51 FR 45369

NOTICES

DEPARTMENT OF COMMERCE

[C-351-036]

Certain Scissors and Shears From Brazil; Final Results of Countervailing Duty Administrative Review

Thursday, December 18, 1986

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AGENCY: International Trade Administration, Import Administration, Commerce.

ACTION: Notice of final results of countervailing duty administrative review.

SUMMARY: On March 26, 1985, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on certain scissors and shears from Brazil. The review covers the period March 1, 1981 through February 28, 1982 and eleven programs.

We gave interested parties an opportunity to comment on the preliminary results. After reviewing all of the comments received, the Department has determined the net subsidy during the period of review to be 15.17 percent ad valorem.

The Department is deferring its final decision on the question of whether it has the authority to assess

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countervailing duties on entries of pinking shears.

EFFECTIVE DATE: December 18, 1986.

FOR FURTHER INFORMATION CONTACT:Richard C. Henderson or Lorenza Olivas, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On March 26, 1985, the Department of Commerce ("the Department") published in the Federal Register (50 FR 11927) the preliminary results of its administrative review of the countervailing duty order on certain scissors and shears from Brazil (42 FR 8634, February 11, 1977). We have now completed that administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act"). On December 14, 1983, the International Trade Commission ("the ITC") published its determination, under section 104(b) of the Trade Agreements Act of 1979, that an industry in the United States would not be materially injured, or threatened with material injury, by reason of imports of Brazilian scissors and shears if the order were revoked (48 FR 55644). Consequently, the Department published in the Federal Register (49 FR 7638, March 1, 1984) a revocation of the order with respect to all merchandise entered, or withdrawn from warehouse, for consumption on or after July 17, 1981, the date of the ITC's notification to the Department of the request by the Brazilian government for such an injury determination.

Scope of Review

Imports covered by the review are shipments of Brazilian scissors and shears valued over $1.75 per dozen. Such merchandise is currently classifiable under items 650.9000 and 650.9200 of the Tariff Schedules of the United States Annotated ("TSUSA").

The review covers the period March 1, 1981 through February 28, 1982 and eleven programs: (1) CACEX export financing; (2) an income tax exemption for export earnings; (3) the export credit premium for the IPI; (4) BEFIEX; (5) CIC-CREGE 14-11 financing; (6) CIEX; (7) FUNDECE; (8) financing for the storage of merchandise destined for export (Resolution 330); (9) FINEX; (10) incentives for trading companies (Resolution 643); and (11) partially-indexed long-term loans.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received written comments from the Government of Brazil.

Comment 1: The Government of Brazil argues that the Department should have used the companies' trade bill history as the most accurate source of information in establishing the short-term loan benchmark for the Department of Foreign Commerce of the Banco do Brasil ("CACEX") export financing. Instead, the Department incorrectly based its benchmark on an average of weekly trade bill discount figures published in Analise/Business Trends.

Department's Position: We disagree. Our practice in calculating a short-term benchmark is to use a national average interest rate rather than a company- specific interest rate. See, Subsidies Appendix to the notice of Final Affirmative Countervailing Duty Determination and Countervailing Duty Order on Certain Cold-rolled Carbon Steel Flat-rolled Products from Argentina (49 FR 18006, April 26, 1984).

Comment 2: The Brazilian government argues that if the Department uses Analise/Business Trends to establish its short-term loan benchmark, it should follow the calculation method used in Cast Iron Pipe Fittings from Brazil (50 FR 8755, March 5, 1985) and annualize the discount rate in effect on the date that each loan was disbursed. Failing that, the Department should weigh the annual commercial average rate by the borrowing volume of each firm.

Department's Position: We did not annualize the discount rate in effect on the date when each loan was disbursed in the pipe fittings notice. Instead, we used an average annual rate for the review period. We disagree that we should weigh the benchmark to reflect the borrowing volume of each firm (see, Comment 1). Weighing the benchmark, as the Brazilian government suggests, would result in a benchmark specifically for the firm covered by the review.

Comment 3: The Government of Brazil argues that, because the review covers the fiscal year, the Department's calculation of a calendar year benchmark overstates the interest rates on loans made during the first part of the fiscal year.

Department's Position: We agree that the calculation of a calendar year benchmark misstates the interest rates on loans reviewed on a fiscal year basis. The calculation of a fiscal year benchmark as well as the correction of other calculation errors results in a net subsidy of 7.66 percent ad valorem for CACEX export financing. The rates in other programs are unaffected by this change.

Comment 4: The Government of Brazil claims that, in calculating the interest benchmark for CACEX export financing, the Department should not include the tax on financing transactions ("the IOF"). The IOF is an indirect tax on the financing of the purchase of physically incorporated inputs. Considering the IOF tax as an intergral part of the commercially-available rate (i.e., considering exemption from the tax a subsidy) is contrary to the General Agreement on Tariffs and Trade and U.S. law, both of which permit the non- excessive rebate of indirect taxes.

Department's Position: We have considered and rejected this argument in other Brazilian countervailing duty cases. See, e.g., Certain Castor Oil Products from Brazil (48 FR 40534, September 8, 1983).

