86-617

(Cite as: 51 FR 21961)

NOTICES

DEPARTMENT OF COMMERCE

(C-351-408)

Final Affirmative Countervailing Duty Determination; Iron Ore Pellets From
Brazil

Tuesday, June 17, 1986

*21961
(Cite as: 51 FR 21961, *21961)

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,
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producers, or exporters in Brazil of certain types of iron ore pellets. The estimated net subsidy is 2.09 percent ad
valorem. However, we are adjusting the duty deposit rate to reflect the changes that have occurred in export and total
sales for Companhia Vale do Rio Doce (CVRD) since the review period. Therefore, we are directing the U.S. Customs Service
to continue to suspend liquidation of all entries of iron ore pellets from Brazil that are entered, or withdrawn from
warehouse, for consumption, on or after the date of publication of this notice and to require a cash deposit or bond on
entries of this product in the amount equal to 7.94 percent ad valorem. In addition, we determine that "critical
circumstances" do not exist with respect to the subject merchandise.

We have notified the U.S. International Trade Commission (ITC) of our determination.

The Department of Commerce (the Department), Companhia Vale do Rio Doce (CVRD), the only known exporter in Brazil
of iron ore pellets to the United States, and the Government of Brazil entered into a suspension agreement on May
29, 1985. On June 10, 1985, the respondents requested that we continue the investigation. On December 18, 1985, the
Government of Brazil notified the Department that CVRD was withdrawing from the suspension agreement. On
March 31, 1986, we published a notice of cancellation of the suspension agreement and
(Cite as: 51 FR 21961, *21961)

resumption of the suspended investigation. Therefore, the affirmative preliminary determination of countervailing
duties published on March 22, 1985, has been in effect of March 31, 1986.

EFFECTIVE DATE: June 17, 1986.

FOR FURTHER INFORMATION CONTACT:Loc Nguyen or Peggy Clarke, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230;
telephone: (202) 377-0167 (Nguyen) or (202) 377-4412 (Clarke).

SUPPLEMENTARY INFORMATION:

Final Determination

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 iron ore pellets. *21962
(Cite as: 51 FR 21961, *21962)

For purposes of this investigation, the following programs are found to confer subsidies:
- Income Tax Exemption for Export Earnings

(Cite as: 51 FR 21961, *21962)

- Import Duty Exemptions
We determine the estimated net subsidy to be 2.09 percent ad valorem. However, we are adjusting the duty deposit rate to
reflect the changes that occurred in export and total sales for CVRD since the review period; thus, the cash deposit rate is
7.94 ad valorem.

Case History

On December 20, 1984, we received a petition from the Cleveland-Cliffs Iron Company, Oglebay Norton Company,
Pickands Mather & Company, and the United Steelworkers of America on behalf of the U.S. Iron ore pellets industry. In
compliance with the filing requirements of § 355.26 of our regulations (19 CFR 355.26), the petition alleged that
manufacturers, producers, or exporters in Brazil of iron ore pellets directly or indirectly receive benefits which
constitute subsidies within the meaning of section 701 of the Act, and that these imports materially injure or threaten
material injury to a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation,
and on January 9, 1985, we initiated such an investigation (50 FR 2322). We stated that we expected to issue a preliminary
determination by March 15, 1985.
Since Brazil is a "country under the Agreement" within the meaning of section
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701(b) of the Act, an injury determination is required for this investigation. Therefore, we notified the ITC of our initiation.
On February 4, 1985, the ITC determined that there is a reasonable indication that these imports materially injure, or
threaten material injury to, a U.S. industry (50 FR 5286).
We presented a questionnaire concerning the allegations of the Government of Brazil in Washington, D.C., on January
25, 1985. On February 27, 1985, we received a response to the questionnaire.
There is only one know exporter in Brazil of iron ore pellets to the United States, Companhia Vale do Rio Doce (CVRD),
for which we have received information from the Government of Brazil.
On March 15, 1985, we issued our preliminary determination in this investigation (50 FR 11527). We preliminarily
determined that benefits constituting subsidies within the meaning of the countervailing duty law were being
provided to CVRD.
Our notice of preliminary determination gave interested parties an opportunity to submit oral and written views. On April
17, a hearing was held. We received briefs from the parties to the proceeding.
Verification of the response was done in Rio de Janeiro on April 23 through April 30, 1985.
On May 29, 1985, a suspension agreement was signed by the Department, CVRD, and the Government of Brazil.

(Cite as: 51 FR 21961, *21962)

On June 10, the respondents requested a continuation of the investigation.
On December 18, 1985, the Government of Brazil notified the Department of CVRD's withdrawal from the suspension
agreement.
On March 31, 1986, we published a notice of cancellation of the suspension agreement and resumption of the
suspended investigation. Therefore, the affirmative preliminary determination of countervailing duties published
on March 22, 1985, has been in effect since March 31, 1986.

Scope of the Investigation

The product covered by this investigation is iron ore pellets. Iron ore pellets are defined, for puposes of this proceeding, as
fine particles of iron oxide, hardened by heating and formed into balls of 3/8 " to 5/8 " for use in blast furnaces to obtain
pig iron. Pellets for use in electric furnaces and containing not over three percent by weight of silica are excluded.

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 to "Cold-Rolled Carbon Steel Flat-
(Cite as: 51 FR 21961, *21962)

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).
For purposes of this determination, the period for which we are measuring subsidization ("the review period") is calendar
year 1984.
Based upon our analysis of the petition, the responses to our questionnaire, our verification, and comments submitted by
interested parties, we determined the following:

I. Programs Determined To Confer Subsidies

We determined that subsidies are being provided to manufacturers, producers, or exporters in Brazil of iron ore
pellets under the following programs:

A. Income Tax Exemption for Export Earnings

Under Decree-Law 1240, exporters of iron ore pellets are eligible for an exemption from income tax on a portion of profits
attributable to export revenue. Because a firm must export to be eligible for this exemption, we determine it to be a
countervailable subsidy. CVRD took an exemption from income tax payable in 1984 on Export profits earned in 1983.
We indexed that
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portion as required under Brazilian tax law, and multiplied it by CVRD's effective corporate tax rate to find the benefit.
To find CVRD's effective tax rate, we took the base tax liability and added or subtracted all surcharges or deductions used
by CVRD. We allocated the benefit over the best information estimate of 1984 exports of the products eligible for the
exemption. To find the best information estimate, we took the ratio of 1983 promoted exports to 1983 total sales and
applied it to 1984 total sales. We determine the estimated net subsidy from this program to be 2.00 percent ad
valorem.
This is the first time the Department has issued a final determination following the resumption of a suspended investigation.
We find that substantial changes have occurred in export in total sales for CVRD since the review period. So that the
deposit rate will more accurately reflect the estimated duties on future entries, we have calculated the deposit rate for the
income tax exemption for export earnings by estimating the tax exemption that CVRD would have received in 1985 on
exports occurring during the 1984 review period had there been no suspension agreement. We emphasize that the
curcumstances of this case are unique. We have not decided that this approach would be proper under other
circumstances.
We determine the cash deposit rate for this program to be 7.85 ad valorem.

