(Cite as: 50 FR 32462)
NOTICES
DEPARTMENT OF COMMERCE
[C-351-504]
Preliminary Affirmative Countervailing Duty Determination; Certain Heavy Iron
Construction Casting From Brazil
Monday, August 12, 1985
*32462
(Cite as: 50 FR 32462, *32462)
AGENCY: Import Administration, Inernational 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 32462, *32462)
to manufacturers, producers, or exporters in Brazil of certain heavy iron construction castings. The estimated
net subsidy is 4.56 prcent 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 certain heavy iron construction castings which are entered
or withdrawn from warehouse, for consumption, on or after the date of publication of this notice. We have also directed the
U.S. Customs Service to require a cash deposit or bond for each such entry in an amount equal to the estimated net subsidy as
described in the "Suspension of Liquidation" section of this notice.
If this investigation proceeds normally, we will make our final determination by October 21, 1985.
EFFECTIVE DATE: August 12, 1985.
FOR FURTHER INFORMATION CONTACT:Thomas Bombelles, Loc Nguyen or Barbara Tillman, 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) 377-3174 (202) 377-
(Cite as: 50 FR 32462, *32462)
0167, or (202) 377-2438.
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 meaing 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 heavy iron construction castings. For
purposes of this investigation, the following programs are found to confer subsidies:
- Preferential Working Capital Financing for Exports--Resolutions 674, 882 and 950;
- Income Tax Exemption for Export Earnings.
We determine the estimated net subsidy to be 4.56 percent ad valorem.
Case History
On May 13, 1985, we received a petition in proper form from the Municipal Castings Fair Trade Council, a trade association
representing domestic
(Cite as: 50 FR 32462, *32462)
producers of certain iron construction castings and fifteen individually-named members of the association. Those members
are: Alhambra Foundry, Inc.; Allegheny Foundry Co.; Bingham & Taylor; Campbell Foundry Co.; Charlotte Pipe & Foundry
Co.; Deeter Foundry Co.; Municipal Castings, Inc.; Neenah Foundry Co.; Opelika Foundry Co., Inc.; Pinkerton Foundry, Inc.;
Tyler Pipe Corp.; U.S. Foundry & Manufacturing Co. and Vulcan Foundry, Inc., filing on behalf of the U.S. producers of certain
iron construction castings. In compliance with the filing requirements of § 355.26 of the Commerce Regulations (19 CFR
355.26), the petition alleges that manufacturers, producers, or exporters in Brazil of certain iron construction castings
receive, directly or indirectly, benefits which constitute subsidies within the meaning of section 701 of the Act, and that
these improts materially injure, or threaten material injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to intitiate a countervailing duty investigation,
and on June 3, 1985, we initiated such an investigation (50 FR. 24269). We stated that we expected to issue a preliminary
determination by August 6, 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 June 27, 1985, the ITC preliminarily
determined that there is a reasonable indication that imports of
(Cite as: 50 FR 32462, *32462)
certain heavy iron construction castings materially injure, or threaten material injury to, a U.S. Industry (50 FR.
27498).
The ITC also determined that there is no reasonable indication that imports of certain light iron construction castings cause
or threaten material injury to a U.S. industry. For the purposes of this investgation, the term "certain light iron construction
castings" is limited to valve, servcie and meter boxes. Such castings are placed below ground to encase water, gas or other
valves, or water or gas meters. Therefore, our investigation is limited to certain heavy iron construction castings as
defined in the "Scope of the Investigation" section of this notice, and we have changed the title of the investigation
accordingly.
We presented a questionnaire concerning the allegations to the government of Brazil in Washington, D.C., on June 11,
1985. On July 22, 1985, we received a response to the questionnaire. There are four known producers and exporters in
Brazil of certain heavy iron construction castings that exported to the United States during the review period.
We have received information on three of the companies, which according to the government of Brazil, account for
substantially all exports to the United States. These are Fundicao Aldebara, Ltda. (Aldebara), Usina Siderurgica
Paraense--Usipa Ltda. (Usipa) and Sociedade de Metalurgica e Processos Ltda. (Somep).
Scope of the Investigation
(Cite as: 50 FR 32462, *32462)
The products covered by this investigation are certain heavy iron construction castings, which are defined for
purposes of this proceeding as manhole covers, rings and frames; catch basin grates and frames; and cleanout covers and
frames. Such castings are used for drainage or access purposes for public utility, water and sanitary systems. Manhole
covers, rings and frames are currently provided for in item 607.0950 of the Tariff Schedules of the United States, Annotated
(TSUSA). All other certain heavy iron construction castings are subsumed in item 607.0990 of the TSUSA.
