57 FR 42980
NOTICES
DEPARTMENT OF COMMERCE
(C-351-812)
Preliminary Affirmative Countervailing Duty Determination; Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Brazil
Thursday, September 17, 1992
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AGENCY: Import Administration, International Trade Administration, Department of Commerce.
EFFECTIVE DATE: September 17, 1992.
FOR FURTHER INFORMATION CONTACT: Philip Pia or Laurel Lynn, Office of Countervailing Compliance, U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 377-1168, respectively.
Preliminary Determination
The Department of Commerce (the Department) preliminarily determines that benefits which constitute subsidies within the meaning of Section701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Brazil of the subject merchandise, certain hot rolled lead and bismuth carbon steel products (leaded bar). The final determination is currently scheduled for November 24, 1992.
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For information on the estimated net subsidy please see the " Suspension of Liquidation" section of this notice.
Case History
The publication of the notice of initiation in the Federal Register (57 FR 19884, May 1992). We found this investigation to be extraordinarily complicated and postponed the preliminary determination until September 10, 1992 (57 FR 27025, June 17, 1992).
A. Limiting Respondent Selection
On June 6, 1991, the respondents requested that the Department not require one producer of leaded bar, the Villares Group, to respond to the Department's questionnaire because of its insignificant share of exports of leaded bar from Brazil to the United States. On June 19, 1992, we decided that the Villares Group would not be required to answer our questionnaire because its share of leaded bar exports to the United States is extremely small. Therefore, this investigation includes two producers/exporters of the subject merchandise, ACESITA and Mannesmann S.A.. The Villares Group's share of exports of leaded bar to the United States is subject to verification.
B. Additional Programs Being Investigated
As stated in the May 8, 1992, initiation notice of this investigation, we determined that we would not initiate an investigation of BNDES financing programs because BNDES financing had been found not countervailable in Certain Carbon Steel Products from Brazil (49 FR 17989, April 26, 1984), and petitioners did not provide sufficient new information to warrant re- examination of the program.
On July 24, 1992, we initiated a countervailing duty investigation of certain steel products from Brazil (57 FR 32970, July 24, 1992). In that case, petitioner alleged that BNDES financing was provided disproportionately to the steel industry and provided sufficient new information for the Department to initiate an investigation.
Because leaded bar is a steel product, we requested information regarding BNDES financing programs from respondents in the instant case.
In addition, based on information supplied in the questionnaire responses, we determined that a reasonable basis existed to believe or suspect that, one respondent, ACESITA, was not a commercially viable investment at the time of the Brazilian government's conversion of partes beneficiarias (profit participation certificates) into equity in 1989. Therefore, on August 11, 1992, we issued a supplemental questionnaire requesting information regarding the equityworthiness of ACESITA at the time the partes beneficiarias were converted into equity.
Scope of Investigation
The merchandise subject to this investigation is hot rolled bars and rods of nonalloy or other alloy steel, whether or not descaled, containing by weight 0.03 percent or more of lead or 0.05 percent or more of bismuth, in coils or cut lengths, and in numerous shapes or sizes. Excluded from the scope of this investigation are other alloy steels (as defined by the Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72, note 1(f), except steels classified as other alloy steels by reason of containing weight 0.4 percent of lead, or 0.1 percent or more of bismuth, tellurium, or selenium. Also excluded are semi-finished steels and flat-rolled products. Most of the products covered in this investigation are provided for under subheadings 7213.20.00.00, and 7214.30.00.00 of the HTSUS. Small quantities of these products may also enter the United States under the following HTSUS subheadings: 7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90; 7214.40.00.10, 00.30, 00.50; 7214.50.00.10, 00.30, 00.50; 7214.60.00.10, 00.30, 00.50; and 7228.30.80.00. Although the HTSUS subheadings are provided for convenience and customs purposes, our description of the scope of this proceeding is dispositive.
Injury Test
Because Brazil is a "country under the Agreement" within the meaning of section 701(b) of the Act, the International Trade Commission (ITC) is required to determine whether imports of the subject merchandise from Brazil materially injure, or threaten material injury to, a U.S. industry. On May 28, 1992, the ITC determined that there is a reasonable indication that an industry in the United States is materially injured by reason of imports from Brazil of the subject merchandise (57 FR 23428, June 3, 1992).