(Cite as: 51 FR 21961, *21962)

B. Import Tax Exemptions

Decree Law 1287 allows a 100 percent exemption from import duties and IPI tax on equipment, machinery, appliances or
instruments, spare parts, etc., provided similar equipment is not produced in Brazil. This program is part of the mining
industry incentives administered by the "Grupo Executivo da Industrial de Mineracao" ('GEIMI") of the Ministry of Mines
and Energy. Firms must have projects approved by GEIMI to qualify for the import duty exemption. Because no evidence
was *21963
(Cite as: 51 FR 21961, *21963)

provided to demonstrate that firms other than CVRD were exempted from duties and taxes on imports under Decree-Law
1287, we find this program to be limited to a specific enterprise or industry or group of enterprises or industries, and,
hence, countervailable.
We verified that CVRD used this exemption for the importation of pelletizing and mining equipment during the review
period. We divided the amount of the exemption taken in 1984 by the relevant sales during the same period to find an
estimated net subsidy of 0.09 percent ad valorem.

II. Programs Determined not To Confer Subsidies

A. Minerals Tax Incentives

(Cite as: 51 FR 21961, *21963)

Decree-Law 1038, as amended by Degree-Law 1172 and Decree 66694, established a tax on minerals ("I.UM."). Iron ore
pellets are subject to this tax. The tax for iron ore pellets sold domestically is 15 percent of the ex-mine price plus the value
added from marginal processing for transport (this includes pelletizing). The tax for exported iron ore pellets is 7.5
percent. The 7.5 percent tax is charged on 60 percent of the f.o.b. price.
Petitioners allege that the different tax for exports confers a subsidy on the exporters of iron ore pellets. Petitioners also
allege that payment of this tax exempts a firm from paying a portion of certain direct taxes such as social security taxes
and property taxes and that this exemption also confers a subsidy.
We verified that I.U.M. is an indirect tax paid at the time of transfer of the produce. Further, we verified that payment of
the I.U.M. did not exempt CVRD from any of its direct tax liabilities. Since under both U.S. law and the General Agreement
on Tariffs and Trade, a government may rebate or exempt firms from payment indirect taxes borne by the exported
product, we determine that the lower tax rate upon exports does not confer a countervailable subsidy.

B. Depletion Allowance

Peitioner allege that the 20 percent depletion allowance for mineral projects
(Cite as: 51 FR 21961, *21963)

granted by Decree-Law 1096 and extended by Decree-Law 1779 confers a subsidy on the manufacturers and producers of
iron ore pellets.
We verified that any firm owning a mine is eligible for the depletion allowance. The firm has the option of taking a depletion
allowance equal to the greater of:
1. The percentage of the total reserves extracted during the tax year times the original value of the mine; or
2. 20 percent of the ex-mine value of the minerals extracted during the tax year.
In the past, we have found that depreciation allowances, per se, are not countervailable. Because the depletion allowance,
which is comparable to a depreciation allowance on minerals, is part of the normal tax practice in Brazil and because
there is no indication that it favors exports over domestic products, we determine this program not to be countervailable.

C. BNDES/FINAME Loans

Petitioners allege that loans received from the National Economic and Social Development Bank (BNDES) and its
subsidiary, the Speical Agency of Industrial Financing (FINAME), confer a subsidy on the manufacturers and producers of
iron ore pellets. In support of this allegation, petitioners argue that iron ore
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pellet producers, as part of the metallurgy sector, recieved a disproportionate share of BNDES and FINAME loans.
In earlier determinations, we have found BNDES and FINAME loans to be provided to more than a specific enterpirse or
industry or group of interprises or industries, and hence not countervailable (see, for example, "Final Affirmative
Countervailing Duty Determination: Certain Carbon Steel Products from Brazil", 49 FR 17938). Information
received and verified in this case supports our earlier conclusion. For example, in the period 1978-84, the BNDES system,
including BNDES and FINAME, provided loans to the industral, agricultural, and energy sectors.
We have also examined whether the metallurgy sectors has received a disproportionate share of the loans made by the
BMDES system. Going back as far as 1975, we have found that the metallurgy sector accounts for 4.3 percent, on average,
of BNDES loans to the industrial sector. Further, industrial financing as a share of the BNDES portfolio has been declining
over much of this period. Therefore, we concluded that the metallurgy sector has not received a disproportionate share of
the BNDES system loans.
Because BNDES/FINAME loans are provided to more than a specific enterprise or industry or group of enterprises or
industries and there is no evidence of de facto selectivity in application, we find that these loans do not confer a benefit on
producers of iron ore pellets in Brazil.

(Cite as: 51 FR 21961, *21963)

D. ICM State Tax Incentives

Petitioners allege that CVRD receives a rebate of the ICM state value-added tax similar to the IPI export credit premium.
Also, under Decree 1600-N, anyone selling (final stage sales only) goods in the state of Espirito Santo must pay a 17
percent ICM. Of this, 5 percent is rebated; the firm receives 4.5 percent while the other 0.5 percent goes to the bank. This
rebate must be invested in corporations located in and sponsored by the state of Espirito Santo.
Because the ICM is an indirect tax, the non-excessive rebate of this tax does not confer a countervailable subsidy.
Therefore, we determine that this program is not countervailable.
Further, by its terms, the rebate/reinvestment program applies to all firms selling final stage products in Espirito Santo.
Therefore, we determine that the rebates are not provided to a specific enterprise or industry or group of enterprises or
industries, and, thus, are not countervailable.

E. Tax Incentives Reserves

The balance sheet in CVRO's annual report listed a "tax incentives reserve."
(Cite as: 51 FR 21961, *21963)

We stated in our preliminary determination that we needed more information on this reserve.
AT verification, we received that information. The "tax incentives reserve" contains the investments made by CVRD
through the investments credit program for the national income tax and the ICM tax incentives program in Espirito Santo.
We have determined that neither of these programs provides a countervailable subsidy (see, our discussion of ICM State
Tax Incentives, above, and our notice of "Final Affirmative Countervailing Duty Determinatio: Carbon Steel Plate
from Brazil." 38 FR 2568, January 20, 1983).

