(Cite as: 52 FR 23322)
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-351-504]
Preliminary Affirmative Countervailing Duty Determination: Certain Light Iron
Construction Castings From Brazil
Friday, June 19, 1987
*23322
(Cite as: 52 FR 23322, *23322)
AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
(Cite as: 52 FR 23322, *23322)
SUMMARY: We preliminarily determine that benefits which constitute subsidies within the meaning of the
countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of certain light
iron construction castings (light castings). The estimated net subsidy is 6.08 percent ad valorem, and the rate for duty
deposit purposes is 5.58 percent ad valorem. We have notified the U.S. International Trade Commission (ITC) of our
determination. We are directing the U.S. Customs Service to suspend liquidation of all entries of the subject merchandise
which are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice and to
require a cash deposit or bond for each such entry equal to 5.58 percent ad valorem.
If this investigation proceeds normally, we will make our final determination not later than August 31, 1987.
EFFECTIVE DATE: June 19, 1987.
FOR FURTHER INFORMATION CONTACT: Thomas Bombelles or Barbara Tillman, Office of Investigations, Import
Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution
Avenue, NW, Washington, DC 20230; telephone: (202) 377-3174 or 377-2438.
(Cite as: 52 FR 23322, *23322)
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that certain benefits which constitute subsidies within the meaning
of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters
in Brazil of light castings. For purposes of this investigation, the following programs are found to confer subsidies:
- Preferential Working Capital Financing for Exports--Resolutions 674 and 950/1009
- Income Tax Exemption for Export Earnings
- Export Financing under Resolution 509 (FINEX)
We preliminarily determine the estimated net subsidy to be 6.08 percent ad valorem. However, consistent with our policy of
taking into account program- wide changes that occur before our preliminary determination, we are adjusting the cash
deposit rate to reflect changes in the Preferential Working Capital Financing for Exports Program, and, therefore, the rate for
duty deposit purposes is 5.58 percent ad valorem.
(Cite as: 52 FR 23322, *23322)
Case History
On May 13, 1985, we received a petition in proper form from the Municipal Castings Fair Trade Council, a trade association
representing domestic producers of certain iron construction castings and 15 individually-named members of the
association. Those members are: Alhambra Foundry, Inc.; Allegheny Foundry Co.; Bingham & Taylor, Inc.; Campbell
Foundry Co.; Charlotte Pipe & Foundry Co.; Deeter Foundry Co.; East Jordan Iron Works, Inc.; E.L. LeBaron Foundry Co.;
Municipal Castings, Inc.; Neenah Foundry Co.; Opelika Foundry Co. Inc.; Pinkerton Foundry, Inc.; Tyler Pipe Corp.; U.S.
Foundry & Manufacturing Co.; and Vulcan Foundry, Inc. filing on behalf of the U.S. industry producing of certain iron
construction castings. In compliance with 19 CFR 355-26, the petition alleged that manufacturers, producers, or exporters in
Brazil of certain iron construction castings receive, directly or indirectly, benefits which constitute subsidies within the
meaning of section 701 of the Act, and that these imports materially injure, or threaten material injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and
on June 3, 1985, we initiated such an investigation (50 FR 24269, June 10, 1985). We stated that we expected to issue a
preliminary determination by August 6, 1985.
(Cite as: 52 FR 23322, *23322)
Since Brazil is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination
is required for this investigation. Therefore, we notified the ITC of our initiation. On June 27, 1985, the ITC preliminarily
determined that there is a reasonable indication that imports of certain heavy iron construction castings materially
injure, or threaten material injury to, a U.S. industry (50 FR 27498, July 3, 1985). The ITC also determined that there is no
reasonable indication that imports of light castings allegedly subsidized by the Government of Brazil cause or threaten
material injury to a U.S. industry. Therefore, we continued the countervailing duty investigation only with respect to
certain heavy iron construction castings (heavy castings). The ITC also made an affirmative preliminary
determination of injury with respect to imports of allegedly dumped heavy and light iron construction castings from
Brazil, India, Canada and the People's Republic of China.
