(Cite as: 50 FR 34525)
NOTICES
DEPARTMENT OF COMMERCE
[C-351-406]
Final Affirmative Countervailing Duty Determination; Certain Agricultural
Tillage Tools From Brazil
Monday, August 26, 1985
*34525
(Cite as: 50 FR 34525, *34525)
AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that certain benefits which constitute subsidies within the meaning of the countervailing
duty law are being provided to manufacturers,
(Cite as: 50 FR 34525, *34525)
producers, or exporters in Brazil of certain agricultural tillage tools. The net subsidy is 8.06 percent ad valorem. Our
determination with respect to "critical circumstances" is addressed in the "Critical Circumstances" section of this
notice.
We have notified the United States International Trade Commission (ITC) of our determinations. We are directing the
U.S. Customs Service to continue to require a cash deposit or bond for each such entry in an amount equal to the net
subsidy listed in the "Suspension of Liquidation" section of this notice.
EFFECTIVE DATE: August 26, 1985.
FOR FURTHER INFORMATION CONTACT:Alain Letort or Barbara Tillman, Office of Investigations, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW.,
Washington, DC 20230; telephone: (202) 377-5050 or 377-2438.
SUPPLEMENTARY INFORMATION:
Final Determination
(Cite as: 50 FR 34525, *34525)
Based upon our investigation, we determine 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 agricultural tillage tools. For purposes of this investigation, the following programs are found to
confer subsidies:
- Preferential Working-Capital Financing for Exports;
- Export Financing Under the CIC-CREGE 14-11 Circular;
- Finex Export Financing;
- Income Tax Exemption for Export Earnings; and
*34526
(Cite as: 50 FR 34525, *34526)
-Finep/ADTEN Long-Term Loans.
We determine the net subsidy to be 8.06 percent ad valorem.
Case History
On September 28, 1984, we received a petition filed by Ingersoll Products Corporation of Chicago, Ill., Empire Plow
Company of Cleveland, Ohio, and Nichols Tillage Tools, Inc. of Sterling, Colo. 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 agricultural tillage tools receive, directly or indirectly, benefits which constitute subsidies within the meaning of
section 701 of the Act, and that
(Cite as: 50 FR 34525, *34526)
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 18, 1984, we initiated such an investigation (49 FR 42971). We stated that we expected to issue a
preliminary determination by December 22, 1984.
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 November 12,
1984, the ITC preliminarily determined that there is a reasonable indication that these imports threaten material injury to
a U.S. industry (49 FR 37856).
We presented a questionaire concerning the allegations to the government of Brazil in Washington, D.C. on October 29,
1984. On December 6, 1984, we received a response to the questionnaire.
On December 14, 1985, we received information from petitioners which established a reasonable basis to believe or
suspect that the products under investigation benefitted from upstream subsidies in the form of subsidized steel inputs.
Therefore, pursuant to section 701(g) of the Act, we included the upstream subsidy allegation in the investigation. In
addition, because we determined that additional time was needed to make a determination concerning upstream
subsidization, on January 3, 1985, we extended the due date for our
(Cite as: 50 FR 34525, *34526)
preliminary determination to June 4, 1985, pursuant to section 703(h)(1) of the Act (50 FR 300). On January 25,
1985, we issued an upstream subsidy questionnaire, and received a response on February 25, 1985. On April 17, 1985, we
issued a supplementary upstream subsidy questionnaire, and received responses on May 17, 22, and 28, 1985.
On the basis of information contained in these responses, we made a preliminary determination on June 4, 1985
(50 FR 24270). We verified the responses of the government of Brazil, the tillage tool producers, and their suppliers of
steel inputs, from June 20 to July 11, 1985. Subsequent to the verification, we received an amended response from the
government of Brazil on July 31, 1985.
Both petitioners and respondents submitted briefs addressing the issues arising from the investigation on July 19, 1985,
and rebuttal briefs on August 2, 1985. Additional briefs were received on August 5 and August 8, 1985.
Scope of Investigation
The products covered by this investigation are certain agricultural tillage tools, which are defined for purposes of this
proceeding as ground-engaging metal tools for tillage and cultivating equipment, such as cultivators, discers, and harrows.
Tillage tools include round-shaped tools, such as
(Cite as: 50 FR 34525, *34526)
colters, furrow-opener blades, etc., and tools that are not round-shaped (rectangular, triangular, and other odd shapes),
such as points, chisels, sweeps, shovels, knives, furrowers, tines, drills, lister bottoms, rotary tiller blades, bed-shaping
tools as well as plowshares, plowshines, moldboards, etc. Tillage tools are currently provided for in items 666.0015,
666.0020, 666.0050, 666.0060, 666.0065, and 666.0075 of the Tariff Schedules of the United States, Annotated
(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, issue of the Federal Register (49 FR 18006).
There are three known producers and exporters in Brazil of agricultural tillage tools to the United States for which we
received information from the government of Brazil. These are Baldan Implementos Agri>=1colas S.A. (Baldan),
Marchesan Implementos e Ma>=1quinas Agri>=1colas "TATV" S.A. (Baldan) and Companhia Semeato de Ac>=9os
(Semeato). In addition, we identified Companhia
(Cite as: 50 FR 34525, *34526)
Ac>=9os Especiais Itabira S.A. (ACESITA) and Usinas Sideru>=1rgicas de Minas Gerais S.A. (USIMINAS) as the upstream
suppliers of steel inputs to the tillage tool manufacturers mentioned above. For purposes of this final determination,
the period for which we are measuring subsidization ("the review period") is the calendar year 1983.
Based upon our analysis of the petition, the responses to our questionnaires, our verification, and comments filed by
petitioners and respondents, we determine the following:
I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of certain
agricultural tillage tools under the following programs.
A. Preferential Working-Capital Financing for Exports
The Carteira do Come>=1rcio 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. During the review period, these working-
capital loans were provided under Resolution 647 of the Banco Central do
(Cite as: 50 FR 34525, *34526)
Brasil. On January 1, 1984, Resolution 647 was superseded by Resolution 882, which was itself substantially amended by
Resolution 950 on August 21, 1984.
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 30 percent of the value of exports, and then 22
percent. At present, financing is capped at 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 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 Resolution 674 on June 11, 1983. On
January 1, 1984, Resolution 882 changed the payment date for both interest and principal to the expiration date of the
loan. On August 21, 1984, *34527
(Cite as: 50 FR 34525, *34527)
Resolution 950 made this working- capital financing available from commercial banks, with interest calculated at
(Cite as: 50 FR 34525, *34527)
the time of repayment.
Under Resolution 950, the Banco do Brasil paid lending institution an equalization fee of up to 10 percent of the interest
(after monetary correction). In May 1985, the equalization fee was increased to up to 15 percent of the interest. Therefore,
if the interest rate charged to the borrower is less than full monetary correction plus 15 percent, the Banco do Brasil pays
the lending bank the difference, up to 15 percent. We verified that the lending bank, in turn, passes the 15 percent
equalization fee on to the borrower in the form of a reduction of the interest due or a credit to borrower's account. Receipt
of the equalization fee by the borrower reduces the interest rate on these working-capital loans by 15 percentage points
below the commercial rate of interest. In addition, Resolution 950 working-capital loans are exempted from the Imposto
sobre Operac>=9o>=6es Financeiras (IOF), which is charged on all financial transactions in Brazil.
Since receipt of working-capital financing is contingent on export performance, and since the equalization fee results in
interest rates lower than commercially available rates, we determine that this program confers an export subsidy.
