(Cite as: 56 FR 26988)
NOTICES
DEPARTMENT OF COMMERCE
[C-351-807]
Final Negative Countervailing Duty Determination: Silicon Metal From Brazil
Wednesday, June 12, 1991
*26988
(Cite as: 56 FR 26988, *26988)
AGENCY: Import Administration, International Trade Administration, Department of Commerce.
ACTION: Notice.
SUMMARY: We determine that no benefits which constitute countervailable subsidies are being provided to
manufacturers, producers, or exporters in Brazil of silicon metal.
(Cite as: 56 FR 26988, *26988)
EFFECTIVE DATE: June 12, 1991.
FOR FURTHER INFORMATION CONTACT:Larry Sullivan or Stephanie Hager, Office of Countervailing Investigations,
Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 377-0114 or (202) 377- 5055, respectively.
SUPPLEMENTARY INFORMATION:
Case History
Since our preliminary determination (Preliminary Negative Countervailing Duty Determination: Silicon Metal from
Brazil, 55 FR 49322 (November 27, 1990)), the following events have occurred.
We conducted verification in Brazil of the questionnaire responses of the Government of Brazil (GOB); Camargo
Correia Metais (CCM); Cia Industrial Fluminense (CIF); and, Companhia Brasileira Carbureto de Calcio (CBCC), Companhia
Ferroligas Minas Gerais (Minas Ligas), Electroila S.A., Ligas de Aluminio S.A. (LIASA), and RIMA Electrometalurgia S.A.
(RIMA) (hereafter
(Cite as: 56 FR 26988, *26988)
referred to as "CBCC et al.") from December 1 to December 16, 1990.
On January 8, 1991, we extended the deadline for the final determination in this case to correspond to the date of the final
antidumping duty determination on the same product (see Alignment of the Final Countervailing Duty
Determination With the Final Antidumping Duty Determination; Silicon Metal from Brazil, 56 FR 680 (January 8,
1991)). At that time we announced that no hearing would be held in this case because no interested parties requested one
within ten days of our preliminary determination. Petitioners and respondents filed case briefs on March 25 and
rebuttal briefs on April 1, 1991.
CCM filed submissions on January 23 and March 13, 1991, requesting that the Department narrow the scope of the
investigation. On January 28, 1991, petitioners filed a submission requesting the Department to expand the scope to
include all imports of silicon metal, other than semiconductor grade silicon metal.
Scope of Investigation
The merchandise covered by this investigation is silicon metal containing at least 96.00 percent but less than 99.99
percent of silicon by weight. Silicon metal is currently provided for under subheadings 2804.69.10 and 2804.69.50 of the
Harmonized Tariff Schedule (HTS) as a chemical product, but is commonly
(Cite as: 56 FR 26988, *26988)
referred to as a metal. Semiconductor-grade silicon (silicon metal containing by weight not less than 99.99 percent of
silicon and provided for in subheading 2804.61.00 of the HTS) is not subject to this investigation. Given that this
investigation is not limited to silicon metal used as an alloying agent or in the chemical industry, we have deleted the
sentence regarding the uses for silicon metal from the scope of this investigation. The HTS item numbers are provided for
convenience and Customs purposes. The written description remains dispositive.
Standing
In its letter dated January 23, 1991, and its case brief of March 25, 1991, CCM challenged petitioners' standing to file on
behalf of the domestic producers of the like product.
CCM maintains that petitioners do not regularly produce or sell silicon metal with a silicon content of 97.49 percent and
below. Therefore, CCM argues that silicon metal having a silicon content of less than 97.50 percent should be excluded
from this investigation because petitioners lack standing with respect to such merchandise.
The ITC has preliminarily determined that there is one like product, which includes all of the merchandise defined by the
scope of this investigation.
(Cite as: 56 FR 26988, *26988)
Silicon metal with a silicon content between 96 and 97.50 percent is within the same class or kind defined by the scope of
this investigation. An interested party is not required to produce every product within the class or kind of merchandise
included in the scope of the investigation in order to have standing. CCM does not challenge that petitioners produce
silicon metal in the higher range. Accordingly, given that petitioners, as producers of the subject merchandise, are
interested parties filing on behalf of the domestic industry, we have determined that petitioners have standing.
Hyperinflationary Economies
In analyzing the date relating to the benefits received by silicon metal producers in Brazil, it was apparent that the
benefits from the CACEX, SUDENE and Income Tax Reduction for Export Earnings programs were clustered in one part of
the review period. In a hyperinflationary economy, such as Brazil's was during the review period, this clustering can
distort the measurement of benefits received by the firms. Specifically, the value of a benefit received earlier in the year
would tend to be understated while the value of a benefit received later in the year would tend to be overstated. By way of
contrast, if benefits and sales were distributed evenly throughout the year, the distortion would be minimal. In this case,
since the benefit from each program is
(Cite as: 56 FR 26988, *26988)
clustered in the early part of the year, and sales are not clustered, a methodology which corrects for this distortion is
needed.