F. Government Loan Guarntees

Petitioners allege that the Brazilian government guarntees long-term loans in foreign currency on terms that are
inconsistent with commercial considerations and, therefore that these guarantees are countervailable.
We verified that CVRD has not received any government-guaranteed commercial loans since 1974. However, some
government-guaranteed commercial loans taken out in 1973 and 1974 are still outstanding. We found no evidence that
commercial guarantees were available in 1973 and 1974. Further, we verified that CVRD had non-guaranteed loans taken
out in 1974, and still outstanding, that bear the same interest rates as the guaranteed loans.

(Cite as: 51 FR 21961, *21963)

*21964
(Cite as: 51 FR 21961, *21964)

In determining whether government-loan guarantees are countevailable, we look at whether the costs and other terms of
the government guarantees are less than for commercially provided guarantees; and whether the government guarantee
allow a firm to receive better terms on the loan than it would without the guarantee. We had no commercial guarantees
from the same period with which to compare costs, so we based our decision on the other criterion. Since CVRD was able to
get the same interest rate, at the same time, or commercial loans without any guarantees, we detemine that the
government guarantees do not confer a countervailable subsidy on producers and exporters of iron ore pellets.

III. Programs Detemined not To Be Used

We determine that producers or exporters in Brazil of iron ore pellets did not use the following programs listed in our
notice of initiation.

A. IPI Export Credit Premium

Petitioners allege that under the Portaria Ministerial No. 78, as amended by Portaria Ministerial No. 252, exporters of iron
ore pellets receive a cash reimbursement from the Government of Brazil based on the "adjusted" f.o.b.
(Cite as: 51 FR 21961, *21964)

price of the exported merchandise.
We verified that producers of iron ore pellets are not eligible for the IPI credit premium. Accordingly, we determine that
this program was not used by the producers of the product under investigation.

B. Financing for Storage of Export Merchandise Program: Resolution 330 of the Banco Central do Brazil

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. We verified that CVRD was not eligible for this program because Resolution 330 is
applicable only to certain "manufactured" products listed by the Ministry of Finance. Therefore, we determine that this
program was not used by the producers of the product under investigation.

C. FINEX Export-Financing Program: Resolution 68

Resolution 68 states that the Department of Foreign Commerce of the Banco do Brazil, S.A. (CACEX), may draw upon
the resources of the Fundo de Financiamento a Exportacao (FINEX) to extend dollar-denominated loans to foreign buyers
of Brazilian goods and cruzeiro-denominated loans to exporters. Financing is
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granted on a transaction-by-transaction basis.
We verified that the respondent was not eligible for this kind of financing because it is provided only with respect to
"manufactured" products. Therefore, we determine that this program was not used by the producers of the product under
investigation.

D. The CDI Program: Exemption of IPI Tax and Customs Duties on Imported Equipment

Article 13 of Decree Law No. 1137 granted duty-free treatment and an exemption from the IPI tax on certain imported
machinery under appropriate circumstances. Accelerated depreciation was also granted on domestic machinery. This
legislation was amended by Article 9 of Decree Law No. 1428 of December 2, 1975, which reduced the maximum benefit on
imported machinery to an exemption of 80 percent of the customs duties and 80 percent of the IPI tax. The accelerated
depreciation for domestic equipment continued.
We verified that CVRD did not receive any benefits under this program during the review period. Therefore, we determine
that this program was not used by the producers of the product under investigation during the review period.

E. The BEFIEX Program: Decree-Laws 77065 and 1219

(Cite as: 51 FR 21961, *21964)

The comissao para a Concessao de Beneficios Fiscais a Programs Especiais de Exportacao (Commission for the Granting of
Fiscal Benefits to Special Export Programs, or BEFIEX) grants at least three categories of benefits to Brazilian exporters:
- Under Decree-Law 77065, BEFIEX may reduce by 70 to 90 percent import duties and the IPI tax on the importation of
machinery, equipment, apparatus, instruments, accessories, and tools necessary for special export programs approved by
the Ministry of Industry and Trade, and may reduce by 50 percent import duties and the IPI tax on imports of
components, raw materials, and intermediary products;
- Under article 13 of Decree No. 1219, BEFIEX may extend the carry-forward period for tax losses from 4 to 6 years; and
- Under article 14 of the same decree, BEFIEX may allow special amortization of pre-operational expenses related to
approved projects. We verified that the respondent did not participate in this program. Accordingly, we determine that
this program was not used during the review period.

F. The CIEX Program: Tax Reductions on Export-Production Equipment: Decree- Law 1428

(Cite as: 51 FR 21961, *21964)

Decree-Law 1428 authorized the Comissao para Incentives a Exportacao (Commission for Export Incentives, or CIEX) to
reduce import taxes and the IPI tax up to 10 percent on certain equipment for use in import production. We verified that
CVRD did not receive any benefits under this program. Accordingly, we determine that this program was not used by the
producers of the product under investigation during the review period.

G. Accelerated Depreciation of Equipment: Decree Law 1137

Pursuant to Decree-Law 1137, any company which purchases Brazilian-made capital equipment and has an expansion
project approved by the CDI may depreciate this equipment at twice the rate normally permitted under Brazilian tax laws.
We verified that CVRD did not participate in this program during the review period. Therefore, we determine that this
program was not used by the producers of the product under investigation during the review period.

H. Working Capital Financing for Exports: Resolutions 674 and 882/950

Petitioners allege that the Government of Brazil provides preferential short- term financing for working capital to
companies with qualifying export performance. We verified that the respondent was not eligible for this kind of
(Cite as: 51 FR 21961, *21964)

financing since such financing is only authorized for certain "manufactured" products. Therefore, we determine that this
program was not used by the producers of the product under investigation.

I. Export Financing Under CIC-CREGE 14-11 Circular

Under its CIC-CREGE 14-11 circular ("14-11"), the Banco do Brazil provides 180- and 360-day cruzeiro loans for export
financing for manufactured products. We verified that the respondent was not eligible for this kind of financing, since such
financing is only authorized for certain "manufactured" products. Therefore, we determine that this program was not used
by the producers of the product under investigation.

J. The PROEX Program: Export Promotion Credit

Petitioners allege that short-term credits for exports were established under the Programa de Financiamento a Producao
para a Exportacao (PROEX), *21965
(Cite as: 51 FR 21961, *21965)

previously referred to as the Apoio a Exportacao Program. We verified that CVRD was not eligible for and did not receive
any loans under this program. Accordingly, we determine that this program was not used by the producers of the product
under investigation.

