Certain Castor Oil Products From Brazil; Preliminary Results of Countervailing

Duty Administrative Review


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

ACTION: Notice of preliminary results of countervailing duty administrative review.
SUMMARY: The Department of Commerce has conducted an administrative review of the countervailing duty order on certain castor oil products from Brazil. The review covers the period January 1, 1985 through December 31, 1985 and 15 programs.

As a result of the review, the Department has preliminarily determined the net subsidy for the period of review to be 0.63 percent ad valorem. Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: May 19, 1987.

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

SUPPLEMENTARY INFORMATION:

Background

On December 19, 1986, the Department of Commerce ("the Department") published in the Federal Register (51 FR 45497) the final results of its last administrative review of the countervailing duty order on certain castor oil products from Brazil (41 FR 8634; March 16, 1976). On March 31, 1986, the petitioner, the American Manufacturers of Castor Oil Products, requested in accordance with § 355.10 of the Commerce Regulations that we conduct an administrative review of the order. We published the initiations on April 18, 1986 (51 FR 13274). The Department has now conducted that 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, 1985 through December 31, 1985 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-CREGF 14-11 financing; (5) incentives for trading companies (Resolution 883); (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 Programs

(1) CACEX Export Financing

Under this program, the Department of Foreign Commerce ("CACEX") of the Banco do Brasil provides short-term working capital financing to exporters at preferential rates. The loans have a duration of up to one year. During the period of review, producers of certain castor oil products could obtain CACEX financing based on the value of their previous year's exports. The maximum amount of CACEX financing that could be obtained in Brazil was 20 percent of the value of the previous year's exports.
Resolution 882, which became effective on January 2, 1984, required the full interest payment at maturity. It also set the maximum interest rate at

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monetary correction (calculated by the change in the value of readjustable treasury bonds, "ORTN") plus 3 percentage points.
On August 21, 1984, Resolution 950 superseded Resolution 882 and changed the short-term export financing program substantially. Resolution 950, which was made effective retroactively to January 2, 1984, made working capital financing available through commercial banks at prevailing market rates, with interest due at maturity. It authorized the Banco do Brasil to pay the lending institution an "equalization fee," or rebate, of up to 10 percentage points over the commercial interest rate, which the lending institution can pass on to the borrowers. On May 2, 1985, Resolution 1009 increased the equalization fee to 15 percentage points.
To find the interest differential for Resolution 882 loans, we compared to effective rates. The nominal interest rates on Resolution 882, 950, and 1009 loans are the same as the effective rates because the full amount of interest is paid at maturity. For our benchmark, we took the national average rate for thirty-day discounts of accounts receivable, as reported in Analise/Business Trends. This rate includes the 1.5 percent tax on financial transactions ("IOF"), from which preferential loans are exempt. We then compounded this rate to find the effective annual commercial benchmark.
Since the interest charged on CACEX export financing under Resolutions 950 and 1009 is now at prevailing market rates, this program would not be countervailable absent the equalization fee and the exemption from the IOF. Therefore, the interest differential for those loans is equal to the equalization fee plus the 1.5 percent IOF.
We consider the benefit from loans to occur when the borrower makes the interest payments. For Resolution 882, 950, and 1009 loans on which interest was paid during the period of review, we multiplied the interest differential by the loan principal. We allocated the result over each firm's total exports and then weight-averaged each company's benefit by its share of total exports of this merchandise to the United States. On this basis, we preliminarily determine the benefit from this program to be 0.10 percent ad valorem.

(2) Income Tax Exemption for Export Earnings

Under this program, exporters of certain castor oil products are eligible for an exemption from income tax on a portion of their profits attributable to exports. The Brazilian government calculates the tax-exempt fraction of profit as the ratio of export revenue to total revenue. Two firms took advantage of this program in 1983.
The nominal corporate tax rate in Brazil is 35 percent. However, Brazilian tax law permits companies to reduce their income taxes by investing up to 26 percent of their tax liability in specified companies and funds. This tax credit effectively reduces the nominal 35 percent corporate tax rates. The firms under review invested in the specified companies and funds.
We calculated the effective tax rates by dividing each company's net tax liability by its taxable profit. We calculated the benefit by multiplying the amount of tax-exempt profit by the effective corporate tax rate and allocating the result over each company's total exports. We then weight-averaged each company's benefit by its share of total exports of the merchandise to the United States. On this basis, we preliminarily determine the benefit from this program to be 0.48 percent ad valorem.

