52 FR 843

NOTICES

DEPARTMENT OF COMMERCE

[C-351-020]

Non-Rubber Footwear From Brazil; Final Results of Countervailing Duty Administrative Review

Friday, January 9, 1987

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AGENCY: International Trade Administration/Import Administration, Department of Commerce.

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

SUMMARY: On June 26, 1985, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on non-rubber footwear from Brazil. The review covers the period January 1, 1981 through October 28, 1981 and ten programs.

We gave interested parties an opportunity to comment on the preliminary results. After review of all of the comments received, we determine the net subsidy during the period of review to be 6.04 percent ad volorem.

EFFECTIVE DATE: January 9, 1987.

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

SUPPLEMENTARY INFORMATION:

Background

On September 12, 1974, the Treasury Department published in the Federal Register (39 FR 32903) a countervailing duty order on non-rubber footwear from Brazil. The Department of Commerce ("the Department") began this review of the order under its old regulations, and published the preliminary results of its review on June 26, 1985 (50 FR 26397). On October 15, 1985, after the promulgation of our new regulations, the petitioner, Footwear Industries of America, Inc., requested in accordance with § 335.10 of the Commerce Regulations that we complete the administrative review of the order. The Department has now completed that administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act"). On June 2, 1983, the International Trade Commission ("the ITC") published its determination (48 FR 24796), under section 104(b) of the Trade Agreements Act of 1979 ("the TAA"), that an industry in the United States would not be materially injured, or threatened with material injury, by reasons of imports of Brazilian non-rubber footwear if the order were revoked. Consequently, the Department published in the Federal Register (48 FR 28310, June 21, 1983) a revocation of the order with respect to all merchandise entered, or withdrawn from warehouse, for consumption on or after October 29, 1981, the date of the ITC's notification to the Department of the request by the Brazilian government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 non-rubber footwear. Such merchandise is currently classifiable under Part 1A of Schedule 7 of the Tariff Schedules of the United States Annotated, excluding items 700.5100 through 700.5400, 700.5700 through 700.7100, and 700.9000.

The review covers the period January 1, 1981, through October 28, 1981, and ten 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) incentives for trading companies (Resolution 643); (8) financing for the storage of merchandise destined for export (Resolution 330); (9) FINEX; and (10) Gold Draft of Exportation.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. We received written comments from the petitioner, Footwear Industries of America, Inc. ("FIA"), the Government of Brazil, the Footwear Retailers of America ("FRA"), and the American Association of Exporters and Importers ("the Group").

Comment 1: The Group argues that the Department has no authority to require or authorize suspension of liquidation pending the completion of administrative reviews under section 751 of the Tariff Act. In accordance with section 504 of the Tariff Act, the Customs Service must liquidate all entries subject to this review within one year of entry. Liquidation should be at the rate of duty required at the time of entry.

Department's position: In Ambassador Division of Florsheim Shoe v. United States, 748 F. 2d 1560 (CAFC 1984), the Court of Appeals for the Federal Circuit ("the CAFC") ruled that the Department has the authority under section 504 to direct the Customs Service to suspend liquidation of entries and to retroactively assess duties on those entries based on a section 751 administrative review.

Comment 2: The Group and FRA argue that, even if the law permits suspension of liquidation pending completion of administrative reviews, it does not authorize continued suspension of liquidation if the Department fails to complete a review by the time limits set forth in section 751 of the Tariff Act. Since the Department did not complete its administrative review by the anniversary date of the order, entries made during the review period should automatically be liquidated in accordance with section 504(a) of the Tariff Act, i.e., at the rate of cash deposit required at the time of entry.

Department's position: The Court of International Trade ("the CIT"), in Philipp Brothers, Inc., v. United States, Slip Op. 86-16 CIT (Feb. 14, 1986), found that no provision of the Tariff Act provides for a consequence for failure to complete administrative reviews within the 12 months specified in section 751.