(Cite as: 51 FR 21961, *21965)

K. Tax Deduction for Financial Transactions Related to the Recuperation of Capital Expended in Prospecting Mineral
Deposits: Decree 58400

We verified that this program was available only to individual taxpayers. Furthermore, this program is no longer in effect.
Therefore, we determine that this program was not used by the producers of the product under investigation.

L. Carajas Mines Incentives

Petitioners allege that iron ore pellet producers and exporters benefit from several programs relating to the Carajas Mine.
We verified that the Carajas Mine will produce only natural iron ore, not pellets. To produce pellets from this ore would be
economically unsound and a violation of the terms of CVRD's loan agreement with the World Bank. Since our investigation
deals only with iron ore pellets, we determine that these incentives did not provide benefits to the production or
exportation of iron ore pellets.

M. Credit Against IPI Liability on Equipment Necessary for Mining Development: Decree 83,263 and Subsidy Reserve

(Cite as: 51 FR 21961, *21965)

Petitioners allege that producers and exporters of iron ore pellets receive benefits from these credits. This program is
administered by GEIMI. Any producer with an approved project for exploration, mining, or processing of minerals may
receive a rebate of the IPI tax paid on the purchase of related capital equipment.
In our preliminary determination, we said that we needed more information on the "subsidy reserve" listed on the balance
sheet of CVRD's annual report. We verified that this reserve contained the credits received under Decree 83,263.
We also verified that CVRD did not receive any credits for its pelletizing equipment or for equipment for its mines. Since
our investigation deals only with iron ore pellets, we determined that this program does not provide benefits to the
production or exportation of iron ore pellets.

Petitioners' Comments

Comment 1. Petitioners argue that the Brazilians' withdrawal from the suspension agreement constituted a violation of the
agreement because neither CVRD nor the Government of Brazil served notice of withdrawal on the petitioners.
Further, petitioners submit that the notification of withdrawal was defective, alleging that the Government of Brazil is
not authorized to
(Cite as: 51 FR 21961, *21965)

submit the withdrawal on behalf of CVRD. Petitioners also allege that CVRD and the Government of Brazil have failed to
file certifications as required by the suspension agreement. Additionally, petitioners allege that the Department should
make the suspension of liquidation retroactive to all unliquidated entries of iron ore pellets made on or after December 31,
1985, which is 90 days before publication of the notice of suspension of liquidation on March 31, 1986. Lastly,
petitioners assert that the appropriate period of investigation is not calendar year 1984, but 1985, the period
immediately preceding termination of the agreement.
DOC Position. The notification of withdrawal from the suspension agreement was made by the Government of Brazil on
behalf of CVRD pursuant to section V of the suspension agreement. The notification was a government-to-government act
within the context of the agreement. Section V, which requires the Government of Brazil to notify the Department if it
alters its position with respect to the agreement, does not require notification of all parties. Additionally, the withdrawal
provision of Article IV(2) does not prohibit the Government of Brazil from submitting a withdrawal on CVRD's behalf.
Based on the foregoing, we determine that the withdrawal did not constitute a violation of the agreement, but was made in
accordance with the provisions of section IV(2).
With respect to the filing of certifications, we determine that both CVRD and the Government of Brazil have
substantially complied with the filing
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requirements set forth in the agreement.
Further, we complied with the terms of section 704(i) by requiring a resumption of the suspension of liquidation on or
after the date of publication of the cancellation of the agreement. Applied to these facts, section 704(i) provides for
suspension of liquidation of entries made after the date we published notice of the determination that the agreement was no
longer in force.
Lastly, we disagree with the petitioner's suggestion that the period of review be changed for purposes of this determination.
The petition was filed in December 1984 to cover imports of iron ore pellets from Brazil occurring in 1984. The
ITC made an affirmative preliminary injury determination based on imports during that period and we issued an
affirmative preliminary countervailing duty finding for benefits bestowed during the period. Section 704(i) of the
Act contemplates that the new investigation which is to be "resume[d]" is the one which was suspended.
Further, petitioners' reliance on Leather Wearing Apparel from Argentina; Termination of Suspension Agreement and
Issuance of Countervailing Duty Order (48 FR 11480) is misplaced in that case, the Department issued a final
affirmative determination, upon request, covering the original period, while the Department's review of the period
immediately preceding the termination of the agreement was an administrative review of the agreement,
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conducted pursuant to section 751 of the Act.
Comment 2. Petitioners request that the Department, in making its final determination, not take into account any
reductions in subsidies due to the implementation of the suspension agreement.
DOC Position. Consistent with section 704(j) of the statute, the Department, in making its final determination, continued
the investigation without regard to the effects of the suspension agreement.
Comment 3. Petitioners argue that the Department should find BNDES/FINAME loans to be a subsidy for several reasons.
First, BNDES/FINAME loans are granted at below market rates for "normal lending." Second, BNDES runs a specific lending
program for the mineral sector with subsidized interest rates. Third, the Court of International Trade (see, Bethlehem Steel
Corp. v. United States, 590 F. Supp. 1237 (1984)) has rejected the rationale that generally available benefits are not
subsidies. Finally, even if the general availability doctrine were applicable, BNDES/FINAME loans are not generally
available.
Department's Position. We disagree. We do not consider programs made available to more than a specific enterprise or
industry or group of interprises or industries to be countervailable. Petitioners' reliance on Bethlehem Steel Corp. is
misplaced since the Court in that case upheld our determination that a generally available tax benefit is not
countervailable.
(Cite as: 51 FR 21961, *21965)

The Court's further comments on general availability are dicta and do not affect the Court's earlier approval of our general
availability test in Carlisle Tire *21966
(Cite as: 51 FR 21961, *21966)

and Rubber Co. v. United States, 564 F. Supp. 834 (1983).
We found that the minerals sector did not receive a disproportionate share of the BNDES/FINAME financing and that such
financing was available to a broad spectrum of the economy. Therefore, these loans are provided to more than a specific
enterprise or industry, or group of enterprises or industries. Thus, the interest rate is irrelevant. Finally, we verified that
CVRD borrowed no funds through the lending program specifically for the minerals sector.
Comment 4. Petitioners state that the subsidies to the Carajas mine project should be included in our calculations because
there is no evidence on the record the Carajas will never produce pellets. Additionally, they argue that it is unclear
whether the Carajas subsidies are specifically tied to production from the Carajas project or whether they benefit the
company as a whole. Unless these subsidies can be specifically linked to the Carajas project they should be countervailed.
Department's Position. We verified that CVRD does not intend to produce pellets at Carajas. The information supporting
this finding is on the record. The Carajas subsidies alleged by petitioners (infrastructure, regional tax benefits) are, by
definition, for the Carajas project. Since the programs are
(Cite as: 51 FR 21961, *21966)

