50 FR 15597

NOTICES

DEPARTMENT OF COMMERCE

[C-351-020]

Non-Rubber Footwear From Brazil; Final Results of Administrative Review of Countervailing Duty Order

Friday, April 19, 1985

*15597

AGENCY: International Trade Administration/Import Administration, Department of Commerce.

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

SUMMARY: On March 9, 1983, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on non- rubber footwear from Brazil. The review covers the period December 7, 1979, through December 31, 1980.

We gave interested parties an opportunity to comment on the preliminary results. After review of all comments received, the Department has determined the net subsidy to be 11.03 percent ad valorem for the period December 7, 1979, through December 31, 1979, and 8.84 percent ad valorem for 1980.

EFFECTIVE DATE: April 19, 1985.

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

SUPPLEMENTARY INFORMATION:

Background

On March 9, 1983, the Department of Commerce ("the Department") published in the Federal Register (48 FR 9901) the preliminary results of its administrative review of the countervailing duty order on non-rubber footwear from Brazil (39 FR 32903, September 12, 1974). The Department has now completed that administrative review in accordance with section 751 of the Tariff Act of 1983 ("the Tariff Act").

On June 2, 1983, the International Trade Commission ("the ITC") published its determination that an industry in the United States would not be materially injured, or threatened with material injury, by reason of imports of Brazilian non-rubber footwear if the order were revoked (48 FR 24796). Consequently, the Department published in the Federal Register (48 FR 28310, June 21, 1983) a revocation of the order with respect to all merchandise entered, or withdrawn from warehouse, for consumption on or after October 29, 1981.

*15598

Scope of the Review

Imports covered by the review are shipments of Brazilian non-rubber footwear currently classifiable under Part 1A of Schedule 7 of the Tariff Schedules of the United States Annotated, excluding items 700.5100 through 700.5400, 700.5700 through 700.7100, and 700.9000. The preliminary results notice erroneously included items 700.5400 and 700.9000; these items are not within the scope of the order and are not covered by these final results.

The review covers the period December 7, 1979, through December 31, 1980, and twelve programs: (1) Preferential financing for exports through CECEX; (2) an income tax exemption for export earnings; (3) the export credit premium for the Goods Circulation Tax ("ICM"); (4) the export credit premium for the Industrial Products Tax ("IPI"); (5) tax reductions on equipment used in export production ("CIEX"); (6) preferential financing under CIC-CREGE 14- 11; (7) incentives for trading companies (Resolution 643); (8) the Fundo de Democratizacao do Capital das Empresas; (9) fiscal benefits for special export programs ("BEFIEX"); (10) preferential financing for the storage of merchandise destined for export (Resolution 330); (11) Gold Draft of Exportation; and (12) preferential export financing under Resolution 68 ("FINEX").

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received written comments from the petitioner, Footwear Industries of America, Inc., and from the Volume Footwear Retailers of America ("VFRA"), a group of importers.

Comment 1: The petitioner argues that the appropriate benchmark for short-term export financing is not the discount rate for sales of domestic cruzeiro- denominated accounts receivable, used by the Department in reaching its preliminary results, but rather the "Advance Over the Exchange Contract." In an advance over the exchange rate transaction, the exporter assigns its foreign account receivable to a Brazilian bank and receives the discounted dollar value of the export shipment in cruzeiros. The petitioner believes that these foreign currency transactions are the most common form for raising working capital for export financing and, therefore, should be the basis for the benchmark. The advance benchmark properly reflects the fact that common Brazilian commercial practice places the risk of depreciation of the cruzeiro against the foreign currency receivable on the borrower.

Department's Position: In choosing the benchmark for countervailable short- term loans, we seek instruments commonly used that are most similar to the loan we are countervailing. A borrower under Resolution 674 receives cruzeiros today and repays cruzeiros in the future. The discounting of cruzeiro- denominated accounts receivable is also an exchange of current cruzeiros for future cruzeiros. While a discount of dollars receivable can be converted into an exchange of current of cruzeiros for furture cruzeiros, something is added in the conversion, the exchange rate. Since exchange rates fluctuate, the cost of discounting dollars receivable must differ from the cost of discounting cruzeiros receivable. Therefore, discounting of dollar-denominated accounts receivable is not an appropriate benchmark for short-term cruzeiro-denominated loans.