Our stated policy is to take into account program-wide changes that go into effect after the review period and before our
preliminary determination. As stated previously, the current maximum level of eligibility is 20 percent of
(Cite as: 50 FR 34525, *34527)
the previous year's value of exports. At verification, respondents did not demonstrate that they are using less than the
maximum amount of financing for which they are eligible. Therefore, to calculate the benefit, we multiplied 20 percent by
the 15 percent equalization fee plus the IOF. We thus calculated a net subsidy of 3.30 percent ad valorem.
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.
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
(Cite as: 50 FR 34525, *34527)
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 the working-capital export financing described in section I.A of this notice have a
maximum eligibility of 10 percent of the previous year's export value. All other companies 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, in its current responses or at verification, to support its assertion that commissions, exchange
contract requirements and collateral requirements serve to raise the effective rate 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 nomimal discount rate of accounts receivable, as the best information available. This comparision
shows that the rate on 14-11 loans is below the benchmark. Therefore, we determine that this program confers an export
subsidy.
Baldan and Marchesan both 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 exports of the three tillage tool
(Cite as: 50 FR 34525, *34527)
producers, which resulted in a net subsidy of 1.78 percent ad valorem.
C. FINEX Export Financing
Resolution 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>=9a>=6o (FINEX) to extend medium- and long-term financing
for manufactured exports. Financing may be provided to exporters or to foreign importers. When provided to exporters,
up to 85 percent of the value of the merchandise can be financed. Resolution 68 sets no limit on the amount available to
foreign importers, nor does it specify the interest rates charged to either importers or exporters.
In its response, the government of Brazil stated that the products under investigation were eligible for FINEX financing
but that the respondents did not receive it on transactions with the United States during the review period. We verified that
the exporters did not use this financing, but were unable, during verification, to obtain any information from the
government of Brazil as to the level of financing (if any) received by U.S. importers of agricultural tillage tools from
Brazil. We received a statement from Baldan's sole U.S. importer that it never used FINEX financing. We also recieved
statements from some U.S. importers of Marchesan's products that they had not
(Cite as: 50 FR 34525, *34527)
used this form of buyer's credit since mid-1984. The government of Brazil did not supply any documentation in its
responses or at verification to demonstrate that Marchesan's and Semeato's importers did not receive FINEX financing
during the review period or are not currently receiving it.
Because use of FINEX financing is contingent upon exports, we determine that it is countervailable to the extent that it is
offered on preferential terms. As noted above, Resolution 68 does not specify the interest rates charged. However, the
Gazeta Mercantil reported on June 21, 1985, that FINEX rates were being lowered by up to 1.5 percent. Comparison of the
lowered rates to the average U.S. prime rate for the first five months of 1985 indicates that FINEX financing is made at
preferential interest rates.
In order to measure the benefit conferred by FINEX financing on exports of tillage tools from Brazil, we have used the
best information available. Information on the record indicates that Baldan's sole U.S. importer has never used FINEX. We
have assumed that 100 percent of Marchesan's and Semeato's exports to the United States were financed at an interest rate
of 6 percent, which is 1.5 percentage points below the lowest FINEX rate listed in the Gazeta Mercantil. To calculate the
benefit, we multiplied Marchesan's and Semeato's exports to the United States by the interest rate differential. We then
divided the benefit by total exports of tillage tools to the United States, and calculated a net subsidy 2.91 percent ad
valorem.
(Cite as: 50 FR 34525, *34527)
D. Income Tax Exemption for Export Earnings
Under Decree-Laws 1158 and 1721, exporters of agricultural tillage tools are *34528
(Cite as: 50 FR 34525, *34528)
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 determine that this exemption confers an export subsidy.
Semeato did not claim this exemption. Baldan and Marchesan both took an exemption from income tax payable in 1983 on
a portion of export profits earned in 1982. We indexed that portion as required under Brazilian tax law, and multiplied it by
each company's effective corporate tax rate to calculate the benefit. We determined each company's effective corporate
tax rate by taking the base tax liability and adding, were applicable, the standard surcharge for excess profits, and
subtracting the deductions for the investment tax credit and the Social Integration Program (SIP) tax taken by the
respondents, and dividing the result by taxable income. In the past, we have refused to accept the investment tax credits in
calculating an effective tax rate because, absent a showing of a reasonable expectation of returns from these investments,
we considered them to be merely a way of targeting the firm's taxes. However, in this proceeding, Baldan and Marchesan
have demonstrated that these investments can yield returns. Therefore, we have
(Cite as: 50 FR 34525, *34528)
deducted the investment credits in calculating each company's effective tax rate. We allocated the benefit over the total
value of all exports by the respondents to calculate a net subsidy of 0.07 percent ad valorem.
E. FINEP/ADTEN Long-Term Loans
During verification, we discovered that Semeato received in 1983 a long-term loan under the ADTEN program of FINEP, an
agency of the government of Brazil.
We received no information from the government of Brazil describing FINEP's organization, purpose, and programs.
Information on the record of the case of Certain Cast-Iron Pipe Fittings from Brazil (50 FR 8755) indicates that FINEP
(Financiador de Estudos e Projectos) is charged with promoting scientific and technological development in Brazil, in
conjunction with the Conselho Nacional de Desenvolvimento Cienti>=1fico e Tecnolo>=1gico. To this end, FINEP grants
loans through state-owned development banks, in the case of Semeato, the Banco Regional de Desenvolvimento de
Extremo-Sul (BRDE). FINEP programs must implement the objectives set forth by the federal Secretaria de Planejamento
(SEPLAN) in its third "Plano Ba>=1sico de Desenvolimento Cienti>=1fico e Tecnolo>=1gico" (III PBDCT).
Under the ADTEN program, FINEP makes loans for projects which:
- Develop new products,
(Cite as: 50 FR 34525, *34528)
- Adapt and absorb new technology,
- Train human resources to absorb new technology,
- Market new products and implement management techniques to employ new technology,
- Develop quality-control techniques,
- Establish new research and development centers in Brazil, and
- Engage in pure research.
Borrowers negotiate the terms of each loan with the regional development banks with which they deal. They must submit
to the terms of the loan imposed by the bank and by FINEP, which disburses the funds in allotments, and maintains project
oversight throughout the life of the loan.
The interest rate on this loan to Semeato was substantially equivalent to rates charged on loans made in 1983 by the Banco
Nacional de Desenvolvimento Econo>=3mico e Social (BNDES). However, the principal amount of the loan was only
partially indexed to inflation, as measured by the variation in ORTN (Obrigac>=9o>=6es Reajusta>=1veis do Tesouro
Nacional or National Treasury Readjustable Bonds). We have no information on the record of this case that BNDES loans
are not fully indexed to the inflation rate. For this reason, and because the government of Brazil did not demonstrate
that these loans were not provided to a specific enterprise, industry, or group of enterprises or industries, we determine
that these loans are countervailable.
(Cite as: 50 FR 34525, *34528)
Using BNDES financing as the benchmark in this case, we compared principal and interest payments due on this loan in
1983 using both partial and full indexation, and took the differential in payment streams as the benefit. We allocated the
benefit over the respondents' total sales, and calculated a net subsidy of less than 0.001 percent ad valorem.
II. Upstream Subsidies
Petitioners allege that Brazilian tillage tool producers receive an "upstream subsidy" through the purchase of subsidized
steel inputs. Under section 771A(a) of the Act, we must apply the following tests in order to determine whether "upstream
subsidies" are being paid or bestowed upon the products under investigation:
The term "upstream subsidy" means any subsidy described in section 771(5)(B) (i), (ii), or (iii) by the government of a
country that--
(1) Is paid or bestowed by that government with respect to a product (hereafter referred to as an "input product") that is
used in the manufacture or production in that country of merchandise which is the subject of a countervailing duty
proceeding;
(2) In the judgment of the administering authority, bestows a competitive benefit on the merchandise; and
(Cite as: 50 FR 34525, *34528)
(3) Has a significant effect on the cost of manufacturing or producing the merchandise.
