Certain Castor Oil Products From Brazil; Final Results of Countervailing Duty Administrative Review


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AGENCY: International Trade Administration, Import Administration, Commerce.

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

SUMMARY: On October 9, 1986, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on certain castor oil products from Brazil. The review covers the period January 1, 1984 through December 31, 1984 and 15 programs.

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 to be 2.66 percent ad valorem.

EFFECTIVE DATE: December 19, 1986.

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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 October 9, 1986, the Department of Commerce ("the Department") published in the Federal Register (51 FR 36262) the preliminary results of its administrative review of the countervailing duty order on certain castor oil products from Brazil (41 FR 8634, March 16, 1976). We have now completed the administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act").

Scope of Review

Imports covered by the review are shipments of Brazilian hydrogenated castor oil and 12-hydroxystearic acid. Such merchandise is currently classifiable under items 178.2000, 490.2650, and 490.2670 of the Tariff Schedules of the United States Annotated.

The review covers the period January 1, 1984 through December 31, 1984 and 15 programs; (1) CACEX export financing; (2) an income tax exemption for export earnings; (3) the export credit premium for the IPI; (4) CIC-CREGE 14-11 financing; (5) incentives for trading companies (Resolution 643); (6) accelerated depreciation for Brazilian-made capital goods; (7) BEFIEX; (8) CIEX; (9) FINEX; (10) duty-free treatment and tax exemption on equipment used in export production ("CDI"); (11) FUNPAR; (12) exemption from state- administered value added taxes on domestic sales ("ICM"); (13) PROEX; (14) PROSIM; and (15) financing for the storage of merchandise destined for export (Resolution 330).

Analysis of Comments Received
We gave interested parties an opportunity to comment on the preliminary results. We received comments from the petitioner, the American Manufacturers of Castor Oil Products ("AMCOP"), the Brazilian government, and an exporter, Sociedade Algodoeira do Nordeste Brasileiro, S.A., ("SANBRA").

Comment 1: The Brazilian government argues that the Department should use for its short-term loan benchmark the annualized interest rate in effect on the date that each loan was obtained instead of the average annual rate in effect during the review period. In a high-inflation economy, such as exists in Brazil, an average rate calculated over the review period distorts the actual interest differentials. Further, since the number of loans in this case is small, this approach will not create an unworkable administrative burden.

Department's position: We disagree. An average benchmark over the review period may understate or overstate the benefit on individual loans, but it will accurately reflect the aggregate benefit from preferential loans over the review period because each company borrows at a more or less constant rate throughout the year.

Comment 2: The Brazilian government contends that the Department should use as its short-term loan benchmark the average commercial bank lending rates published by Morgan Guaranty Trust Company in its World Financial Markets instead of the average of weekly trade bill discount figures published in Analyze/Business Trends. Commercial bank lending practices are most similar to Resolution 674/882 financing, the source of Morgan Guaranty's figures.

Department's position: We disagree. The average commercial bank lending rates published by Morgan Guaranty Trust Company are lending rates to prime borrowers. As stated in the Subsidies Appendix to the notice of final affirmative countervailing duty determination and order on certain cold-rolled carbon steel flat-rolled products from Argentina (49 FR 18006, April 26, 1984), we use a national-average benchmark based on short-term financing available to all firms, not just to prime borrowers. We have found that trade bill discounting more accurately reflects the actual borrowing practice of most Brazilian firms.

Comment 3: The Brazilian government argues that the Department overstated the short-term loan benchmark by compounding monthly rates. If the Department continues to use the annual average for discounts of accounts receivable, it should calculate a daily rate, compound it for a 30-day period and then multiply this rate by 12 to annualize the benchmark. This calculation would take into account the monthly rollover of the principal.

Department's Position: We disagree. We have found that commercial lending in Brazil generally does not exceed 30 days and that most loans are rolled over monthly. It is inappropriate to use compounded daily rates, even if such rates were available, because loans are rolled-over monthly, not daily.

Comment 4: The Brazilian government believes that the Department should use the guidelines interest rates established by the resolutions regarding the short-term preferential export financing programs instead of the actual interest rates on each loan contract. Although the actual lending experience of certain firms may result in interest rates that are lower than the guideline interest rates, the lower rates are the result of commercial practices, such as the large volume of business conducted between certain firms and banks, and not any government action. Furthermore, since a higher lending volume generates higher costs for the firm, the Department should include these costs in calculating the effective preferential interest rate.