To accomplish this, we used the OTN/BTN (Obrigacoes do Tesouro Nacional/Bonus do Tesouro Nacional) index to
counteract the effects of hyperinflation and more accurately meaure the value of the benefit. The OTN/BTN index is a
national treasury bond index that is widely used in the Brazilian economy for various accounting and financial purposes to
convert nominal values into constant values. The OTN index was the official index until January 16, 1989, at which time it
was replaced by the BTN index. On this date, the currency changed from the cruzando to the new cruzado. For purposes of
this notice, we will refer to the official index as the OTN/BTN index even though only one was the official index at any
particular time. As described in greater detail below, we used the OTN/BTN index to compute benefits and sales values in
constant new cruzado amounts and, in turn, used these constant new cruzado amounts to culculate the ad valorem
benefits.
Analysis of Programs
For purposes of this investigation, the period for which we are measuring subsidies ("the review period") is calendar year
1989, which corresponds to the most recently completed fiscal year for all of the respondent companies.
(Cite as: 56 FR 26988, *26988)
Based upon our analysis of the petition, responses to our questionnaires, verification, and written comments from
respondents and petititoners, we determine the following:
I. Programs Determined to be Countervailable
We determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of silicon metal
under the following programs:
*26989
(Cite as: 56 FR 26988, *26989)
A. Income Tax Reduction for Export Earnings
(This program was referred to in our preliminary determination as Income Tax Exemption for Export Earnings.)
Under this program, profits from export sales are taxed at a rate of three percent while profits from domestic sales are
taxed at a rate of 30 percent. Because this program provides a lower income tax rate for export earnings, we determine
that it is countervailable.
We calculated the benefit for each company by subtracting the tax actually paid for the tax that would have been paid by
that firm absent the lower tax rate for export profits. In order to calculate the tax that would have been paid, we took profit
attributable to exports, indicated on the tax forms and
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donominated in OTN/BTN, and applied the effective tax rate for each company. We then deducted from that figure the
actual amount of tax paid on export profits, which is also indicated on the tax form and denominated in OTN/BTN.
For the denominator, we used total exports (See Comment 4) converted into OTN/BTN using the average OTN/BTN rate for
1989. We divided the tax savings by total exports to determine each company's ad valorem rate. We then weight- averaged
the individual benefit, by each company's share of total exports of the subject merchandise to the United States. On this
basis, we preliminarily determine the benefit from this program to be 0.17 percent ad valorem for all manufacturers,
producers, and exporters of silicon metal in Brazil.
At the preliminary determination, we assigned CCM a rate based on the best information available for this program. We
have since verified that CCM's taxable profit was attributable to financial operations and sales of non- subject merchandise,
and, hence, it did not benefit from this program.
We also verified that, on December 28, 1989, by Law No. 7988, the tax rate on income attributable to export sales
increased to 18 percent for the 1990 tax year. On April 12, 1990, by Law No. 8034, the tax rate on income attributable to
export sales increased to 30 percent for the 1991 tax year. As a result of the most recent change, all income is taxed at the
same rate.
B. CACEX Loans
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On May 2, 1985, Resolution 1009 made CACEX working capital financing available to exporters through commercial banks
at prevailing market rates. The loans have a term of one year or less, with interest due at maturity. While borrowers were to
pay market interest rates, the Central Bank of Brazil was authorized to pay the lending institution an "equalization fee,"
or rabate, of up to 15 percentage points, which the lending institution could pass on to the borrowers. On December 1,
1988, by Resolution 1538, CACEX reduced the equalization fee to 7.5 percentage points. The equalization fee is passed on
to borrowers at the time interest is paid on the loan.
In addition, CACEX short-term loans are exempt from the "Imposto Sobre Operacoes Financeiras" (IOF). The IOF is a
general tax of 0.0041 percent per day (or 1.5 percent per annum) of the sum total of daily debt balances, imposed on the
principal of all financial transactions in Brazil. The tax is calculated on the final day of each month and paid on the
tenth day of the following month.
Because the equalization fee and the exemption from the IOF results in the provision of preferential export financing at
perferential rates only to exporters, we determine that these loans are countervailable. The benefit from these loans is
equal to the equalization fee plus the amount of the IOF exemption.
(Cite as: 56 FR 26988, *26989)
To calculate the level of subsidies received during the review period from the equalization fee, we multiplied the loan
principal, adjusted for monetary correction, by the equalization fee rate to yield an amount denominated in cruzados. We
multiplied that amount by the term of the loan divided by 365 days, as the equalization fee applies annually. The resultant
cruzado benefit was divided by 1000 (to convert into new cruzados) and then converted into OTN/BTN at the rate in effect
on the day the equalization fee was received.
We calculated the benefit from the IOF exemption by applying the tax rate of 0.0041 percent per day to the principal
amount of the loan for the number of days of the month the loan was outstanding. The resultant cruzado exemption was
devided by 1000 (to convert into new cruzados) and then converted into OTN/BTN using the rate in effect on the tenth day
of the following month; this is the day that the IOF is normally paid.