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Instead, the statutory period for conducting a section 751 administrative review is directory, not mandatory. Therefore, the CIT concluded that the Department does not lose jurisdiction to complete a review if the review is not completed within one year and that entries are not deemed to be liquidated by operation of law. See also, Miller Co., v. United States, Slip Op. 86-110, CIT (Oct. 24, 1986).

Comment 3: The Government of Brazil and FRA claim that section 104(b)(4)(B) of the Trade Agreements Act of 1979 ("TAA") refers to any countervailing duties collected since the TAA became effective. They argue that revocation of the order should apply to entries made since the first day of suspension of liquidation, which was December 7, 1979, not just to those made since the date of the ITC's notification to the Department of the commencement of the injury test, October 29, 1981. All estimated countervailing duties collected since the earlier date should be refunded. The Group also claims that section 104(b) provides that revocations resulting from a negative injury determination apply retroactively at least to January 2, 1980, the effective date of the TAA.

Department's position: Section 104(b) of the TAA directs that revocations resulting from negative injury determinations apply retroactively to the date of the ITC's notification to the Department of the request for inqury review. We have uniformly applied this procedure in all section 104(b) revocations. See also, Final Results of Administrative Review of the Countervailing Duty Order on Non-Rubber Footwear from Brazil (50 FR 15597, April 19, 1985).

Comment 4: The group and FRA argue that it is contrary to law for the Department to change the methodology used to measure subsidization after delaying the administative review beyond the statutory limits. Similarly, the Government of Brazil asserts that even if the law permits retroactive assessment of countervailing duties, it does not permit the Department to apply a changed methodology retroactively absent changed conditions in the exporting country.

Department's position: Deplays in publishing the results of an administrative review do not preclude the Department from applying its most current methodology. It would be absurd for the Department to maintain that one methodology most accurately measures the benefit while applying another which less accurately measures it.

Comment 5: FRA claims that there is no provision under section 751 of the Tariff Act for retroactive application of the results of an administrative review of a countervailing duty order covering imports from a "country under the agreement." FRA also argues that the Department may not assess countervailing duties higher than the cash deposit rate as a result of such a review. FRA cites Ambassador Division of Floresheim Shoe v. United States, 748 F.2d 1560 (CAFC 1984) as support for its position.

Department's position: While the CAFC in Florsheim addressed only countries not "under the agreement," the reasoning in Florsheim also applies to "countries under the Agreement." It would be illogical for Congress to have provided for an administrative review of entires from a "country under the Agreement" without allowing for an assessment of the duties established by the review. FRA cites no authority to support its assertion that countervailing duties may not be assessed retroactively on imports from "countries under the Agreement." Section 707 of the Tariff Act provides that the Department may not assess duties higher than the cash deposit rate only between the date of the preliminary determination and the date of the countervailing duty order. After that period, the Department must assess the actual amount determined in a 751 review.

Comment 6: The Group and FRA claim that section 303 of the Tariff Act does not provide for payment of interest on countervailing duty deposits. If the Department maintains its position that interest is assessable, the interest should apply only from the date of publication of the final results of the administrative review to the date of liquidation. Further, the interest provision of the Trade and Tariff Act of 1984 ("the 1984 Act") should not be applied to entries made prior to the effective date of that act, October 30, 1984.

Department's position: We disagree. The Court of International Trade in Hide-Away Creations, Ltd. v. United States, 598 F. Supp. 395 (1983) held that, although section 778 was silent with respect to when interest payments should be made in section 303 cases, section 778 should be construed as requiring interest payments in section 303 cases after the date of publication of the countervailing duty order. Section 621 of the Trade and Tariff Act of 1984 merely codified the Court's decision in Hide-Away and made explicit the timing of the interest requirements as they apply to orders published under section 303. Section 621 did not change this requirement. Thus, the effective date of interest payments applicable to section 303 orders is the effective date of section 778 of the Trade Agreements Act of 1979 (1980), rather than the effective date of section 621 of the Trade and Tariff Act of 1984. Accordingly, since the entries of the merchandise covered by this review were made after 1980, interest is payable on and after the publication date of the countervailing duty order.

