Liquidation

In accordance with section 703(d) of the Act, we are directing the U.S. 
                                     (Cite as: 49 FR 49319, *49322)

Customs Service to suspend liquidation of all entries of certain cast-iron pipe fittings from Brazil which are
entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal
Register and to require an ad valorem cash deposit or bond for each such entry of this merchandise at 21.18 percent ad
valorem. This suspension will remain in effect until further notice.

  Preliminary Negative Determination of Critical Circumstances

Petitioner alleged that critical circumstances exist within the meaning of section 703(e)(1) of the Act, with respect to
  cast-iron pipe fittings from Brazil. In determining whether critical circumstances exist, we examine whether:
(a) The alleged subsidy is inconsistent with the agreement, and
(b) There have been massive imports of the subject merchandise over a relatively short period.
In this case, information on the record does not indicate that imports of the merchandise under investigation surged over a
relatively short period of time within the meaning of section 703(e)(1) of the Tariff Act of 1930. Therefore, we preliminarily
determine that critical circumstances do not exist with respect to cast-iron pipe fittings from Brazil.

                                     (Cite as: 49 FR 49319, *49322)


ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making
available to the ITC all non- provileged and non-confidential information relating to this investigation. 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 determine whether these imports materially injure or threaten *49323
                                     (Cite as: 49 FR 49319, *49323)

material injury to a U.S. industry 120 days after the Department makes its preliminary affirmative determination
or 45 days after its final affirmative determination, whichever is latest.

Public Comment

In accordance with § 355.35 of our regulations, we will hold a public hearing, if requested, to afford interested parties an
opportunity to comment on this preliminary determination at 10:00 a.m. on January 17, 1985, at the U.S.
Department of Commerce, room 1851, 14th Street and Constitution Avenue, NW., 
                                     (Cite as: 49 FR 49319, *49323)

Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant
Secretary for Import Administration, room B-099, at the above address within 10 days of the publication of this notice.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason
for attending; and (4) a list of the issues to be discussed. In addition, at least 10 copies of pre-hearing briefs must be
submitted to the Deputy Assistant Secretary by January 11, 1985. Oral presentations will be limited to issues raised in the
briefs. All written views should be filed in accordance with 19 CFR 355.34, within 30 days of the publication of this notice, at
the above address and in at least 10 copies.
This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).

C. Christopher Parlin,

Acting Deputy Assistant Secretary for Import Administration.

December 12, 1984.


                                     (Cite as: 49 FR 49319, *49323)

[FR Doc. 84-33035 Filed 12-18-84; 8:45 am]

BILLING CODE 3510-05-M