Final Negative Countervailing Duty Determination: Circular Welded Non-Alloy Steel Pipe From Brazil
AGENCY: Import Administration, International Trade Administration, Department of Commerce.
EFFECTIVE DATE: September 17, 1992.
FOR FURTHER INFORMATION CONTACT: Paulo F. Mendes or Annika L. O'Hara, Office of Countervailing Investigations, Import Administration, U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone (202) 377-5050 or 377-0588, respectively.
Final Determination
The Department determines that no benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Brazil of circular welded non-alloy steel pipe from Brazil.
Case History
Since the publication of the preliminary determination (57 FR 24466 (June 9, 1992)), the following events have occurred. On June 11, 1992, the petitioners requested that this final determination be aligned with the final determination in the companion antidumping duty investigation of circular welded non-alloy steel pipe from Brazil ("standard pipe"). We published our decision to align these determinations on July 1, 1992 (57 FR 29290).
On June 25, 1992, the Department determined that it would not include two upstream suppliers, Companhia Siderurgica Nacional ("CSN") and Usinas Siderurgicas de Minas Gerais S.A. ("USIMINAS"), in its upstream subsidy analysis since a single company, Companhia Siderurgica Paulista ("COSIPA"), supplied most of the flat-rolled steel purchased by the respondent, Persico Pizzamiglio S.A. ("Persico"), during the period of investigation.
We verified the questionnaire responses in Brazil between June 22, and July 3, 1992. Case briefs were filed on August 7 and 10, 1992, and rebuttal briefs were filed on August 18, 1992.
Scope of Investigation
The merchandise subject to this investigation is circular welded non-alloy steel pipes and tubes, of circular cross-section, not more than 406.4 mm (16 inches) in outside diameter, regardless of wall thickness, surface finish (black, galvanized, or painted), or end finish (plain end, bevelled end, threaded, or threaded and coupled). These pipes and tubes are generally known as standard pipe, though they may also be called structural or mechanical tubing in certain applications. Standard pipes and tubes are intended for the low pressure conveyance of water, steam, natural gas, air, and other liquids and gases in plumbing and heating systems, air conditioning units, automatic sprinkler systems, and other related uses. Standard pipe may also be used for light load-bearing and mechanical applications, such as for fence tubing, and for protection of electrical wiring, such as conduit shells.
The scope is not limited to standard pipe and fence tubing, or those types of mechanical and structural pipe that are used in standard pipe applications. All carbon steel pipes and tubes within the physical description outlined above are included within the scope of this investigation, except line pipe, oil country tubular goods, boiler tubing, cold-drawn or cold-rolled mechanical tubing, pipe and tube hollows for redraws, finished scaffolding, and finished rigid conduit. Standard pipe that is dual or triple certified/stenciled that enters the U.S. as line pipe of a kind used for oil or gas pipelines is also not included in this investigation.
Imports of these products are currently classifiable under the following Harmonized Tariff Schedule ("HTS") subheadings: 7306.30.10.00, 7306.30.50.25, 7306.30.50.32, 7306.30.50.40, 7306.30.50.55, 7306.30.50.85, and 7306.30.50.90. Although the HTS subheadings are provided for convenience and customs purposes, our written description of the scope of this proceeding is dispositive.
Analysis of Programs
For purposes of this final determination, the period for which we are measuring subsidies (the period of investigation, "POI") is calendar year 1991, which corresponds to the fiscal years of Persico and COSIPA. Our findings are based upon our analysis of the petition, responses to our questionnaires, verification and written comments from respondents and petitioners.
A. Programs Determined Not To Confer Subsidies
We determine that no subsidies are being provided to manufacturers, producers, or exporters in Brazil of standard pipe in the form of upstream subsidies conferred upon the producers of hot-rolled carbon steel in flat-rolled coils ("flat-rolled steel"), the main input product in the production of standard pipe.
