(Cite as: 50 FR 11527)
NOTICES
DEPARTMENT OF COMMERCE
[C-351-408]
Preliminary Affirmative Countervailing Duty Determination; Iron Ore Pellets
From Brazil
Friday, March 22, 1985
*11527
(Cite as: 50 FR 11527, *11527)
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: 50 FR 11527, *11527)
to manufacturers, producers, or exporters in Brazil of certain types of iron ore pellets. The estimated net subsidy is
5.15 percent ad valorem.
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Customs Service to suspend liquidation of all entries of iron ore pellets from Brazil that are entered, or withdrawn from
warehouse, for consumption on or 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 May 29, 1985.
EFFECTIVE DATE: March 22, 1985.
FOR FURTHER INFORMATION CONTACT: Loc Nguyen or Peggy Clarke, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C. 20230;
telephone: (202) 377-0167 (Nguyen) or (202) 377-2786 (Clarke).
SUPPLEMENTARY INFORMATION:
(Cite as: 50 FR 11527, *11527)
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 iron ore pellets. For purposes of this investigation, the
following programs are found to confer subsidies:
Income Tax Exemption for Export Earning; and
Mineral Tax Incentives.
We determine the estimated net subsidy to be 5.15 percent ad valorem.
Case History
On December 20, 1984, we received a petition from The Cleveland-Cliffs Iron Company, Oglebay Norton Company,
Picklands Mather & Company, and the United Steelworkers of America on behalf of the U.S. iron ore pellets industry. 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 iron ore pellets directly or indirectly receive benefits which
(Cite as: 50 FR 11527, *11527)
constitute subsidies within the meaning of section 701 of the Act, and *11528
(Cite as: 50 FR 11527, *11528)
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 January 9, 1985, we initiated such an investigation (50 FR 2322). We stated that we expected to issue a preliminary
determination by March 15, 1985.
Since Brazil is a "country under the Agreement" within 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 February 4, 1985, the
ITC determined that there is a reasonable indication that these imports materially injure or threaten material injury to a
U.S. industry (50 FR 5286).
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C., on January
25, 1985. On February 27, 1985, we received a response to the questionnaire.
There is only one known producer and exporter in Brazil of iron ore pellets to the United States, Companhia Vale do
Rio Doce (CVRD), for which we have received information from the government of Brazil.
Scope of the Investigation
(Cite as: 50 FR 11527, *11528)
The product covered by this investigation is iron ore pellets. Iron ore pellets are defined, for purposes of this proceeding,
as fine particles of iron oxide, hardened by heating and formed into balls of 3/8 . to 5/8 . for use in blast furnaces to obtain
pig iron, as currently provided for in item 601.2450 of the Tariff Schedules of the United States, Annotated (TSUSA).
Pellets for use in electric furnaces and containing not over three percent by weight of silica are excluded. In our initiation
notice, we had inadvertently included TSUSA item 601.2430. This item covers iron ore, not concentrated and not sintered.
Iron ore pellets do not fall into this TSUSA item. Therefore, this item should not have been included in the scope.
Analysis of Programs
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
(Cite as: 50 FR 11527, *11528)
program, or eligibility of a company or industry under a program, and the Department has no persuasive evidence showing
that the 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 supportd 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 Companhia Vale
do Rio Doce (CVRD).
For purposes of this preliminary determination, the period for which we are measuring subsidization ("the review period")
is calendar year 1984.
Based upon our analysis of the petition and the responses to our questionnaire, we preliminarily determine the following:
I. Programs Determined To Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of
iron ore pellets under the following programs:
A. Income Tax Exemption for Export Earnings
(Cite as: 50 FR 11527, *11528)
Under Decree-Laws 1158 and 1721, exporters of iron ore pellets 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 be
countervailable. CVRD took an exemption from income tax payable in 1984 on a portion of export profits earned in
1983. We multiplied that portion by the nominal corporate tax rate, and allocated the benefit over the total value of 1984
exports to calculate a preliminary subsidy rate of 0.65 percent ad valorem.