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 program, or eligibility of a company or industry for a
(Cite as: 50 FR 32462, *32462)
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 rigorous verification. If the response cannot be
supported at verification, and the program is otherwise countervailable, the program *32463
(Cite as: 50 FR 32462, *32463)
will be considered a subsidy in the final determination.
For purposes of this preliminary determination, the period for which we are measuring subsidization ("the review period") is
the calendar year 1984. In its response, the government of Brazil provided data for the applicable period, including
financial statements for Somep, Usipa and Aldebara.
Based upon our analysis of the petition and the response 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
certain heavy iron construction castings under the following programs:
A. Preferential Working-Capital Financing for Exports
(Cite as: 50 FR 32462, *32463)
The Carteira do Comercio Exterior (Foreign Trade Department, or CACEX) of the Banco do Brasil administers a program of
short-term working capital financing for the purchase of inputs. These working-capital loans were originally authorized by
Resolution 674, which was superseded by Resolution 882, which was itself substantially amended by Resolution 950 on
August 21, 1984. During the review period, these loans were provided under Resolutions 882 and 950.
Eligibility for this type of 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. During the
review period, the maximum level of eligibility for such financing was 20 percent of the value of exports.
Following approval by CACEX of their applications, participants in the program receive certificates representing portions of
the total dollar amount for which they are eligible. The certificates, which must be used within one year of their issue, may be
presented to banks in return for cruzeiros at the exchange rate in effect on the date of presentation. Loans provided through
this program are made for a term of up to one year.
On January 1, 1984, Resolution 882 modified the interest rate to full monetary correction plus 3 percent, with the interest
and principal payable in one lump sum at the expiration of the loan. On August 21, 1984, Resolution 950 made this
working-capital financing available from commercial banks, with interest
(Cite as: 50 FR 32462, *32463)
calculated at time of repayment. Under Resolution 950, the Banco do Brasil paid the lending institution an equalization fee of
up to 10 percent of the interest (after monetary correction). Resolution 950 was amended in May 1985. The equalization fee
was increased to 15 percent of the interest (after monetary correction).
Since receipt of working-capital 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.
Consistent with our stated policy to take into account program-wide changes that occur before our preliminary
determination, we calculated the benefit by multiplying the current maximum level of eligibility (20 percent) by the
equalization fee (15 percent) plus the Imposto sobre Operacoes Financeiras (Tax on Financial Operations, or IOF). We
allocated the benefit over the total value of all exports, resulting in an estimated net subsidy of 3.30 percent ad valorem.
B. Income Tax Exemption for Export Earnings
Under Decree-Laws 1158 and 1721, exporters of certain heavy iron construction castings are eligible for an
exemption from income tax on a portion of profits
(Cite as: 50 FR 32462, *32463)
attributable to export revenue. Because this exemption is tied to exports and is not available for domestic sales, we
preliminarily determine that this exemption confers an export subsidy. One producer of certain heavy iron
construction castings took an exemption from income tax payable in 1984 on a portion of export profits earned in
1983. We multiplied that portion of tax savings gained by the company that exported in 1983 by the nominal corporate tax
rate, and allocated the benefit over the total value of respondents' 1984 exports to calculate an estimated net subsidy of 1.26
percent ad valorem.
II. Programs Determined Not To Be Used
We preliminarily determine that manufacturers, producers, or exporters in Brazil of certain heavy iron
construction castings did not use the following programs which were listed in our notice of "Initiation of a
Countervailing Duty Investigation: Certain Iron Construction Castings from Brazil" (50 FR 24269).
A. 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.
(Cite as: 50 FR 32462, *32463)
Exporters of iron construction castings would be eligible for financing under this program. However, the government of
Brazil stated in its response that none of the construction castings producers under investigation participated in this
program during the review period; therefore, we preliminarily determine that this program was not used.
B. 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.
According to the response of the government of Brazil, none of the companies under investigation had loans under this
program during the review period.
C. Exemption of IPI Tax and Customs Duties on Imported Equipment (CDI)
(Cite as: 50 FR 32462, *32463)
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 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 none of the construction castings producers subject to the
investigation received incentives under this program during the review period.
D. 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) *32464
(Cite as: 50 FR 32462, *32464)
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 necessary for special export programs
(Cite as: 50 FR 32462, *32464)
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 construction castings producers under
investigation did not participate in this program.
E. 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 none of the construction castings producers under investigation
participated in this program.
F. Accelerated Depreciation for Brazilian-Made Capital Equipment
Pursuant to Decree-Law 1137, any company which purchases Brazilian-made
(Cite as: 50 FR 32462, *32464)
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. In the response, the government of Brazil stated that none of the
respondents used this program during the review period.
