NOTICES DEPARTMENT OF COMMERCE [C-351-604] Final Affirmative Countervailing Duty Determination; Brass Sheet and Strip From Brazil Monday, November 10, 1986 *40837 AGENCY: Import Administration, International Trade Administration, Commerce. ACTION: Notice. SUMMARY: We determine that benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of brass sheet and strip. The estimated net subsidy is 6.13 percent ad valorem. However, consistent with our policy of taking into account program-wide changes that occur before our preliminary determination, we are adjusting the cash deposit rate to reflect changes in the Preferential Working Capital Financing for Exports program. We have notified the U.S. International Trade Commission (ITC) of our determination. We are directing the U.S. Customs Service to suspend liquidation of all entries of brass sheet and strip from Brazil that are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice, and to require a cash deposit or bond equal to 3.47 percent ad valorem. EFFECTIVE DATE: November 10, 1986. FOR FURTHER INFORMATION CONTACT:Thomas Bombelles, Bradford Ward 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) 377-3174, 377-2239 or 377- 2438. 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 brass sheet and strip. For purposes of this investigation, the following programs are found to confer subsidies: - Preferential Working Capital Financing for Exports; - Income Tax Exemption for Export Earnings; - Export Financing Under the CIC-CREGE 14-11 Circular; and - Import Duty Exemption Under Decree-Law 1189 of 1979. We determine the estimated net subsidy to be 6.13 percent ad valorem, and the cash deposit rate to be 3.47 percent ad valorem, for all manufacturers, producers, or exporters of brass sheet and strip from Brazil. Case History On March 10, 1986, we received a petition in proper form from American Brass, Bridgeport Brass Corporation, Chase Brass & Copper Company, Hussey Copper Ltd., the Miller Company, Olin Corporation-Brass Group, and Revere Copper Products, Inc., domestic manufacturers of brass sheet and strip, and from the International Association of Machinists and Aerospace Workers, International Union--Allied Industrial Workers of America (AFL-CIO), Mechanics Educational Society of America (Local 56), and the United Steelworkers of America (AFL- CIO/CLC), filed on behalf of the United States industry producing brass sheet and strip. In compliance with the filing requirements of § 355.26 of the Commerce Regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in Brazil of brass sheet and strip, directly or indirectly, receive subsidies within the meaning of section 701 of the Act, and that these imports materially injure, or threaten material injury to, a United States industry. We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on March 31, 1986, we initated such an investigation (51 FR 11776, April 7, 1986). We stated that we expected to issue a preliminary determination by June 3, 1986. Since Brazil is entitled to an injury determination under section 701(b) of the Act, the ITC is required to determine whether imports of the subject merchandise from Brazil materially injure, or threaten material injury to, a United States industry. Therefore, we notified the ITC of our initiation. On April 24, 1986, the ITC preliminarily determined that there is a reasonable indication that an industry in the United States is materially injured by reason of imports from Brazil of brass sheet and strip (51 FR 16235, May 1, 1986). On April 9, 1986, we presented a questionaire to the Government of Brazil in Washington, DC, concerning the petitioner's allegations, and we requested a response by May 9, 1986. On April 30, 1986, upon request of respondent, we granted additional time to submit a response. On May 16, 1986, we received a response to our questionaire. We received information on two producers and exporters in Brazil of brass sheet and strip that exported to the United States during the review period. These are Laminacao Nacional de Metais S.A. (Laminacao) and Eluma S.A. Industria e Comercio (Eluma). Based on information obtained at verification, Laminacao and Eluma account for substantially all exports of brass sheet and strip to the United States. We issued a negative preliminary determination on June 3, 1986 (51 FR 20864, June 9, 1986). On June 6, 1986, petitioners filed a request for extension of the deadline of the final determination in this investigation to correspond with the date of the final determination in the antidumping duty investigation of the same products from Brazil. Pursuant to section 705(a)(1) of the Act, as amended by section 606 of the Trade and Tariff Act of 1984, on July 3, 1986, we granted an extension of the deadline date for the final determination to coincide with the deadline for the final determination in the antidumping duty investigation of the same products from Brazil (51 FR 25380, July 14, 1986). We verified the questionaire response in Brazil from June 23 through June 27, 1986. Petitioners and respondents submitted briefs on September 26 and October 3, 1986, addressing the issues arising in this investigation. Scope of Investigation The products covered by this investigation are brass sheet and strip, other