Upstream Analysis
Section 771A(a) of the Trade Act of 1930, as amended, ("the Act") defines upstream subsidies as follows:
The term "upstream subsidy" means any subsidy * * * by the government of a country that:
(1) Is paid or bestowed by that government with respect to
a product (hereinafter referred to as an "input product") that
is used in the manufacture or production in that country of
merchandise which is the subject of a countervailing duty proceeding;
(2) In the judgment of the administering authority bestows
a competitive benefit on the merchandise; and
(3) Has a significant effect on the cost of manufacturing
or producing the merchandise.
Each of the three elements listed above must be satisfied in order for the Department to determine the existence of an upstream subsidy.
1. Subsidies Bestowed Upon the Input Product
a. Government Equity Infusions
We verified that COSIPA received government equity infusions during the period 1977-1989 and in 1991 in the form of cash transfers and debt assumptions in return for equity. The equity infusions were made pursuant to the Stage III Expansion Project for the state-owned steel mills and the Financial Restructuring Plan for SIDERBRAS. We looked at the time period since 1977 because, pursuant to section 355.49(b)(3) of our Proposed Regulations (see Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments (54 FR 23366 (May 31, 1989)), "Proposed Regulations") the benefits from equity infusions shall be measured over the average useful life of renewable physical assets set forth in the U.S. Internal Revenue Service's 1977 Class Life Asset Depreciation Range System (i.e., 15 years for integrated steel mills).
We have consistently held that government provision of equity does not per se confer a subsidy (see, e.g., Steel Wheels from Brazil; Final Affirmative Countervailing Duty Determination, 54 FR 15523 (April 18, 1989) ("Steel Wheels"). Government equity infusions bestow a countervailable benefit only when provided on terms inconsistent with commercial considerations. Therefore, we examined whether COSIPA was a reasonable investment (a condition we have termed "equityworthy") in order to determine whether the equity infusions were inconsistent with commercial considerations.
A company is a reasonable investment if it shows the ability to generate a reasonable rate of return within a reasonable period of time. To make this determination, we examine a company's financial ratios, profitability and other factors, such as market demand projections and current operating results, to evaluate its current and future ability to earn a reasonable rate of return on investment. We do not, nor did we in this case, take into account the broader goals of the GOB in making these investments because such goals are not relevant to a private investor. In the Final Affirmative Duty Determination; Certain Carbon Steel Products from Brazil, 49 FR 17988 (April 26, 1984) and subsequent administrative reviews, the Department found COSIPA to be unequityworthy during the period 1977-1984. Nothing on the record of this investigation leads us to reconsider this determination.
Upon reviewing COSIPA's financial statements for the period 1985-1991, we noted that the company exhibited negative returns on equity and investment in every year except 1989. In addition, except for 1988 and 1989, the company's current ratios indicate low levels of liquidity available to pay debts. Furthermore, during the 1985-1991 period there was no meaningful indication of future profitability that might have justified the equity infusions received by the company. Therefore, we determine that equity investments in COSIPA were on terms inconsistent with commercial considerations during the period 1985 through 1991.
Where we find that the government's investment has been commercially unreasonable, we examine the "rate of return shortfall" for the POI, i.e., the difference between the national average rate of return on equity during the POI and the company's rate of return on equity during the POI. If no shortfall exists for the POI, there is no countervailable subsidy for that year. If a shortfall does exist, we multiply the rate of the shortfall by the amount of the original equity investment to find the benefit bestowed during the POI.
We measured COSIPA's rate of return on equity for the POI by dividing the company's net result achieved in 1991 by its total capital in that year. Using this methodology, we arrived at the negative rate of return on equity of 2.3 percent. We then compared COSIPA's rate to the national average rate of return on equity in Brazil for 1991, which was negative 2.0 percent according to the August 1992 edition of Exame, a Brazilian business publication. The difference between the two rates, i.e., 0.3 percent, constitutes the rate of return shortfall.
