Certain Castor Oil Products From Brazil; Preliminary Results of Countervailing
Duty Administrative Review
---PAGE 36262--- AGENCY: International Trade Administration/Import Administration, Department of Commerce. "equalization fee," or rebate, of up to 10 percentage points over the commercial interest rate, which the lending
institution can pass on to the borrower. ---PAGE 36264--- g. Export Promotion Financing ("PROEX");
ACTION: Notice of preliminary results of countervailing duty administrative review.
SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty
order on certain castor oil products from Brazil. The review covers the period January 1, 1984 through
December 31, 1984 and 15 programs.
As a result of the review, the Department has preliminarily determined the net subsidy for the period of review to
be 2.66 percent ad valorem. Interested parties are invited to comment on these preliminary results.
EFFECTIVE DATE: October 9, 1986.
FOR FURTHER INFORMATION CONTACT: Richard C. Henderson or Lorenza Olivas, Office of Compliance,
International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202-377-2786).
SUPPLEMENTARY INFORMATION:
Background
On March 16, 1984, the Department of Commerce ("the Department") published in the Federal Register (49 FR 9921) the final results of its last administrative review of the countervailing duty order on certain castor oil products from Brazil (41 FR 8634; March 16, 1976). We began this review of the order under our old regulations. On September 30, 1985, after the promulgation of our new regulations, the petitioner, the American
Manufacturers of Castor Oil Products, requested in accordance with § 355.10 of the Commerce Regulations
that we complete the administrative review of the order. We published the new initiation on November 27, 1985
(50 FR 48825). The Department has now conducted that administrative review in accordance with section
751 of the Tariff Act of 1930 ("the Tariff Act").
Scope of Review
Imports covered by the review are shipments of Brazilian hydrogenated castor oil and 12-hydroxystearic acid.
Such merchandise is currently classifiable under items 178.2000, 490.2650, and 490.2670 of the Tariff
Schedules of the United States Annotated.
The review covers the period January 1, 1984 through December 31, 1984 and 15 programs: (1) CACEX export
financing; (2) An income tax exemption for export earnings; (3) The export credit premium for the IPA; (4)
CIC-CREGE 14-11 financing; (5) Incentives for trading companies (Resolution 643); (6) Accelerated
depreciation for Brazilian-made capital goods; (7) BEFIEX; (8) CEX; (9) FINEX; (10) Duty-free treatment and tax
exemption on equipment used in export production ("CDI"); (11) FUNPAR; (12) Exemption from state-
administered value-added taxes on domestic sales ("ICM"); (13) PROEX; (14) PROSIM; and (15) Financing for
the storage of merchandise destined for export (Resolution 330).
Analysis of Programs
(1) CACEX Export Financing
Under this program, the Department of Foreign Commerce ('CACEX") of the Banco do Brasil provides
short-term working capital financing to exporters at preferential rates. The loans have a duration of up to one
year. During the period of review, producers of certain castor oil products could obtain CACEX financing for up
to 20 percent of the value of their previous year's exports.
Resolution 674, which became effective on June 11, 1983, set a maximum interest rate of 60 percent and
required two interest payments, one 180 days after the loan was granted and the other at maturity. Resolution
882, which became effective on January 2, 1984, required the full interest payment at maturity. It also set the
maximum interest rate at monetary correction (calculated by the change in the value of readjustable treasury
bonds, "ORTN") plus 3 percentage points.
To find the interest differential, we compared two effective rates. For our benchmark, we took the national
average rate for thirty-day discounts of accounts receivable, as reported in Analise/Business Trends. This rate
includes the 1.5 percent tax on financial transactions ("IOF"), from which preferential loans are exempt. We then
compounded this rate to find the effective annual commercial benchmark.