B. Minerals Tax Incentives
Decree-Law No. 1038, as amended by Decree-Law No. 1172 and Decree No. 66694, establishes a tax on minerals ("I.U.M.").
Iron ore pellets are subject to this tax. The tax for iron ore pellets sold domestically is 15 percent of the ex- mine price plus
the value-added from marginal processing for transport (this includes pelletizing). The tax for exported iron ore pellets is
7.5 percent. This 7.5 precent tax is charged on 60 percent of the f.o.b. price which the government claims closely
approximates the ex-mine price. Payment of the I.U.M. exempts the firm from all other taxes except the income tax and all
(Cite as: 50 FR 11527, *11528)
charges for the use of public services. This exemption includes social security taxes and property taxes.
Because the I.U.M. exempts the firms from direct taxes and because the tax rate is lower for export than for domestic sales,
we preliminarily determine this program to be countervailable. To find the benefit we took the difference between the
domestic sales rate and the foreign sales rate, 7.5 percent, and multiplied by 60 percent. We preliminarily find the benefit
to be 4.50 percent ad valorem.
II. Programs Determined Not to Confer A Subsidy
A. Depletion Allowance
Petitioners allege that the 20 percent depletion allowance for mineral projects grantd by Decree-law 1096 and extended by
Decree-Law 1779 confers a subsidy on the manufacturers and producers of iron ore pellets.
In its response, the government of Brazil states that any firm owning a mine is eligible for the depletion allowance. The
firm has the option of taking a depletion allowance equal to the greater of:
1. The percentage of the total reserves extracted during the tax year times the original value of the mine; or
(Cite as: 50 FR 11527, *11528)
2. Twenty percent of the ex-mine value of the minerals extracted during the tax year.
In the past, we have found that depreciation allowances, per se, are not countervailable. Because the depletion allowance
on minerals in Brazil is part of the normal tax practice and because there is no indication that it favors exports over
domestic products, we preliminarily determine this program not to be countervailable.
B. BNDES/FINAME Loans
Petitioners allege that loans received from the National Economic and Social Development Bank (BNDES) and its
subsidiary, the Special Agency of Industrial Financing (FINAME), confer a subsidy on the manufacturers and producers of
iron ore pellets. In support of this allegation petitioners argue that iron ore pellet producers, as part of the metallurgy
sector, received a disproportionate share of BNDES and FINAME loans.
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(Cite as: 50 FR 11527, *11529)
In earlier determinatins, we have found BNDES and FINAME loans to be provided to more than a specific industry or group
of industries, and hence not countervailable (see, for example, Final Affirmative Countervailing Duty
Determination: Certain Carbon Steel Products from Brazil, 49 FR 17938). Information received in this case supports
our earlier
(Cite as: 50 FR 11527, *11529)
conclusion. For example, in the period 1978-84, the BNDES system, including BNDES and FINAME, provided loans to the
industrial, agricultural, and energy sectors.
We have also examined whether the metallurgy sector has received a disproportionate share of the loans made by the
BNDES system. Going back as far as 1975, we have found that the metallurgy sector accounts for 4.3 percent, on average, of
BNDES loans to the industrial sector. Further, industrial financing as a share of the BNDES portfolio has been declining over
much of this period. Therefore, we conclude that the metallurgy sector has not received a disproportionate share of the
BNDES system loans.
Because BNDES/FINAME loans are provided to more than a specific industry or group of industries and there is no
evidence of de facto selectivity in application, we find that these loans do not confer a benefit on producers of iron ore
pellets in Brazil.
Petitioners' allegation that metallurgy receives a disproportionate share of financing was based on comparison of the share
of loans to that sector with that sector's contribution to manufacturing output. We have used a similar analysis elsewhere
(Final Affirmative Countervailing Duty Determination: Oil Country Tubular Goods from Korea, 49 FR 46776.).
Nevertheless, there have been some questions raised about certain aspects of this comparison, in particular, whether the
comparison of share of loans to share of GNP is the appropriate
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one. We invite interested parties to submit comments on these issues.
III. Programs Determined Not To Be Used
We preliminarily determine that manufacturers, producers or exporters in Brazil of iron ore pellets did not use the
following programs listed in our notice of initiation.