In our preliminary determination, we found that the three tests were met. With respect to the last test, the
"significant effect" test, we stated:
We multiplied the ad valorem subsidy rates calculated for ACESITA and USIMINAS (the producers of the input product) by
the percentage that the government of Brazil claims the subsidized steel inputs account for in the cost of producing
tillage tools. In both cases, we found that the estimated net subsidy accounted for more than one percent of the cost of
manufacturing or producing the merchandise. For purposes of this preliminary determination, we consider that
the "significant effect" test has been met.
We also requested comments on this threshold measure for significant effect.
We have reviewed the comments submitted by petitioners and respondents and the legislative history of the upstream
provision. We have concluded that it would be inappropriate to apply an automatic threshold in determining whether
subsidies to suppliers of an input have a significant effect on the cost of producing the merchandise under investigation. We
have been guided in reaching this conclusion by the statement of the House Committee on Ways and Means:
The purpose of this condition is to avoid needless investigation and verification of upstream subsidies which, although
passed through to the final
(Cite as: 50 FR 34525, *34528)
merchandise, are insignificant in affecting the competitiveness of that final product.
[H.R. Rep. No. 725, 98th Cong., 2d Sess. 34 (1984)].
Under our interpretation of this statement, any evaluation of the effect of upstream subsidies on the competitiveness of the
final product involves more than a simple multiplication of the ad valorem subsidy rate on the input times the share that
the input accounts for in the cost of producing the final product. Instead, the significance of the subsidies to the upstream
product derives from the significance those subsidies may have on the competitiveness of the final product.
To assess the significance on the competitiveness of the final product, we must consider the degree to which the final
product competes on the basis of price. When a small decrease in price can lead to a large increase in sales, *34529
(Cite as: 50 FR 34525, *34529)
even a very small subsidy to an upstream supplier could have a significant effect on the competitiveness of the final
product. In these circumstances, the application of a threshold exceeding one percent, as suggested by respondents, would
be inappropriate. Conversely, when the competitiveness of the final product is heavily influenced by non-price factors,
such as quality, consumer loyalty and consumer concern for diversity of supply, a higher threshold for significant effect
may be appropriate. In short, we intend, at this time, to apply the significant effect test on a case-
(Cite as: 50 FR 34525, *34529)
by-case basis.
While we cannot support at this time a fixed threshold for significant effect, we recognize that a case-by-case approach may
lead to some uncertainty. In particular, petitioners should have some indication of whether it will be worthwhile to pursue
an upstream investigation, and respondents should be made aware of the general standard to which they will be held
accountable and the types of information we will need.
Therefore, we intend to apply the following standards with respect to the significant effect test. If the product of the ad
valorem subsidy rate on the input times the share that the input product accounts for in the cost of producing the final
product exceeds five percent, we will presume that the subsidies on the input have a significant effect on the cost of
producing the merchandise under investigation. At the other extreme, if the product of the ad valorem subsidy rate on the
input times the share that the input product accounts for in the cost of producing the final product is less than one percent,
we will presume that the subsidies on the input do not have a significant effect on the cost of producing the merchandise
under investigation. We consider both norms to be rebuttable presumptions; these one and five percent thresholds are not
immutable. If the parties in a particular case present evidence that the competitive circumstances of the final product
warrant a higher or lower thershold, we will take such evidence
(Cite as: 50 FR 34525, *34529)
into consideration.
In establishing these norms, we also recognize our limited experience in administering the provision. As we attempt to
apply these norms in future cases, we may find them to be inappropriate. We may learn that the proper administration of
the upstream provision requires an automatic application of a minimum threshold.
As noted in the above-quoted legislative history, one purpose of this provision is to avoid needless investigation and
verification of upstream subsidies. The standards we have proposed are an attempt to balance the competing concerns of
finding those subsidies that confer a competitive benefit on the final product and of not expending our resources on
difficult investigations that yield little in the way of relief to domestic industries. Based on our limited experience in
administering this provision, a one percent threshold for initiating an upstream investigation is a reasonable starting point
for achieving this balance.
We have applied the standards outlined above to determine whether the significant effect test is met in this investigation.
We have calculated the net subsidy bestowed on the two suppliers of steel inputs, ACESITA and USIMINAS, and the share
acounted for by this input in the cost of producing agricultural tillage tools.
(Cite as: 50 FR 34525, *34529)
A. Domestic Subsidies
Our calculation of the net subsidy is based on our determination that domestic subsidies are being provided to
ACESITA and USIMINAS, suppliers of hot-rolled carbon steel plate in coil and hot-rolled carbon steel sheet in
coil to the tillage tool manufacturers, under the following programs.
1. Government Provision of Equity Capital to USIMINAS. Siderurgia Brasileira S.A. (SIDERBRAS) is a
government-controlled corporation under the jurisdication of the Ministry of Industry and Commerce. Pursuant to
Decree-Law 6159 of December 6, 1974, SIDERBRAS became the holding company for the federally-owned steel
corporations. SIDERBRAS is a majority shareholder of nine Brazilian steel producers and a minority shareholder of one
small Brazilian steel producer. During 1979-1983, SIDERBRAS made equity infusions into USIMINAS.
We have consistently held that government provision of, or assistance in obtaining, capital does not per se confer a
subsidy. Government equity purchases or financial backing bestow a countervailable benefit only when provided on terms
inconsistent with commercial considerations. When a company's shares are not publicly traded and, hence, there is no
market- determined price for the shares, we examine whether the company was a reasonable equity investment (a
condition we have termed "equityworthiness") in order to determine whether the equity infusions were inconsistent with
(Cite as: 50 FR 34525, *34529)
commercial considerations.
For purposes of this determination, we reviewed the company's financial data and all other factors on the record. We
focused on the rate of return on equity and long-term prospects for the company in question for the period 1977 through
1983. We examined financial ratios, profits and losses, and other factors, such as market demand projections and current
operating results, to evaluate the company's current and future ability to earn a reasonable rate of return on equity
investments.
Based on these factors, as applied to information on the record, we found USIMINAS to be equityworthy between 1977 and
1979 and unequityworthy between 1980 through 1982 [see "Certain Carbon Steel Products from Brazil; Final
Affirmative Countervailing Duty Determinations (49 FR 17988)]. In addition, we now find USIMINAS to be
unequityworthy in 1983. Accordingly, we determine that the action of the government in taking an equity position in the
company in those years is inconsistent with commercial considerations and confers a subsidy.
2. IPI Tax Rebates for Capital Investment. Decree-Law 1547, enacted in April 1977, provides funding for capital
investment in approved expansion projects in the brazilian steel industry through a rebate of the Imposto sobre Produtos
Industrializados (IPI), which is a value-added tax imposed on domestic sales. The IPI tax is an indirect tax and, as such, is
passed on to the consumer. A
(Cite as: 50 FR 34525, *34529)
steel company collects this tax on sales as an agent for the government, and does not pay the tax itself. Decree-Law 1547 is
a mechanism by which a steel company is permitted to collect funds due the government and then receive a 95 percent tax
rebate. The program does not involve the rebate of payments made from the company's own funds.
Originally, the IPI tax applied to all domestic sales transactions. In 1979, the value-added tax was eliminated except for
producers in 14 industry sectors, including tobacco, automobiles, spirits and alcohol, ceramics, rubber, and steel. The tax
rate is different for each of the specified industry sectors; for steel products, the value-added tax is 5 percent.
A Brazilian steel company may deposit 95 percent of the net IPI tax due in a special account with the Banco do Brasil. The
amounts deposited are to be applied to steel expansion projects. When rebated to the firms, they constitute reserves that
must eventually be converted into subscribed capital.