G. Incentives for Trading Companies
Under Resolution 643 of the Banco Central do Brasil, trading companies can obtain export financing similar to that obtained
by manufacturers under Resolutions 882 and 950. In its response, the government of Brazil stated that the construction
castings producers under investigation did not receive any benefits under this program.
H. The PROEX Program
Short-term credits for exports are available under the Programa de Financiamento a Producao para a Exportacao (PROEX), a
loan program operated by Banco Nacional do Desenvolvimento Economico e Social (National Bank of Economic and Social
Development, or BNDES.) In its response, the government of Brazil stated that none of the companies under investigation
participated in this program during the review period.
(Cite as: 50 FR 32462, *32464)
I. Resolution 68 (FINEX) Financing
Resolution 68 of the Conselho Nacional do Come>=1rcio Exterior (CONCEX) provides that CONCEX may draw upon the
resources of the Fundo de Financiamento a>=2 Exportac>=9ao (FINEX) to extend dollar-denominated loans to both
exporters and foreign buyers 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 during the review period.
J. Government Loan Guarantees on Foreign-Denominated Debt
Petitioners allege that the government of Brazil provides guarantees on long- term, foreign-denominated loans in order
to help enterprises service such loans. The government of Brazil stated in its response that none of the companies under
investigation received government loan guarantees on foreign- denominated debt during the review period.
K. Loans Through the Apoio o Desenvolvimento Tecnologica a Empresa Nacional (ADTEN)
(Cite as: 50 FR 32462, *32464)
Petitioners allege that the government of Brazil maintains, through the Financiadora de Estudos Projectos (FINEP), a
loan program, ADTEN, that provides long-term loans on preferential terms to encourage the growth of industries and
development of technology. In its response, the government of Brazil stated that none of the companies under
investigation had loans through this program outstanding during the review period.
L. IPI Rebates for Capital Investment
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. According to the response of the government of
Brazil, iron construction castings producers are not eligible to participate in this program.
III. Programs Preliminary Determined To Require Additional Information
A. IPI Export Credit Premium
Until very recently, Brazilian exporters of manufactured products were
(Cite as: 50 FR 32462, *32464)
eligible for a tax credit on the Imposto so>=3bre Produtos Industrializados (Tax on Industrialized Products, 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 subsidy 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.
According to the government of Brazil, this program was phased out between November 1984 and May 1, 1985, under
the terms of "Portaria" (Notice) of the Ministry of Finance No. 176 of September 12, 1984. This action was taken 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"). Consistent with our stated policy of taking
into account program-wide changes that occur prior to our preliminary determination, we are not including this program in
calculating the deposit/bonding rate. However, we intend to ascertain at verification that no exports declared eligible for the
credit premium before May 1, 1985, were still receiving it after that date.
B. Loans Through the National Bank of Economic and Social Development
(Cite as: 50 FR 32462, *32464)
The National Bank of Economic and Social Development (Banco Nacional do Desenvolvimento Economico e Social, or BNDES)
is the sole source of long-term cruzeiro loans in Brazil. Petitioners allege that BNDES loans are allocated in accordance
with government development plans to finance the needs of designated priority sectors, and that they are granted on terms
inconsistent with commercial considerations.
In support of their allegation, petitioners argue that the iron and steel industry, in which foundries are included, received a
disproportionate amount of BNDES lending in 1982.
The response provided some documentation on the distribution of BNDES loans demonstrating that BNDES loans are used by
many sectors of the Brazilian economy. However, we need additional information to determine whether the foundry industry
received a disproportionate share of BNDES funds, and if so, which loans received by the respondents are from BNDES.
C. Regional Development Financing
Petitioners allege that development banks make loans to enterprises in their regions at rates that are inconsistent with
commercial considerations. In its *32465
(Cite as: 50 FR 32462, *32465)
response the government of Brazil stated that loans made by regional development banks in Brazil represent a
pass-through of BNDES funds. We do not
(Cite as: 50 FR 32462, *32465)
have specific information on whether this type of financing is provided through the state development bank in Minas Gerais,
where the companies under investigation are located, or whether the respondents have benefitted from any such loans. We
intend to obtain complete information about the operation of this program at verification.
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
unliquidated entries of certain heavy iron construction castings from Brazil 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 of 4.56 percent ad valorem. This suspension of liquidation will
remain in effect until further notice.
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
(Cite as: 50 FR 32462, *32465)
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 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 on September 6, 1985, at 10:00 a.m. at the U.S. Department of
Commerce, room 5611, 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.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason
for attending; and
(Cite as: 50 FR 32462, *32465)
(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 August 28, 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)).
Gilbert B. Kaplan,
Acting Deputy Assistant Secretary for Import Administration.
August 6, 1985.
[FR Doc. 85-19119 Filed 8-9-85; 8:45 am]
BILLING CODE 3510-DS-M