We consider the benefit, or the cash flow effect, from loans to occur when the borrower makes the interest
payments. For Resolution 674 and 882 loans on which interest was paid during the period of review, we
compared the preferential interest rate with the benchmark rate and multiplied the interest differential by the
loan principal. We allocated the benefit over each firm's total exports and then weight-averaged each company's
benefit by its share of total exports of this merchandise to the United States. On this basis, we preliminarily
determine the benefit from this program to be 1.29 percent ad valorem.
On August 21, 1984, Resolution 950 superseded Resolution 882 and changed the short-term export financing
program substantially. Resolution 950, which was made effective retroactively to January 2, 1984, made
working capital financing available through commercial banks at prevailing market rates, with interest due upon maturity.
It authorized the Banco do Brasil to pay the lending institution an ---PAGE 36263---
On May 2, 1985, Resolution 1009 increased the equalization fee to 15 percentage points. Because of the
extensive changes in CACEX export financing made by Resolutions 950 and 1009, we do not have an
adequate basis on which to calculate a use rate for each firm. Therefore, to calculate the current benefit from
this program, we assumed that exporters borrow the maximum amount of financing available, which is 20
percent of the value of exports. We multiplied this amount by the new interest differential, which is the maximum
equalization fee of 15 percent plus the 1.5 percent IOF, or 16.5 percent. On this basis, we preliminarily
determine, for purposes of cash deposits of estimated countervailing duties, the current benefit from this
program to be 3.30 percent ad valorem.
(2) Income Tax Exemption for Export Earnings.
Under this program, exporters of certain castor oil products are eligible for an exemption from income tax on a
portion of their profits attributable to exports. The Brazilian government calculates the tax-exempt fraction of
profit as the ratio of export revenue to total revenue. Two firms took advantage of this program in 1983. We
calculated the benefit by multiplying the amount of tax-exempt profit by the corporate tax rate and allocating the
result over total exports.
The nominal corporate tax rate in Brazil is 35 percent. However, Brazilian tax law permits companies to reduce
their income taxes by investing up to 26 percent of their tax liability in specified companies and funds. This tax
credit effectively reduces the nominal 35 percent corporate tax rate.
At verification, one firm did not provide proof that it had made any investments in the specified companies and
funds. Therefore, we calculated the benefit for this firm using the nominal 35 percent corporate income tax rate.
The second firm presented proof that it had made an investment in the specified companies and funds.
Therefore, we calculated the benefit using the effective tax rate. We calculated an effective tax rate of 27.86
percent for this company by dividing its net tax liability by its taxable profit. We then weight-averaged each
company's benefit by its share of total exports of the merchandise to the United States. On this basis, we
preliminarily determine the benefit from this program to be 0.41 percent ad valorem.
(3) The Export Credit Premium for the IPI
Exporters of certain castor oil products are eligible for the maximum export credit premium for the IPI. The
Brazilian government pays in cash a percentage of the f.o.b. price of the exported merchandise to exporters
through the bank involved in the export transaction.
The Brazilian government eliminated the IPI export credit premium on December 7, 1979 but reinstated it on
April 1, 1981. Effective June 26, 1981, the Brazilian government imposed an export tax to offset the benefit of
the premium on exports to the United States. During verification, we confirmed that the Government of Brazil
appropriately collected the export tax on shipments of certain castor oil products to the United States. We
preliminarily determine that exporters of this merchandise received no benefits from this program during the
period of review.
On May 1, 1985, the Brazilian government eliminated this program for exporters of certain castor oil products.
Therefore, for purposes of cash deposits of estimated countervailing duties, we preliminarily determine that
exporters of this merchandise continue to receive no benefits from this program.
(4) CIC-CREGE 14-11 Financing
Under its CIC-CREGE 14-11 circular, the Banco do Brasil provides preferential financing to exporters on the
condition that they maintain on deposit a minimum level of foreign exchange. Exporters of certain castor oil
products participated in this program during the period of review.
There is no maximum interest rate for this program. Interest payments by the exporters of castor oil are normally
made quarterly or semiannually, with the full principal to be repaid at maturity. We calculated the benefit based
on the interest payment date in a manner similar to that used for CACEX export financing, using the same
benchmark rate. We preliminarily determine the benefit from this program to be 0.11 percent ad valorem.