Under the terms of Resolution 68-77 issued by the Conselho de Na>=4o-Ferrosos e Siderurgia (CONSIDER), which
implements Decree-Law 1547, IPI tax *34530
(Cite as: 50 FR 34525, *34530)
rebates are payable only on basic steel product and certain fabricated steel products such as seamless steel pipes. ACESITA
and USIMINAS both received IPI tax rebates as manufacturers of basic steel products. Because IPI tax rebates are limited
to a specific number of products and tied to investiments in government-approved projects, we determine that these
(Cite as: 50 FR 34525, *34530)
rebates confer a subsidy.
3. Exemption of IPI Tax and Customs Duties on Imported Equipment (CDI). 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.
Decree-Law 1726 repealed this program in 1979. Subsequently, no new projects were eligible for these benefits. However,
companies whose projects were approved prior to the repeal still receive these benefits pending completion of the project.
Both ACESITA and USIMINAS received benefits under this program during the review period. In "Certain Carbon Steel
Products from Brazil; Final Affirmative Countervailing Duty Determinations" (49 FR 17988), we found that
receipt of this benefit is limited to projects in 14 industries approved by the government of Brazil. During verification,
the government of Brazil provided no new documentation with respect to this program. Based on the record of this and
earlier Brazilian countervailing duty investigations, we have concluded
(Cite as: 50 FR 34525, *34530)
that these benefits are limited to specific enterprises or industries. Accordingly, we determine the CDI program confers a
subsidy on ACESITA and USIMINAS.
We examined several other domestic programs which were available to ACESITA and USIMINAS:
- Loan Guarantees on Foreign-Denominated Debt;
- Special Tax Deductions; and
- Accelerated Depreciation for Brazilian-Made Capital Equipment.
The first of these programs is determined not to confer a subsidy, and is discussed below in "Program Determined Not to
Confer a Subsidy;" the last two are discussed in "Programs Determined Not to Be Used."
B. Calculation of Net Subsidy to Input Suppliers
Using the methodogies outlined in our preliminary determination, we calculated the net subsidies under the
domestic subsidy programs described above. We then calculated the overall subsidy to suppliers of steel inputs by
weighting the net subsidy received by ACESITA and USIMINAS by the percentage of steel they each supplied for the
production of tillage tools in 1983. This net subsidy is 2.43 percent ad valorem.
(Cite as: 50 FR 34525, *34530)
C. Share of the Cost of Production Accounted for by Steel Inputs
Petitioners alleged that steel inputs account for 50 percent of the cost of producing tillage tools. In its initial response, the
government of Brazil stated this figure was approximately 47 percent. At verification, the respondents were unable to
demonstrate that 47 percent was an accurate figure, and instead provided a number of lower estimates. Petitioners,
however, stated in their briefs that the Department must continue to use the 47 percent average supplied by the
government of Brazil in its response, and not the lower estimates supplied during verification. Moreover, the
government of Brazil indicated that 47 percent was not an inaccurate estimate. Accordingly, we are assuming, as best
information available, that steel inputs account for 47 percent of the cost of producing tillage tools.
D. Significant Effect
According to the significant effect methodology outlined supra, the product of the ad valorem subsidy rate on the input
product times the share that the input accounts for in the cost of producing agricultural tillage tools is 1.14 percent. This is
slightly greater than the one percent threshold and, therefore, we have analyzed its potential significance by examining the
(Cite as: 50 FR 34525, *34530)
competitiveness of the final product.
We did not seek this type of information in this investigation. Nevertheless, respondents have claimed that "tillage tools are
not fungible and quality differs among products." We have compared this claim to the information contained in the ITC's
preliminary report and have concluded that such an unqualified statement is not substantiated by evidence on the
record.
Statements in the ITC report by purchasers of tillage tools indicate that the Brazilian product is of a lower quality. They also
indicate that there is a price/quality tradeoff in the view of consumers. When there is a slight price differential, the
purchaser will opt for the higher quality product. When the price differential is large, purchasers appear to select the
lower-priced product. For example, Brazilian prices are reportedly 30 to 50 percent lower. Other purchasers have used
the Brazilian product because their suppliers stock this product or for diversity of supply. Thus, there are indications of
both price and non-price competition.
We have concluded that if the quality of the Brazilian tillage tools were comparable to that of the products with which they
compete, the subsidies to the input suppliers might have a significant effect on the competitiveness of Brazilian tillage
tools. However, this is not the case. Quality differences and other non-price factors appear to be important determinants of
demand for agricultural tillage tools. Also, substantial price differentials appear to
(Cite as: 50 FR 34525, *34530)
encourage consumers to switch to the Brazilian products. Given the magnitude of the cited price differentials, we conclude
that a subsidy to input producers that accounts for 1.14 percent of the cost of producing tillage tools does not have a
significant effect on the competitiveness of the Brazilian tillage tools. Therefore, we determine that the subsidies to
Brazilian steel producers do not have a significant effect on the cost of producing Brazilian agricultural tillage tools. Given
this finding, we need not determine whether subsidies to Brazilian steel producers confer a competitive benefit on
agricultural tillage tool producers in Brazil.
III. Program Determined Not To Confer a Subsidy
We determine that subsidies are not being provided to manufacturers, producers, or exporters in Brazil of certain
agricultural tillage tools under the following program.
Loan Guarantees to Input Suppliers on Foreign-Denominated Debt
During verification, we ascertained that both ACESITA and USIMINAS had received government guarantees on
foreign-denominated loans that were still outstanding during the review period. Under Decree-Law 1312, guarantees on
(Cite as: 50 FR 34525, *34530)
foreign-denominated debt are available to Brazilian borrowers to finance the following projects: Modernization of harbors,
programs of Federal agencies abroad, transportation, cold storage and slaughterhouses, electrical energy, basic industries
and agriculture, education, public health, *34531
(Cite as: 50 FR 34525, *34531)
urban or rural sanitation, communications, fisheries, assistance to small and medium enterprises, housing, livestock
raising, urban and regional integration and development, and national security. The law also indicates that guarantees are
available to private as well as government-owned firms. Accordingly, we determine that government loan guarantees on
foreign-denominated debt are not limited to a specific enterprise or industry or group of enterprises or industries.
IV. Programs Determined Not To Be Used
We determine that manufacturers, producers or exporters in Brazil of certain agricultural tillage tools did not use the
following programs which were listed in our notice of "Initiation of a Countervailing Duty Investigation: Agricultural
Tillage Tools from Brazil" (49 FR 40431).
A. IPI Tax Rebates for Capital Investment
(Cite as: 50 FR 34525, *34531)
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.
The government of Brazil stated in its response that tillage tool producers are not eligible for IPI rebates under
Decree-Law 1547. During verification, we ascertained from our review of the legislation that tillage tool manufacturers are
ineligible for these rebates. We also reviewed the respondents' balance sheets and accounting ledgers, and saw no evidence
that they had received these rebates.
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 agricultural tillage tools would be eligible for financing under this
program. However, the government of Brazil stated in its response that none of the tillage tool producers participated
in this program during the review period. During verification, we reviewed each company's accounting ledgers and found
no evidence that the respondents received such financing with respect to their exports.
(Cite as: 50 FR 34525, *34531)
C. Exemption of IPI Tax and Customs Duties on Imported Equipment (CDI)
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. We verified that none of the tillage
tool producers received incentives under this program during the review period.
D. The BEFIEX Program
The Comissa>=6o para a Concessa>=6o de Benefi>=1cios Fiscais a Programas Especiais de Exportac>=9a>=6o
(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 necessary for special export programs
(Cite as: 50 FR 34525, *34531)
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 intermediate 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.
We verified that none of the tillage tool producers participated in this program.