To calculate the value of the equity investment, we converted the nominal amount of each equity infusion into a BTN (Brazilian Treasury Bill) or FAP (Equity Adjustment Factor) equivalent by dividing the nominal amount received by the value of the BTN or FAP. (The BTN index was used for the years 1977-1989 and the FAP index for 1991; COSIPA did not receive any equity infusions in 1990.) In order to adjust the value of all equity infusions to December 31, 1991, we multiplied the BTN/FAP equivalents by the value of the FAP on December 31, 1991. The use of adjusted as opposed to nominal amounts for equity investments is necessitated by Brazil's hyperinflationary economy.
We multiplied the rate of return shortfall by the December 31, 1991 value of all equity investments made in COSIPA between 1977 and 1989 and in 1991. We then divided this amount by COSIPA's total 1991 sales, valued as of December 31, 1991. On this basis, we determine COSIPA's subsidy under this program to be 0.81 percent ad valorem.
Under this program, Brazilian steel producers
are eligible to receive a rebate of the IPI tax (Imposto sobre
Produtos Industrializados), which is a value-added sales tax
paid on domestic sales of industrial products. The steel producers
must meet the following conditions in order to receive IPI rebates
under this program:
(a) The company must produce liquid steel;
(b) The IPI rebate must be used to increase the production
of certain steel productions;
(c) The company must have an ongoing capital investment project,
originally approved by the Conselho do Desenvolvimento Industrial
("CDI"; the Industrial Development Council);
(d) The company must receive quarterly approval from the
Department for Industry and Commerce (a division of the Ministry
of Economy, Finance and Planning) to ensure that capital investment
in the approved project is continuing; and
(e) The company must have a net IPI tax obligation in each
quarter.
The IPI rebate program was originally established in 1977 (Decree Law 1547). Although the program was suspended in April 1990 (Law 8034), steel companies with projects approved before April 12, 1990, are eligible to continue to receive IPI rebates until 1996 pursuant to the old legislation (Law 7554).
Because only steel producers are eligible to receive IPI rebates, we determine that this program is limited to a specific enterprise or industry, or group of enterprises or industries. We have found that COSIPA received benefits under this program during the POI. To calculate the benefit, we divided the total amount of the IPI rebates received by COSIPA during the POI by the company's total sales in 1991. On this basis, we determine COSPIA's subsidy under this program to be 0.69 percent ad valorem.
2. Significant Effect
In Certain Agricultural Tillage Tools from Brazil; Final Affirmative Countervailing Duty Determination, 50 FR 34525 (August 26, 1985) ("Tillage Tools"), we established thresholds regarding the existence of a significant effect. We presume no significant effect if the ad valorem subsidy rate on the input product multiplied by the proportion of the input product in the cost of producing the merchandise accounts for less than one percent. If the result of the calculation is higher than five percent, we presume that there is significant effect. If the result is between one and five percent, there is no presumption made either way, and we will examine the effect of the input subsidy on the competitiveness of the merchandise.
For purposes of determining whether the upstream subsidies have a significant effect on the cost of producing standard pipe, we multiplied the total ad valorem subsidy rate on the flat-rolled steel input by the proportion of the total production cost of standard pipe accounted for by the input.
In this case, the input subsidy allocated to standard pipe yields a rate lower than one percent. We have, therefore, concluded that the effect of the flat-rolled steel subsidies on the cost of producing standard pipe is not significant.
Because we determined that the subsidies bestowed upon the input product did not have a significant effect upon the cost of producing the subject merchandise, we need not examine whether a competitive benefit existed. Thus, because one of the three requirements of section 771(a) of the Act has not been met, we determine that Persico did not receive an upstream subsidy.