Comment 7: 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 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 loan benchmark is to use a national average interest rate rather than a company-specific interest rate. See, the 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 8: 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 weight 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 that each loan was disbursed in the pipe fittings notice. Instead, we used the average annual rate for the review period. We disagree that we should weight the benchmark to reflect the borrowing volume of each firm. Weighting the benchmark, as the Brazilian government suggests, would result in a benchmark specifically for the firm covered by the review.

Comment 9: The Government of Brazil claims that, in calculating the interest benchmark for CACEX export financing, the Department should not include the exemption of such short-term working capital loans from 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 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

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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 10: 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 and funds. The Brazilian government claims that these equity investments produce dividend income and increase saleable 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 effective income tax rates if the firms demonstrated that they had invested in the specified corporations or funds. No information was provided to support such a claim during this review.

Comment 11: The Government of Brazil cites the determinations made in Bicycle Tires and Tubes from Korea (45 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 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 ration 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 benefits only over 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., Castor Oil Products from Brazil, supra. The Department's current method of allocating export subsidies over exports supersedes the allocation method used in the cases cited by the Government of Brazil.

Comment 12: 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 considerations.

Department's position: The Government of Brazil has not provided adequate quantifiable information to allow us to consider this loan program to be provided without government direction or on non-preferential terms.

Comment 13: The Government of Brazil argues that, if the Department calculates a benefit for CIC-CREGE financing, it should use the same benchmark as for Resolution 674 financing.

Department's position: We agree and did use the same benchmark in our preliminary results.

Comment 14: 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. 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 on December 31, 1982. A tax collected this 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 the 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 15: 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 the same benchmark in our preliminary results.

Comment 16: FIA argues that while the use of the "cash flow" method for calculating the benefit from preferential export financing is generally appropriate, it should not be applied in periods immediately preceding a revocation. Its application allows some preferential loans with interest payments falling due after revocation to go uncountervailed.

Department's position: It would be arbitrary to change our methodology solely for the purpose of capturing benefits that occur after revocation. The loans with post-revocation interest payments conferred no benefits during the period of review, and we have no authority to countervail benefits received after revocation.

Comment 17: FIA argues that the interest rate benchmark used in the preliminary calculations was incorrect because the Department did not consider the effect of compensating balances on the rate for discounting of accounts receivable.

Department's Position: We have considered and rejected this argument in the previous administrative review of this countervailing duty order. See, Non-Rubber Footwear from Brazil, supra.

Comment 18: FIA argues that the cash flow methodology requires the Department to countervail the IPI credit premiums received during the period of review since the cash flow effect occurs at the time of receipt. Payment of the IPI offset tax in 1982, long after receipt of the credit premium, does not neutralize the cash flow effect in 1981.

Department's position: We disagree. During the period May 4, 1981 through October 31, 1981, we consider the benefit from the IPI credit premium itself to be the delay in payment of the offset tax. The methodology we used to calculate the benefit in this case followed our position concerning the proper functioning of an offset tax on exports from Brazil, as described in the notice of suspension of investigation of Tool Steel from Brazil (48 FR 11731, March 21, 1983). Under the terms of the suspension agreement, the Government of Brazil requires that the export tax be paid within 45 days of the last day of the month in which the merchandise was exported. While we found that the benefit from the IPI was not fully offset, it was due to the untimely collection of the offset tax as opposed to failure ever to collect the tax. We determined that the payment date of the export tax was reasonable since it corresponded to the approximate date the credit was received (45 days after the end of the month of shipment). Therefore, we have made allowances for the collection period agreed to in the tool steel suspension agreement and consider the benefit to non-rubber footwear exporters from late payment of the tax

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to begin 45 days after the end of the relevant month. We measured the benefit from the delayed payment in the same manner we would measure the benefit from an interest-free loan. We believe our methodology is both internally consistent and consistent with other Brazilian cases. This methodology was upheld by the CIT in Philipp Brothers, Inc. v. United States, Slip Op. 86-107, supra.