than leaded brass and tin brass *40838 sheet and strip, currently provided for under the Tariff Schedules of the United States Annotated (TSUSA) item numbers 612.3960, 612.3982, and 612.3986. The chemical compositions of the products under investigation are currently defined in the Copper Development Association (C.D.A.) 200 series or the Unified Numbering Systems (U.N.S.) C20000 series. Products whose chemical compositions are defined by other C.D.A. or U.N.S. series are not covered by this investigation. Analysis of Programs Throughout this notice, we refer to certain general principles applied to the facts of the current investigation. These general 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" (49 FR 18006, April 26, 1984). For purposes of this final determination, the period for which we are measuring subsidies ("the review period") is calendar year 1985. Based upon our analysis of the petition, the responses to our questionnaire, our verification, and the comments filed by the parties, we determine the following: I. Programs Determined to Constitute Subsidies We determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of brass sheet and strip under the following programs: A. Preferential Working Capital Financing for Exports. The Carteria do Comercio Exterior (Foreign Trade Department or CACEX) of the Banco do Brasil administers a program of short-term working capital financing for the purchase of inputs. These working capital loans were originally authorized by Resolution 674. On January 1, 1984, Resolution 674 was superseded by Resolution 882, which was itself substantially amended by Resolution 950 on August 21, 1984 and by Resolution 1009 in May 1985. Eligibility for this type of financing is determined on the basis of past export performance or an acceptable export plan. The amount of available financing is calculated by making a series of adjustments to the dollar value of exports. During the review period, the maximum level of eligibility for such financing was 20 percent of the adjusted 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 are presented to banks in return for cruzeiros at the exchange rate in effect on the date of presentation. 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. Use of a certificate establishes a loan obligation with a term of up to one year (360 days). The interest rate ceiling was raised from 40 to 60 percent on loans obtained under Resolution 674 on June 11, 1983. This interest rate is well below our commercial benchmark rate for short-term loans in Brazil, which is the short- term discount rate for accounts receivable in Brazil, published in Analise/Business Trends magazine. On January 1, 1984, Resolution 882 changed the payment date for both the principal and interest to the expiration date of the loan. On August 21, 1984, Resolution 950 made this working capital financing available from commercial banks at prevailing market rates, with interest calculated at the time of repayment. Under Resolution 950, the Banco do Brasil paid the lending institution an equalization fee of up to 10 percent of the interest (after monetary correction). Resolution 950 was amended by Resolution 1009 in May 1985 and the equalization fee was increased to 15 percent of the interest (after monetary correction). 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. The lending bank passes the 15 percent equalization fee on to the borrower in the form of a reduction in the interest due. Receipt of the equalization fee by the borrower reduces the interest rate on these working capital loans below the commercial rate of interest. Resolution 950/1009 loans are also exempt from the Imposto sobre Operacoes Financieras (Tax on Financial Operations or IOF), a tax charged on all domestic financial transactions in Brazil. Since receipt of working-capital financing under Resolution 674/950/1009 is contingent on export performance, and provides funds to borrowers at preferential rates, we determine that this program confers an export subsidy. During the review period, one exporter of brass sheet and strip repaid loans on the criteria set forth in Resolution 674. To determine the ad valorem subsidy bestowed by this program during the review period, we compared the interest paid by the respondent during the review period to what would have been paid under the benchmark. We allocated the benefit over total exports of the two brass sheet and strip producers, which resulted in an estimated net subsidy of 5.40 percent ad valorem. During the review period, this same exporter received new loans under this program whose terms were set by Resolution 950/1009. Interest on these loans were payable after the review period. It is the Department's policy to take into account program-wide changes in calculating a duty deposit rate when complete information on that program is available, in order to reflect the most current rate of subsidization. Therefore, we have calculated a subsidy rate for duty deposit purposes based on the interest rate rebate provided for under Resolution 950/1009. See "Certain Carbon Steel Products from Brazil: Final Affirmative Countervailing Duty Determination" (49 FR 17988, April 26, 1984). At verification, we found that the company that had received