Department's position: We disagree. Regardless of whether the costs of these loans is higher or lower than the guideline rates, the benefit received by the companies' borrowing under this program is the difference between what they are paying and what they otherwise would pay. Further, the Brazilian government has provided no evidence that an increased volume of loans causes higher effective costs.

Comment 5: The Brazilian government argues that, in determining the cash deposit rate for CACEX export financing (Resolution 1009), the Department should base its calculation on historic loan use instead of maximum eligibility. The Department verified that companies did not borrow the legal maximum amount. The Department has not taken into account the program-wide change caused by Resolution 1009, which should reduce the cash deposit rate considerably.

Department's position: We normally take into account program-wide changes in calculating cash deposit rates when we can adequately assess the effects of those changes. In this case, Resolution 950 and 1009 altered the CACEX export financing program to such an extent that we do not believe that the use rate in the review period is indicative of the current benefit from this program. At verification, we did not receive adequate information on each company's use of Resolution 950 and 1009 loans because the program had only recently been implemented. Further, since eligibility rates vary from year to year, it would be inappropriate to use 1984 loan eligibility rates to set a current cash deposit rate. Therefore, we used the maximum loan eligibility rate to set the current cash deposit rate.

Comment 6: The Brazilian government argues that, in calculating the cash deposit rate for CACEX export financing, the Department incorrectly assumed that the loan eligibility rate is the same for all products. The Department should use the 15 percent maximum eligibility rate for castor oil products rather than the 20 percent

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maximum eligibility rate available in Brazil. Failing that, the Department should use a weighted average of the eligibility rates of all products exported by the companies.

Department's position: We disagree. CACEX export loans are tied to general exports whose eligibility rates vary, not to exports of only castor oil. In addition, we do not have sufficient information to weight average the eligibility rates of all products exported by the companies.

Comment 7: The Brazilian government claims that, in calculating the short-term interest rate benchmark, the Department should not include the tax on financing transactions ("the IOF"). The IOF is an indirect tax on the financing of physically incorporated inputs. Considering the IOF tax to be an integral part of the commercially-available rate (i.e., considering exemption from the tax to be 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 Bazilian countervailing duty cases. See, e.g., Certain Castor Oil Products from Brazil (48 FR 40534, September 8, 1983).

Comment 8: The Brazilian government and SANBRA argue that the Department overstated the cash deposit rate by assuming both maximum use of the CACEX export financing program and historic use of the incentives for trading companies program. Since both financing programs are mutually exclusive, the Department should either weight the cash deposit rate for the CACEX export financing program by the volume of exports made by each producer during the review period or eliminate the incentive for trading companies financing program from the calculation of the cash deposit rate.

Department's position: We agree. We have eliminated the incentives for trading companies program's rate of 0.85 percent ad valorem from the calculation of the cash deposit rate.

Comment 9: The Brazilian government contends that since one company, Braswey, provided proof on its tax form and financial statements that it had made investments in specified companies and funds, the department should use the effective tax rate for that company to calculate the benefit from the income tax exemption program.

Department's Position: We disagree. At verification, Braswey did not provided proof that it had made investments in the specified companies and funds. Therefore, we used the nominal tax rate to calculate Braswey's benefit from the income tax exemption for export earnings program.

Comment 10: The Brazilian government claims that the Department incorrectly allocated the benefits from the icome tax exemption for export earnings program over export sales instead of total sales. Since the program rebates direct taxes, it is a domestic subsidy, which requires the Department to allocate the benefit over total sales.

Department's Position: We disagree. When the amount of benefit received under a program is tied directly or indirectly to a company's level of exports, that program is an export subsidy. Under this program, exports are necessary to receive a benefit, and the level of exports determines the level of benefit. Therefore, we will continue to allocate benefits from this program over export sales instead of total sales.