A. (IPI) Export Credit Premium
Petitioners allege that under the Portaria Ministerial No. 78, as amended by Portaria Ministerial No. 252, exporters of iron
ore pellets receive a cash reimbursement from the government of Brazil based on the "adjusted" f.o.b price of the
exported merchandise.
The government of Brazil states in its response that producers of iron ore pellets are not eligible for the IPI credit
premium. Accordingly, we preliminarily determine that this program was not used by the producers of the product under
investigation.
B. Financing for Storage of Export Merchandise Program: Resolution 330 of the Banco Central do Brasil
(Cite as: 50 FR 11527, *11529)
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. The government of Brazil states in its response that CVRD was not eligible for this
program because Resolution 330 is applicable only to certain "manufactured" products listed by the Ministry of Finance.
Therefore, we preliminarily determine that this program was not used.
C. FINEX Export-Financing Program: Resolution 68
Resolution 68 states that the Department of Foreign Commerce of the Banco do Brasil, S.A. (CACEX) may draw upon the
resources of the Fundo de Financiamento a>=2 Exportac>=9ao (FINEX) to extend dollar-denominated loans to foreign
buyers of Brazilian goods and cruzeiro-denominated loans to exporters. Financing is granted on a
transaction-by-transaction basis.
In its response, the government of Brazil states that the respondent was not eligible for this kind of financing because it
is provided only with respect to "manufactured" products. Therefore, we preliminarily determine that this program was not
used by the producers of the product under investigation.
D. The CDI Program: Exemption of IPI Tax and Customs Duties on Imported
(Cite as: 50 FR 11527, *11529)
Equipment
Article 13 of Decree Law No. 1137 granted duty-free treatment and an exemption from the IPI tax on certain imported
machinery under appropriate circumstances. Accelerated depreciation was also granted on domestic machinery. This
legislation was amended by Article 9 of Decree Law No. 1428 of December 2, 1975, which reduced the maximum benefit on
imported machinery to an exemption of 80 percent of the customs duties and 80 percent of the IPI tax. The accelerated
depreciation for domestic equipment continued.
The government of Brazil states in its response that CVRD did not receive any benefits under this program during the
review period. Therefore, we preliminarily determine that this program was not used by the producers of the product
under investigation during review period.
E. The BEFIEX Program: Decree-Laws 77065 and 1219
The Comissao para a Concessao de Beneficios Fiscais a Programas Especiais de Exportac>=9ao (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 77065, BEFIEX may reduce by 70 to 90 percent import duties
(Cite as: 50 FR 11527, *11529)
and the IPI tax on the importation of machinery, equipment, apparatus, instruments accessories and tools necessary 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. 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 states that the respondent did not participate in this program. Accordingly,
we preliminarily determine that this program was not used during the review period.
F. The CIEX Program: Tax Reductions on Export-Production Equipment: Decree- Law 1428
Decree-Law 1428 authorized the Comissao para Incentives 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 states that CVRD did not receive any benefits under this program. Accordingly, we
preliminarily determine that this
(Cite as: 50 FR 11527, *11529)
program was not used by the producers of the product under investigation during the review period.
G. Accelerated Depreciation of Equipment: Decree Law 1137
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, CVRD did not participate in this program during the review period. We
preliminarily *11530
(Cite as: 50 FR 11527, *11530)
determine that this program was not used.
H. Working Capital Financing for Exports: Resolutions 674 and 882/950
Petitioners allege that the government of Brazil provides preferential short- term financing for working capital to
companies with qualifying export performance. In its response, the government of Brazil states that the respondent
was not eligible for this kind of financing since such financing is only authorized for certain "manufactured" products.
Therefore, we preliminarily determine this program not to be used.
(Cite as: 50 FR 11527, *11530)
I. Export Financing Under CIC-CREGE 14-11 Circular
Under its CIC-CREGE 14-11 circular ("14-11"), the Banco do Brasil provides 180- and 360-day cruzero loans for export
financing for manufactured products. In its response, the government of Brazil states that the respondent was not
eligible for this kind of financing, since such financing is only authorized for certain "manufactured" products. Therefore, we
preliminarily determine this program not to be used.
