50 FR 7206

NOTICES

DEPARTMENT OF COMMERCE

[C-351-062]

Pig Iron From Brazil; Preliminary Results of Administrative Review of Countervailing Duty Order

Thursday, February 21, 1985

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AGENCY: International Trade Administration/Import Administration, Commerce.

ACTION: Notice of Preliminary Results of Administrative Review of Countervailing Duty Order.

SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty order on pig iron from Brazil. The review covers the period January 1, 1982, through December 31, 1982.

As a result of the review, the Department has preliminarily determined the aggregate net subsidy for the period to be 17.83 percent ad valorem. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: February 21, 1985.

FOR FURTHER INFORMATION CONTACT: Peggy Clarke or Richard Henderson, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, D.C. 20230; telephone: (202) 377-2786.

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SUPPLEMENTARY INFORMATION:

Background

On March 16, 1984, the Department of Commerce ("the Department") published in the Federal Register (49 FR 9923) the final results of its last administrative review of the countervailing duty order on pig iron from Brazil (45 FR 23045, April 4, 1980) and announced its intent to conduct the next review. As required by section 751(a)(1) of the Tariff Act of 1930 ("the Tariff Act"), the Department has now conducted that review.

Scope of the Review

Imports covered by the review are shipments of Brazilian pig iron of basic, foundry, malleable, and low phosphorous grades. Such merchandise is currently classifiable under item 606.1300 of the Tariff Schedules of the United States Annotated.
The review covers the period January 1, 1982, through December 31, 1982, and thirteen programs: (1) Preferential financing for exports through CACEX; (2) an income tax exemption for export earnings; (3) the export credit premium for the Industrial Products Tax ("IPI"); (4) preferential financing under CIC- CREGE 14-11; (5) incentives for trading companies (Resolution 643); (6) partially-indexed long-term loans; (7) fiscal benefits for special export programs ("BEFIEX"); (8) tax reductions on equipment used in export production ("CIEX"); (9) accelerated depreciation for Brazilian-made capital goods; (10) preferential financing for the storage of merchandise destined for export (Resolution 330);l (11) preferential export financing under Resolution 68 ("FINEX"); (12) remission on export of indirect taxes other than IPI; and (13) special tax credits to firms located in Brazil's less developed regions.

Analysis of Programs

(1) Preferential Financing for Exports

Under this program, the Department of Foreign Commerce of the Banco do Brasil ("CACEX") declares companies eligible to receive working capital loans at preferential rates. These loans have a duration of up to one year. During the period of review, each firm producing pig iron could obtain preferential financing for up to 20 percent of the value of its previous year's exports.
During 1982, the companies reviewed had loans outstanding under Resolution 674 (effective January 22, 1981) of the Banco Central do Brasil. Resolution 674 had a maximum interest rate of 40 percent and required two interest payments, one 180 days after the loan was granted and one when the principal was repaid.
In past reviews, we calculated the benefit from a loan by prorating the loan amount over the portion of the review period during which the loan was outstanding irrespective of the timing of interest payments. We now believe that the benefit occurs when the case flow effect occurs. For loans under Resolution 674, that effect occurred when the borrower made the preferential interest payments.

Although we have changed our methodology, in this review we continued to straddle those loans that we had straddled in the last review. For new loans, not included in the last review, we calculated the benefit based on the date of payment. For each new loan with interest payments during 1982, we divided the number of days of each portion of the loan (the date of the drawdown to the date of the initial interest payment and the date of the initial interest payment to the date of the final interest payment) by 365 days. We applied the resulting ratio to the interest differential (the difference between the annual commercial benchmark and the Resolution 674 interest rate at the time of drawdown) and multiplied the result by the affected loan principal.
To find the interest differential for our calculations, we compared two effective rates. For our benchmark, we took the national average effective rate for thirty-day discounts of accounts receivable as found in Analise/Business Trends. We then compounded this rate to find the annual commercial benchmark. The effective preferential rates on the straddled loans varied between 40.42 and 44 percent. The commercial benchmark for these loans was 92.23 percent. Therefore, the interest differential for the straddled loans ranged from 48.23 to 51.81 percent. The new loans also had effective preferential rates varying between 40.42 and 44 percent. However, the commercial benchmark at the time the borrowers contracted for these loans, here the time of drawdown, was 127.93 percent. Thus, the interest differential for the new loans ranged from 83.93 to 87.51 percent. We preliminarily determine the total net subsidy from this program to be 3.17 percent ad valorem.
On January 2, 1984, the Banco Central do Brasil issued Resolution 882 to succeed Resolution 674. Resolution 882 required only one interest payment, when the principal was repaid. It also set the maximum interest to be charged as the rate for "full monetary correction" (as calculated by the change in readjustable treasury bonds, "ORTN") plus 3 percent per annum. In September 1984, the Banco Central do Brasil issued Resolution 950 superseding Resolution 882 and changing the program substantially. Resolution 950 applies retroactively back to January 1984. We do not have sufficient information to analyze the effect of these changes, and therefore, we have not considered these program-wide changes in establishing the cash deposit of estimated countervailing duties.