For the denominator, we converted each firm's total export figure into OTN/BTN by dividing total exports by the average
OTN/BTN rate for 1989. We then summed the total OTN/BTN benefit from the equalization fee and the IOF exemption for
each firm and divided the benefit by each firm's OTN/BTN denominated total exports. We weight-averaged the individual
benefits by each company's share of total exports of the subject merchandise to the United States. On this basis, we
determine the benefit from this program to be 0.24 percent ad valorem for all manufacturers, producers, and exporters of
silicon metal in Brazil.
(Cite as: 56 FR 26988, *26989)
We verified that, on August 30, 1990, Resolution 1744 revoked Resolution 950, thereby terminating this program.
C. SUDENE
This program was not included in the Department's preliminary determination because it was discovered during
verification. Under this program, companies which locate in the Northeast of Brazil are eligible for exemption from
income tax for production attributable to SUDENE-approved projects. The intent of this program is to encourage
development of this region of Brazil. Because this exemption is only available to companies located in a specific region
of Brazil, we find this to be a countervailable domestic subsidy.
The amount of tax exempted due to this program can be found on a company's tax returns denominated in OTN/BTN. The
benefit is equal to the amount of the exemption.
Because this is a domestic subsidy, the appropriate denominator is total sales. In order to convert the verified new cruzado
total sales figure into OTN/BTN, we divided total sales by the average OTN/BTN rate for 1989.
We divided the benefit received by each company by total sales of each company to calculate each company's ad valorem
subsidy. We then weight-averaged the individual benefits by each company's share of total exports of the subject
(Cite as: 56 FR 26988, *26989)
merchandise to the United States. On this basis, we determine the benefit from this program to be 0.08 percent ad valorem
for all manufacturers, producers, and exporters of silicon metal in Brazil.
II. Programs Determined to be Not Used
We determine that the following programs were not used by manufacturers, producers or exporters of silicon metal in
Brazil during the review period. For a full description of these programs, see our preliminary determination.
A. Benefits Provided by the Commission for Granting of Fiscal Benefits to Special Export Programs (BEFIEX). We verified
that this program was terminated by Decree Law 8032 dated April 12, 1990.
B. Export Financing Provided by the Fundo de Financiamento a Exportacao (FINEX). We verified that this program was not
reinstated within two years of the passage of the new Brazilian Constitution, as was required by law.
*26990
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C. Financing for the Storage of Merchandise Destined for Export (Resolution 330 of the Central Bank of Brazil). We
verified that this program was terminated by Resolution 1744, dated August 30, 1990.
D. Export Promotion Financing Provided Under the Programa de Financiamento a Producao para a Exportacao (PROEX).
We verified that the Department administering this program was abolished and found no evidence that the program
(Cite as: 56 FR 26988, *26990)
currently exists.
III. Program Determined Not to Exist
We determined that the following program does not exist.
A. Provision of Electricity at Preferential Rates to Silicon Metal Producers Located in Minas Gerais. Petitioners allege that
the GOB provides electricity at preferential prices to manufacturers, producers and exporters of silicon metal in Brazil.
According to information gathered at verification, the silicon metal producers under investigation paid normal published
rates for all electricity consumed and we found no evidence of the existence of any schedule of preferential electricity
rates.
Final Determination
The total ad valorem benefits received by Brazilian manufacturers, producers and exporters of silicon metal equal 0.49
percent. This amount is de minimis, and pursuant to 19 CFR 355.7, we determine that exports of silicon metal from
Brazil are not receiving benefits which constitute countervailable subsidies.
Interested Party Comments
(Cite as: 56 FR 26988, *26990)
Comment 1
Petitioners argue that the denominators used to calculate ad valorem benefits (e.g., 1989 total exports, 1989 total sales)
should be adjusted to account for inflation in Brazil. Petitioners believe that, in an inflationary economy like
Brazil's, it is inappropriate to compare the benefit received in April from income tax programs to the value of a firm's
exports at year-end because such a comparison results in an understatement of the benefit. Petitioners suggest that the
Department either (1) convert the tax benefit into dollars if exports are already denominated in dollars and divide the
benefit by total exports, (2) determine the value of respondents' exports in OTN/BTN and divide the tax benefit expressed
in those same terms by exports, or (3) divide the tax benefit, converted into Brazilian currency on April 15, by the value of
exports adjusted for inflation to arrive at an April 15 export value. Any of these methods, petitioners argue, would serve to
negate the effects of inflation.
Petitioners maintain that a similar method should be employed in order to calculate a proper denominator for the CACEX
benefits. The year-end denominator value would be adjusted for the average inflation rate for the year. Petitioners contend
that these adjustments are consistent with Departmental practices in hyperinflationary economies. See Final Affirmative
(Cite as: 56 FR 26988, *26990)
Countervailing Duty Determination; Steel Wheels from Brazil, 54 FR 15523, 15226 (April 18, 1989).
CBCC et al. argue that the Department did, in fact, index the tax benefits using OTN/BTN. When the liability is computed, it
is converted to OTN/BTN. It is then converted into Brazilian currency at the rate effective at the time the return is filed.