for the Carajas project and the Carajas project will not produce pellets, we did not consider these programs. If this factual
situation were to change, such change would be addressed in any subsequent reviews under section 751 of the Act.
Comment 5. Petitioners argue that the scope of the investigation should include natural ore as well as pellets. They claim
that natural ore was included in the petition since the items listed in the Tariff Schedules of United States Annotated
(TSUSA) included the natural ore as did the petitioners' discussion of threat of material injury.
Department's Position. We disagree that the scope of the investigation properly includes natural ore. The TSUSA items
listed in the petition are basket items including several products clearly outside the scope of this investigation (e.g., sinter
fines, ore mud, chips, etc.). Therefore, the mere fact that a product falls under the TSUSA items listed does not mean that it
is included in the scope.
We based the scope of our investigation on the written product description which included processed pellets only. The
discussion of natural iron ore in describing the threat of material injury is not sufficient for the Department to include this
product within the scope of the investigation. Further, we note that the petitioners, in a January 27, 1985, letter, agreed
with our limiting the scope of the investigation to processed pellets.

(Cite as: 51 FR 21961, *21966)

Comment 6. Peittioners argue that, even if the scope of the investigation is limited to processed pellets, both TSUSA items
601.2450 and 601.2430 should be included in the scope, since processed pellets are entering the United States under both
TSUSA items.
Department's Position. It is the written description, not the TSUSA item, that determines the scope of the investigation. We
have emphasized this in our instructions to the Customs Service and have not included any TSUSA items in the scope
section of this notice. Therefore, any of the subject merchandise entered, even if entered under the wrong TSUSA item,
would be liable for countervailing duties.
Comment 7. Petitioners argue that low-silica pellets for use in electric furnaces should be included in the scope. Low-silica
pellets compete directly with the domestically-produced products since U.S. pellet producers could extract silica from
their pellets if the price were right. Further, low-silica pellets could be used in blast furnaces, with additional processing.
Finally, petitioners argue that the exclusion creates a potential for customs fraud; since low- and high-silica pellets look the
same, an importer could declare that the imported product is low-silica even if it is not.
Department's Position. The product description included in the petition covers pellets "for use in blast furnaces." Thus,
pellets for use in electric furnaces are implicity excluded. We have clarified this in our statement of
(Cite as: 51 FR 21961, *21966)

scope. Further, petitioners admit that there is no U.S. producer of low-silica pellets and that such pellets could not be used
in a blast furnace without adjustments to the blast furnace. Thus, low-silica pellets should not be included within the scope,
since, without further processing, they cannot be used in blast furnaces. Additionally, the two types of pellets have
different chemical compositions which serve as legitimate means of separating the two types for Customs purposes.
Comment 8. Petitioners claim that all of CVRD's loans have government guarantees under Decree 6,404, whether there is
an explicit loan guarantee or not. This decree states that the government will not allow any mixed-economy company to
fail on its financial obligations.
Department's Position. We do not agree that this decree acts as a loan guarantee. Under normal international commercial
practices, the liability of a government for the debts of a mixed-economy company (a company with partial government
ownership) is not considered a guarantee. We note that lenders that normally require government guarantees (such as the
World Bank and various countries' Ex-Im-like banks) did do in CVRD's case as well. Finally, the obligation the government
assumed through Decree 6,404 is not the same as the obligation it would assume in a loan guarantee.
Comment 9. Petitioners claim that the respondents provided an inadequate response on loan guarantees. Therefore, the
Department should use the best
(Cite as: 51 FR 21961, *21966)

information available to determine the subsidy from this program. The petitioners provided a sample calculation which
used LIBOR plus a spread plus a risk premium to find the appropriate benchmark interest rates for foreign
currency-denominated loans. For cruzeiro-denominated loans, petitioners used the the rate for 180 days working capital
loans as reported in the Gazeta Mercantil.
Department's Position. In our questionnaire, we asked only about government loan guarantees on commercial loans. We
verified that the respondents accurately reported every commercial loan with a government loan guarante that was
outstanding during the review period. Thus, the respondents did provide an adequate response.
Comment 10. Petitioners claim that the Department failed to investigate an allegation concerning accelerated depreciation
for railroads. Additionally, the Department failed to explain why it did not investigate this allegation. Petitioners argue
that, since CVRD owns rail lines which are used for transporting pellets, the pellets are subsidized by the accelerated
depreciation for rail equipment allowed under Brazilian federal tax law.
Department's Position. The accelerated depreciation for rail lines is similar to the accelerated depreciation for ships, which
we have said we would not investigate (see our response to Petitioners' Comment 23). This program is specifically tied to a
product (rail lines) other than the product under
(Cite as: 51 FR 21961, *21966)

investigation. To the extent that the accelerated depreciation would create preferential transport prices for the ore
transported on the rail lines, we would consider the benefits from the program. However, petitioners provided no
information that preferential prices existed. Further, the accelerated depreciation is available to all owners of rail
equipment in Brazil and there is *21967
(Cite as: 51 FR 21961, *21967)

no reason to believe that CVRD's transport prices are any different from those available to other lines. Therefore, there was
no basis to investigate this allegation.
Comment 11. Petitioners support the Department's preliminary determination on the I.U.M. tax. Petitioners argue that the
I.U.M. is a direct tax because it is assessed on the value of the ore at the time of extraction. Additionally, the I.U.M.
exempts mineral firms from paying social security and property taxes on their minerals. Finally, the petitioners argue that,
even if the I.U.M. were an indirect tax, it fails to meet the Department's linkage test for an allowable rebate of indirect taxes.
Department's Position. We have reversed our preliminary determination and now find the lower I.U.M. tax upon exports
not to be countervailable. We found that this tax was an indirect tax and, furthermore, that payment of the I.U.M. did not
exempt the firm from any direct tax liabilities (see the program description in this notice). As to the linkage test, this
program is similar to but is not a rebate of indirect taxes. It is a partial exemption of the
(Cite as: 51 FR 21961, *21967)

indirect tax itself. As such, it is automatically linked.
Comment 12. Petitioners argue that the Department's methodology in calculating the income tax exemption for export
earnings, i.e., allocating the benefit to the period in which the tax is filed (thus, in effect, lagging a year), is incorrect. They
argue that the Department should calculate the value of the benefit by allocating the benefit to exports in the year the
benefit was earned (current basis). Petitioners assert that calculation on a current basis is consistent with the policy of the
countervailing duty statute, which is to eliminate the distortion of market forces caused by the subsidies, because
the current basis countervails precisely the amount of subsidy conferred on any particular export.
They further argue that, with respect to this program in particular, Brazilian tax and accounting practices have changed,
thus eliminating the original reasons for using a lagged calculation. In the past, the Department lagged this program
because inflation reduced the value of the benefit between the time the benefit was earned and the time it was received.
Now, however, the Brazilian government indexes the firm's tax liabilities. Thus, the benefit is no longer affected by
inflation. Further, CVRD accrues its tax liability on a current basis in its accounts. Therefore, the company arguably knows
its tax liability during the fiscal year, allowing it to account for the benefit in its export prices on a current basis.