E. The CIEX Program
Decree-Law 1428 authorized the Comissa>=6o para Incentivos a>=2 Exportac>=9a>= 6o (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. We verified that none of the tillage tool producers received any benefits under 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 34525, *34531)
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. We verified that none of the respondents availed itself of 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 Resolution 674, 882, and 950. Tillage tool producers are ineligible for participation in
this program because such participation is precluded by receipt of working-capital export financing. At verification we saw
no evidence that any of the tillage tool producers used the services of trading companies for export sales.
H. The PROEX Program
Short-term credits for exports are available under the Programa de Financiamento a>=2 Produc>=9a>=6o para a>=2
Exportac>=9a>=6o (PROEX), previously referred to as the Apo>=3io a>=2 Exportac>=9a>=6o program. We verified that
none of the tillage tool producers participated in this program
(Cite as: 50 FR 34525, *34531)
during the review period.
I. Programs Not Used by Input Suppliers
1. Special Tax Deductions. We verified that USIMINAS incurred a loss in 1982 and paid no income tax for that year in 1983;
therefore, it could not have used losses of other companies in the SIDERBRAS group to offset profits during the review
period. We also verified that neither ACESITA nor USIMINAS benefits from any local tax incentives which minimize their
tax liability. Accordingly, we determine that neither ACESITA nor USIMINAS received any special tax deductions.
2. Accelerated Depreciation for Brazilian-Made Capital Equipment. We verified that ACESITA took advantage of this tax
provision during trhe review period. Under this provision, after taking the initial deductions for accelerated depreciation,
companies must, in subsequent years, add back to net profits amounts equal to the accelerated depreciation previously
claimed. On the income tax return filed during the review period, ACESITA added back more accelerated depreciation than
it deducted, thereby cancelling out any benefit that could have accrued to the company. We also verified that USIMINAS
paid no corporate income taxes in 1983 because it incurred a loss in 1982.
(Cite as: 50 FR 34525, *34531)
V. Program Determined To Have Been Terminated
IPI Export Credit Premium
Until very recently, Brazilian exporters of manufactured products were eligible for a tax credit on the *34532
(Cite as: 50 FR 34525, *34532)
Imposto, sobre Productos 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, was 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.
Subsequent to April 1, 1981, the credit premium was gradually 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"). Under the terms of Ministry of Finance "Portaria" (Notice) No. 176
of September 12, 1984, the credit premium was eliminated effective May 1, 1985. We verified that the tillage tool producers
received no IPI export credit premiums after that date.
Accordingly, consistent with our stated policy of taking into account program- wide changes that occur subsequent to the
review period but prior to our
(Cite as: 50 FR 34525, *34532)
preliminary determination, we determine that this program has been terminated, and no benefits under the
program are accruing to current exports of tillage tools to the United States.
VI. Program Determined Not To Exist
Income Tax Deductions for Foreign Selling Expenses
During verification, we reviewed the respondents' income tax returns and the instruction manual for filling out Brazilian
income tax forms. We saw no evidence that there exists a special program of tax deductions for foreign selling expenses.
Accordingly, we determine this program does not exist.
Petitioners' Comments
Comment 1: Petitioners argue that the information provided by the respondents regarding the utilization of FINEX
financing by U.S. importers of tillage tools is not verifiable, and should not affect the Department's final determination
.
DOC Position: As best information available, we have accepted the information in the record that Baldan's sole U.S.
importer has never used FINEX buyer credits. However, since we do have information on the record from several
(Cite as: 50 FR 34525, *34532)
other importers stating that they have used FINEX, we consider this to be the best information available, and are using it in
our calculation of benefits provided to U.S. importers of tillage tools under this program.
Comment 2: Petitioners argue that the types of subsidies being bestowed on the input producers provide those producers
with a windfall of "up-front" cash, or may allow them to achieve economies of scale or increased productivity so that a small
subsidy may have an effect that extends beyond the value of the subsidy as calculated by the Department. Moreover, cash
infusions can affect a company's debt/equity ratio and its creditworthiness. This, in turn, means that the consumers of
those inputs realize a savings greater than the per-unit subsidy attributed to the inputs they purchase. Therefore,
petitioners argue that an upstream subsidy of one percent or more of the cost of producing tillage tools meets the
significant effect standard.
DOC Position: We diagree. In determining significant effect, we have followed the statutory mandate of examining the effect
that domestic subsidies to input suppliers have on the cost of producing tillage tools. The methodology we apply to value
subsidy programs captures the benefits which can be measured. Petitioners are asking us to consider secondary effects of
domestic subsidies to the input producers. We have consistently maintained that we will not look at these effects because
such analysis is highly speculative and could result in double-counting (see, e.g., "Final Affirmative
(Cite as: 50 FR 34525, *34532)
Countervailing Duty Determination; Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina," 49 FR
18006). More importantly, were we to find that a competitive benefit is being bestowed on agricultural tillage tools
through upstream subsidies, the amount of the countervailing duty on the tillage tools could not, under section
771A(c) of the Act, exceed the amount of the domestic subsidy found to exist on the input product. Therefore, it would be
inappropriate to consider any secondary effects the subsidies on inputs may have on the merchandise under investigation.
While we have adopted the rebuttable presumption of a one percent threshold for the significant effect test, it was for the
reasons described in section II of our notice.
Comment 3: Petitioners argue that there is no verified evidence that the two CIC-CREGE 14-11 loans taken out by
Marchesan were repaid. The Department should therefore treat any loans outstanding beyond their term as grants to the
producer.
DOC Position: The evidence on the record shows that Marchesan has repaid these loans; therefore, we are calculating the
benefit in accordance with our standard short-term loan methodology.
Comment 4: Petitioners argue that because respondents did not provide an explanation for Semeato's exemption from the
IPI tax, the Department should find that the exemption constitutes an export subsidy
DOC Position: The verification exhibits show that Semeato received one very
(Cite as: 50 FR 34525, *34532)
small exemption from the IPI tax on one of its import shipments and that the IPI tax was charged on all other imports of
the same merchandise. This one small exemption does not provide any indication that Semeato is benefiting from regular
exemptions from the IPI tax on imported goods. Even if we were to consider that this single small exemption was a
subsidy, the amount of the subsidy would be so small that there would be no effect on the overall net subsidy calculated.
Respondents' Comments
Comment 1: The government of Brazil contends the Department improperly valued the amount of net subsidy from
Resolution 950 loans by erroneously assuming a maximum utilization level and interest rate differential.
DOC Position: We disagree. With respect to our use of a maximum interest rate differential of 15 percent, we verified that
the lending bank passes the 15 percent equalization fee on to the borrower in the form of a reduction of the interest due or a
credit to the borrower's account. Regarding our assumption of the maximum 20 percent utilization rate, the respondents
did not demonstrate during verification that they are using less than the maximum amount of financing for which they are
eligible.
Comment 2: The government of Brazil contends that the Imposto sobre
(Cite as: 50 FR 34525, *34532)
Operac>= 9o>=6es Financeiras (IOF) is an indirect tax on the production of goods for export, that the exemption of loans
under Resolutions 674/882/950 from this tax is not a subsidy, and that if we determine that Resolution 674 financing
provides a subsidy, we should not consider this exemption as part of that subsidy.
DOC Position: We disagree. Since financing for domestic transactions is subject to the IOF tax, it is appropriate that we
reflect the exemption of Resolution 950 loans from the IOF as part of the subsidy in order to measure the full benefit
provided under this program. Moreover, we do not view the IOF as a tax on the production or distribution of the product.
*34533
(Cite as: 50 FR 34525, *34533)
Comment 3: The government of Brazil argues that the CIC-CREGE 14-11 circular is not a government program and,
therefore, does not bestow a government subsidy on the exportation of agricultural tillage tools. The CIC- CREGE 14-11
program is consistent with commercial considerations, since the costs of the program are covered by charges payable by
the recipients; therefore, under Annex A of the Subsidies Code, paragraphs (j) and (k), this program does not confer a
subsidy.