On August 6, 1985, we issued a notice of "Preliminary Affirmative Countervailing Duty Determination: Certain
Heavy Iron Construction Castings from Brazil" (50 FR 32462, August 10, 1985), and a "Final Affirmative
Countervailing Duty Determination" on the same products on March 12, 1986 (51 FR 9491, March 19, 1986). On April
25, 1986, the ITC determined that a U.S. industry is materially injured by reason of subsidized imports from Brazil of
heavy castings and on May 8, 1986 we issued a "Final Countervailing Duty
(Cite as: 52 FR 23322, *23322)
Order" (51 FR 17786, May 15, 1986). (See those notices for a complete case history of that investigation and product
description.)
In the course of our investigation on heavy castings, the petitioner appealed the ITC's preliminary negative injury
determination on light castings to the Court of International Trade (CIT). On February 14, 1986, the CIT entered a judgement
remanding the initial determination back to the ITC, with an *23323
(Cite as: 52 FR 23322, *23323)
order to issue a redetermination in accordance with the CIT's opinion and judgement. (Bingham & Taylor, Div. of Virginia
Industries, Inc. et. al. V. United States, 10 CIT ------, Slip Op. 86-14, February 14, 1986). On March 31, 1986, in compliance
with the CIT's remand and order, the ITC found a reasonable indication that a domestic industry is materially injured, or
threatened with material injury, by reason of imports of light iron construction castings that are allegedly subsidized by the
Government of Brazil (51 FR 12217, April 9, 1986). The ITC issued this determination without prejudice to its appeal to
the Court of Appeals for the Federal Circuit (CAFC) of the CIT's remand. On March 31, 1987, the CAFC affirmed the CIT's
original decision. Pursuant to the CAFC's ruling and final order, we are now continuing the investigation with respect to light
castings.
Scope of Investigation
(Cite as: 52 FR 23322, *23323)
The United States has developed a system of tariff classification based on the international harmonized system of Customs
nomenclature. Congress is considering legislation to convert the United States to this Harmonized System ("HS") by January
1, 1988. In view of this, we will be providing both the appropriate Tariff Schedules of the United States, Annotated (TSUSA)
item numbers and the appropriate HS item numbers with our product descriptions on a test basis, pending Congressional
approval. As with the TSUSA, the HS item numbers are provided for convenience and Customs purposes. The written
description remains dispositive.
We are requesting petitioners to include the appropriate HS item numbers as well as the TSUSA item numbers in all new
petitions filed with the Department. A reference copy of the proposed Harmonized System schedule is available for
consultation in the Central Records Unit, Room B-099, U.S. Department of Commerce, 14th Street and Constitution Avenue,
NW, Washington, DC 20230. Additionally, all Customs offices have reference copies, and petitioners may contact the Import
Specialist at their local Customs office to consult the schedule.
The merchandise covered by this investigation consists of certain light iron construction castings, limited to valve, service
and meter boxes which are placed below ground to encase water, gas, or other valves, or water or gas meters. These articles
must be of cast iron, not alloyed, and not malleable,
(Cite as: 52 FR 23322, *23323)
and are currently classified under item 657.0990 of the Tariff Schedules of the United States, Annotated (TSUSA). These
products are currently classified under HS item number 7325.1000.
Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the current investigation. These
principles are described in the "Subsidies Appendix" attached to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products
from Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order," which
was published in the April 26, 1984 issue of the Federal Register (49 FR 18006).
For purposes of this preliminary determination, the period for which we are measuring subsidization (the review period) is
calendar year 1984. When we initiated the investigation on certain iron construction castings we requested information for
1984 from the Government of Brazil on all producers and exporters of certain iron constuction castings, which include
both light and heavy castings. Since this is a continuation of the investigation of light castings, we are using the 1984 data
provided by the Government of Brazil for purposes of calculating the estimated net subsidy on exports of light castings to
the United States.
(Cite as: 52 FR 23322, *23323)
During our investigation of heavy castings, we gathered and verified information that showed that three companies, Fundicao
Aldebara Ltda. (Aldebara), Usina Siderurgica Paraense--Usipa Ltda. (Usipa), and Sociedade de Metalurgica e Processos Ltda.
