Certain Castor Oil Products From Brazil; Final Results of Countervailing Duty Administrative Review
---PAGE 45497--- AGENCY: International Trade Administration, Import Administration, Commerce. 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.
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). 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
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). 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. 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).
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.
---PAGE 45498---
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.
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").
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.
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.