(2) Income Tax Exemption for Export Earnings

Exporters of pig iron are eligible under this program for an exemption from income tax of the percentage of profit attributable to export revenue. The Brazilian government calculates the tax-exempt fraction of profit as the ratio of export revenue to total revenue. The benefit equals the product of the amount of tax-exempt profit times the prevailing 35 percent corporate income tax rate. We preliminarily determine the benefit from this program to be 1.22 percent ad valorem.

(3) IPI Export Credit Premium

Exports of pig iron are eligible for the maximum IPI export credit premium. The Brazilian government reimburses in cash a percentage of the f.o.b. invoice price of the exported merchandise to exporters through the bank involved in the export transaction.
The Brazilian government eliminated the IPI export credit premium on December 7, 1979, but reinstated it on April 1, 1981. On June 26, 1981, the Brazilian government imposed an export tax to offset the benefit of the premium on exports to the U.S. However, we found that no firms paid this tax before December 1982, at which time they paid it without any monetary correction, interest, or penalties.
We consider the lag in collection to be a benefit to the exporters equal to an interest free loan in the amount of the tax owed, rolled over monthly, until they actually paid the tax. Under current practice, exporters are to pay the offset tax 45 days after the end of the month in which the shipment earning the premium occurred. To calculate the benefit, we considered the interest free loan to begin on the date the tax was due (i.e., 45 days after the end of the month of shipment).
As a commercial benchmark, we used the monthly discount rate (described for the Resolution 674 program), compounding for the number of months the hypothetical loan was outstanding in 1982. Using this, we preliminarily determine the ad valorem benefit to be

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13.01 percent. For the cash deposit of estimated countervailing duties, we believe the Brazilian government now collects this tax at the appropriate time and the potential benefit under this program therefore is zero.

(4) Preferential Export Financing Under CIC-CREGE 14-11

CIC-CREGE 14-11 is a program operated by the Banco do Brasil that provides preferential financing to exporters, who are then required to maintain a minimum fixed level of foreign exchange with the Banco do Brasil. Exporters of pig iron participated in the program in 1982.
We calculated the benefit in a manner similar to that used for Resolution 674 financing. There is no maximum interest rate for this program, and interest payments are normally made quarterly with the full principal repaid at the end of the loan term. All loans outstanding in 1982 had an interest rate of 55 percent. To calculate the benefit, we continued to straddle those loans that we had straddled in the last review. There was only one additional loan that had an interest payment during the period of review. We calculated the benefit from that loan based on the interest payment date as we did for new loans under Resolution 674. We preliminarily determine the benefit conferred by this program to be 0.19 percent ad valorem.

(5) Incentives for Trading Companies (Resolution 643)

Under this program, CACEX declares trading companies eligible to receive loans at preferential rates. Eligible firms have access to a line of credit which can be drawn down to purchase goods for export. The trading companies use the loan principal as advance payment for the goods purchased. These loans are subject to the same interest constraints as Resolution 674 loans. Normally, the term of the loan is not to exceed 180 days but the actual length varies, running from the date of receipt of the loan to the date of shipment of the goods. The interest is paid in full at the end of the loan term. During verification, we found that one firm received a loan under this program for the purchase of pig iron for export. We did not receive the full information we requested on this loan, and we therefore used the best information available, found in the accounts of the firm that sold the pig iron to the trading company.
We took the annual preferential interest rate (37 percent) and the same annual benchmark as for Resolution 674 and found an interest differential of 90.93 percent. Using the same calculation method as for new Resolution 674 loans, we preliminarily determine the ad valorem benefit under this program to be 0.24 percent.

(6) Other Programs

We also examined the following programs and preliminarily find that exporters of pig iron did not use them during 1892.
A. Partially-indexed long-term loans;
B. Fiscal benefits for special export programs ("BEFIEX");
C. Tax reductions on equipment used in export production ("CIEX");
D. Accelerated depreciation for Brazilian-made capital goods;
E. Preferential financing for the storage of merchandise destined for export (Resolution 330);
F. Preferential export financing under Resolution 68 ("FINEX");
G. Remissions on export of indirect taxes other than IPI; and
H. Special tax credits to firms located in Brazil's less developed regions.

Preliminary Results of the Review

As a result of our review, we preliminarily determine the aggregate net subsidy to be 17.83 percent ad valorem for the period of review. Accordingly, the Department intends to instruct the Customs Service to assess countervailing duties of 17.83 percent of the f.o.b. invoice price on any shipments exported on or after January 1, 1982, and on or before December 31, 1982.
Because of the changes in these programs described above, we preliminarily determine the potential subsidy, for purposes of the cash deposit of estimated countervailing duties, to be 4.82 percent. The Department intents to instruct the Customs Service to collect cash deposits of estimated countervailing duties, as provided by section 751(a)(1) of the Tariff Act, of 4.82 percent of the entered value on all shipments of the merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review. This deposit requirement shall remain in effect until pubication of the final results of the next administrative review.
Interested parties may submit written comments on these preliminary results within 30 days of the date of publication of this notice and may request disclosure and/or a hearing within 10 days of the date of publication. Any hearing, if requested, will be held 45 days after the date of publication or the first workday thereafter. Any request for an administrative protective order must be made no later than 5 days after the date of publication. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in such written comments or at a hearing.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and § 355.41 of the Commerce Regulations (19 CFR 355.41).
Dated: February 13, 1985.

Alan F. Holmer,
Deputy Assistant Secretary Import Administration.