(Cite as: 52 FR 38254)
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-351-609]
Final Affirmative Countervailing Duty Determination; Certain Forged Steel
Crankshafts From Brazil
Thursday, October 15, 1987
*38254
(Cite as: 52 FR 38254, *38254)
AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
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SUMMARY: We determine that certain benefits which constitute subsidies within the meaning of the countervailing duty
law are being provided to manufacturers, producers, or exporters in Brazil of certain forged steel crankshafts ("CFSC"
or "the subject merchandise") as described in the "Scope of Investigation" section of this notice. The estimated net subsidy is
determined to be 5.23 percent ad valorem. However, consistent with our stated policy of taking into account program-wide
changes that occur before our preliminary determination, we are adjusting the duty deposit rate to reflect changes in the
Preferential Working-Capital Financing for Exports program. Accordingly, the duty deposit rate is 5.10 percent ad valorem.
However, the Department of Commerce, the Government of Brazil, and the manufacturers, producers, and exporters of
CFSC entered into a suspension agreement on July 21, 1987. At the request of the Government of Brazil, we continued
the investigation.
Subsequent to this determination, the ITC will determine whether imports of CFSC from Brazil materially injure, or
threaten material injury to, a U.S. industry. If that injury determination is affirmative, we shall not issue a countervailing
duty order as long as the conditions of the agreement are met. If that injury determination is negative, we will terminate
the suspension
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agreement and our investigation.
EFFECTIVE DATE: October 15, 1987.
FOR FURTHER INFORMATION CONTACT:Bradford Ward, Office of Investigations, or Richard Moreland, Office of Compliance,
Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone (202) 377-2239 or 377-2786.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we 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 CFSC. For purposes of this investigation, the following programs are found to confer subsidies:
- Income Tax Exemption for Export Earnings;
- Preferential Working-Capital Financing for Exports (including Incentives for Trading Companies); and
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- Import Duty and IPI Tax Exemptions Under Decree-Law 1189 of 1971, as amended.
We determine the estimated net subsidy to be 5.23 percent ad valorem. However, we are adjusting the duty deposit rate to
reflect a program-wide change in the Preferential Working-Capital Financing for Exports program. Therefore, the duty
deposit rate is 5.10 percent ad valorem.
Case History
The last Federal Register publication pertaining to this investigation (Suspension of Countervailing Duty
Investigation: Certain Forged Steel Crankshafts from Brazil (52 FR 28177, July 28, 1987) contains the case history.
Petitioners and respondents filed briefs on the final determination on July 13 and 15, 1987, concurrently with their
comments on the suspension agreement. On August 17, 1987, the Government of Brazil requested that this investigation
be continued under section 704 (g) of the Act. Therefore, we are required to issue a final determination in this investigation.
There are two known producers in Brazil of CFSC that exported to the United States during the review period. Those
producers are Krupp Metalurgica Campo Limpo Ltda. (Krupp) and Sifco S.A. (Sifco). In addition, Brasifco S.A. (Brasifco) is a
trading company wholly-owned by Sifco which exported the
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subject merchandise from Brazil to the United States during the review period. We verfied that Krupp, Sifco, and Brasifco
account for substantially all exports of the subject merchandise to the United States.
Scope of Investigation
The products covered by this investigation are forged carbon or alloy steel crankshafts with a shipping weight of between 40
and 750 pounds, whether machined or unmachined. These products are currently classified under items 660.6713,
660.6727, 660.6747, 660.7113, 660.7127, and 660.7147 of the Tariff Schedules of the United States, Annotated (TSUSA).
Neither cast crankshafts nor forged crankshafts with shipping weights of less than 40 pounds or greater than 750 pounds are
subject to this investigation.
Analysis of Programs
Throughout this notice we refer to certain general principles applied to the facts of the current investigation. These general
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 (49 FR
18006, April 26, 1984).
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For purposes of this determination, the period for which we are measuring subsidization (the review period) is calendar year
1985. Based upon our analysis of the petition, the responses to our questionnaire, our verfication, and comments received
from interested parties, we determine the following:
I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of CFSC under the
following programs:
A. Income Tax Exemption for Export Earnings
Under Decree-Laws 1158 and 1721, Brazilian exporters are eligible for an exemption from income tax on a portion of income
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.