Since the benefit is received in Brazilian currency at the time of filing, inflation acts upon the benefit and reduces it. The
Department's methodology results in a lower benefit due to inflation but, CBCC et al. argue, this reflects actual expenses.
CBCC et al. suggest that petitioners' method, if carried to the extreme, would necessitate calculating a subsidy rate for each
day during the review period and weight-averaging the results.
DOC Position
Under the circumstances present in this case, we agree with petitioner that the method of calculating subsidy rates needs
to account for hyperinflation. We disagree with CBCC et al. that converting the OTN/BTN tax liability into new cruzados on
the day of filing fully accounts for hyperinflation. See the Hyperinflationary Economies and Analysis of Programs sections
of this notice for further discussion of the methodologies employed.
(Cite as: 56 FR 26988, *26990)
Comment 2
CBCC et al. argue that the Department should not countervail benefits under the SUDENE program. They state that these
benefits are available to a wide range of industries and for a large area of Brazil, as well as being consistent with the
GATT and the Subsidies Code. They assert that Article XVI of the GATT and Articles 11 and 14 of the Subsidies Code permit
signatories to implement programs in order to encourage regional development. Citing Final Affirmative
Countervailing Duty Determination: Fresh and Chilled Atlantic Salmon From Norway, 56 FR 7678, 7679 (February
25, 1991) (Salmon), CBCC et al. argue that the Department's past practice of countervailing regional development programs
is in error. They contend that the Department is wrong to recognize the aims of regional development programs and,
nevertheless, countervail these programs. CBCC et al. contend that any reduction in tax liability resulting from
participation in the program must be reinvested in the company (i.e., the funds are conditionally available) and, therefore,
does not constitute a countervailable benefit.
Petitioners allege that the Department should find these benefits under the SUDENE program to be countervailable.
Petitioners cite Salmon to support their contention that the SUDENE program is countervailable because benefits are
(Cite as: 56 FR 26988, *26990)
given to companies located in a certain region of Brazil. Petitioners reject respondents' argument that the program
should not be considered a countervailable subsidy because it covers a wide area of Brazil, contending that the
Department has countervailed regional programs that covered large areas of a country (see Salmon). Petitioners again rely
upon Salmon to argue that the Department has consistently rejected respondents' assertion that SUDENE is consistent with
the GATT and the Subsidies Code. Petitioners finally assert that respondents' claim that because this benefit is conditioned
upon it being reinvested in the company it is not countervailable, is groundless. Petitioners contend that the company can
invest the benefit and will reap the rewards from such investment.
DOC Position
The Department agrees with petitioners. In Salmon, the Department addressed and rejected similar arguments regarding
regional subsidies. The Department's determination that the SUDENE program is countervailable because it provides
benefits only to companies located in specific regions is entirely consistent with U.S. obligations under the GATT and the
Subsidies Code. Part I of the Code relates to signatories' obligations with respect to the conduct of countervailing duty
investigations and the imposition of countervailing
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measures. None of the conditions attached to the imposition of countervailing measures in part I requires signatories to
take account of the objectives noted in article 11 or to otherwise accord domestic subsidies any special treatment.
Therefore, we determine that since these tax exemptions are granted on the basis of region, benefits received under the
*26991
(Cite as: 56 FR 26988, *26991)
SUDENE program constitute countervailable domestic subsidies.
Comment 3
Petitioners contend that respondents' failure to provide tax returns to the Department before verification prevented the
Department from identifying benefits under the SUDENE program and incorporating them into the preliminary
determination. Petitioners argue that the Department should further investigate the SUDENE program to determine
whether other benefits exist. They allege that the GOB's submissions for this program are incomplete, this program may be
tied to exports, and evidence exists that other tax benefits may be received by participatory companies.
CBCC et al. argue that the Department had information on the SUDENE program from previous cases and did not ask for
information on the program in this case. In addition, they assert that petitioners had access to information on this program
at the time the petition was filed. Furthermore, CBCC et al.
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argued that although petitioner refers to the respondent's failure to provide tax returns to the Department before
verification, Commerce has consistently taken the position that tax returns are more appropriate as verification exhibits,
citing Final Affirmative Countervailing Duty Determination: Certain Textile Mill Products and Apparel from
Malaysia 50 FR 9852, 9857 (March 12, 1985). CBCC et al. also argued that, as exhibited during verification, no export
commitment is required for this program.
DOC Position
We reject petitioners' request that we further investigate this program in this proceeding. Upon discovering this program
during verification, we requested and received information adequate to measure the benefits received.
Comment 4
Petitioners argue that the Department erroneously used total exports as the denominator to calculate the benefit from the
Income Tax Reduction for Export Earnings program. Petitioners contend that since certain exports (i.e., "eligible exports")
qualify for the lower tax rates while other exports do not, the ad valorem benefit from this program should be calculated
using eligible
(Cite as: 56 FR 26988, *26991)
exports in the denominator unless the Department has verified that all exports in the review period qualified as eligible
exports. Petitioners cite Final Affirmative Countervailing Duty Determination; Iron Ore Pellets from Brazil, 51
FR 21961, 21967 (June 17, 1986) ("Iron Ore Pellets") where the Department used only exports eligible for this benefit in the
denominator. Petitioners requested before verification that the Department verify data concerning eligible exports.