Resolution 674/950/1009 loans used the maximum amount of financing for which it is eligible. Therefore, in order to calculate the benefit for duty deposit purposes, we multiplied the value of this company's 1985 exports by the 20 percent eligibility rate and the sum of the equalization fee and the IOF. We then allocated the benefit over the total value of all 1985 exports, resulting in an estimated net subsidy of 2.74 percent ad valorem for duty deposit purposes. B. Income Tax Exemption for Export Earnings. Under Decree-Laws 1158 and 1721, Brazilian exporters are eligible for an exemption from income tax on the portion of profits attributable to export revenue. Because this exemption is tied to exports and is not available for domestic sales, we determine that it constitutes an export subsidy. Both of the respondent companies used this exemption on their corporate income tax forms filed in 1985. The companies determined their net taxable income and deducted the exemption for export earnings from that income to lower their tax liability. They then used losses carried forward from previous years to offset further tax liability. Because both companies used the income tax exemption for export earnings to reduce their taxable income, as reported on their tax returns filed during the review period, we determine that both companies received a countervailable benefit. In order to calculate the benefit from this program, we multiplied the value of the reduction in taxable income through use of the exemption by the nominal corporate income tax rate of 35 percent. *40839 We allocated that benefit over the total value of all exports, resulting in an estimated net subsidy of 0.64 percent ad valorem. C. Export Financing Under the CIC-CREGE 14-11 Circular. Under its CIC- CREGE 14-11 Circular (14-11), the Banco do Brasil authorizes 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. Loans under this program are also exempt from the IOF. One company received one 14-11 loan on which interest was paid during the review period. We compared the interest charged on the 14-11 loan to our short-term loan benchmark for Brazil, i.e., the nominal discount rate on accounts receivable. This comparison shows that the rate on the 14-11 loan is below the benchmark. Because 14-11 loans are available only to exporters and since the interest charged is less than the benchmark, we determine that the 14-11 loan constitutes an export subsidy. In order to calculate the benefit from this program, we multiplied the principal of the 14-11 loan by the difference between our benchmark rate and the interest rate charged on the 14-11 loan, adjusted by the value of the IOF exemption. We allocated that benefit over the total value of all exports, resulting in an estimated net subsidy of 0.02 percent ad valorem. D. Import Duty Exemption Under Decree-Law 1189 of 1979. At verification, we discovered that one of the companies under investigation had imported spare parts for machinery and certain other equipment free of the normal import duty. This duty exemption was granted under a provision of Decree-Law 1189 of 1979, which allows for the duty-free importation of certain merchandise which will be used in the production of export goods. Decree-Law 1189 has since been repealed, but one of the respondents had a certain value of unexpired eligibility which it used during the review period. Because the exemption from import duty is contingent upon export production, we determine that this program constitutes an export subsidy. In order to calculate the benefit, we divided the total value of import duties not paid by the total value of all 1985 exports, resulting in an estimated net subsidy of 0.07 percent ad valorem. II. Program Determined not to Constitute a Subsidy We determine that subsidies are not being provided to manufacturers, producers, or exporters in Brazil of brass sheet and strip under the following program: A. Regional Bank Financing. Petitioners alleged that the Government of Brazil provides financing on terms inconsistent with commercial considerations to the brass sheet and strip industry through regional development banks, such as the Banco do Desenvolimento de Espirito Santo (Development Band of Espirito Santo or BANDES). According to information gathered at verification, neither company had BANDES loans. However, also at verification, we discovered that one of the companies under investigation had a loan from the Banco Do Desenvolvimento de Estado de Sao Paulo (the Development Bank of the State of Sao Paulo, or BADESP). This was a loan for a pollution control project for which the funds came partly from the World Bank and partly from BADESP. We verified that these loans are made to all types of companies in the state of Sao Paulo to control air, water and/or solid waste pollution. Because such financing is not limited to a specific enterprise or industry, or group of enterprises or industries, we determine that this loan does not constitute a subsidy. III. Programs Determined Not to be Used We determine that manufacturers, producers, or exporters in Brazil of brass sheet and strip did not use the following programs which were listed in our notice of "Initiation of Countervailing Duty Investigation: Brass Sheet and Strip from