All of the respondent companies used this exemption on their corporate income tax forms filed during the review period. The
companies determined their net taxable income and deducted the exemption from that income to lower, or eliminate, their
tax liability. We multiplied the value of the exemption by the effective tax rate for each company *38255
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and allocated the sum of the
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benefits over the total value of 1985 exports to calculate an estimated net subsidy of 1.70 percent ad valorem.
B. Preferential Working-Capital Financing for Exports
The Carteira 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 provided under
Resolution 882, and also under Resolution 950, as amended by Resolution 1009. Under Resolution 643, as amended by
Resolutions 883, 950, and 1009, trading companies can obtain export financing identical to that obtained by manufacturers
under Resolution 950. Eligibility for this type of financing is determined on the basis of past export performance or an
acceptable export plan. During the review period, the maximum level of eligibility for such financing was 20 percent of the
adjusted value of exports.
Under Resolutions 882/883, the statutory interest rate on loans was 100 percent of monetary correction, plus up to three
percent interest. This rate is below our commercial benchmark for short-term loans, which is the short-term discount rate for
accounts receivable in Brazil as published in Analise/Business Trends magazine.
On August 21, 1984, Resolution 950 made these loans available from commercial
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banks at the prevailing market rates, with interest calculated at the time of repayment. Under Resolution 950, as amended by
Resolution 1009, the Banco do Brasil pays the lending institution an equalization fee of up to 15 percentage points (after
monetary correction). The lending bank passes the 15 percent equalization fee on to the borrower in the form of a reduction
of the interest due. Receipt of the equalization fee by the borrower reduces the interest rate on these working capital loans
below the commercial rate of interest. Resolution 950 loans are also exempt from the Imposto Sobre Operacoes Financeiras
(Tax on Financial Operations, or IOF), a 1.5 percent tax charged on all domestic financial transactions in Brazil.
Since receipt of working capital financing under Resolutions 882/883/950/1009 is contingent upon export performance,
and provides funds to borrowers at preferential rates, we determine that this program confers an export subsidy. During the
review period, all of the companies had loans outstanding under Resolutions 882 or 883 and 950/1009.
To calculate the benefit from this program, we multiplied the value of those loans on which interest payments were made
during the review period by the sum of: (a) The difference between the applicable interest rates and our benchmark, plus (b)
the IOF. We then allocated the benefit over the total value of 1985 exports, resulting in an estimated net subsidy of 3.43
percent.
In cases in which program-wide changes have occurred prior to our preliminary
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determination and where the changes are verifiable, the Department's practice is to adjust the duty deposit rate to
correspond more closely to the eventual duty liability. We have verified that companies no longer receive loans under the
terms of Resolutions 882 and 883, and that there are no outstanding loans under 882 and 883. Resolution 950 as amended by
1009, the directive currently in force for this financing program, provides for an "equalization fee" against commercial
interest rates as described above. Therefore, we calculated a subsidy rate for duty deposit purposes based on the interest rate
rebate provided for under Resolution 950/1009 plus the IOF exemption. The methodology used is consistent with that relied
upon in our most recent final countervailing duty determination involving Brazil where this program was found to
be used, Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from Brazil (51 FR 40837,
November 10, 1986). We multiplied the maximum percentage amount of financing for which the companies were eligible (20
percent) by the sum of the 15 percent interest rate rebate plus the IOF to arrive at an estimated duty deposit rate of 3.30
percent ad valorem.
C. Import Duty and IPI Tax Exemptions Under Decree-Law 1189 of 1971
Our examination of company documents at verification revealed that one respondent company had imported certain items
free of the normal import duty
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and the IPI tax (Imposto Sobre Produtos Industrializados, or Industrialized Products Tax--IPI). These exemptions were
granted under a provision of Decree- Law 1189 of 1971, as amended, which allows for the duty- and tax-free importation of
certain non-physically incorporated merchandise based on a percentage of a company's increase in exports.