(Somep) accounted for substantially all exports of all types of construction castings to the United States. Further
examination of the countervailing duty record and the public documents in the antidumping duty investigation of
certain iron construction castings from Brazil indicates that only Usipa and Aldebara produce and export light iron
construction castings. Therefore, to calculate the estimated net subsidy on exports of light iron construction castings to the
United States, we have used the information already submitted by the Government of Brazil concerning benefits received
by Aldebara and Usipa. We consider that we have sufficient, verified information on the record to measure any subsidies
bestowed on the production and exportation of light castings. Therefore, we have not issued, and do not intend to issue,
additional questionnaires or further verify the information already in the record of this investigation. Based upon our
analysis of this record, we determine the following:
I. Programs Preliminarily Determined to Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers,
(Cite as: 52 FR 23322, *23323)
producers, or exporters in Brazil of light castings under the following programs:
A. Preferential Working-Capital Financing for Exports
The Carteria do Comercio Exterior (Foreign Trade Department, or CACEX) of the Banco do Brasil administers a program of
short-term working capital financing for the purchase of inputs. During the review period, these loans were authorized under
Resolution 674. On January 1, 1984, Resolution 674 was superseded by Resolution 882, which was itself substantially
amended by Resolution 950 on August 21, 1984.
Eligibility for this type of financing is determined on the basis of past export performance or of an acceptable export plan.
The amount of available financing is calculated by making a series of adjustments to the dollar value of exports. During the
review period, the maximum level of eligibility for such financing was 30 percent of the value of exports; at present, financing
is capped at 20 percent of the value of exports.
Following approval by CACEX of their applications, participants in the program receive certificates representing portions of
the total dollar amount for which they are eligible. The certificates, which must be used within one year of their issue, may be
presented to banks in return for cruizeros at the exchange
(Cite as: 52 FR 23322, *23323)
rate in effect on the date of presentation.
Use of a certificate establishes a loan obligation with a term of up to one year (360 days). Certificates must be used within 12
months of the date of issue, and loans incurred as a result of their use must be repaid within 18 months of that date.
The interest rate ceiling was raised from 40 to 60 percent on loans obtained under Resolution 674 on June 11, 1983. This
interest rate is below our commercial benchmark rate for short-term loans in Brazil, which is the short- term discount
rate for accounts receivable in Brazil, published in Business Trends magazine. On January 1, 1984, Resolution 882
changed the payment date for both interest and principal to the expiration date of the loan. On August 21, 1984, Resolution
950 made this working-capital financing available from commercial banks at prevailing market rates, with interest calculated
at time of repayment.
*23324
(Cite as: 52 FR 23322, *23324)
Under Resolution 950, the Banco do Brasil paid the lending institution an equalization fee of up to 10 percent of the interest
(after monetary correction). In May 1985, the equalization fee was increased up to 15 percent of the interest. Therefore, if the
interest rate charged to the borrower is less than full monetary correction plus 15 percent, the Banco do Brasil pays the
lending bank the difference, up to 15 percent. In our "Final Affirmative Countervailing Duty Determination: Certain
Agricultural Tillage
(Cite as: 52 FR 23322, *23324)
Tools from Brazil" ('Tillage Tools") (50 FR 34525, August 26, 1985), we verified that the lending bank, in turn, passes the
15 percent equalization fee on to the borrower in the form of a reduction of the interest due or a credit to the borrower's
account. Receipt of the equalization fee by the borrower reduces the interest rate on these working capital loans below the
commercial rate of interest. In addition, Resolution 950 working capital loans are exempted from the Imposto Sobre
Opercoes Finanacieros, (IOF), which is charged on all Brazilian financial transactions.
Since receipt of working-capital financing under both Resolution 674 and Resolution 950 is contingent on export
performance, and since the loans are provided at interest rates lower than those available from commercial sources, we
determine that this program confers an export subsidy.
During the review period, exporters of light castings received loans based on the criteria set forth in Resolution 674.
Therefore, to determine the ad valorem subsidy bestowed by this program during the review period, we compared the actual
interest rates charge on the loans received under Resolution 674 by the respondents and on which interest was paid during
the review period, to the benchmark and multiplied the difference by the loan principal. We then allocated the benefit over
total exports of the two light castings producers, which resulted in an estimated net subsidy of 2.86 percent ad valorem.