Comment 2: The Petitoner argues that, even if the Department were to use the discount of cruzeiro-denominated accounts receivable as the commercial benchmark for short-term loans, the benchmark used in the preliminary calculations, was incorrect for three reasons: (1) The Department use the official rate established by the Banco do Brasil, which cannot be regarded as a commercial institution, rather than a weighted-average of the discount rates from banks other than the Banco do Brasil; (2) the Department calculated a simple annual rate rather than a compounded annual rate; and (3) the department did not consider the effect of compensating balances on the discount rate.

Department's Position: We agree that the rate offered by the Banco do Brasil alone does not accurately reflect the national average for discounting of cruzeiro accounts receivable. Rates established solely by banks other than Banco do Brasil also do not. We are therefore using a national average rate of both.

We agree that a simple annual rate for discounts of accounts receivable is inappropriate. We have now calculated our benchmark from the national average nominal rate for 30-day discounts of accounts receivable as found in Analise/Business Trends. From this rate, we then calculated the compounded annual commercial benchmark. Concerning the argment that the Department must account for compensating balances in establishing the benchmark, Department officials met with representatives of four privately-owned Brazilian banks in connection with a recent verification concerning pig iron from Brazil. All of the bank representatives indicated that they do not uniformly require either compensating balances or minimum deposits. In many cases, the banks lend only to a few favored clients, and the banks do not require compensating balances since the clients maintain a sufficient volume of business overall. When such balances are required, the size and terms of the requirement may vary widely. Because the Department has no evidence of a uniform requirement for compensating balances nor a reliable measure of the extent to which compensating balances are actually used, we have decided not to use compensating balances in calculating our benchmark interest rate. (see also, our final affirmative countervailing duty determination on oil country tubular goods from Brazil, 49 FR 46570, November 27, 1984.)

For our preliminary results, 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 the interest payment. We not believe that the benefit occurs when the cash flow effect occurs. For loans under Resolution 515, 602, 641 and 643, and for CIC-CREGE 14-11 loans, that effect occurred when the borrower made the preferential interest payments. We calculated the benefit based on the date of payment. We divided the total number of days the loan was outstanding by 365 days and applied the resulting ration to the interest differential (the difference between the annual commercial benchmark and the preferential interest rate at the time of drawdown). Then we multiple the result by the affected loan principal.

Based on our recalculations, we determine the benefit from Resolutions 514, 602 and 641 financing to be 10.20 percent ad valorem for the period December 7, 1979, through December 31, 1979, and 7.62 percent ad valorem for 1980; for CIC-CREGE 14-11, 0.35 percent and valorem for the period of review; and for Resolution 643, 0.02 percent ad valorem for the period of review.

Comment 3: The petitioner argues that, for the income tax exemption for export earnings, the Department should not reduce the benefit by the amount of potentially owed taxes that corporate taxpayers may direct into various specified investment funds.

Department Position: We agree and we have not made such a reduction.

*15599

Comment 4: The petitioner contends that the Department should assess a countervailing duty on exports during 1981 to compensate for the delay until 1982 of payment of the export tax offsetting the IPI credit premium. The petitioner has particular criticisms of our method of calculation of the benefit in other cases.

Department's Position: The petitioner's contentions are premature. The Department will address this issue in the next administrative review.

Comment 5: The petitioner argues that the Department should determine the extent to which the Brazilian government collected an additional offsetting export tax of 8 percent. This tax was allegedly imposed by the Brazilian government on July 26, 1982, on exports of non-rubber footware to the United States to offset the remaining potential subsidy calculated by the Department.

Department's Position: The issue is irrelevant. The Department revoked the order effective October 29, 1981, on the basis of the ITC's negative determination under section 104(b) of the Trade Agreements Act of 1979 (the "TAA") (48 FR 28310, June 21, 1983). Even so, the Department has verified that the Brazilian government collected the export tax.