Brazil" (51 FR 11776, April 7, 1986): A. Resolution 330 of the Banco Central do Brasil. Resolution 330 provides financing for up to 80 percent of the value of the merchandise placed in a specified bonded warehouse and destined for export. We verified that neither of the respondents received benefits under this program during the review period. B. The BEFIEX Program. The Comissao para a Consessao de Beneficios Fiscais a Programas 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: - First, under Decree-Law 77.065, BEFIEX may reduce by 70 to 90 percent import duties and the Imposto sobre Produtos Industrializados (Tax on Industrial Products or IPI) 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; - Second, under article 13 of Decree No. 72.1219, BEFIEX may extend the carry- forward period for tax losses from four to six years; and - Third, under Article 14 of the same decree, BEFIEX may allow special amortization of pre-operational expenses related to approved products. We verified that neither of the respondents used this program during the review period. C. The CIEX Program. Decree-Law 1428 authorized the Comissao para Incentivos a Exportacao (Commission for Export Incentives or CIEX) to reduce import taxes and the IPI tax up to ten percent on certain equipment for use in export production. We verified that neither of the respondents used this program during the review period. D. Accelerated Depreciation for Brazilian-Made Capital Equipment. Pursuant to Decree-Law 1137, any company which purchases Brazilian-made capital equipment and has an expansion project approved by the Conselho do Desenvolvimento Industrial (Industrial Development Council or CDI) may depreciate this equipment at twice the rate normally permitted under Brazilian tax laws. We verified that neither of the respondents used this program during the review period.E. 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 950. We verified that neither of the respondents used this program during the review period. F. The PROEX Program. Short-term credits for exports are available under the Programa de Financiamento a Producao para a Exportacao (Export Production Financing Program or PROEX), a loan program operated by Banco Nacional do Desenvolvimento Economico e Social (National Bank of Economic and Social Development or BNDES). *40840 We verified that neither of the respondents used this program during the review period. G. Resolutions 68 and 509 (FINEX) Financing. Resolutions 68 and 509 of the Conselho Nacional Do Comercio Exterior (National Foreign Trade Council or CONCEX) provide that CACEX may draw upon the resources of the Fundo de Financiamento a Exportacao (Export Financing Fund or FINEX) to extent dollar- denominated loans to both exporters and United States buyers of Brazilian goods. Financing is granted on a transaction-by-transaction basis. We verified that neither of the respondents used this program during the review period. H. Loans Through the Apoio o Desenvolvimento Technologica a Empresa Nacional (ADTEN). Petitioners allege that the Government of Brazil maintains, through the Financiadora de Estudos Projectos (Financing of Research Projects or FINEP), a loan program, ADTEN (Support of the Technological Development of National Enterprises), the provides long-term loans on terms inconsistent with commercial considerations to encourage the growth of industries and development of technology. We verified that neither of the respondents used this program during the review period. I. 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 deemed to be feasible and the recipient must demonstrate that there is a need for added capacity in Brazil. We verified that neither of the respondents used this program during the review period. IV. Program Determined To Have Been Terminated IPI Export Credit Premium Until recently, Brazilian exporters of manufactured products were eligible for a tax credit on the IPI. The IPI export credit premium, a cash reimbursement paid to the exporter upon the export of otherwise taxable industrial products, was found to constitute 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 "Portaria" (Notice) of the Ministry of Finance No. 176 of September 12, 1984, the credit premium was eliminated effective May 1, 1985. We verified that the companies under investigation received no IPI export credit premiums after that date. Accordingly, we determine that this program has been terminated and no benefits under the program are accruing to current exports of brass sheet and strip to the United States. V. Program Determined Not To Exist Preferential Pricing for Electricity Petitioners alleged that the Government of Brazil provides electricity at preferential prices to manufacturers, producers, and exporters of brass sheet and strip in Brazil. According to information gathered at verification, the brass sheet and strip producers under investigation paid normal published rates for all electricity consumed and we found no evidence of the existence of any schedule of preferential electricity rates. Petitioners' Comments Comment 1: Citing to the Court of International Trade's decision in Carlisle Tire & Rubber Co. v. United States (Ct. Int'l Trade, 1986), petitioners assert that if the final