Consistent with our stated policy of taking into account program-wide changes
(Cite as: 52 FR 23322, *23324)
that go into effect after the review period but before our preliminary determination, we calculated a subsidy rate for duty
deposit purposes based on the interest rate rebate provided for under Resolution 950. The Methodology used is consistent
with that relied upon in our most recent final determination in a Brazil countervailing duty case "Final Affirmative
Countervailing Determination: Brass Sheet and Strip from Brazil" (51 FR 408377, November 10, 1986). To do this, we
first determined the historical utilization rate of this program. Only one company made interest payments on Resolution 674
loans during the review period. The other company had financing outstanding during the review period, but with interest
payments due in 1985; therefore, we are only using the experience of the company which benefited from the loan program in
1984 to determine the historial utilization rate. We divided the total value of loans on which interest payments were made
during the review period, by the total value of financing for which the company was eligible in order to determine what
percentage of its eligibility the company used. We multiplied this figure by the maximum percentage amount of financing for
which the company is eligible. We then multiplied that percentage by, first, the sum of the 15 percent interest rate rebate plus
the IOF, and, second, by the value of the company's 1984 exports. We allocated this amount over the total value of both
companies' 1984 exports, resulting in an estimated net sudsidy of 2.36 percent ad valorem for duty deposit purposes.
(Cite as: 52 FR 23322, *23324)
B. Income Tax Exemption for Export Earnings
Under Decree-Laws 1185 and 1721, exports of certain light iron construction castings are eligible for an exemption from
income tax on a portion of profits attributable to export revenue. Because this exemption is tied to exports and is not
available for domestic sales, we determine that this exemption confers an export subsidy. One producer of certain light iron
construction castings took an exemption from income tax payable in 1984 on the portion of taxable income earned from
export sales in 1983.
According to information developed and verified in past investigations in Brazil [e.g., "Tillage Tools," 13d "Final
Affirmative Countervailing Duty Determination: Fuel Ethanol from Brazil" (51 FR 3361, January 27, 1986)],
companies in Brazil may opt to invest up to 26 percent of their tax liability, as stated on their federal tax return, in
specified companies and funds, thereby lowering their effective corporate tax rate. In the two cases cited above, we accepted
this investment in calculating an effective corporate tax rate, because the respondents furnished all requested
documentation demonstrating that investments made under this program can yield returns and are not merely a means by
which the goverment of Brazil targets a firm's taxes.
During the heavy castings investments, we asked the one respondent company
(Cite as: 52 FR 23322, *23324)
which claimed the income tax exemption on export earnings on its 1983 tax form, filed in 1984, for documentation regarding
the investments made through this program. We requested this information as further evidence of the appropriateness of
calculating an effective tax exemption on export earnings. The respondent did not furnish the requested documents
regarding these investments either during the September 1985 verification or following the verification. Because the
company did not respond to our request during the heavy castings investigation, we are not accepting respondents'
arguments that the benefit from the income tax exemption on export earnings should be measured on the basis of the
company's effective tax rate. Therefore, to determine the benefit from this program in this investigation, we indexed the
exempted profit from exports, as required by Brazilian tax laws, and multiplied it by the nominal corporate tax rate, and
allocated the benefit over the total value of respondents' 1984 exports to calculate an estimated net subsidy of 1.89 percent
ad valorem.
C. FINEX Export Financing
Resolution 509 of the Conselho Nacional do Comercio Exterior (CONCEX) provides that CACEX may draw upon the resources
fo the Fundo de Financiamento a Exportacao (FINEX) to subsidize short-and long-term loans to foreign importers
(Cite as: 52 FR 23322, *23324)
of Brazilian goods. The loans are extended to the importer by a bank in the importer's country at interest rates set by FINEX.
These interest rates are based on LIBOR plus a spread. CACEX will in turn provide the lending bank, via a correspondent bank
in Brazil, with an "equalization fee" which makes up the difference to the bank between the subsidized interest rate and the
prevailing commercial rate. CACEX also provides the lending bank with a "handling fee" equal to two percent of the loan
principal to encourage foreign bank participation in the program.