(5) Incentives for Trading Companies (Resolution 643)
Under this program, CACEX declares trading companies eligible to receive loans at preferential rates. Eligible
firms have access to a line of credit that can be drawn down to purchase goods for export. The trading
companies use the loans as advance payment for the goods purchased. These loans are subject to the same
interest constraints as Resolution 674 loans. Normally, the term of the loan does not exceed 180 days, but the
actual length varies, running from the date of receipt of the loan to the date of shipment of the goods. The
interest is paid in full at maturity.
During the period of review, one firm received benefits under this program for the purchase of certain castor oil
products for export. Since we were not able to tie each loan to a specific shipment, we calculated the benefit in
a manner similar to CACEX export financing, based on the interest payment date. We allocated the benefit over
the firm's total exports and weight-averaged the result by the firm's share of total exports of this merchandise to
the United States. On this basis, we preliminarily determine the benefit from this program to be 0.85 percent ad valorem.
(6) Accelerated Depreciation for Brazilian-made Capital Goods
Firms may depreciate Brazilian-made capital equipment at twice the normal rate allowed under Brazilian tax
laws if they obtain approval from the Industrial Development Council ("CDI") for a plant expansion project. One
firm benefited from this program in 1983.
To calculate the benefit, we multiplied the amount of accelerated depreciation declared on the income tax return
filed in the review period by the corporate income tax rate and divided the result by the firm's total sales in 1984.
Since this firm reduced its nominal corporate income tax rate by directed investments, we used the effective tax
rate of 27.86 percent to calculate the benefit. We then weight-averaged the benefit by the firm's share of total
exports of this merchandise to the United States. On this basis, we preliminarily determine the benefit to be
0.004 percent ad valorem.
(7) Other Programs
We also examined the following programs and preliminarily find that exporters of certain castor oil products did
not use them during the review period:
a. Fiscal Benefits for Special Export Programs ("BEFIEX");
b. Tax Reductions on Equipment used in Export Production ("CIEX")
c. Export Financing under Resolution 68 ("FINEX")
d. Duty-free treatment and tax exemptions on equipment used in export production ("CDI");
e. Export financing under Fundo Nacional de Participadoes ("FUNPAR");
f. Exemption from state-administered value-added taxes ("ICM") on domestic sales;
h. Benefits from Import Substitution ("PROSIM"); and
i. Financing for the storage of merchandise destined for export ("Resolution 330").
Preliminary Results of Review
As a result of our review, we preliminarily determine the net subsidy to be 2.66 percent ad valorem for the
period of review. The Department intends to instruct the Customs Service to assess countervailing duties of
2.66 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1,
1984 and on or before December 31, 1984.
The change in the CACEX export financing program increases the total estimated duty deposit rate to 4.67
percent ad valorem. Therefore, the Department intends to instruct the Customs Service to collect a cash deposit
of estimated countervailing duties, as provided by section 751(a)(1) of the Tariff Act, of 4.67 percent of the f.o.b.
invoice price on all shipments of this merchandise entered, or withdrawn from warehouse, for consumption on or
after the date of publication of the final results of this administrative review. This deposit requirement shall
remain in effect until publication of the final results of the next administrative review.
Interested parties may submit written comments on these preliminary results within 30 days of the date of
publication of this notice and may request disclosure and/or a hearing within 10 days after the date of
publication. Any hearing, if requested, will be held 30 days after the date of publication or the first workday
thereafter. Any request for an administrative protective order must be made no later than five days after the date
of publication. The Department will publish the final results of this administrative review including the results of
its analysis of issues raised in any such written comments or at a hearing.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C.
1675(a)(1)) and § 355.10 of the Commerce Regulations (50 FR 32556, August 13, 1985).
Dated: October 2, 1986.
Gilbert B. Kaplan,
Deputy Assistant Secretary, Import Administration.