Because these exemptions from import duty and IPI tax are contingent upon export performance, we determine that this
program constitutes an export subsidy. In order to calculate the benefit, we divided the total value of import duties and IPI
taxes not paid during the review period by the value of all exports during the review period, resulting in an estimated net
subsidy of 0.10 percent ad valorem.
II. Programs Determined Not To Be Used
We determine, based on verified information, that manufacturers, producers, ro exporters in Brazil of CFSC did not apply
for, claim, or receive benefits during the review period under the following programs which were listed in our notice of
Initiation of Countervailing Duty Investigation: Certain Forged Steel Crankshafts from Brazil (51 FR 40240,
November 5, 1986):
A. Export Financing Under the CIC-CREGE 14-11 Circular
B. Resolution 330 of the Banco Central do Brasil
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C. The BEFIEX Program
D. The CIEX Program
E. Exemption of IPI Tax and Customs Duties on Imported Capital Equipment (CDI)
F. IPI Rebates for Capital Investment
G. Accelerated Depreciation for Brazilian-Made Capital Equipment
H. The PROEX Program
I. Resolutions 68 and 509 (FINEX) Financing
J. Loans Through the Apoio o Desenvolvimento Tecnologica a Empresa Nacional (ADTEN)
K. Articles 13 and 14 of Decree Law 2303
This decree law was announced in November, 1986, and implementing regulations had not been promulgated as of the date of
our verification. We verified that the respondent companies did not use this program on corporate income tax returns filed
during the review period. If there is a subsequent administrative review in this investigation, we will investigate any use of
this program which may provide countervailable benefits.
III. Program Determined To Have Been Terminated
IPI Export Credit Premium
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Until May 1, 1985, Brazilian exporters of manufactured products were eligible for a tax credit on the IPI. The IPI export
credit premium, a cash reimbursement paid to the exporter upon the export of otherwise taxable industrial products, was
found to constitute a subsidy in previous countervailing duty investigations involving Brazilian products. After having
suspended this program in December 1979, the Government of Brazil reinstated it on April 1, 1981.
Subsequent to April 1, 1981, the credit premium was gradually phased out in *38256
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accordance with Brazil's commitment pursuant to Article 14 of the Agreement on Interpretation and Application of
Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade ("the Subsidies Code"). Under the terms of "Portaria"
(Notice of the Ministry of Finance) No. 176 of September 12, 1984, the credit premium was eliminated effective May 1, 1985.
The IPI export credit premium was terminated over one year before the initiation of this investigation and we verified in this
case that the companies ceased receiving benefits during the review period. Accordingly, we determine that this program has
been terminated, and no benefits under this program are accruing to current exports of CFSC.
Comments
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Comment 1: Regarding the Income Tax Exemption for Export Earnings program, petitioner argues that the Department
should: (a) Not deduct receipts of the IPI export credit premium from the exemption claimed by the respondent companies;
(b) use only verified effective income tax rates in our calculations; and (c) allocate the benefit over export sales to calculate
the ad valorem subsidy rate. Respondents argue that the Department should: (a) Deduct the IPI export credit premium from
the companies' adjusted profits to calculate the benefit from this exemption; (b) use effective rather than nominal tax rates to
calculate tax savings; and (c) calculate the ad valorem subsidy rate from this program by dividing benefits over total sales
because this exemption is a rebate of an indirect tax which cannot be tied to export sales.
DOC Position: Our calculation of the value of the benefit provided by the income tax exemption for export earnings is based
on the full amount claimed on the companies' income tax returns filed during the review period. The companies calculated
the amount of the exemption by adjusting net sales and multiplying by the ratio of export sales to all sales. Since the net sales
value used as a starting point in calculating the exemption includes receipts of the IPI export credit premium, the exemption
likewise includes a proportion of that amount. We are not countervailing the receipt of the IPI export credit premium itself
but rather the actual benefit accruing to the companies from the
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use of this income tax exemption, however derived. As this notice and our verification reports make clear, the companies'
receipts of the IPI export credit premium are not accruing to current exports of CFSC and have not been included in our
subsidy or duty deposit rates.