determination were to yield an ad volorem subsidy amount of less than 0.50 percent, and were the amount considered de minimis, then the Department would be required to explain why it had reached this conclusion. Petitioners also request that, if the final determination in this investigation is affirmative, the Department suspend liquidation retroactive to the publication of the preliminary determination. DOC Position: Since the ad valorem subsidy rate is greater than 0.50 percent, the issue of whether a rate of less than 0.50 percent would be de minimis in this case is moot. Further the Department does not believe that it has the authority to suspend liquidation retroactively under these circumstances, nor have petitioners cited any statutory provision which might confer such authority. Comment 2: Petitioners argue that the Department improperly deducted the preliminary countervailing duty subsidy amount for the antidumping duty margain for purposes of the bonding requirements after the preliminary determination, even though the countervailing duty rate was de minimis and no bonding was required. DOC Position: This issue is addressed in the comment section of the final determination in the antidumping duty investigation of brass sheet and strip from Brazil published concurrently with this notice. Comment 3: Petitioners argue that the companies' use of the income tax exemption for export earnings resulted in a countervailable benefit. Petitioners contend that the benefit to the companies is the value of the exemption claimed multiplied by the corporate tax rate of 35 percent instead of an effective tax rate of 25.9 percent. DOC Position: We agree. See our response to Respondents' Comment 6, Infra. Comment 4: Petitioners argue that the Department should find the loan issued pursuant to the Banco do Brasil's CIC-CREGE 14-11 circular to be countervailable in our final determination. Petitioners further contend that the Department should calculate the benefit by multiplying the interest rate differential (the difference between the CIC-CREGE interest rate and the sum of the benchmark and the 1.5 percent of IOF tax on financial transactions) by the loan amount and duration of the loan. DOC Position: We agree that this loan is countervailable. For discussion of our subsidy calculation, see "Export Financing Under the CIC-CREGE 14-11 Circular," supra. Comment 5: Petitioners argue that the loans issued to the respondent companies by the Banco Nacional de Habitacao (National Housing Bank or BNH) are countervailable domestic subsidies because they are targeted to the "industry that produces construction materials" and because such loans are provided on terms inconsistent with commercial considerations. Petitioners contend that the loans should be countervailed by allocating the benefit over the total sales of Eluma's non-ferrous sector. DOC Position: We disagree. BNH financing is extended not only to companies directly involved in construction but also to firms which manufacture, transport and supply any type of construction material. Thus, *40841 eligible firms are members of a wide variety of industries involved in wide-ranging economic activities. Therefore, these loans are not provided to "a specific enterprise or industry, or group of enterprises or industries" under the countervailing duty law. Accordingly, we do not find that BNH loans are countervailable and, therefore, need not address whether the loans are provided on terms inconsistent with commercial considerations. Comment 6: Petitioners argue that the respondent companies apparently adjust their sales revenues for inflation thereby artificially diluting the impact of the countervailable subsidies they receive. DOC Position: Petitioners have misinterpreted our verification reports. Respondents' export sales are adjusted for an exchange gain resulting from the lag in fixing the dollar-cruzeiro exchange rate between the date of export and the date of receipt of funds. Continued devaluation of the Brazilian cruzeiro against the dollar increases the number of cruzeiros per dollar between the date of export and the date the exchange contract is concluded. This is standard accounting practice for foreign exchange transactions. Respondents' domestic sales are not adjusted in this manner nor are they adjusted for inflation. Comment 7: Petitioners argue that the loan to one respondent for pollution control should be countervailed, at least to the extent that the funds are provided from BADESP monies. Petitioners contend that these loans are not generally available within the state of Sao Paulo. DOC Position: We disagree. We verified that pollution control loans under this program are not limited to a specific enterprise or industry, or group thereof. Therefore, these loans are not countervailable. See also our discussion under "Regional Bank Financing," supra. Comment 8: Petitioners argue that the Department improperly limited its verification of alleged subsidization of capital equipment to the review period and did not inquire as to whether benefits were received on capital equipment purchased before that time. Petitioners also contend that, because verification was not conducted at the companies' facilities, the Department was prevented from identifying