CBCC et al. assert that this program is based on the allocation of profit between total sales and export sales. According to
CBCC et al., Iron Ore Pellets does not refer to the same program as the income tax program in this investigation. Because
iron ore pellets constitute a mining product, CBCC et al. argue that iron ore pellets were subject to tax rules different from
those for silicon metal. Further, the methodology used by the Department in its preliminary determination, in which it
used export sales in the denominator, is consistent with past cases.
DOC Position
We agree with CBCC et al. that the tax program discussed in Iron Ore Pellets was a different program involving different
conditions for the receipt of benefits. In that case, some products were eligible for benefits while other
(Cite as: 56 FR 26988, *26991)
products were not. Here, all products can potentially benefit from the export tax program. Therefore, the appropriate
denominator for calculating the ad valorem subsidy rate is total exports.
Comment 5
Petitioners contend that the Department should not adjust for contributions of taxes due to the FINOR/FINAME funds in
calculating the effective tax rates. In the preliminary determination, these adjustments had no effect on the calculation of
the benefit. However, if the amount of the tax saving is greater than zero but less than the amount of contribution to the
special funds, then this adjustment reduces the benefit when, in fact, the benefit is not reduced. According to petitioners,
these contributions are merely tax payments made to a recipient other than the GOB and they should not be accorded
special treatment results in the Department's calculations when such treatment results in an inappropriate understatement
of the benefit.
CBCC et al. contest petitioners' claims. They state that the Department's methodology in its preliminary determination, in
which an adjustment was made for contributions to the FINOR/FINAME funds, is correct and consistent with previous
determinations. See, e.g., Certain Cotton Yarn Products from Brazil; Final Results of Countervailing Duty
Administrative Review, 55 FR 28269 (July
(Cite as: 56 FR 26988, *26991)
10, 1990). The Department is now able to calculate the tax savings by deriving the effective tax rate directly from the
company tax returns. CBCC et al. assert that Brazilian taxpayers receive value for their contributions to these funds.
Therefore, CBCC et al. contend, the Department should continue to reduce the effective tax rate to reflect contributions to
these funds.
DOC Position
We agree with CBCC et al. Payments into those funds reduce the taxes owed and, hence, lead to a lower effective tax rate.
Therefore, we reduced the gross tax liability by the amount of the contributions to these funds in order to calculate each
firm's effective tax rate.
Comment 6
Petitioners allege that the Department used an inappropriate OTN/BTN adjustment at the preliminary determination for
the Income Tax Reduction for Export Earnings program. This adjustment, submitted by respondents, is not fully explained
and understates the benefits received under this program. Petitioners contend that the Department must increase the
Brazilian currrency value of the benefit to reflect the increased value of the tax from when it was
(Cite as: 56 FR 26988, *26991)
owed (December) to when it was paid (April). Petitioners contend that the proper conversion factor, which also accounts
for the change in currency from cruzado to new cruzado, should be 0.002447.
CBCC et al. argue that the Department's methodology in the preliminary determination is consistent with that used in
previous cases involving Brazil. The Department considers when benefits are actually received (i.e., when the tax
return is filed). CBCC et al. agree with petitioners that the Department has indexed the benefit in previous investigations,
but only because the value, in Brazilian currency, cannot be determined until the tax return is filed, not because the value
of the benefit is eroded.
DOC Position
As explained in the Analysis of Programs section of this notice, we have taken the tax benefits expressed in OTN/BTN as the
numerator for these calculations. Therefore, there is no need to convert them into new cruzados as requested by the
petitioners.
Comment 7
Petitioners argue that the Department's verification indicated that the ratio
(Cite as: 56 FR 26988, *26991)
of LIASA's exports to its total *26992
(Cite as: 56 FR 26988, *26992)
sales was erroneously reported by LIASA and the GOB. Accordingly to the petitioners, this error affects the calculation of
LIASA's benefits under the Income Tax Exemption for Export Earnings program. Petitioners argue that the Department
should recalculate the amount of LIASA's benefit under this program, using the verified percentage of LIASA's sales
attributable to exports.
DOC Position
The Department verified actual amount of tax savings due to the SUDENE and/or the Income Tax Reduction for Export
Earnings program. LIASA's actual exports to sales ratio is implicit in the calculations required on the tax returns which
determine the amount of tax savings. Therefore, the verified figures have been used.
Comment 8
According to petitioners, the Department's verification revealed that CBCC's reported amount of 1988 taxable profit was
understated. Petitioners argue that because the amount of taxable profit subject to the preferential tax rate on export
earnings is determined by applying the ratio of export sales to total
(Cite as: 56 FR 26988, *26992)
sales to total taxable profit, the understatement of taxable profit led to an understatement of the amount of benefit enjoyed
by CBCC in the Department's preliminary determination. Therefore, according to petitioners, the Department should
recalculate the amount of benefit received by CBCC under the Income Tax Exemption for Export Earnings Program using
CBCC's verified 1988 taxable profit.