We have used only the verified effective income tax rate applicable to each company. In past Brazilian countervailing
duty investigations, we have verified that companies which make investments to lower their tax rates receive dividends
from those investments, and that the ability to make those investments is not limited to a specific enterprise or industry or
group thereof. See Final Affirmative Countervailing Duty Determination: Iron Ore Pellets from Brazil, (51 FR
21961, June 17, 1986). Therefore, when we calculate the subsidy rate from this program, we take into account the 35 percent
base tax rate and all appropriate adjustments claimed by the companies, and verified by the Department, to calculate an
effective tax rate.
Regarding respondents' other concerns, as we have stated in numerous previous Brazilian cases, when a benefit such as this
one is contingent upon exports, that program confers an export subsidy and the benefit is properly allocated over export
revenues. See e.g., Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from Brazil (51 FR
40837, November 10, 1986) (Brass Sheet and Strip from Brazil).
Comment 2. Petitioner argues that the verified interest rates for loans
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under the Preferential Working-Capital Financing for Exports program are lower than those originally submitted to the
Department and we should use verified information to value the subsidy from these loans.
DOC Position. We agree. Interest rate data provided in the questionnaire response for several loans was discovered to be
incorrect at verification. An amended response was filed and our calculations for this determination are based on verified
data.
Comment 3. Respondents argue that the Department should calculate the country- wide rate for the Preferential
Working-Capital Financing for Exports and the Income Tax Exemption for Export Earnings programs by weight-averaging the
benefit by each company's exports of the subject merchandise to the United States.
DOC Position. We disagree. We have calculated the country-wide rate for these programs using the same methodology we
have applied in past Brazilian investigations. When calculating the benefit from general export subsidy programs, such as
those at issue, where the benefits are not tied to specific shipments or products, we are not convinced that weight-averaging
would more accurately reflect the actual subsidy provided under the programs since all exports can benefit equally. This is
the first instance in any of the previous Brazilian countervailing duty investigations in which the Government of
Brazil has argued that the calculation of the coutnry-wide rate for these programs
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should be based on weight-averaging. The Government of Brazil simply states that weight-averaging would result in a
lower subsidy rate, and has cited no basis for its argument in the Act, our regulations, or economic analysis.
Comment 4. Respondents argue that the Department failed to take into account the program-wide change in the Resolution
882/883/950/1009 financing program. Respondents state that the Department should calculate a duty deposit rate based on
the current interest rates in this program, and also that the Department should not include the IOF tax exemption in the
benefit rate. Finally, respondents argue that the Department should use historical loan utilization information to calculate the
present benefit and use relevant daily or weekly interest rates, rather than an average annual rate, to determine the
alternative financing costs.
DOC Position. We agree that the duty deposit rate for this program should be based on the most recent program-wide
changes, which adjusted the interest rate benefit under Resolution 950, as amended by Resolution 1009, and our
determination reflects this.
Regarding the issues of the IOF tax exemption and the appropriate short-term benchmark, we have stated our position in
numerous past Brazilian countervailing duty investigations. See, e.g., Brass Sheet and Strip from Brazil, supra, and
Final Affirmative Countervailing Duty Determination: Certain Heavy Iron Construction Casting from Brazil (51 FR
9491, March 19,
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1986). Because the IOF tax is charged on all domestic financial transactions, it is appropriate that we include the value of the
IOF exemption when calculating the subsidy from this program. Concerning respondents' comments on our short-term
benchmark for purposes of the deposit rate, we have valued the benefit on the basis of the 15 percent maximum interest rate
differential. We consider these loans to be made on non-preferential terms absent this "equalization fee" (originating from
CACEX and passed through to the borrower by the lending bank) and the IOF exemption. Therefore, it is not necessary to
calculate a specific *38257
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benchmark, since the equalization fee of 15 percent constitutes the difference between the commerical rate and the
preferential rate.
With regard to the issue of historical loan utilization, we have based our calculation of the duty deposit rate on the companies'
maximum financing eligibility as described above under Programs Determined To Confer Subsidies. We have seen in this and
past investigations that companies may use less than complete eligibility at times. However, we have also seen eligibility
carried over from prior years, eligibility increased during the term of the proposal, and eligibility based on projected
exports. In all instances, the maximum eligibility has remained at 20 percent of adjusted exports. Therefore, we consider it
appropriate for the calculation of the duty deposit to use the 20 percent maximum eligibility level as an estimate of the
companies' potential
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duty liability.