(Cite as: 51 FR 21961, *21967)

Finally, petitioners argue that, in this case, all parties have admitted each shipment receives a specific, verifiable subsidy.
By allowing CVRD to renounce the benefit only on shipments of iron ore pellets to the United States in the suspension
agreement, the Department has recognized that each shipment "generates a discrete subsidy that is directly tied to that
shipment and can be calculated with precision." Therefore, it is appropriate to apply that discrete subsidy to the shipment
generating it.
Department's Position. We disagree. For five years it has been the Department's policy to lag income tax benefits. The
statute requires us to countervail the actual net subsidy received. Since in an income tax program, the actual subsidy
cannot be known until after the tax return is filed, our method appropriately allows us to base our calculation on the actual
subsidy. This is consistent with the statute.
Further, although a firm may accrue an income tax liability in its accounts during the fiscal year, this is at best an estimate
of the firm's final tax liability. That does not allow the firm to know the extent of any tax exemption. We addressed this issue
in the final results of administrative review on float glass from Italy (48 FR 25255, June 6, 1983). At that time we stated:
[w]hether the exemption is partial or complete, the exact benefit for a particular tax year cannot be known until the firm's
books have been closed,
(Cite as: 51 FR 21961, *21967)

because it is only then that the firm can determine with finality its taxable income. The Department, therefore, maintains
that it must allocate income tax benefits to the year in which the total income is knowable.
To accept argument that benefits should be considered conferred when a firm is able to adjust its cash flow or business
efforts with regard to estimated tax liabilities would saddle the Department with the prohibitive burden of determining
exactly when each company under review may or should be able to account for potential benefits, and determining when
subsequent reconciliations are possible. We doubt the wisdom of attempting such a subjective approach.
Additionally, the Department has not found the tax program in this case to be shipment specific. While eligibility for the
exemption is dependent on exports of certain products, the value of the benefit is dependent on the firm's overall
profitability (not the profitability of any specific shipment). Thus, no particular shipment generates a discret, calculate
subsidy amount. However, by removing a product from eligibility for the benefit, we remove the effect the subsidy would
have on that product. Thus, while it is reasonable to allow CVRD to renounce the eligibility of shipments of iron ore pellets
to the United States, this in no way implies that the benefit is shipment specific.
Comment 13. Petitioners argue that if the Department does continue to lag the benefits from the income tax exemption, it
must index that exemption to reflect the true value of the subsidy. Even Brazilian tax law requires that the tax
(Cite as: 51 FR 21961, *21967)

liability be indexed. The Department should do the same.
Department's Position. We agree. Because indexation of tax liabilities is required under Brazilian law, we have indexed the
exemption according to that system.
Comment 14. Petitioners argue that the Department used the wrong denominator in its calculation of the income tax
benefit. The program is product specific because only those exports containing at least a 50 percent value added over the
raw mineral ore are eligible. The petitioners contend that, because the program is product specific, the Department should
use exports of only the product under investigation as the denominator.
Department's Position. We agree that we should use exports of only those products eligible for the exemption as our
denominator and have done so. However, products other than pellets are eligible for the exemption, so our denominator
includes more than just pellet exports.
Comment 15. Petioners contend that, since the response did not contain the requested reconciliation between financial
statements and the claimed taxable profit, the Department should use the best information available to find the profit to
which the tax exemptions applied. Petitioners contend that the best information on profit should be the pre-tax profit from
the consolidated income statement in the annual report rather than the figure supplied in the response.

(Cite as: 51 FR 21961, *21967)

Department's Position. In our questionaire, under this program, we requested the profit figure to which the exemption is
applied. Respondents provided that figure and we verified its accuracy. Therefore, there is no reason to use best
information in this situation.
Comment 16. Petitioners argue that the Department used an incorrect tax rate in calculating the income tax benefit. There
is a 10 percent surcharge on any taxable profit in excess of 60,000 times one ORTN. Thus, the true tax rate for the income
exemption is 45 percent, not 35 percent.
Department's Position. As described in the program description section of this notice, we used CVRD's effective corporate
income tax rate. Thus, we *21968
(Cite as: 51 FR 21961, *21968)

considered both the additions to (including the surcharge) and deductions from the base rate to find an effective tax rate.
Comment 17. Petitioners support the Department's preliminary decision not to accept the investment credits as a
reduction in the income tax rate. The petitioners state that there are three reasons for not accepting the investment
credits: the use of the tax incentives does not reduce the actual benefit of the tax subsidy; the incentives reduce tax owed,
not tax rates; and considering it would be impractical administratively.
Department's Position. As stated in our response to Comment 16, we used the surcharges and credits to find the effective
tax rate. This includes the investment credits. CVRD has demonstrated that it has earned returns from
(Cite as: 51 FR 21961, *21968)

these investments. Therefore, we have determined that the investment credits should not be considered a part of the firm's
corporate income tax liability and have deducted the investment credits in calculating CVRD's effective tax rate.
Concerning the petitioner's argument that the investment credit reduces the tax owed, not the tax rate, this is correct in
normal terms. However, an effective tax rate compares the actual tax owed to the total taxable profit to find the percentage
paid out in taxes. Finally, it is no more of an administrative burden to consider the investment credits than it is to consider
the excess profit surcharge.
Comment 18. Petitioners argue that we should determine that the investment credits allowed on income tax provides a
countervailable benefit. They argue that these credits are not generally available because certain industries are exempted
from the program.
Department's Position. We disagree. This program has been determined to be available to more than a specific enterprise or
industry or group of enterprises or industries in past cases. See our "Final Affarmative Countervailing Duty
Determination: Carbon Steel Plate from Brazil" (48 FR 2588, January 20, 1983).
Comment 19. Petitioners contend that the Department should investigate government equity infusions into CVRD. Since
the time of the decision not to
(Cite as: 51 FR 21961, *21968)

initiate on equity infusions, the petitioners have submitted two new equity allegations. One concerned government
purchases in the secondary market; the other, a decision by the government to reinvest its dividends in the company.
Department's Position. As stated in our notice of intiation, government equity investments are not countervailable per se.
There must be a showing that such investments are inconsistent with commercial considerations. There is no evidence to
believe that such a situation exists with regard to CVRD whether the government is investing new funds or reinvesting its
dividends. Regarding the Brazilian government's purchase of CVRD's shares in the secondary market, any benefit that could
possibly arise would accrue to the owners of those shares, not to CVRD.
Comment 20. Petitioners allege that Decree Law No. 1940 expressly exempts exports from payment of FINSOCIAL (one of
the social security taxes) and that CVRD receivers a countervailable benefit from this. If CVRD did not demonstrate at
verification that it refused to take advantage of this export subsidy, then the Department should determine that a subsidy
was received through this program.
Department's position. This allegation was submitted only five days before the suspension of investigation and after
verification. Therefore, the Department will not consider if for the final determination. If appropriate, it will be considered
in any eventual review under section 751 of the Act.