foreign equipment and verifying whether all normal import charges were paid. DOC Position: The programs referred to by petitioners are those providing an exemption or reduction in import duties and/or taxes on imported capital equipment. Consistent with our policy, we have only investigated whether benefits were provided in the review period because these are recurring benefits. Recipients of duty and tax reductions or exemptions under BEFIEX, CIEX, and CDI could anticipate receiving the benefits year after year. Therefore, we allocate benefits under programs like these to the year of receipt with the result that there is no need to investigate or verify possible benefits received in years preceding the review period. For a discussion of our treatment of recurring benefits see "Final Affirmative Countervailing Duty Determination: Live Swine and Fresh, Chilled and Frozen Pork Products from Canada" (50 FR 25097, 25099, June 17, 1985). With regard to petitioners' argument concerning verification at company facilities, we obtained sufficient documentation at verification to establish that no import charges and/or taxes were exempted for imports of equipment under the BEFIEX, CIEX, or CDI program. Comment 9: Petitioners argue that the Department should countervail the benefit received by the respondent companies under the IPI export credit premium. Petitioners contend that despite the Department's policy reasons for not countervailing a programwide change, the respondents did in fact receive a competitive advantage for one-third of the review period. DOC Position: We disagree. The IPI export credit premium was terminated effective May 1, 1985 and neither company receive benefits under this program after April 1985. When a subsidy program is terminated prior to our initiation, and companies may no longer received benefits as of the date of the termination, we do not include the value of the benefits received under such terminated programs from our subsidy calculations because any entries potentially subject to duties are not benefitting from the program. Also, such treatment encourages the termination of subsidy programs by countries subject to investigation. Comment 10: Petitioners argue that the Department should subtract the value of the IPI export credit premium received during the review period from export and total sales before calculating the subsidy rates in this investigation. DOC Position: We agree. Consistent with our practice in past Brazilian countervailing duty investigations, we have deducted the value of the IPI export credit premium from sales values in calculating our subsidy rate. Comment 11: Petitioners argue that the respondents might be subsidized through duty suspension and excessive allowance or rebates of import duties on imported raw materials. DOC Position: This allegation was not submitted to the Department until approximately three months after our verification of the questionnaire response and one month before our final determination was due. Accordingly, we were unable to verify the existence of such potential subsidization for this final determination. However, petitioners may resubmit this allegation during any administrative review under section 751 of the Act that may be requested. Comment 12: Petitioners argue that the Department's "program-wide change" policy should not prevent us from calculating the benefit from the loans under the Resolution 674 program according to their actual interest rates rather than using the 15 percent interest rate differential of the Resolution 950/1009 program. Petitioners also contend that the Department should include the value of the IOF tax in calculating the benefit from these loans. DOC Position: Since we verified that Resolution 674/950/1009 loans were used during the review period, we have calculated a subsidy rate measuring the benefit received during the review period from these loans. However, as we have done in past Brazilian countervailing duty investigations, we have taken into account the program-wide change in this program and set the duty deposit rate on the basis of the Resolution 950/1009 program. Both calculations included the amount of the IOF exemption in valuing the subsidy. See "Final Affirmative Countervailing Duty Determination: Certain Heavy Iron Construction Castings from Brazil" (51 FR 9491, March 19, 1986). Respondents' Comments Comment 1: Respondents argue that the Department correctly calculated the benefit from the loans under Resolution 674/950/1009 in our preliminary determination except insofar as the value of the IOF tax was included in the amount of interest savings. Respondents contend that if the IOF tax were applicable to these working capital loans, it would be an indirect tax on exports not countervailable under the General Agreement on Tariffs and Trade. DOC Position: We disagree that the value of the IOF tax exemption should not be included in our benefit calculation. Since all domestic financing transactions are subject to the IOF tax, it is appropriate that we reflect the exemption of Resolution 674 and 950 loans from the IOF as part of the subsidy in order to measure the full benefit provided under this program. *40842 Moreover, we do not view the IOF as a tax on the production