DOC Position
As noted above in Comments 6 and 7, the Department is using actual amounts of exempt taxes reported on the companies'
tax returns. Therefore, CBCC's correct taxable profit has been accounted for in our calculations.
Comment 9
CBCC et al. argue that the Department verified that the Income tax Exemption for Export Earnings has been eliminated and
that there are no current countervailable benefits provided to the respondents under this program. According to CBCC et
al., this constitutes a program-wide change prior to the Department's preliminary determination. Therefore, this program
should not be included in any final determination regarding the product under investigation.
(Cite as: 56 FR 26988, *26992)
Citing Final Affirmative Countervailing Duty Determination; Certain Forged Steel Crankshafts from Brazil, 52 FR
38254 (October 15, 1987), petitioners concede that in certain circumstances, when setting deposit rates, the Department
has taken account of program-wide changes in subsidy programs that are verified and occurred prior to the preliminary
determination. According to petitioners, however, in the circumstances of this case, the Department should not take into
account the program-wide change. Petitioners argue that respondents have not shown that the distinction between export
and domestic earnings has been eliminated from Brazilian tax law, but only for tax year 1990 (1991 returns). Citing Final
Negative Countervailing Duty Determination; Industrial Belts and Components and Parts Thereof, Whether Cured or
Uncured, from the Republic of Korea, 54 FR 15513, 15517 (April 18, 1989), petitioners also argue that the Department
should not set a zero deposit rate for this program unless it verfifies from respndents' tax returns that no benefits under the
program are being received.
DOC Position
Because our final determination in this investigation, based on benefits received during the review period, is negative, the
issue of program-wide change and its affect on the deposit rates is moot.
(Cite as: 56 FR 26988, *26992)
Comment 10
CBCC et al. state that Commerce has historically treated the Income Tax Exemption for Export Earnings incorrectly as an
export subsidy. According to CBCC et al., this tax exemption is not an export subsidy because a direct tax rebate cannot
logically be an export subsidy. CBCC et al. explain that the Brazilian tax exemption applies to profits, not specific sales,
derived from all sources and therefore, should not be attributed as a tax savings benefit solely to export sales. In addition,
CBCC argues that should the Department conclude that this program bestows an export subsidy, it cannot include benefits
on sales to third countries in its calculation. According to CBCC et al., while the Department has broad discretion in
constructing the precise method of calculating the net subsidy, the law, its legislative history, and past administrative
decisions clearly indicate that the focus of calculating a net subsidy should be to determine the amount by which products
imported into the United States benefit from a given subsidy. Therefore, CBCC et al. maintain that attributing tax savings
which benefited domestic sales or third country sales to U.S. imports is clearly beyond the authority of the Department.
CBCC et al. argue that the Department must determine that since all of the sales of the company benefit from the general
reduction of corporate
(Cite as: 56 FR 26988, *26992)
tax liability, that benefit must be allocated to the total sales of the corporation as opposed to exports alone.
According to petitioners, CBCC et al.'s argument has been rejected repeatedly by the Department. In particular, petitioners
cite Certain Carbon Steel products from Brazil; Final Results of Countervailing Duty Administrative Review, 52
FR 829 (January 9, 1987) where the Department stated that when the amount of benefit received under a program is tied
directly or indirectly to a company's level of exports, that program is an export subsidy.
DOC Position
We have consistently treated this program as an export program because the reduction in tax liability is applicable to
export income only. See e.g., Certain Scissors and Shears from Brazil; Final Results of Administrative Review of
Countervailing Duty Order 47 FR 10266 (March 10, 1982). It is the Department's position that when a firm must
export to be eligible for benefits under a subsidy program, and when the amount of the benefit received is tied directly or
indirectly to the firm's level of exports, that program is an export subsidy. Respondents have not provided any information
that would merit reconsideration of the Department's methodology.
(Cite as: 56 FR 26988, *26992)
Comment 11
Petitioners allege that the Department incorrectly calculated the benefit from the CACEX working capital loan program. In
the preliminary determination, the Department calculated the benefit by multiplying the principal, in Brazilian currency,
by the interest differential of 15 percent. That figure was then multiplied by the term of the loan divided by 365. In its
verification report, the Department stated that interest is calculated by applying a real interest rate to the principal
amount which is indexed to a government bond neutral to the effects of Brazilian inflation. This amount is then converted
back at the prevailing rate to Brazilian currency on the day of maturity of the loan. The different method reported in the
Department's verification report would result in a greater benefit than was calculated in the preliminary determination.
The Department should use a methodology consistent with its verification report if the report is accurate.
*26993
(Cite as: 56 FR 26988, *26993)
CBCC et al. state that the Department used the correct methodology in its preliminary determination for calculating
benefits accuring from this program. The maximum interest differential that can be received is 15 percent. CBCC et al.
argue further that since this program was eliminated by Resolution 1744 prior to the preliminary determination, and
respondents currently receive no benefits from this program, this program no longer
(Cite as: 56 FR 26988, *26993)
provides a subsidy and should be listed as terminated in the final determination.