J. The PROEX Program: Export Promotion Credit
Petitioners allege that short-term credits for exports were established under the Programa de Financiamento a Producao
para a Exportacao (PROEX), previously referred to as the Apoio a Exportacao program. In its response, the government of
Brazil states that CVRD is not eligible for and did not receive any loans under this program. Accordingly, we
preliminarily determine this program not to be used.
K. Tax Deduction for Financial Transactions Related to the Recuperation of Capital Expended in Prospecting Mineral
Deposits: Decree 58400
(Cite as: 50 FR 11527, *11530)
According to the government of Brazil, this program is available only to individual taxpayers. Furthermore, this
program is no longer in effect. Therefore, we preliminarily determine this program not to be used.
L. Carajas Mine Incentives
Petitioners allege that iron ore pellet producers and exporters benefit from several programs relating to the Carajas Mine.
In its response, the government of Brazil states that the Carajas Mine will produce only natural iron ore, not pellets.
Since our investigation deals only with iron ore pellets, we determine that these incentives do not provide benefits to the
production or exportation of iron ore pellets.
IV. Programs for Which Additional Information is Needed
A. ICM State Tax Incentives
Petitioners allege that CVRD receives a rebate from the ICM state value-added tax similar to the IPI export credit
premium. In our final affirmative countervailing duty determination on carbon steel plate from Brazil (48 FR
2568), the Department found that the state value-added tax export credit
(Cite as: 50 FR 11527, *11530)
premium was eliminated in 1979. However, CVRD's annual report lists a "state tax (ICM) incentive received" in its
statement of Stockholder's Investment. Therefore, we will seek further information during verification in order to make a
decision concerning this program in our final determination.
B. Subsidy Reserve and Tax Incentive Reserves
The balance sheet in CVRD's annual report for 1983 lists two capital reserves as a "subsidy reserve" and a "tax incentives
reserve." We believe that these two reserves should be investigated to determine the source of the funds allocated to them.
Therefore, we will seek more information during verification in order to make a decision concerning this program in our
final determination.
C. Government Loan Guarantees
Petitioners allege that the Brazilian government guarantees long-term loans in foreign currency on terms that are
inconsistent with commercial considerations and, therefore, these guarantees are countervailable.
According to the response, CVRD has not received any government-guaranteed loans since 1974. However, some 1973
and 1974 government guaranteed loans are still outstanding. Since we have no information on commercial guarantee rates
and other factors affecting guarantees during that period, we will seek more
(Cite as: 50 FR 11527, *11530)
information during verification in order to make a decision concerning this program in our final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries
of iron ore pellets from Brazil which are entered, or withdrawn from warehouse, for consumption on or after the date
of publication of this notice in the Federal Register and to require a cash deposit or bond for each such entry of this
merchandise at 5.15 percent ad valorem. This suspension will remain in effect until further notice.
Preliminary Negative Determination of Critical Circumstances
Petitioners allege that critical circumstances exist within the meaning of section 703(e)(1) of the Act, with respect to iron
ore pellets from Brazil. In determining whether critical circumstances exist, we examine whether there is a reasonable
basis to believe or suspect that:
(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.
(Cite as: 50 FR 11527, *11530)
In this case, information on the record does not indicate that imports of the merchandise under investigation were massive
over a relatively short period 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 iron ore pellets from Brazil.
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- privileged 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 much
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 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
(Cite as: 50 FR 11527, *11530)
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 2:00 p.m. on April 17, 1985, at the U.S. Department of
Commerce, Room 1414, 14th Street and Constitution Avenue NW., Washington, D.C. 20230. Individuals who wish to
participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, room B-099,
at the above address within 10 days of the publication of this notice.
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(Cite as: 50 FR 11527, *11531)
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-hearings briefs must be
submitted to the Deputy Assistant Secretary by April 9, 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 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. 1671(f)).
C. Christopher Parlin,
(Cite as: 50 FR 11527, *11531)
Acting Deputy Assistant Secretary for Import Administration.
March 15, 1985.