DOC Position: We disagree. Our determination that the CIC-CREGE 14-11 program provides countervailable benefits
is based on (1) the fact that, under Brazilian law, the Banco do Brasil, which administers this program, acts as the
government of Brazil's financial agent, and (2) respondents' failure to
(Cite as: 50 FR 34525, *34533)
demonstrate that the program does not provide preferential loans to exporters. Our uniform practice has been to calculate
a subsidy provided under a preferential loan program by comparing the preferential rate to the benchmark interest rate,
rather than to the cost of the funds to the lender.
As previously stated in our notice of "Final Affirmative Countervailing Duty Determination; Ceramic Tile from
Mexico" (47 FR 20012), "[r]egardless of what effects the Illustrative List of Export Subsidies may have on U.S. law
otherwise, the uniform past practice on this issue in comparison with the legislative history of the Trade Act requires us to
calculate the bounty or grant provided under a preferential loan program on the basis of a comparison between the
preferential rate and the commercially available rate rather than on the basis of a comparison with the cost of funds to the
government."
Comment 4: The government of Brazil claims the Department, in calculating the subsidy benefit derived from the
alleged CIC-CREGE 14-11 program, incorrectly includes the IOF tax in the benchmark. Furthermore, the government of
Brazil contends that the use of a compounded average benchmark for the period is inappropriate because the discount
rate in effect on the date the loan was taken out most accurately reflects the cost of alternative available financing.
DOC Position: We disagree. We consider that it is appropriate to include the IOF tax in our benchmark since the IOF tax is
imposed on all domestic financial transactions. With respect to the benchmark, because the CIC-CREGE 14-11 loans
(Cite as: 50 FR 34525, *34533)
we are examining were taken out throughout the review period, we have calculated a benchmark for that some period.
Calculating a specific benchmark rate for each loan, as respondents suggest, would undermine our short-term loan
methodology which states that the use of company-specific benchmarks would significantly impair our ability to
administer the countervailing duty law within the short time limits established by the Act.
Comment 5: The government of Brazil claims that the Department has overstated the benefit from the income tax
exemption for export earnings by using the nominal tax rate, as opposed to the effective tax rate applicable to the
respondents. Brazilian tax law allows corporations to invest 26 percent of taxes owed into certain specified corporations or
funds. The government argues that this provision results in an effective reduction of the corporate income tax rate, which
decreases the benefit from the income tax exemption.
DOC Position: Where we were able to verify that the company used the 26 percent investment tax credit, we have taken it
into account in calculating the company's effective tax rate.
Comment 6: As it has in the past, the government of Brazil argues that the Department erred in valuing the subsidy
arising from the income tax exemption for export earnings by allocating the benefit over export sales rather than total
sales. Because the determining factor in a firm's eligibility for this benefit is its overall profitability for a given year, the
benefits accrue to
(Cite as: 50 FR 34525, *34533)
the entire operations of the firm and not just to exports. Further, an income tax exemption calculated on this basis does
not affect the price of the exported product only; rather, it must have a general effect on all prices, both domestic and
export.
DOC Position: We disagree. As we have stated repeatedly in prior Brazilian determinations, when a firm must export
to be eligible for benefits under a subsidy program, and when the amount of the benefit received is tied directly or
indirectly to the firm's level of exports, that program confers an export subsidy. The fact that the firm as a whole must be
profitible to benefit from the program does not detract from the program's basic function as an export subsidy. Therefore,
the Department will continue to allocate the benefits under this program over export revenues instead of total revenues.
Comment 7: The government of Brazil argues that FINEX export financing does not confer a subsidy because the terms
of such financing are commercially reasonable.
DOC Position: We disagree. Information on the record indicates that FINEX interest rates are below prevailing commerical
interest rates that would be paid by importers in the United States.
Comment 8: Respondents contend that no Brazilian exporters or U.S. importers of tillage tools received any short-term
FINEX export financing during the review period. Furthermore, respondents contend that tillage tools have not
(Cite as: 50 FR 34525, *34533)
been eligible for long-term FINEX financing since September 1984, and that our stated policy to take into account
program-wide changes made subsequent to the review period but prior to the preliminary determination should
preclude us from finding this program to confer an export subsidy.
DOC Position: We disagree. There is no evidence on the record of this case to document either of these assertions, which
were made subsequent to the verification.
Comment 9: The government of Brazil contends that FINEP/ADTEN loans are generally available to all industries in
Brazil and should not be found to confer a domestic subsidy.
DOC Position: We disagree. The only information on the record concerning these loans is a telex from one Brazilian
government agency to counsel for the government of Brazil in Washington. During verification, Department officials
were not given an opportunity to meet with FINEP administrators or to examine program records.
Comment 10: The government of Brazil argues that the Department, in finding government equity infusions in
USIMINAS to be inconsistent with commercial considerations, erred by focusing on a restricted number of short-term
financial ratios, thereby ignoring the broader industrial and financial context in which this company operates.
DOC Position: In arriving at our determination, we considered the information
(Cite as: 50 FR 34525, *34533)
submitted by the respondents concerning this issue, specially untranslated annual reports and financial statements for the
last several years. Therefore, we focused our reveiw on the financial results of the company, including the ability to meet
debt obligations, current operations, and rates of return on assets and equity. In light of these results, we consider
USIMINAS to be unequityworthy and uncreditworthy in 1983.
Comment 11: The government of Brazil contends that a review of the performance of USIMINAS over the past 15 years
demonstrates that, with a few exceptions, the company has had a record of positive rates of return on equity and postive
financial ratios.
DOC Position: Although USIMINAS earned some profits between 1975 and 1980, it showed very low or negative *34534
(Cite as: 50 FR 34525, *34534)
profits from 1980 onwards. Since a private investor will focus on a company's most recent performance as an indication of
future earnings trends, we considered the more recent years to be more important to our analysis of whether government
equity infusions into USIMINAS were inconsistent with commercial considerations. Moreover, a demonstration of profits
or earnings alone is not sufficient for a company to be equityworthy. The rate of earnings per unit of equity, and not the
absolute level of earnings, is a far more important determinant of a company's performance.
Comment 12: The government of Brazil argues that the Department should not use
(Cite as: 50 FR 34525, *34534)
the year-end equity amount when determining the rate of return on equity used in our short-fall calculation. The
government argues that the rate of return on equity is distorted by use of a year-end equity figure which already reflects
the amount of the loss.
DOC Position: We agree that the year-end equity figure should not be used since it does not reflect the average amount of
equity employed by the company throughout the year. Accordingly, we have revised the company's rate of return on
equity by calculating this return on the average equity for 1983.
Comment 13: The government of Brazil argues that the Department erroneously calculated the benefits from equity
infusions in USIMINAS by distributing over all of 1983 infusions which were not made until later in that year.
DOC Position: We disagree. It has been our consistent practice to compute benefits received by a firm during a period of
time (in this case the 1983 calendar year), and apply them to the total value of sales for the same period (see, e.g., "Final
Affirmative Countervailing Duty Determinations; Certain Carbon Steel Products from France," 47 FR 39332).
Any other approach would present an enormous administrative burden. When there are many types of benefits received
and the number of disbursements under any given program is large, it would be unduly burdensome to make adjustments
for the fact that a particular benefit was received earlier or later in the review period., Therefore, to be consistent in our
treatment of different types of subsidies
(Cite as: 50 FR 34525, *34534)
and across cases, we have chosen to treat all benefits received during the review period as applying to all sales made during
that same period.