Analysis of Subsidies
Consistent with our practice in preliminary determinations, when a response to an allegation denies the existence of a program, receipt of benefits under a program, or eligibility of a company or industry under a program, and the Department has no persuasive evidence showing that the response is incorrect, we accept the response for purposes of the preliminary determination. All such responses, however, are subject to verification. If the responses cannot be supported at verification, and a program is otherwise countervailable, the program will be considered a countervailable subsidy in the final determination.
For purposes of this preliminary determination, the period for which we are measuring subsidies (the period of investigation--"POI") is calendar year 1991.
In determining the rates under the various programs described below, we used the following methodology. We first calculated a country-wide rate for Brazil. This rate comprised the sum of the ad valorem rates received by each firm weighted by each firm's share of exports to the United States of the subject merchandise. Pursuant to 19 CFR 355.20(d), we compared the total ad valorem rate received by each firm to the country-wide rate for all programs. The rate for ACESITA was significantly different from the weighted-average country-wide rate. Therefore, ACESITA received its own rate. Because ACESITA's rate is significantly different from the country-wide rate, its rate is removed from the calculation of the rate applied to all remaining companies (all other rate). Because Mannesmann is the only remaining firm, it will receive its own rate, and its rate will become the all other rate which will be assigned to all other exports of leaded bar from Brazil.
A. Programs Preliminarily Determined To Be Countervailable
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Brazil of leaded bar under the following programs:
1. Government Debt Forgiveness to ACESITA
A government-owned bank, the Banco do Brasil, financed a repurchase of ACESITA's foreign-denominated debt in 1990. Banco do Brasil provided a loan to a third party to purchase ACESITA's foreign-denominated debt at a discount, with the understanding that the third party would then contract with ACESITA to waive the foreign-denominated debt in return for ACESITA's assumption of the third party's loan from the Banco do Brasil. Because ACESITA's foreign- denominated debt to the Banco do Brasil was repurchased at a significant discount, we preliminarily determine that such a transaction is essentially debt forgiveness by the Government of Brazil (GOB), and as such bestowed a
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countervailed benefit to ACESITA. ACESITA was relieved from a debt that it otherwise would have had to pay absent government intervention. Therefore, we have treated the amount of debt that was forgiven as a nonrecurring grant and used the grant methodology described for such grants in our proposed regulations. (Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments (Proposed Regulations), 54 FR 23366 (May 31, 1989)). See also, Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods from Canada, 51 FR 15037 (April 22, 1986)). Using our grant methodology, we allocated the amount of debt forgiven in 1990 over 15 years, the average useful life of assets in the steel industry. We divided the result by ACESITA's total sales in 1991. On this basis we preliminarily determine the benefit to ACESITA to be 8.02 percent ad valorem.
We have insufficient evidence to date on the record to determine that such transactions by the Banco do Brasil are not limited to a specific enterprise, or industry, or group of enterprises or industries. However, we are requesting additional information from the Banco do Brasil regarding its practices in such transactions.
We also preliminarily determine that the Banco do Brasil loan used to finance this arrangement, does not, in and of itself, confer a countervailable benefit. Although the Department determined that ACESITA was uncreditworthy at the time the loan was made, the interest rate charged by Banco do Brasil for this loan is higher than the Department's benchmark rate including the risk premium for uncreditworthy companies. Therefore, we preliminarily determine that the loan was made on terms consistent with commercial considerations.
2. Government Equity Infusions Into ACESITA
Historically, the GOB has been the principal owner of the Brazilian steel industry, primarily through the state-owned holding company Siderurgia Brasileira S.A. (SIDERBRAS). In March 1990, the GOB decided to liquidate SIDERBRAS and sell its steel mills, including ACESITA. The sale of ACESITA is scheduled to be completed in 1992.
According to the questionnaire responses, ACESITA received government equity infusions from the Banco do Brasil in the form of conversions of redeemable partes beneficiarias to equity in 1989. Partes beneficiarias are hybrid instruments which have qualities of both debt and equity. Partes beneficiarias are similar to a liability because the issuer repays the bearer the nominal purchase value in equal yearly installments following a grace period. Partes beneficiarias are also similar to equity because the purchaser has the right to share in the company's annual profits.
ACESITA issued partes beneficiarias in 1983, 1984, and 1985. We have determined that the partes beneficiarias should be considered an equity infusion at the time of the 1989 decision to convert all outstanding partes beneficiarias to equity. ACESITA recorded the partes beneficiarias as equity in their balance sheet. After the 1989 decision, all redemption obligations ceased, but profit-sharing obligations continued. Thus, partes beneficiarias retain the qualities of equity, but not the qualities of debt.
