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 strip from Brazil that are entered, or withdrawn from warehouse, for consumption on or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 

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 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).

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 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