Comment 5: The Government of Brazil argues that the Department has overstated the benefit from the income tax exemption for export earnings. Brazilian federal tax laws permit corporations to invest 26 percent of their tax liability in certain specified corporations. The Brazilian government claims that these equity investments produce dividend income and increase salable assets. Since these investments effectively reduce the nominal corporate income tax rate, the Government of Brazil argues that the Department should decrease the income tax exemption benefit to reflect the actual tax savings.

Department's Position: We would consider using the effective income tax rates if the firms demonstrated that they had invested in the specified corporations. No information was provided to support such a claim during this review.

Comment 6: The Government of Brazil cites the determinations made in Bicycle Tires and Tubes from Korea (46 FR 17068, March 17, 1981) and Certain Textiles and Textile Products from Pakistan (44 FR 40884, July 13, 1979) to support its claim that benefits derived from the income tax exemptions for export earnings should be allocated over total sales rather than only export sales. Under the Brazilian program, an exporter receives an exemption from income tax liabilities at the end of the fiscal year based upon a ratio of export to total revenue, provided that the firm has made an overall profit. The Brazilian government argues that, because the salient factor in determining a firm's eligibility for this program is the firm's overall profitability in a given year, the benefit accrues to the operations of the whole firm and not just to exports. Thus, by allocating the

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benefits only to export sales, the Department overstates the value of the subsidy.

Department's Position: We have considered and rejected this argument in other Brazilian countervailing duty cases. See, e.g., Certain Castor Oil Products from Brazil, supra. The Department's current method of allocating export subsidies over exports supersedes the allocation method used in the two cases cited by the Government of Brazil.

Comment 7: The Government of Brazil argues that the Department incorrectly found the lag in collection of the offset tax on the export credit premium for the Industrial Products Tax ("IPI") to be a benefit. The Brazilian government argues that it had no agreement with the United States regarding the timing of the collection of the offset tax. Therefore, there was no delay in collection of the tax, since the firms paid the tax on the date set by governmental decree.

Department's Position: While there may have been no agreement specifying the time period for tax collection, we must still ensure that the tax (or alternatively a countervailing duty) offsets completely the benefit received from the IPI export credit premium on exports to the United States. The offset tax became effective on June 26, 1981. The first collection occurred December 31, 1982. A tax collected that long after the export date, especially without monetary correction in a period of high inflation, does not offset completely the benefit. Further, our treatment of a lag in the collection of the offset tax to the IPI has been upheld by the CIT in Philipp Brothers, Inc. v. United States, Slip Op. 86-107 CIT (Oct. 22, 1986).

Comment 8: The Government of Brazil argues that, if the Department calculates a benefit due to the delay in collection of the offset tax, the Department should use the same benchmark as used for CACEX export financing.

Department's Position: We agree and did use that benchmark in the preliminary results. However, we made several rounding errors. We have corrected those errors for these final results. The net subsidy is 1.15 percent ad valorem for the late collection of the IPI offset tax, and the total net subsidy for the IPI export credit premium is 3.68 percent ad valorem. As described in Comment 1, we have not agreed that our use of Analise numbers is erroneous.

Comment 9: The Government of Brazil argues that CIC-CREGE 14-11 loans are not countervailable because they are non-government loans granted in accordance with commercial consideration.

Department's Position: The Government of Brazil has not provided adequate information to allow us to consider this loan program to be provided without government direction or to be provided on terms consistent with commercial loans.

Comment 10: The Government of Brazil argues that, if the Department calculates a benefit for CIC-CREGE 14-11 financing, it should use the same benchmark as for CACEX export financing.

Department's Position: We agree. We used the same benchmark for all short- term preferential loans taken out in 1980.

Final Results of Review

After reviewing all of the comments received, we determine the next subsidy to be 15.17 percent ad valorem for the period of review. The Department will instruct the Customs Service to assess countervailing duties of 15.17 percent of the f.o.b. invoice price on any shipments (except as noted below) exported on or after March 1, 1981 and entered, or withdrawn from warehouse, for consumption before July 17, 1981 (the date the Department received notification of the request for an injury determination).

As a result of the ITC's negative injury determination, the Department has revoked this order with respect to all merchandise entered, or withdrawn from warehouse, for consumption on or after July 17, 1981. Entries of pinking shears classifiable under TSUSA item 605.9000 are afforded duty free status under the Generalized System of Preferences. Section 303 of the Tariff Act provides that we may not "impose" countervailing duties on duty- free products absent an injury test, when the United States has an "international obligation" to provide such a test. In our preliminary results, we preliminarily took the position that Brazil's adherence to the General Agreement on Tariffs and Trade imposed such an "international obligation" on the United States, and that we lacked the authority to assess countervailing duties on the pinking shears. We are deferring a final decision on this issue and will not now instruct the Customs Service to liquidate shipments of pinking shears entered, or withdrawn from warehouse, for consumption on or before July 16, 1981. We will publish our determination on this issue in a separate notice.

This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act (19 U.S.C. 1675(a)(1)) and § 355.10 of the Commerce Regulations (19 CFR 355.10).
Dated: December 12, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary, Import Administration.