Comment 14: The government of Brazil contends that the Department incorrectly applied average annual ORTN
coefficients in converting cruzeiro-denominated equity infusions to determine the amount of benefit, rather than using the
ORTN value in effect on the date of the equity infusion.
DOC Position: We disagree. We would prefer to use in this calculation the equity amount adjusted for inflation as reported
in the company's books. However, absent this information, we are not persuaded that using average ORTN rates to adjust
the value of the equity is inappropriate.
Comment 15: The government of Brazil states the Department erred in using its benchmark an industry-wide average
rate of return, rather than the average rate of return applicable to heavy industry.
DOC Position: We disagree. In the Subsidies Appendix, we stated that "[f]or government equity purchases which we deem
inconsistent with commercial considerations, we measure the benefit by multiplying the difference between the company's
rate of return on equity and the national average rate (of return on equity)." The national, as opposed to a sectoral, rate of
return is a more accurate measure of what a reasonable investor in Brazil will earn on his investments.
Comment 16: The government of Brazil contends, with respect to IPI tax rebates
(Cite as: 50 FR 34525, *34534)
provided under Decree-Law 1547, that the value-added tax or IPI is not generally applicable in Brazil and that the
rebate of this tax does not confer a countervailable benefit.
DOC Position: We disagree. Although the same amount of IPI tax is applied to all steel products, only companies producing
certain priority products and whose expansion projects are government-approved may receive the rebates. Fabricators of
steel products (such as welded pipe and tube manufacturers who purchase coil) are not eligible for the rebates. USIMINAS
itself has not been eligible for the rebates since Decree-Law 1843, enacted in December 1980, directed that rebates of the
IPI tax collected on sales by state-owned steel companies accrue to SIDERBRAS. Therefore, the rebates are not generally
available and constitute a benefit to selected producers.
Comment 17: The government of Brazil argues that since IPI tax rebates under Decree-Law 1547 are paid only on
goods sold in the domestic market, no products exported to the United States benefit from the rebate and therefore no
subsidy is conferred.
DOC Position: We are countervailing these rebates because receipt thereof is tied to investment in government-approved
projects. Although the amount of rebate any firm receives may increase along with domestic sales, the existence of
domestic sales does not guarantee that a rebate will be received.
Comment 18: The government of Brazil argues that the Department's calculation
(Cite as: 50 FR 34525, *34534)
of the benefits to USIMINAS from IPI rebates was erroneous because (1) a discount rate reflecting USIMINAS's
creditworthiness from 1977-79 should have been used for grants in those years; (2) the discount rate during USIMINAS's
uncreditworthy period included compensating balances, which the Department has recognized are not required in
Brazil; and (3) the maximum interest rate inherently includes a risk premium and, therefore, the addition of a risk
premium is not justified.
DOC Position: We have found USIMINAS to be creditworthy through 1979, and uncreditworthy from 1980 through 1983
(see "Final Affirmative Countervailing Determinations; Certain Carbon Steel Products from Brazil" (49 FR 17988)
and "DOC Position" on respondents' Comment 10 above). In accordance with the Subsidies Appendix, we have calculated a
discount rate for allocating benefits received during the uncreditworthy period by adding a risk premium to the highest
commercial interest rate a creditworthy borrower would have to pay in order to receive a loan. The rate for discounting
accounts receivable, including compensating balances, is the best information available on the highest commercial interest
rate applicable to creditworthy borrowers. The addition of a risk premium to this rate reflects the additional risk in lending
to an uncreditworthy firm. For grants received during the period when USIMINAS was creditworthy we used a discount
rate reflecting the firm's creditworthiness.
(Cite as: 50 FR 34525, *34534)
Comment 19: The government of Brazil contends that the CDI program is generally available to all industries of
Brazil.
DOC Position: We disagree. Under the terms of Decree-Law 1428, which instituted the CDI program, exemptions from the
IPI tax and import duties under the CDI program were limited to certain government-approved projects in fourteen
selected industries. Based on the record of this and earlier countervailing duty determinations on Brazilian
products, we have no evidence that this requirement does not allow the government of Brazil to target benefits to
particular companies.
Comment 20: Respondents argue the Department erred in setting the threshold for "significant effect" of upstream subsidies
on the cost of *34535
(Cite as: 50 FR 34525, *34535)
production of a downstream product at one percent. Respondents also cite a number of previous antidumping and
countervailing duty, and other precedents where the numerical value of the term "significant" was considered higher
than one percent.
DOC Position: Our determination with respect to the signifiant effect test is addressed in the "Upstream Subsidies"
section of the notice.
Comment 21: Respondents argue that the Department erred in calculating a separate "significant effect" for each supplier of
subsidized steel inputs, because ACESITA's flat-rolled capacity far exceeds the total demand of the tillage tool producers.
Accordingly, the higher domestic subsidy rate for
(Cite as: 50 FR 34525, *34535)
USIMINAS is irrelevant in determining either significant effect or competitive benefit.
DOC Position: The fact that ACESITA's capacity exceeds the total demand for tillage tool inputs is irrelevant because tillage
tool producers purchase steel inputs from both ACESITA and USIMINAS. Therefore, any domestic subsidies accruing to
USIMINAS can potentially have a significant effect on the purchasers' costs of production.
Comment 22: The government of Brazil argues that the Department erred in assuming a full pass-through of upstream
subsidies to tillage tool producers, because these subsidies benefit the entire operations of the company rather than
specific inputs.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 23: The government of Brazil contends that, in making its competitive benefit analysis, the Department
erroneously disregarded the competitive, arms- length prices charged by the two steel suppliers, ACESITA and USIMINAS.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 24: Respondents contend that since the prices paid to ACESITA and USIMINAS by the tillage tool producers are
still lower than the benchmark steel import price, competitive benefit should be measured by constructing average
(Cite as: 50 FR 34525, *34535)
adjusted, unsubsidized prices for both ACESITA and USIMINAS. When this is done, USIMINAS' average adjusted price is
lower than ACESITA's. Consequently, respondents argue, steel purchasers received no competitive benefit from subsidies
to ACESITA since they could have purchased all their inputs from USIMINAS at a lower price.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 25: The government of Brazil contends that the use of Japanese surrogate prices is inappropriate since
Brazilian tillage tool producers do not purchase sheet from Japan. Furthermore, the Japanese price used was a price to the
East Coast of the United States which bears no relationship to prices to Brazil.
DOC Position: Because we have determined that no significant effect exists, the issue of which benchmark price to use is
moot. However, the government of Brazil is incorrect in its statement that we used, in our preliminary
determination, a price to the East Coast of the United States. We used an average Japanese export price to all markets
except the United States.
Comment 26: The government of Brazil contends the Department erred in weight- averaging its surrogate domestic
and import prices. This averaging is erroneous and bears no relationship to competitive benefit. The Department should
have used the lowest unsubsidized price as its benchmark price.
(Cite as: 50 FR 34525, *34535)
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 27: Respondents contend that the Department erred in weight-averaging surrogate Brazilian domestic steel
prices, one including import duties and the other excluding import duties. Because we are seeking to determine whether
tillage tools exported to the U.S. are subsidized, the higher effective price of steel imports used to make tillage tools sold in
Brazil is irrelevant and import duties should be excluded from the benchmark formula.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 28: Respondent argue that the Department incorrectly relied on the formula set out in section 771A(b) of the Act
in calculating the amount of "competitive benefit," since the value of the upstream subsidy to the downstream user is not
necessarily equal to the difference between the price of the subsidized input and that which would be paid to another seller
in an arms- length transaction.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 29: Respondents argue that the Department erred in summarily rejecting the concept that upstream subsidies
must be afforded to specific industries in order to be countervailable. They contend that the inputs at issue (flat-
(Cite as: 50 FR 34525, *34535)
rolled steel products), are used by virtually all manufacturing sectors in Brazil, making the provision of "benefits" to
such a large economic sector generally available.