During verification, we discovered that Usipa's U.S. importer had used short- term Resolution 509 loans to finance 100
percent of its imports of light iron construction castings from Brazil to the United States during the review period. We
verified that Aldebara's U.S. importer did not apply for or use Resolution 509 financing during the review period.
Because use of Resolution 509 FINEX financing is contingent upon exports, we *23325
(Cite as: 52 FR 23322, *23325)
determine that it is countervailable to the extent that it is offered on preferential terms. We learned from the government
officials in Brazil who administer the FINEX program, from examination of company documents, and from the
information published in the Jornal do Brasil and the Gazeta Mercantil that the interest rates on Resolution 509 loans for
financing the products under investigation during the review period ranged from eight to nine percent per annum. Since
these are short-term loans which are given in
(Cite as: 52 FR 23322, *23325)
U.S. dollars to U.S. importers, we chose as a benchmark interest rate for comparable loans in the United States, the mean
average interest rate for commercial and industrial short-term loans as published by the U.S. Federal Reserve Board.
Comparison of the FINEX interest rate to this domestic U.S. rate published by the Federal Reserve indicates that FINEX
financing is made at preferential interest rates.
The FINEX loans to Usipa's U.S. importer cover shipments that include both light and heavy castings, therefore, the benefit
on light castings is not segregable. To measure the benefit conferred by Resolution 509 financing on exports of light castings
from Brazil, we multiplied the value of financing on which interest was paid during the review period by the difference
between the U.S. benchmark rate and the actual interest rate paid by Usipa's U.S. importer. We then divided the resulting
benefit over total exports of iron construction castings to the United States, and calculated an estimated net subsidy of 1.33
percent ad valorem.
II. Programs Preliminarily Determined Not To Confer a Subsidy, Programs Determined Not To Be Used and Program
Preliminary Determined To Be Terminated.
For a listing and full description of programs preliminarily determined not to confer a subsidy, not to be used, and to be
terminated, please refer to our
(Cite as: 52 FR 23322, *23325)
"Final Affirmative Countervailing Duty Determination: Certain Heavy Iron Construction Castings from
Brazil.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all
unliquidated entries of certain light iron construction castings from Brazil entered, or withdrawn from warehouse, for
consumption, on or after the date of publication of this notice in the Federal Register, and to require a cash deposit or bond
for each such entry of this merchandise of 5.58 percent ad valorem. This suspension of liquidation will remain in effect until
further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available
to the ITC all non- privileged and non-proprietary information relating to this investigation. We will allow the ITC access to
all privileged and business proprietary information in our files, provided the ITC confirms that it will not disclose such
information, either publicly or under an administrative protective order,
(Cite as: 52 FR 23322, *23325)
without the written consent of the Deputy Assistant Secretary for Import Administration.
The ITC will determine whether these imports materially injure, or threaten material injury to, a U.S. industry 120 days after
the Department makes its preliminary affirmative determination or 45 days after its final affirmative determination,
whichever is latest.
Public Comment
In accordance with 19 CFR 355.35, we will hold a public hearing, if requested, to afford interested parties an opportunity to
comment on this preliminary determination on July 15, 1987 at 10:00 a.m. at the U.S. Department of Commerce, room
3708, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Individuals who wish to participate in the hearing
must submit a request to the Deputy Assistant Secretary for Import Administration, room B- 099, at the above address
within 10 days of the publication of this notice.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason
for attending; and (4) a list of the issues to be discussed. In addition, at least 10 copies of pre-hearing briefs must be
submitted to the Deputy Assistant Secretary by July 8, 1987.
(Cite as: 52 FR 23322, *23325)
Oral presentations will be limited to issues raised in the briefs. All written views should be filed in accordance with 19 CFR
355.34, within 30 days of the publication of this notice, at the above address and in at least 10 copies.
This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
Gilbert B. Kaplan,
Deputy Assistant Secretary for Import Administration.
June 15, 1987.
[FR Doc. 87-13993 Filed 6-18-87; 8:45 am]
BILLING CODE 3510-DS-M