(3) The Export Credit Premium for the IPI

Exporters of certain castor oil products are eligible for the maximum export credit premium for the IPI. The Brazilian government pays exporters in cash a percentage of the f.o.b. price of the exported merchandise. The payment is made through the bank involved in the export transaction.
Effective June 26, 1981, the Brazilian government imposed an export tax to offset the benefit of the premium on exports to the United States. Therefore, we preliminarily determine that exporters of this merchandise received no benefits from this program during the period of review.
Further, on May 1, 1985, the Brazilian government eliminated the IPI credit premium for exporters of certain castor oil products.

(4) CIC-CREGE 14-11 Financing
Under its CIC-CREGE 14-11 circular, the Banco do Brasil provides preferential financing to exporters on the condition that they maintain on deposit a minimum level of foreign exchange. Exporters of certain castor oil products participated in this program during the period of review.
There is no maximum interest rate for this program. Interest payments are normally made quarterly or semiannually, with the full principal to be repaid at maturity. We calculated the benefit based on the interest payment date in a manner similar to that used for CACEX export financing, using the same benchmark rate. We preliminarily determine the benefit from this program to be 0.02 percent ad valorem.

(5) Incentives for Trading Companies (Resolution 883)

Under this program, CACEX declares trading companies eligible to receive loans at preferential rates. Eligible firms have access to a line of credit that can be drawn down to purchase goods for export. The trading companies use the loans as advance payment for the goods purchased. These loans are subject to interest constraints similar to those on Resolution 882 loans. Normally, the term of the loan does not exceed 180 days, but the actual length varies, running from the date of receipt of the loan to the date of shipment of the goods. The interest is paid in full at maturity.
During the period of review, one firm received benefits under this program for the purchase of certain castor oil products for export. We calculated the benefit in a manner similar to that for CACEX export financing, based on the interest payment date. We allocated the benefit over the firm's total exports and weight-averaged the result by the firm's share of total exports of this merchandise to the United States. On this basis, we preliminarily determine the benefit from this program to be 0.03 percent ad valorem.

(6) Accelerated Depreciation for Brazilian-made Capital Goods

Firms may depreciate Brazilian-made capital equipment at twice the normal rate allowed under Brazilian tax laws if they obtain approval from the Industrial Development Council ("CDI") for a plant expansion project. One firm benefited from this page in 1984.
To calculate the benefit, we multiplied the amount of accelerated depreciation declared on the income tax return filed in the review period by the effective corporate income tax rate and divided the result by the firm's total sales in 1985. We then weight-averaged the benefit by the firm's share of total exports of this merchandise to the United States.
On this basis, we preliminarily determine the benefit to be 0.001 percent ad valorem.

(7) Other Programs

We also examined the following programs and preliminarily find that exporters of certain castor oil products did not use them during the review period:
a. Fiscal Benefits for Special Export Programs ("BEFIEX");
b. Tax Reductions on Equipment used in Export Production ("CIEX");

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c. Export Financing under Resolution 68 ("FINEX");
d. Duty-free treatment and tax exemptions on equipment used in export production ("CDI");
e. Export financing under the Fundo Nacional de Participadoes ("FUNPAR");
f. Exemption from state-administered value-added taxes ("ICM") on domestic sales;
g. Export Promotion Financing ("PROEX");
h. Benefits from Import Substitution ("PROSIM"); and
i. Financing for the storage of merchandise destined for export ("Resolution 330")
.

Preliminary Results of Review

As a result of our review, we preliminarily determine the net subsidy to be 0.63 percent ad valorem for the period of review. The Department intends to instruct the Customs Service to assess countervailing duties of 0.63 percent of the f.o.b. invoice price on all shipments of this merchandise exported on or after January 1, 1985 and on or before December 31, 1985.
The Department intends to 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 0.63 percent of the f.o.b. invoice price on all shipments of this merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of the final results of this administrative review. This deposit requirement shall remain in effect until publication of the final results of the next administrative review.
Interested parties may submit written comments on these preliminary results within 30 days of the date of publication of this notice and may request disclosure and/or a hearing within 10 days after the date of publication. Any hearing, if requested, will be held 30 days after the date of the publication or the first workday thereafter. Any request for an administrative protective order must be made no later than five days after the date of publication. The Department will publish the final results of this administrative review including the results of its analysis of issues raised in any such written comments or at a hearing.
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 (50 FR 32556, August 13, 1985).
Dated: May 12, 1987.

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