Comment 6: VFRA argues that the results of section 751 reviews of countervailing duty orders issued under section 303 of the Tariff Act are to be applied prospectively. There is no authority in the law permitting suspension of liquidation pending the completion of administrative reviews or the retroactive assessment of countervailing duties. VFRA cites the decision of Florsheim Shoe Company v. United States, 577 F. Supp. 196 (Ct. Int'l Trade 1983), as support for its position.

Department's Position: In Ambassador Division of Florsheim Shoe v. United States, Appeal No. 84-819 (Fed. Cir. Nov. 19, 1984), the Court of Appeals for the Federal Circuit (the "CAFC") reversed the CIT decision. The CAFC ruled that the ITA has the authority to suspend liquidation of entries and to retroactively assess duties on those entries based on a section 751 review.

Comment 7: VFRA states that, even if the law permits suspension of liquidation pending completion of reviews, it does not authorize continued suspension if the Department fails to complete a review by the time limits set forth in section 751 of the Tariff Act. Since the Department did not complete its administrative review by the anniversary date of the order, entries made during the review period should automatically be liquidated in accordance with section 504(a) of the Tariff Act.

Department's Position: In Florsheim Shoe, supra, the CAFC concluded that the statutory scheme permits suspension of liquidation of entries and the later assessment of duties on those entries based on a section 751(a) review. It does not follow that, if the ITA does not complete the review within the time specified by section 751(a), the ITA may never complete the review and never order assessment of any countervailing duties on the merchandise covered by that 751 review. No provision of the Tariff Act specifies a consequence for failure to complete a review within the 12-month period beginning on the anniversary of the date of publication of an outstanding countervailing duty order specified in section 751(a). The statutory period referred to in section 751(a) for conducting a periodic review is merely directory, not mandatory (see Alberta Gas Chemicals, Inc. v. Unites States, 1 CIT 312, 315-316, 515 F. Supp. 780, 785 (1981), and the cases there cited).

Comment 8: VFRA claims that section 104(b)(4)(B) of the TAA refers to any countervailing duties collected since the TAA became effective. VFRA argues that the revocation of the order should apply to entries made since January 1, 1980 (not just those since the date of ITC notification to the Department of the section 104(b) injury request, i.e., October 29, 1981) and that all estimated countervailing duties collected since the earlier date should be refunded without interest.

Department's Position: We do not agree. Under the transition provisions of the TAA, section 104(b) provides that revocations resulting from negative injury determinations apply retroactively to the date of the ITC's notification to the administering authority. The law is explicit in its instruction concerning this issue and we have followed that practice in all revocations under section 104(b) by the Department.

Final Results of the Review

Based on our analysis of the comments received and our recalculation of the benefits from the preferential financing programs, we determine the aggregate net subsidy to be 11.03 percent for the period December 7, 1979, through December 31, 1979, and 8.84 percent for the period January 1, 1980, through December 31, 1980. Accordingly, the Department will instruct the Customs

Service to assess countervailing duties of 11.03 percent of the f.o.b. invoice price on all shipments of Brazilian non-rubber footwear exported on or after December 7, 1979, and on or before December 31, 1979. The Department will instruct the Customs Service to assess countervailing duties of 8.84 percent of the f.o.b. invoice price on all shipments exported on or after January 1, 1980, and on or before December 31, 1980.

All unliquidated entries of this merchandise that were exported from Brazil before December 7, 1979, shall be liquidated at the applicable rates set forth in Federal Register notices dated May 17, 1979 (44 FR 28791), July 3, 1979 (44 FR 38839), September 28, 1979 (44 FR 55825) and February 26, 1980 (45 FR 12413).

The Department still must review the period January 1, 1981, through October 28, 1981, and is immediately beginning that review. The Department encourages interested parties to review the public record and submit applications for protective order, if desired, within ten days of the date of publication of this notice.

This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and § 355.41 of the Commerce Regulations (19 CFR 355.41).

Dated: April 14, 1985.

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