DOC Position
According to our verification report, government officials did state that CACEX loans were indexed and a real interest rate
was applied to the OTN/BTN denominated principal, and the resultant interest, valued in OTN/BTN, was converted into
Brazilian currency upon maturity. However, upon analyzing the CACEX loan contracts of the companies which benefited
from this program, we discovered that the nominal principal was adjusted by the change in the OTN/BTN index between
the date of the loan and the date of maturity and an interest rate, which was freely negotiated between the bank and the
company, was applied to this corrected principal amount. Therefore, we have adjusted our calculations to reflect this
process.
With respect to CBCC's comment, we have stated our finding that the program was terminated.
Comment 12
CBCC et al. oppose the Department's determination concerning the exempted IOF
(Cite as: 56 FR 26988, *26993)
tax on CACEX loans. In its preliminary determination, the Department found the exemption of these loans from the IOF tax
to be a countervailable subsidy. However, these loans are used to purchase inputs which, according to the terms of the
program, must be incorporated in a product to be exported. Therefore, CBCC et al. argue this is an indirect tax on inputs
physically incorporated into exported goods, and does not constitute a countervailable subsidy under the GATT or U.S.
countervailing duty law (see Zenith Radio Corp. v. United States, 437 U.S. 443 (1979)). Furthermore, they argue,
the Department has verified that this exemption is available to a wide-range of loans including, for example, housing,
infractructure and small business loans. As such, the Department should conclude that this exemption is generally
available.
Petitioners claim that because the verification report states that interest is calculated on the principal amount indexed in
OTN/BTN and converted to Brazilian currency on the day of maturity, then the IOF tax exemption must be calculated in
the same way, i.e., as a percentage applied to the indexed principal amount then converted into Brazilian currency at the
rate prevailing on the last day of each month the loan is outstanding. The resulting exemption would be appreciably
greater than that calculated by the Department in its preliminary determination. Petitioners also contest the claim of CBCC
et al. that the IOF tax is an indirect tax on inputs to be incorporated in goods which are exported. They cite Certain Cotton
Yarn Products From Brazil; Final
(Cite as: 56 FR 26988, *26993)
Results of Countervailing Duty Administrative Review, 55 FR 3443 (February 1, 1990) to demonstrate that the
Department has consistently rejected this argument.
DOC Position
We agree, in part, with petitioners. It is the Department's position that although the IOF is an indirect tax paid on financial
transactions, it is not an indirect tax on a physical input of the exported product. See, e.g., Pig Iron from Brazil;
Final Results of Administrative Review of Countervailing Duty Order 53 FR 9923 (March 16, 1984). It is
proper to include the exemption from the IOF for CACEX loans as part of the measurement of the benefit from this
program.
We reject CBCC et al.'s claim that the IOF exemption is generally available. The IOF exemption is a benefit tied to
participation in the CACEX program, which is a program contingent upon exports. Had the firms obtained working capital
loans outside the context of this program, they would not have received this exemption.
We reject petitioners' contention that the IOF exemption should be applied to an indexed principal amount. We verified
that the IOF tax is applied to the nominal principal amount of the loan.
(Cite as: 56 FR 26988, *26993)
Comment 13
Petitioners allege that CCM received a countervailable tax benefit in addition to those previously alleged. Though the tax
return on which the alleged tax benefit was claimed falls outside of the review period, petitioners state that it would be
proper for the Department to use this tax return.
Citing Final Negative Countervailing Duty Determination; Certain Granite Products from Italy, 53 FR 27197, 27205
(1988), CCM rejects the petitioners' allegations as untimely. CCM states that petitioners were aware of this tax benefit
before the preliminary determination but did not mention it until their case briefs. CCM cites the Department's regulations
(19 CFR 355.31(c)(1)(i)) (1990) which require new subsidy allegations to be submitted not later than 40 days before the
preliminary determination. In addition, CCM argues that because the tax return cited by petitioners falls outside of the
period of review, it received no benefits during the time period for this investigation.
DOC Position
Because the Department collected the information on this alleged benefit
(Cite as: 56 FR 26988, *26993)
(i.e., the tax form) during verification, petitioners were justified in attempting to bring this alleged benefit to the attention
of the Department. Therefore, petitioners' claim is not untimely. We reject petitioners' argument, however, on the basis
that any alleged benefit would have been received by CCM after the review period.
Comment 14
Petitioners request that the Department expand the scope to include all imports of silicon metal, including those with less
than 96 percent silicon. Petitioners allege that importers are circumventing duty deposit requirements by adding
aluminum to the silicon metal to bring it below the 96 percent threshold. Aluminum is not an impurity in silicon metal,
petitioners argue, when the silicon metal is used in primary or secondary aluminum production. They argue that their
petition did not specify a minimum silicon content nor does the HTS category listed in the petition. Furthermore, silicon
metal with less than 96 percent silicon falls within the class or kind of merchandise if the Department's five part test is used
(See Diversified Products Corporation v. United States 6 CIT 155, 572 F. Supp. 883 (1983). Moreover, even if this
merchandise did not fall in the same class or kind of merchandise, the Department would still have the authority to expand
the scope to prevent
(Cite as: 56 FR 26988, *26993)
circumvention.