Comment 11: The Brazilian government argues that CIC-CREGE 14-11 loans are not countervailable because they are non-government loans granted in accordance with commercial considerations. Although the nominal interest rates on these loans during the review period were somewhat below the commercial interest rates, commission costs, collateral and foreign exchange requirements effectively increased nominal rates to the range of commercial rates. Further, the Department should not calculate a cash deposit rate for this program because the nominal rates on these loans now approximate commercial rates.

Department's Position: The Brazilian government 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 12: The Brazilian government believes that the Industrial Development Council's ("CDI") Decree Law 1137, which provides for accelerated depreciation for Brazilian-made capital goods, is not limited to an industry or group of industries, and is therefore not countervailable. If the program were countervailable, the Brazilian government believes that the department should not calculate a cash deposit rate for this program because the companies' 1985 tax forms showed that the amount of accelerated depreciation claimed was exceeded by the amount of accelerated depreciation "recaptured" (i.e., added back to the net profit in an amount equal to that claimed in prior years). The recapture eliminates any net tax effect.

Department's Position: We disagree. We have found that CDI benefits are provided by the government to specific industries. See, Certain Carbon Steel Products from Brazil (49 FR 17988, April 26, 1984).
We agree that we should adjust the cash deposit rate by subtracting the amount of recapture attributable to CDI from the amount of accelerated depreciation attributable to CDI. However, since the company did not provide the relevant verification documents that would allow us to make this calculation, we cannot adjust the cash deposit rate.

Comment 13: The Brazilian government contends that the department took into account only a portion of the export tax imposed by the Brazilian government and paid by the companies on exports of certain castor oil products. Beginning November 1, 1984, the Brazilian government began to phase-out the IPI export credit premium but did not make corresponding reductions in the offset tax. Therefore, the companies paid offset taxes greater than the amount of premium received. Since section 771(6) of the Tariff Act requires the Department to consider the full amount of export taxes paid during the review period, the Department should count the overpayments as an offset against the total subsidy received on the exported product.

Department's Position: We disagree. Section 771(6) (C) of the Tarrif Act provides that:
for the purpose of determining the net subsidy, the administering authority may subtract from the gross subsidy the amount of . . . export taxes, duties or other charges levied on the export of the merchandise to the United States specifically intended to offset the subsidy received. (emphasis added)
The statute gives the Department the authority to take into account a tax which is specifically intended to offset the subsidy received. In this case, the offset tax was specifically intended to offset the subsidy received by each company from the IPI export credit premium. Therefore, we have offset completely the subsidy received by each company only from the IPI export credit premium program.

Comment 14: SANBRA contends that the Department should have published company- specific rates instead of a country-wide rate. SANBRA argues that there are significant differences in the programs used by each company, the individual rates for each company, and that no administrative burden would result from the use of company-specific rates. Further, SANBRA believes that this case is similar to the final affirmative countervailing duty determination and order on portland hydraulic cement and cement clinker

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from Mexico (48 43063, September 21, 1983), in which the Department set company-specific rates based on product characteristics such as price sensitivity and market conditions.

Department's Position: We disagree. We have addressed this issue at length in our notice of final results of countervailing duty administrative review on portland hydraulic cement and cement clinker from Mexico (50 FR 51732, December 19, 1985).
Section 607 of the Trade and Tariff Act of 1984 directs the Department to apply a country-wide rate unless a significant differential is found between companies receiving benefits. We do not find any significant differentials between companies in this case. See, Phillip Brothers, Inc. v. United States (CIT Slip Op. 86-107).

Final Results of Review

After reviewing all of the comments received, we determine the net subsidy to be 2.66 percent ad valorem for the period of review.
The Department will therefore instruct the Customs Service to assess countervailing duties of 2.66 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1, 1984 and on or before December 31, 1984.
The changes noted in the analysis of comments section and the change in the CACEX export financing program increase the total duty deposit rate to 3.82 percent ad valorem. Therefore, the Department will instruct the Customs Service to collect a cash deposit of estimated countervailing duties, as provided by section 751(a)(1) of the Tariff Act, of 3.82 percent of the f.o.b. invoice price on all shipments of certain castor oil products from Brazil entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice. This deposit requirement shall remain in effect until publication of the final results of the next administrative review.
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 16, 1986.

Gilbert B Kaplan,
Deputy Assistant Secretary, Import Administration.