(Cite as: 51 FR 21961, *21968)

Comment 21. Petitioners state that the import duty exemptions under Decree-Law 1287, found during verification, should
be determined to be countervailable. Further, because the exemption reduces the cost to CVRD of capital equipment, the
benefit should be treated as a grant from the Brazilian government to CVRD. As such, it should be allocated over the
average useful life of equipment. The Department should look at the exemptions received in the last 10 years to countervail
the total subsidy under the Department's grant methodology.
Department's Position. We agree that the exemption is countervailable. However, our practice is to allocate the benefits of
such exemptions to the year in which the exemptions occur, because of their recurring nature. Therefore, in calculating
the subsidy, we have considered only exemptions that occurred during the review period.
Comment 22. Petitioners argue that the Department did not adequately examine the credits against IPI liability program
under Decree 83,263. Petitioners argeue that this program reduces the cost of capital equipment and should be treated as a
grant. As such, it is not sufficient for the Department to verify that this program was not used during the review period. The
Department should have verified whether it was used anytime in the last 10 years.
Department's Position. We disagree. As with the duty exemptions disucssed in Comment 21, we would not allocate benefits
from this program over time. Therefore, it is appropriate to consider only benefits received during the
(Cite as: 51 FR 21961, *21968)

review period.
Comment 23. Petitioners argue that the Department should have investigated their allegation that CVRD's exports of iron
ore pellets benefit from a program allowing accelerated depreciation for vessels constructed in Brazil. They argue that
CVRD wholly owns DOCENAVE, a shipping firm, and therefore receives benefit from DOCENAVE's accelerated depreciation
which constitutes a countervailable subsidy.
DOC Position. We disagree. This program is specifically tied to a product other than the product under investiagion. CVRD
and DOCENAVE file separate tax returns and we verified that CVRD did not claim any accelerated depreciation under this
program. DOCENAVE, per se, is not subject to this investigation. To the extent that the accelerated depreciation would
create preferential transport prices for the ore transported in DOCENAVE's ship, we would consider this. However,
petitioners neither provided any information that preferential prices existed nor alleged that they existed. Further, the
accelerated depreciation is available to all owners of Brazilian made ships. Thus, there is no reason to believe that
DOCENAVE charges different freight rates to CVRD than to other firms or that it charges different freight rates than other
shipping firms do. Therefore, there was no reason to investigate this program.

Respondents' Comments

(Cite as: 51 FR 21961, *21968)

Comment 1. The Govrnment of Brazil and CVRD ("the respondents") argue that the Department incorrectly determined
that I.U.M. tax to be countervailable in the preliminary determination. They argue that the I.U.M. tax is an indirect tax and
that the payment of the I.U.M. does not exempt a firm from any of its direct tax obligations. Therefore, any non-excessive
rebate does not constitute a countervailable subsidy.
DOC Position. We verified tht the I.U.M. is an indirect tax paid at the time of transfer of the product. Further, we verified
that payment of the I.U.M. did not exempt CVRD from any of its direct tax liabilities. Since, under both U.S. law and the
General Agreement on Tariffs and Trade, a government may rebate or exempt firms from paying indirect taxes *21969
(Cite as: 51 FR 21961, *21969)

borne by exported products, we agree with respondents' argument that the lower tax rate the company pays on its exports
does not confer a countervailable subsidy.
Comment 2. Respondents argue that the Department overstated the benefit from the income tax exemption for export
earnings. Brazilian federal tax laws permit corporations to invest 26 percent of taxes owed in certain specified
corporations. The Brazilian government claims that this provision results in an effective reduction of the corporate income
tax rate, which directly diminishes the benefit from the income tax exemption. Additionally, respondents have shown
during verification that CVRD received dividends from
(Cite as: 51 FR 21961, *21969)

these investments.
DOC Position. We agree. We verified that Brazilian federal tax laws permit corporations to invest 26 percent of their taxes
owed in certain specified corporations. We also verified that CVRD did use the amount allowed to invest in certain
programs. Further, we verified that CVRD has received dividends from these investments. Therefore, in computing the
income tax exemption, we have calculated CVRD's effective tax rate, taking into account the 35 percent base tax rate, the
10 percent surcharge, the 26 percent of taxes eligible for investment and all other deductions and surcharges claimed by
CVRD. See also our response to petitioner's comment 16.
Comment 3. Respondents claim that benefits derived from income tax exemption for export earnings should be allocated
over total revenue rather than export revenue. Under this program, a Barzilian exporter receives an exemption from
income tax liabilities at the end of the fiscal year based upon a ratio of export revenue to total revenue, provided that the
firm has made an overall profit. The respondents argue that, because the determining factor in a firm's eligibility for this
benefit is its overall profitability for a given year, the benefit accrues to the operations of the whole firm and not just to
exports. Thus, by allocating the benefits only to export revenue, the Department overstates the value of the subsidy.
DOC Position. We disagree. When a firm must export to be eligible for
(Cite as: 51 FR 21961, *21969)