or distribution of the product. See also our discussion under "Preferential Working Capital Financing for Exports," supra. Comment 2: Respondents argue that the Department appropriately used an "historic" utilization rate in calculating the benefit from loans issued under the Resolution 950 export financing program instead of an unverified potential maximum eligibility in the preliminary determination. Respondents further argue that the Department should not use short-term commercial rates as its benchmark for calculating the benefit from the Resolution 950 export financing program as suggested by petitioners. Respondents contend that the 15 percent equalization fee is the maximum benefit the borrower can receive, making the stated interest rate on the loan irrelevant. DOC Position: At verification we saw that the one company which used this program borrowed the maximum amount for which it was eligible. Therefore, in this case, the "historic" utilization is the same as the maximum eligibility rate established in Resolution 950 (i.e., 20 percent of the adjusted value of exports). As we have in prior Brazilian countervailing duty investigations, we have calculated the duty deposit rate on the basis of the 15 percent interest equalization fee, plus the one and one-half percent IOF tax exemption. Comment 3: Respondents argue that loans issued pursuant to the Banco do Brasil's CIC-CREGE 14-11 circular do not constitute a government program and, therefore, cannot confer a subsidy on exports of the subject merchandise. Respondents contend that the Banco do Brasil receives no financial support from the Government of Brazil and operates the program consistently with commercial considerations. Respondents further argue that the Department incorrectly valued the subsidy in the preliminary determination by including the IOF tax, and by using an average annual interest rate, based on a monthly compounded rate. 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 demonstrate that the program does not provide preferential loans to exporters. Furthermore, 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, consistent with our past methodology and the "Subsidies Appendix," we used an average annual benchmark rate against which to compare the interest rate on this loan. Comment 4: Respondents assert that the Department correctly concluded in the preliminary determination that there is no countervailable benefit from the income tax exemption for export earnings because (a) the previous years' tax losses of the companies were not generated by this exemption, (b) the companies did not use this exemption to reduce their tax liability, and (c) no cash savings accrued to the companies during the review period. DOC Position: We disagree. The fact that the respondent companies did not pay any corporate income taxes in 1985 is irrelevant. The income tax exemption for export earnings was used to reduce taxable income before any tax liability was calculated. Therefore, use of the exemption benefitted exports during the review period. Further, the effect of a loss carry-forward provision is also irrelevant in determining the benefit since the companies opted to use the countervailable program, rather than a generally available loss carry-forward program, to reduce taxable income. Lastly, countervailable benefits are not limited to cash savings. See section 771(5) of the Act. See also our discussion under "Income Tax Exemption for Export Earnings," supra. Comment 5: Respondents argue that the carry forward of tax losses for four years is generally available and therefore not countervailable. DOC Position: We agree. We are not countervailing the use of the loss carry- forward provisions of the Brazilian tax law. Comment 6: Respondents argue that, if the Department finds the income tax exemption for export earnings to be countervailable, we should calculate the benefit using the effective corporate tax rate of 25.9 percent instead of the stated rate of 35 percent. Respondents contend that all Brazilian companies with taxable income may invest in corporate funds as allowed by Brazilian law, effectively reducing their income tax rate. Respondents further argue the Department should use total sales as the denominator in calculating any benefits instead of export sales. DOC Position: We disagree. The respondent companies paid no taxes during the review period, and, therefore, did not take advantage of those elements of the tax system which allow the effective rate to differ from the nominal tax rate. Whether the companies would have invested in funds to reduce their effective tax rate if they had had any tax liability is entirely speculative. Therefore, we used the nominal tax rate of 35 percent in our calculation of the benefit from this program. With regard to allocating the tax benefits over total sales, as we have stated in prior Brazilian determinations, when a firm must report 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. Therefore, the Department will continue to allocate the benefits under this program over export revenues instead of total revenues. Comment 7: Respondents argue that the loans from the BNH are not countervailable because they are not limited to a specific enterprise or industry or group of