B. Programs Determined Not To Be Used
1. Direct Subsidy Programs
a. Exemption from the IPI tax and import duties under the BEFIEX program.
b. Preferential export financing under the FINEX program.
c. Preferential export financing under the PROEX program.\
2. Upstream Subsidy Programs
a. Government privatization assistance.
b. Government provision of operating capital.
c. Fiscal benefits by virtue of a project approved by the CDI.
Comments
Comment 1: Persico alleges that the Department erroneously calculated the significant effect of the upstream subsidies on the cost of manufacturing standard pipe by multiplying COSIPA's subsidy rate by the percentage that flat-rolled steel accounts for in the cost of manufacturing standard pipe. Persico argues that, based on the Proposed Regulations, we should have used instead the percentage that the input accounts for in the total cost of production of standard pipe.
The petitioners believe that the Department should continue to use the cost of manufacturing because to do otherwise would be inconsistent with past practice, and it is in conformity with the statutory purpose. The petitioners argue that the Department's analysis should focus on the competitiveness of the final product. Since a product's competitiveness depends on its cost of manufacture, not on its cost of production, which includes items such as selling, general, and administrative expenses, it would be wrong to use the cost of production as the basis for the significance test.
DOC Position: In accordance with §355.45(e) of our Proposed Regulations, we calculated the significant effect on the basis of the cost of production. We believe that using the cost of production reflects the commercial impact of the subsidized input on the total costs of the producer of the subject merchandise and, therefore, on the eventual price charged for the subject merchandise.
Comment 2: COSIPA states that the Department departed from its previous practice when it converted the value of the infusions by using an end-of-POI index value rather than the average index value during the POI. COSIPA asserts that the purpose of using an average index value is to approximate more closely the benefit to COSIPA throughout the POI. Furthermore, COSIPA believes that the most accurate method to calculate the benefit associated with the equity infusions would be to convert the equity infusions to a beginning-of-POI value.
DOC Position: We disagree. By adjusting the amount of the equity received using an end-of-POI index and using a sales amount adjusted to the same point in time, both the amount of the equity and the sales figure are then comparably indexed. Using a beginning of the POI or middle of the POI conversion rate would be appropriate only if the sales value for the year also was expressed in beginning of the POI or middle of the POI terms.
Comment 3: COSIPA argues that the Department should exclude COSIPA's end of 1991 equity infusion from its calculation because an end-of-the-year infusion could not have had any impact on the company's sales during the POI. COSIPA believes that the Department can only measure the effect of this infusion against the company's sales in 1992.
Contrary to COSIPA's argument, the petitioners state that the Department, following its past practice, correctly included COSIPA's end of the POI equity infusion in its calculations for 1991.
DOC Position: We agree with the petitioners. It is our past practice to include all funds received during the POI and we have, therefore, included the equity infusion received by COSIPA at the end of the POI in our calculations. This reflects the cash-flow methodology which is based upon the premise that a company receives a benefit when its cash flow is affected (see Proposed Regulations, §355.48(b)(1)); Final Countervailing Duty Determination: Steel Wire Rope from India, 56 FR 46292 (September 11, 1991).
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 relevant accounting records, and examining original source documents. Our verification results are outlined in detail in the public versions of the verification reports, which are on file in the Central Records Unit (Room B-099) of the Main Commerce Building.
Termination of Suspension of Liquidation
In accordance with this final determination, we will instruct the U.S. Customs Service to terminate suspension of liquidation of all entries of standard pipe from Brazil. The U.S. Customs Service shall release any cash deposits or bonds posted on entries of standard pipe made prior to this determination.
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. 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.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to APO of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 355.34(d). Failure to comply is a violation of the APO. This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671(d)) and 19 CFR 355.20(a)(4).
Dated: September 10, 1992.
Rolf Th. Lundberg, Jr.,
Acting Assistant Secretary for Import Administration.
[FR Doc. 92-22555 Filed 9-16-92; 8:45 am]
BILLING CODE 3510-DS-M
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Countervailing duties:
Circular welded non-alloy steel pipe from-
Brazil, 42968