DOC Position: Because we have determined that no significant effect exists, this issue is moot.
Comment 30: The government of Brazil maintains that the Department applied incorrect standards in determining that
Brazilian export subsidies are inconsistent with the Subsidies Code. In particular, the Department ignored Brazil's
commitment under the GATT to phase out its export subsidies. Unless the Department determines that Brazil is in
violation of its commitment, it cannot find Brazil's export subsidies to be inconsistent with the Subsidies Code.
DOC Position: Our determination with respect to whether Brazilian export subsidies are inconsistent with the
Subsidies Code is addressed in the "Critical Circumstances" section of this notice.
Comment 31: The government of Brazil contends that the Department erred in finding a massive increase in imports of
tillage tools in a relatively short period. Increases in shipments in 1984 and 1985 were lower than increases in 1981 and
1982. Moreover, the Department's comparison of import levels for the seven months preceding the filing of the petition
with import levels during the seven months following filing is arbitrary, a sixteen percent increase is not
(Cite as: 50 FR 34525, *34535)
massive, and, the increase reflects the cyclical nature of demand for this product.
DOC Position: Respondents have provided no reason as to why a comparison of the percentage increase in imports in 1984
and 1985 to the percentage increases in 1981 and 1982 is an appropriate measure of whether there has been a massive
increase in imports over a relatively short period of time. Indeed, as respondents have pointed out we would expect the
rate of increase to be much higher in the earlier period because imports were effectively zero in 1980. Nor have they
provided any evidence regarding cyclical demand for the product or why a sixteen percent increase should not be
considered massive. We focus on the months following the filing of the petition to be the "relatively short period" referred
to by the statute because we regard the purpose of the critical circumstances provision as acting as a deterrent to
exporters who would try to circumvent the intent of the law by increasing shipments during this period.
*34536
(Cite as: 50 FR 34525, *34536)
Comment 32: Respondents argue that the Department has mistakenly equated the term "serious prejudice" with the
"material injury" standard of the ITC. Not only does this undermine the statutory authority of the ITC, but a casual link
must be demonstrated between the export subsidy and the "serious prejudice" to a signatory.
DOC Position: Our determination with respect to the issue of "serious
(Cite as: 50 FR 34525, *34536)
prejudice" is addressed in the "Critical Circumstances" section of this notice.
Critical circumstances
Where, as in this case, petitioners have alleged the existence of critical circumstances, section 705(a)(2) of the Act
requires us to include in our final determination "a finding as to whether--(A) the subsidy is inconsistent with the
Agreement, and (B) there have been massive imports of the class or kind of merchandise involved over a relatively short
period.'
A. Consistency With the Subsidies Code
We have determined that the government of Brazil provides export subsidies on the merchandise under investigation.
As we noted in our preliminary determination (50 FR 24270), Article 9 of the Subsidies Code prohibits the use of
export subsidies on non-primary products. When given by developed countries, such subsidies are inconsistent with the
Subsidies Code and are actionable under its dispute settlement provisions. However, Article 14 section 3 provides an
exception for developing countries, provided they do not use "export subsidies on their industrial products . . . in a manner
which causes serious prejudice to the trade or production of another signatory." For
(Cite as: 50 FR 34525, *34536)
a developing country like Brazil, then, the issue is whether we find export subsidies causing "serious prejudice" to trade
or production of agricultural tillage tools in the United States. Under section 771(7)(C)(iii) of the Act, the ITC evaluates all
relevant economic factors bearing on the state of the industry, including actual and potential decline in output, sales,
market share, profits, productivity, return on investment, and capacity utilization. Thus, in making its preliminary
and final injury determinations, the ITC considers trade and production in the United States. We conclude that, in
principal, serious prejudice can exist where material injury to a U.S. industry occurs by reason of imports benefiting from
export subsidies. Therefore, should the ITC make a final determination of material injury, we determine serious
prejudice exists.
If the ITC's final determination should be negative, our critical circumstances finding will be moot; in any event,
under section 705(a)(4)(A) of the Act, the ITC must make its own affirmative determination of critical circumstances
to effect our affirmative finding. If the ITC's final determination is that a U.S. industry is threatened with material
injury, we conclude serious prejudice does not exist therefore, critical circumstances do not exist.
We stress that this finding is limited to the facts of this case and the application of Article 14 section 3 of the Subsidies Code.
This finding draws
(Cite as: 50 FR 34525, *34536)
no conclusion, and none should be inferred, with respect to the commitment made by the government of Brazil under
Article 14 section 5 of the Subsidies Code. Under Article 14 section 5, developing countries are urged to "enter into a
commitment to reduce or eliminate export subsidies when the use of such export subsidies is inconsistent with its
competitive and development needs." Article 14 section 6 precludes any signatory from taking countermeasures pursuant
to the provisions of Parts II and VI of the Subsidies Code against any export subsidies of such developing country, to the
extent that the subsidies in question are covered by a commitment made under Article 14 section 5.
Parts II and VI of the Subsidies Code concern notification of subsidies and international dispute settlement. Significantly,
Article 14 section 6 does not affect actions taken under Part I of the Subsidies Code, concerning domestic
countervailing duty proceedings.
B. Massive Imports
In determining whether there have been massive imports over a relatively short period, we considered the following
factors: (1) Whether imports have surged recently, (2) whether recent imports are significantly above the average
calculated over several years (1980-1984), and (3) whether the patterns of imports over that four-year period may be
explained by seasonal swings. Based
(Cite as: 50 FR 34525, *34536)
upon our analysis of the information, we determine that imports of the products covered by this investigation appear
massive over a relatively short period.
Verification
In accordance with section 776(a) of the Act, we verified the information used in making our final determination.
Commerce officials spent the period from June 20 to July 11, 1985, verifying the information submitted by respondents
and the government of Brazil, and gathering additional information to be used in this determination. We followed
normal verification procedures, including inspection of documents and ledgers, and tracing the information in the
response to source documents, accounting ledgers, and to financial statements.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to continue to suspend liquidation
of all unliquidated entries of certain agricultural tillage tools from Brazil entered, or withdrawn from warehouse, for
consumption, on or after March 12, 1985. As of the date of publication of this notice in the Federal Register, the liquidation
of all entries, or withdrawals from warehouse, for consumption of this merchandise
(Cite as: 50 FR 34525, *34536)
will continue to be suspended and the Customs Services should require a cash deposit or bond of 8.06 percent ad valorem
for each such entry of this merchandise. This suspension 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 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 detemine whether these imports materially injure, or threaten material injury to, a U.S. industry 45 days after
the date of publication of this notice.
If the ITC determines that material injury, or the threat of material injury, does not exist, this proceeding will be
terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be
refunded or cancelled. If, however, the ITC determines that material injury and critical circumstances do exist, we will
issue a countervailing duty
(Cite as: 50 FR 34525, *34536)
order, directing Customs officers to assess a countervailing duty on certain agricultural tillage tools from Brazil
entered, or withdrawn from warehouse, for consumption on or after the date of the suspension of liquidation indicated in
the "Suspension of Liquidation" *34537
(Cite as: 50 FR 34525, *34537)
section of this notice, equal to the net subsidy of 8.06 percent ad valorem. If the ITC determines that a threat of material
injury exists, or that material injury exists but critical circumstances do not exist, we will issue a countervailing duty
order, directing Customs officers to assess a countervailing duty on certain agricultural tillage tools from Brazil
entered, or withdrawn from warehouse, for consumption on or after the date of publication of our preliminary
determination (June 10, 1985), equal to the net subsidy of 8.06 percent ad valorem.
William T. Archey,
Acting Assistant Secretary for Trade Administration.