We have consistently held government provision of equity does not per se confer a subsidy (see, e.g., Final Affirmative Countervailing Duty Determination; Steel Wheels from Brazil (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 ACESITA was a reasonable investment in 1989 (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 the company's financial ratios and profitability for a period of three years prior to the year of each infusion, as well as other factors such as market demand projections and feasibility studies to evaluate its future ability to earn a reasonable rate of return on investment.
Based on our analysis of the information on the record, we conclude that ACESITA was unequityworthy at the time that the Banco do Brasil voted to convert its partes beneficiarias into equity, i.e., 1989. Accordingly, we determine that the equity infusion made into ACESITA by the GOB was inconsistent with commercial considerations and may confer a subsidy. To the extent that we find government investment to be commercially unreasonable and the government's rate of return on its investment less than the national average rate of return on investment, we consider the investment to provide a countervailable benefit (see, Proposed Regulations and, e.g., Steel Wheels). We examine the "rate of return shortfall" for the POI, which is the difference between the national average rate of return on equity during the POI and ACESITA's rate of return on equity. If no shortfall exists for the POI, there is no countervailable benefit for that year. If a shortfall does exist, we multiply the rate of the shortfall by the amount of the equity infusion to find the benefit for the POI. The Department has received comments from interested parties regarding its methodology for treating government equity infusion into unequityworthy companies. We are soliciting comments from all interested parties on this issue. We will address these comments in the final determination.
Due to hyperinflation in the Brazilian economy, the normal value of the original equity infusions have increased substantially. We have, therefore, used the U.S. dollar values of the partes beneficiarias converted into equity in our calculations. In its response to our questionnaires, ACESITA also used the U.S. dollar values of the partes beneficiarias to correct their nominal value.
We measured the rate of return for ACESITA by dividing its net loss in 1991 by its total capital. We then compared the result with the national average rate of return on equity in Brazil in 1991, as reported in the August 1992 edition of Exame, a Brazilian business publication. ACESITA's rate of return on equity in 1991 was lower than the national average. The difference between ACESITA's rate of return on equity and the national average rate of return on equity constitutes the rate of return shortfall. We multiplied the rate of return shortfall by the value of the equity infusions provided to ACESITA. Finally, we divided this benefit amount by the dollar value of ACESITA's total sales for 1991.
Under no circumstances do we countervail in any year an amount greater than what we would have countervailed in that year had we treated the government's equity infusion as an outright grant (see, Proposed Regulations). Therefore, we compared the amount of subsidy that resulted from our calculation with the amount of subsidy that would have resulted had we treated the equity infusion as an outright grant. Based on this comparison we determine that we have no need to cap the amount of the subsidy for the
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POI at the level that would have resulted if we had treated the equity infusion as a grant.
To determine the grant cap for the POI, we allocated the U.S. dollar value of the equity infusion in 1989 using a declining balance methodology and the 15-year allocation period. We have used as a discount rate the cost of dollar-denominated, long-term, fixed-rate debt of ACESITA in 1989. We divided the amount of the benefit attributable to 1991 by the U.S. dollar value of ACESITA's total sales in 1991.
On this basis, we determine that the subsidy to ACESITA from the government equity infusions was 12.43 percent ad valorem.
3. IPI Rebate Program Under Law 7554/86
The IPI Rebate Program, which consists of a rebate of 95 percent of the value- added sales tax (IPI) paid on domestic sales of industrial products, was established by Decree-Law 1.547 in 1977. After several amendments to Decree-Law 1.547, the program was suspended on April 12, 1990, by Decree-Law 8.034. Pursuant to this law, only companies with projects approved prior to April 1990 are eligible to continue to receive benefits from this program. ACESITA and Mannesmann received benefits under this program during the POI.
In Steel Wheels we determined that this program is limited to specific enterprises or industries. We have no information that warrants a reconsideration of that determination. Therefore, we preliminarily determine that this program is limited to a specific enterprise or industry, or group of enterprises or industries. To calculate the benefit, we divided the total amount of each company's IPI rebates received during the POI by their respective total sales in 1991. On this basis, we determine the subsidy under this program to be 2.90 percent ad valorem for ACESITA, and 0.67 percent ad valorem for Mannesmann during the POI.