Comment 19: FIA contends that the Department incorrectly used total 1981 exports as the denominator in calculating the benefit from IPI credit premiums received before May 5, 1981. The Department should have used only the exports made during the review period.

Department's position: We agree and have recalculated the benefit. We determine the benefit from this program to be 1.62 percent ad valorem during the period of review.

Comment 20: FIA argues that, assuming the Department properly treated the lag in collection of the export tax as an "interest-free loan," the Department understated the benefit because it failed to include in its calculations the IPI credits earned between August 1 and October 28, 1981, the effective date of the revocation. Since no interest payments were made, there was no actual cash flow effect on the date the export tax was due. Therefore, the Department should consider all IPI credits earned up to the final day of the review to confer a subsidy.

Department's position: We disagree. Any export tax levied to offset the IPI credit premiums for shipments made in August should have been collected by October 15, 1981 to have been timely. If the export tax were not collected by October 15, 1981, we would consider payment of the tax to be late. Since we measured the benefit from the late payment as we would measure the benefit from an interest-free loan, the first interest payment would be due 30 days later, i.e., November 15, 1981, which is outside the review period.

All IPI credits earned between August 1 and October 28, 1981 could confer potential benefits only after the date of revocation.

Comment 21: FIA argues that the Department should have regarded the terms of the "interest-free loan" to begin on the date of export rather than on the date the offset tax is due. The Department ignores the provision of section 771(6) of the Tariff Act of 1930 which, FIA claims, provides that the Department may allow an offset for a subsidy only where it is levied on the export of the merchandise. The offset tax must be collected at the time the merchandise is exported. FIA cites the notice of intention to terminate the suspension agreement on Carbon Steel Plate from Brazil (49 FR 11864, March 28, 1984) to support its claim that the imposition of an export tax means "timely collection of export taxes."

Department's position: Since we have determined that 45 days is the average lag between the date of shipment and the date of receipt of the IPI credit, any offset tax collected on or before the 45th day after the end of the month in which the export was made would completely offset the benefit. Section 771(6)(C) of the Tariff Act allows as an offset to the gross subsidy export taxes "levied on the export of merchandise to the United States" if the export taxes are specifically intended to offset the subsidy. We do not interpret the phrase "on the export of merchandise" to mean that the tax must be collected on the date of export. It merely means that the tax must be tied to the exported merchandise. We consider the "timely collection of export taxes" to be within 45 days of the end of the month in which the export occurred. In Carbon Steel Plate from Brazil, timely collection unequivocally meant that the tax was due 45 days after the end of the month on which shipment was made.

Comment 22: FIA argues that the Department's analysis of the IPI export credits received between May 5 and October 28, 1981 fails to account for the effects of inflation and the time value of money. FIA also argues that the export taxes ultimately paid by exporters did not fully offset the real value of the IPI export credit premiums.

Department's position: We agree that in periods of high inflation, such as existed in Brazil during the period of review, the delay in payment of the offset tax decreases in the real value of the offset tax. By measuring this benefit as we would an interest-free loan and compounding the benchmark, we compensated for the reduced value of the nominal payment caused by the delay.

Final Results of Review

After reviewing all of the comments received and correcting a calculation error, we determine the net subsidy to be 6.04 percent ad valorem for the period of review. The Department will instruct the Customs Service to assess countervailing duties of 6.04 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1, 1981 and entered, or withdrawn from warehouse, for consumption on or before October 28, 1981.

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 31, 1986.

Gilbert B. Kaplan,
Deputy Assistant Secretary, Import Administration.