Comment 5. Citing the legislative history of the Trade Agreements Act of 1979 (S. Rep. No. 249, 96th Cong., 1st Sess. 85-86
(1979); H.R. Rep. No. 317, 96th Cong., 1st Sess. 74-75 (1979)), petitioner argues that the duty and tax reductions on capital
equipment imports under the CDI program are "nonrecurring" subsidies in the nature of grants which provide ongoing
benefits to CFSC currently being produced and exported by the respondent companies. Accordingly, petitioner contends
that the Department should: (a) Investigate benefits received under the program over the past 15 years (the generally
accepted useful life of capital equipment), and (b) amortize those benefits over that same period consistent with our grant
methodology.
Citing Can-Am Corp. v. United States, Slip Op. 87-67, C.I.T. (June 4, 1987) and past Department determinations on the CDI
program's import duty and IPI tax exemptions, respondents argue that any of these benefits provided to the respondent
companies are tax benefits properly expensed in the year of receipt. Accordingly, import duty and IPI tax exemptions
provided to the respondent companies outside the review period are irrelevant to this investigation. Respondents also argue
that the CDI program is not limited to a specific enterprise or industry, or group thereof, and, therefore, is not
countervailable in any case.
DOC Position. Given our present understanding of this program, we determine
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that any duty and tax reductions provided by the CDI program are benefits properly allocated to the year of receipt rather
than amortized over time. Accordingly, only benefits from the CDI program received during the review period would be
countervailable in this investigation. We found no use of duty or tax reductions under the CDI program during the review
period.
The expensing of benefits received under the CDI program is consistent with our past practice for this and similar programs
in other cases (see, e.g., Final Affirmative Countervailing Duty Determination: Certain Carbon Steel Products from
Brazil (49 FR 17988, April 18, 1984)) and is supported by the recent Court of International Trade decision in Can-Am
(supra). The Can-Am case upheld the Department's longstanding practice of expensing tax benefits in the year of receipt. The
specific tax program in Can-Am involved a tax credit received for making capital investments. In the Department's
determination involved in that case, we allocated the benefit to the year of receipt rather than allocating it over the useful life
of the equipment acquired.
The tax benefits provided under the CDI program, like those at issue in Can-Am, were received after a firm made an approved
investment in plant and equipment and the firm, not the government, furnished the capital for the total investment. The
court in Can-Am, faced with the same argument as presented by petitioner in this case, specifically held that there was no
"clear legislative requirement" that the Department amortize tax benefits relating to capital
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equipment purchases. Since the circumstances of the program at issue in Can-Am are analogous to those at issue here, that
decision supports our determination on the CDI program.
Since we have determined that the CDI program was not used by the respondents in this investigation, we need not address
respondents' comments on the question of whether this program is limited to a specific enterprise or industry, or group of
enterprises or industries. Further, we note that the respondents provided no documentation pertaining to their argument on
the noncounteravailability of the CDI program until long after verification. Therefore, any such information could not have
been used in our final determination.
Verification
In accordance with section 776(a) of the Act, we verified the information used in making our final determination. During
verification, we followed standard verification procedures, including meeting with government and company officials,
inspecting documents and ledgers, and tracing information in the response to source documents, accounting ledgers, and
financial statements, and collecting additional information that we deemed necessary for making our final determination.
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Administrative Procedures
We afforded interested parties an opportunity to present information and written views in accordance with 19 CFR 355.34(a).
Written views have been received and considered in reaching this final determination.
Subsequent to this determination, the ITC will determine whether imports of CFSC from Brazil materially injure, or
threaten material injury to, a U.S. industry. If that injury determination is affirmative, we shall not issue a countervailing
duty order as long as the conditions of the suspension agreement are met. If that injury determination is negative, we will
terminate the suspension agreement and our investigation.
This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
Gilbert B. Kaplan,
Acting Assistant Secretary for Import Administration.
October 8, 1987.
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[FR Doc. 87-23891 Filed 10-14-87; 8:45 am]
BILLING CODE 3510-DS-M