enterprises or industries, and are made on terms consistent with commercial considerations. DOC Position: We agree that the BNH loans held by respondents are not limited to a specific enterprise or industry, or group thereof. See our response to Petitioners' Comment 5, supra. Comment 8: Respondents argue that the Department correctly issued a negative preliminary determination in this investigation based on a finding of a de minimis subsidy despite petitioners' arguments citing Carlisle Tire & Rubber Co. v. United States. DOC Position: As noted in our response to Petitioners' Comment 1, supra, this issue is moot. Comment 9: Respondents argue that the Department has no authority to suspend liquidation retroactively to the publication date of its preliminary determination, as suggested by petitioners. DOC Position: We agree that the Department has no authority under these circumstances to suspend liquidation retroactively. Comment 10: Respondents argue that the adjustments made to the companies' export sales receipts are proper and in accord with accepted accounting principles. The adjustments are made to account for the difference between the nominal amount of the sale and the actual amount of cruzerios received as a result of the lag in fixing the foreign currency-cruzerio exchange rate. DOC Position: We agree. See our response to Petitioners' Comment 6, supra. *40843 Comment 11: Respondents argue that the regional development bank loan held by one respondent is not countervailable because it was given under a pollution control project whch is not limited to a specific enterprise or industry or group of enterprises or industries. DOC Position: We agree that the loan supplied by BADESP is not countervailable. See our response to Petitioners' Comment 7 supra, and our determination on this program under "Program Determined Not to Constitute a Subsidy," supra. Comment 12: Respondents argue that the Department has verified that no imports of capital equipment received a partial or full exemption of the IPI tax and import duties. Respondents also contend that any alleged exemptions from import taxes or duties in years prior to the period of investigation are irrelevant to this investigation according to the Department's current practice. DOC Position: We verified that no benefits under any of the import duty exemption programs were received by the companies under investigation during the review period except as discussed under "Import Duty Exemption Under Decree-Law 1189 of 1979," supra. Comment 13: Respondents argue that the Department has verified that the IPI export credit premium was eliminated effective May 1, 1985, and that the companies under investigation did not receive funds under this program beyond the cessation date of the program. Therefore, respondents contend that the IPI export credit premium is properly not countervailable. DOC Position: We agree. See our response to Petitioners' Comment 12 and our discussion under "Program Determined to Have Been Terminated," supra. Comment 14: Respondents argue that the duty-suspension program or rebates on the import of raw matrials are not countervailable. Respondents contend that petitioners' allegations that raw material imports are either not physically incorporated or benefit from excessive rebates of import charges are unsupported by the record. Furthermore, respondents argue that petitioners' new allegations concerning duty drawback and other programs are untimely and improper as they have not been filed with the International Trade Commission as required by 19 CFR 355.26(e). DOC Position: Petitioners' allegations were untimely and could not be considered for the purpose of this final determination. See our response to Petitioners' Comment 11, supra. Verification In accordance with section 776(a) of the Act, we verified the informaton used in making our final determination. During verification, we followed standard verification procedures, including meeting with government officials, inspection of documents and ledgers, and tracing the information in the responses to source documents, accounting ledgers, and financial statements. Suspension of Liquidation In accordance with section 705(c)(1)(B) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of the subject merchandise from Brazil which are entered, or wthdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register and to require a cash deposit or bond equal to 3.47 percent ad valorem for each entry of this merchandise. 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 nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and proprietary 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 within 75 days after the date of this determination. 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 supension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury exists, we will issue a contervailing duty order, directing Customs officers to assess a countervailing duty on all entries of brass sheet and strip from Brazil entered, or withdrawn from warehouse, for consumption as described in the "Suspension of Liquidation" section of this notice. 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. November 3, 1986. [FR Doc. 86-25388 Filed 11-7-86; 8:45 am] BILLING CODE 3510-DS-M