CCM argues that petitioners have interpreted the tariff classification incorrectly. The HTS category lists no minimum
silicon content but its predecessor category in TSUSA did state a minimum of 96 percent. Citing, for example, Certain
Sulfur Chemicals from the United Kingdom, 55 FR 32119 (August 7, 1990), CCM asserts that the Department lacks the
authority to expand the scope in a countervailing duty case to include merchandise which has not been accorded an
ITC affirmative preliminary injury *26994
(Cite as: 56 FR 26988, *26994)
determination. CCM further argues that petitioners' request is untimely. Petitioners should have appealed the Department's
decision to the CIT within thirty days after publication of the initiation notice in the Federal Register. CCM cites Republic
Steel Co. v. United States, 544 F. Supp. 901 (Ct. Int'l Trade 1982). CCM states that application of the Department's five part
test is irrelevant because petitioners were aware that silicon metal containing less than 96 percent silicon existed at the
time the investigation commenced. CMM cites PPG Industries, Inc. v. United States, Slip Op. 91-17 (March 11, 1991), in
which the CIT held that application of the five part test to determine whether merchandise falls within the scope is
appropriate only for products that have been modified after the investigation commences.
CBCC et al. likewise oppose petitioners' request for an expansion of the scope. CBCC et al. assert that the document
submitted by petitioners as
(Cite as: 56 FR 26988, *26994)
proof of circumvention by a Peoples Republic of China entity producing or importing silicon metal is dubious. Since the
names of both the sender and the receiving party have ben blocked out, there is no way for the Department to authenticate
this submission. The Department either should have rejected this submission or required more evidence from petitioners.
Furthermore, CBCC et al. argue, the Department cannot expand the scope of the investigation and subject the relevant
merchandise to countervailing duties unless the ITC has issued a preliminary affirmative injury determination in
regard to that merchandise (see Badger-Powhatten, Div. of Figgie v. United States, 608 F. Supp. 653, 656 (Ct. Int'l Trade
1985)). CBCC et al. concur with CCM that this allegation is untimely. The Department, they contend, has already issued its
preliminary determination and conducted verification. See Certain Internal Combustion, Industrial Forklift Trucks from
Japan, 53 FR 12552 (1988).
DOC Position
We have determined to leave the description of the scope of this investigation unchanged. Prior to defining the scope of
this investigation, we considered information from the petition, the Bureau of Mines, and the Customs Service. This
information clearly indicates a common commercial meaning for silicon metal as a product with a silicon content between
96.00 and 99.99 percent.
(Cite as: 56 FR 26988, *26994)
However, we have seen evidence that certain parties are selling or offering for sale merchandise containing less than 96
percent silicon and calling that product "silicon metal." Given the significant disparity in apparent value between the below
96 percent and above 96 percent "silicon metal," we are unable to conclude, based on the information before us, that the
less than 96 percent product is of the same class or kind as the above 96 percent product.
Verification
In accordance with section 776(b) of the Act, we verified the information used in making our final determination. We
followed standard verification procedures, including meeting with government and company officials, inspecting internal
documents and ledgers, tracing information in the responses to source documents, accounting ledgers and financial
statements, examination of original source documents and collecting additional information that we deemed necessary for
making our final determination. Our verification results are outlined in detail in the public version of the verification
report, which is on file in the Central Records Unit (room B-099) of the Main Commerce Building.
Critical Circumstances
(Cite as: 56 FR 26988, *26994)
Petitioners allege that "critical circumstances" exist with respect to imports of silicon metal from Brazil. Section
703(e)(1) of the Act provides that critical circumstances exist if there is a reasonable basis to believe or suspect that:
(A) The alleged subsidy is inconsistent with the Agreement, and
(B) There have been massive imports of the class or kind of merchandise which is the subject of the investigation over a
relatively short period.
In the preliminary determination, we determined that no critical circumstances existed because no benefits which
constitute countervailable subsidies were being provided to manufacturers, producers, or exporters in Brazil of silicon
metal. Therefore, no subsidies existed which were inconsistent with the Agreement.
For purposes of the final determination, we likewise find no benefits which constitute countervailable subsidies. Therefore,
we find critical circumstances do not exist with respect to the subject merchandise from Brazil.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making
available to the ITC all nonprivileged and nonproprietary information relating to this investigation.
(Cite as: 56 FR 26988, *26994)
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, without the written
consent of the Deputy Assistant Secretary for Investigations, Import Administration.
This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671d(d)).
Dated: June 5, 1991.
Eric I. Garfinkel,
Assistant Secretary for Import Administration.
[FR Doc. 91-13980 Filed 6-11-91; 8:45 am]