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 profitable 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 4. Respondents argue that indexation of the income tax exemption would overstate the amount of the subsidy.
Because indexation does not occur until the year in which tax is paid, it has no effect on the amount of tax liability or on the
values of any of the amounts used to calculate the exemption.
DOC Position. We disagree. The Department has maintained that it must allocate tax benefits to the year in which the the
total income and tax liability are known. Therefore, the benefits of the income tax exemption are allocated to the year in
which the taxes are paid. Brazilian law requires that the tax liability be fully indexed through ORTN, and we have used the
indexed figure in calculating the benefits.
Comment 5. Respondents support the Department's decision to calculate the benefits from the income tax exemption for
export earnings based on the year in which the tax return is filed. They argue that any benefits from the program are
received when the tax savings occur, which happens with the filing of the
(Cite as: 51 FR 21961, *21969)

tax return. Further, the Department's methodology is consistent with past practice. Finally, they refute the petitioners'
contention that CVRD knows its tax liability during the fiscal year, prior to filing the tax return, because even if CVRD keeps
a running estimate during the fiscal year, it cannot anticipate all the factors that might affect its overall profitability. For
example, the 1979 and 1983 maxi-devaluations seriously reduced most firms' profits in those years.
DOC Position. We agree. See our response to Petitioners' Comment 12.
Comment 6. Respondents argue that the income tax exemption for export earnings does not provide a shipment specific
benefit. They state that the exemption is tied to the total operations of the company. Further, they state that, contrary to
petitioners' assertions, they never argued that the program was shipment specific, but merely that removal of those
exports from the products included in export earnings would eliminate the effect of the benefit on exports to the United
States.
DOC Position. We agree. See our response to Petitioners' Comment 12.
Comment 7. Respondents argue that the 7.5 percent I.U.M. charged on exports should be considered an allowable offset
for the income tax exemptions. The law allows the Department to decuct "any application fee, deposit, or similar payment
paid in order to qualify for, or to receive, the benefit of the subsidy" (19 U.S.C. 1677(6)(a)). Since the firm must pay the 7.5
percent
(Cite as: 51 FR 21961, *21969)

I.U.M. tax on all iron ore product exports and must export to qualify for the income tax exemption, the I.U.M. tax should
be considered a "similar payment" as discussed above.
DOC Position. We disagree. The I.U.M. is an indirect tax, payable on both domestic and export sales. Just because the rate
for export sales is different from the rate for domestic sales does not qualify the I.U.M. tax charged on exports as
something different from the I.U.M. tax charged on domestic sales:
Comment 8. Respondents argue that Decree-Law 6,404 has no impact on a mixed- economy company's ability to borrow
and does not act as a government loan guarantee. Under Brazilian law, a commercial guarantee creates joint and several
liability. The government's obligation under D.L. 6,404 to creditors of mixed-economy companies is not one of joint or
several liability since recourse to the government may only occur after the attachment and sale of all the company's
available assets. Further, under international commercial practice the liability of a government for the debts of a
mixed-company is not treated as a commercial guarantee.
DOC Position. We agree; see our response to Petitioners' Comment 8.
Comment 9. Respondents support the Department's preliminary determination not to considersubsidies to the Carajas
mine project because Carajas is not, and will not be, producting iron ore pellets. It was demonstrated during verification
that Carajas has no intention of producting pellets for the
(Cite as: 51 FR 21961, *21969)

following reasons: the iron content is insufficient to allow the natural lumpy ore to be sold for use in blast furnaces;
pelletizing the ore would be uneconomical; and, building pelletizing facilities would violate CVRD's loan commitments to
the World Bank.
DOC Position. We agree. Since the Carajas subsidies are for the Carajas project only, as alleged by the petitioner, and since
we verified that CVRD does not intend to produce pellets a Carajas, we did not consider these programs.
Comment 10. Respondents support the Department's definition of the scope of the investigation. The definition is
consistent with the product description in the petition. Further, the product description need not be defined in reference
to a specific tariff classification. Finally, they argue that the ITC's preliminary injury determination covered only processed
iron ore pellets. Therefore, there is no *21970
(Cite as: 51 FR 21961, *21970)

preliminary injury determination on natural ore and the Department does not have the authority to make a determination
on a product without a preliminary injury determination existing on that product.
DOC Position. See our response to Petitioners' Comment 5.
Comment 11. Respondents argue that, in calculating the subsidy from the income tax exemption, the Department should
calculate the tax liability as if CVRD had taken all deductions allowed under the Brazilian tax code. This should be
(Cite as: 51 FR 21961, *21970)

compared to their actual liability to find the subsidy.
DOC Position. Respondents themseves have submitted that "the most practical way of calculating the benefit of a tax
subsidy is to measure the difference between tax paid and tax otherwise payable but for the exemption." We have done just
that. We do not take into account all deductions allowed under the Brazilian Tax Code if these deductions have not been
taken during the review period.
Comment 12. Georgetown Industries, a party to the proceeding, supports the Department's exclusion of low-silica pellets
for use in electric furnaces from the scope of this investigation. Low-silica pellets have a different chemical composition
and different end use from the pellets covered by the investigation. Additionally, petitioners have submitted that there is
no domestic production of this product and that to use the imported low-silica pellets in a blast furnace would require
adjustments to the furnace. For these reasons, Georgetown Industries argues that low-silica pellets should not be included
in the scope.
DOC Position. We agree. See our response to Petitioners' Comment 7.

Final Negative Determination of Critical Circumstances

Petitioners allege that critical circumstances exist within the meaning of
(Cite as: 51 FR 21961, *21970)

section 703(e)(1) of the Act, with respect to iron ore pellets from Brazil. In determining whether critical circumstances
exist, we examine whether there is a reasonable basis to believe or suspect that:
(a) the alleged subsidy is inconsistent with the Agreement; and
(b) there have been massive imports of the subject merchandise over a relatively short period.
In this case, information on the record does not indicate that imports of the merchandise under investigation were massive
over a relatively short period within the meaning of section 703(e)(1) of the Tariff Act of 1930. Therefore, we determine
that critical circumstances do not exist with respect to iron ore pellets from Brazil.

Verification

In accordance with section 776(a) of the Act, we verified the data used in making our final determination. During this
verification, we followed normal procedures, including meetings and inspection of documents with government officials,
and inspection of the records of the company exporting the merchandise under investigation to the United States.

Suspension of Liquidation

(Cite as: 51 FR 21961, *21970)

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 iron ore pellets from Brazil entered, or withdrawn from warehouse, for consumption, on
or after March 31, 1986. As of the date of publication of this notice in the Federal Register, the Customs Service should
require a cash deposit or bond of 7.94 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 705(c) 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 determine 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
(Cite as: 51 FR 21961, *21970)

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 injury exists, we
will issue a contervailing duty order, directing Customs officers to assess a countervailing duty on iron ore pellets
from Brazil entered, or withdrawn from warehouse, for consumption on or after the date of the suspension of
liquidation as indicated in the "Suspension of Liquidation" section of this notice, in accordance with sections 701(a)(1) and
751 of the Act.
This notice is published pursuant to section 705(d) of the Act [19 U.S.C. 1671d(d)].

Paul Freedenberg,

Assistant Secretary for Trade Administration.

June 10, 1986.