4. Exemption of IPI and Duties on Imports Under Decree-Law 2324
Decree-Law 2324 of March 30, 1987, provided exporters of manufactured products exemptions from IPI and duties on imported spare parts and machinery. Because this exemption was limited to exporters, and because the imported goods were not physically incorporated into the subject merchandise, we preliminarily determine that it is countervailable. One respondent, Mannesmann, was provided exemptions under this law during the POI. To calculate the benefit, we divided the amount of IPI and import duties exempted in 1991 by Mannesmann's total exports in 1991. On this basis, we determine the benefit to be 0.15 percent ad valorem for Mannesmann during the POI. In its questionnaire response, the GOB stated that the program was terminated in June 1991. However, because the GOB provided no documentation to support its claim that this exemption has been terminated and that no residual benefits have been provided, we have not adjusted the cash deposit of estimated countervailing duties.
5. Exemptions of IPI and Duties on Imports Under Law 2894
Law 2894 of October 1, 1956 specifically exempts ACESITA from import duties and IPI on imports of all goods which are destined for the improvement, expansion and maintenance of steel and hydro-electric plants owned by ACESITA. This law provides different benefits from the IPI Rebate Program under Law 7554/86 mentioned above, because this law applies to IPI and duties due only on imports. The law is effective as long as the Banco do Brasil remains the majority shareholder of ACESITA. Because this exemption was limited to one company, we preliminarily determine that it is countervailable. To calculate the benefit, we divided the amount of IPI and import duties exempted in 1991 by ACESITA's total sales in 1991. On this basis, we determine the benefit to be 0.21 percent ad valorem for ACESITA during the POI.
B. Programs Preliminarily Determined Not To Be Countervailable
1. Long-Term Loans Through FINEP
The Fund of Studies and Projects (FINEP; Financiadora de Estudos e Projectos) is a government agency within the Secretary of Science and Technology that provides and administers loans given under this program. FINEP, which was founded in 1976 and became a public company in 1985, lends funds in connection with technological development projects. Sectors receiving financing from FINEP include electric, electronic and communications equipment, civil construction, engineering and consulting, mining, metallurgy, and mechanics, infrastructure, transportation, and communications, and livestock, fishing, and agriculture. According to information provided in the questionnaire responses, we found no evidence that FINEP loans are limited either by law, or in fact, to an industry or group of industries, or regions. Therefore, we preliminarily determine that FINEP loans are not provided to a specific enterprise or industry, or group of enterprises or industries, and hence do not bestow a countervailable benefit to exporters or producers of the subject merchandise.
C. Programs Preliminarily Determined Not To Be Used
1. BNDES Preferential Financing
2. FINEX Preferential Export Financing
3. PROEX Preferential Export Financing
4. Import-Export Reform Plan Preferential Financing
5. Tax Incentives and Funds Through Project CONSERVE
6. IPI and Import Duties Exemptions Through the BEFIEX Program
Verification
In accordance with section 776(b) of the Act, we will verify the information used in making our final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of leaded bar from Brazil which are entered or withdrawn from warehouse, for consumption on or after the date of the publication of this notice in the Federal Register and to require a cash deposit or bond for such entries of the merchandise in the amounts indicated below. This suspension will remain in effect until further notice:
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Producer/exporter Estimated net subsidy/duty deposit rate
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ACESITA ............ 23.56 percent, ad valorem.
Mannesmann ......... 0.82 percent, ad valorem.
All others ......... 0.82 percent, ad valorem.
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In accordance with section 703(f) of the Act, we will notify the International Trade Commission (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. If our final determination is affirmative, the ITC will make its final
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determination within 45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 355.38 of the Department's regulations, we will hold a public hearing, if requested, on November 12, 1992, to afford interested parties an opportunity to comment on this preliminary determination. We will notify all interested parties of the place and time of the hearing. Interested parties who wish to request or participate in a hearing must submit a request within ten days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, room B-099, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. Parties should confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.
In accordance with 19 CFR 355.38(c) and (d), ten copies of the business proprietary version and five copies of the nonproprietary version of the case briefs must be submitted to the Assistant Secretary no later than November 3, 1992. Ten copies of the business proprietary version and five copies of the nonproprietary version of rebuttal briefs must be submitted to the Assistant Secretary no later than November 10, 1992. An interested party may make an affirmative presentation only on arguments included in that party's case or rebuttal brief. If no hearing is requested, interested parties still may comment on these preliminary results in the form of case and rebuttal briefs. Written argument should be submitted in accordance with Section 355.38 of the Department's regulations and will be considered if received within the time limits specified in this notice.
This determination is published pursuant to Section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: September 10, 1992.
Rolf Th. Lundberg, Jr.,
Deputy Assistant Secretary for Import Administration.