CITE = 58 FR 6215 (1/27/93) Filename = 93-127.htm
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[C-351-812]
Final Affirmative Countervailing Duty Determination:
Certain Hot Rolled Lead and Bismuth Carbon Steel Products From Brazil
AGENCY: Import Administration,
International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: January 27, 1993.
FOR FURTHER INFORMATION CONTACT:
Philip Pia or Laurel Lynn, Office of Countervailing Compliance,
U.S. Department of Commerce, room 3099, 14th Street and Constitution
Avenue, NW., Washington, DC 20230; telephone (202) 482-2786.
Final Determination
The Department of Commerce (the Department) determines that
benefits which constitute subsidies within the meaning of the
countervailing duty law are being provided to manufacturers,
producers, or exporters in Brazil of certain hot rolled lead
and bismuth carbon steel products (hereinafter: "certain additive
steel products").
For information on the estimated net subsidy, please see
the "Suspension of Liquidation" section of this notice.
Case History
Since the publication of the preliminary determination (57
FR 42980, September 17, 1992), the following events have occurred.
Verification was conducted from September 21 through October
2, 1992.
On October 16, 1992, in accordance with section 705(a)(1)
of the Tariff Act of 1930, as amended (the Act), we aligned
the final determination in this investigation with the final
determination in the companion antidumping duty (AD) investigation
of the same merchandise (57 FR 48020, October 21, 1992). On
November 6, 1992, we postponed the final countervailing duty
(CVD) and AD determinations until no later than January 25,
1993 (57 FR 53691, November 12, 1992).
The parties submitted case and rebuttal briefs on December
16 and December 23, 1992, respectively. A public hearing was
held on January 5, 1993.
Scope of Investigation
The products covered by this investigation are 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 and 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 by weight 0.4 percent or more 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. Although the HTSUS subheadings are provided for
convenience and customs purposes, our written description of
the scope of this proceeding is dispositive.
Respondents
The Government of Brazil (GOB), Companhia Acos Especiais
Itabira (ACESITA), and Mannesmann, S.A. (Mannesmann) are respondents
to this investigation.
Corporate History
During the period of investigation (POI), ACESITA was a state-
owned company. In accordance with GOB's national privatization
plan, ACESITA's stock was auctioned to the public on October
22, 1992. Because this auction occurred after the preliminary
determination in this case, we are not considering the auction,
or its possible effect on any of the programs described below,
in this investigation. We will address these issues during the
first administrative review of the countervailing duty order
in this case, as is contemplated by section 355.39 of the Department's
Proposed Regulations (Countervailing Duties; Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May
31, 1989) (Proposed Regulations)), if a countervailing duty
order is issued and an administrative review is requested.
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
year of ACESITA and Mannesmann.
In determining the benefits received under the various programs
described below, we used the following calculation methodology.
We first calculated the country-wide rate for Brazil. This rate
comprise 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. Because this rate was above de minimus,
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 is significantly different from
the country-wide rate, its rate is removed from the calculation
of the country-wide rate applied to all remaining companies.
Because Mannesmann is the only remaining firm, its rate constitutes
the country-wide rate which will be assigned to all imports
of the subject merchandise from Brazil from all producers and
exporters, except ACESITA.
Equityworthiness
Petitioners have alleged that ACESITA unequityworthy for
certain years and that equity infusions received during those
years were inconsistent with commercial considerations. However,
we have determined that the assistance alleged by petitioners
to constitute equity infusions should not be treated as equity.
Therefore, there is no need to make an equityworthiness determination.
Creditworthiness
We have examined ACESITA's financial statements and, through
the use of ratio analysis, its performance covering the years
1979 through 1991, in order to determine the firm's creditworthiness.
The data in those statements demonstrate extremely low levels
of liquidity and a questionable ability to service its maturing
long-term debt. In fact, ACESITA was in default on some of its
long-term debt during the period 1986 through 1989, and reports
made by Banco do Brasil auditors confirm that the survival of
the firm was in question throughout most of the 1980s. The record
is clear that a reasonable creditor would have concerns about
the long-term solvency of the firm during this period. We determine
that ACESITA was uncreditworthy during this period, and have
added a risk premium to the benchmark discount rates used in
our examination of ACESITA's issuance of partes beneficiarias
and its debt-for-debt swap. See the Department's Equityworthy
and Creditworthy Analysis Memorandum, (September 10, 1992).
Grant Methodology
Our policy with respect to grants is (1) to expense recurring
grants in the year of receipt, and (2) to allocate non-recurring
grants over the average useful life of assets in the industry,
unless the sum of grants provided under a particular program
is less than 0.5 percent of a firm's total or export sales (depending
on whether the program is a domestic or export subsidy) in the
year in which the grant was received. See e.g., Final Affirmative
Countervailing Duty Determination; Fresh and Chilled Atlantic
Salmon from Norway, 56 FR 7678 (February 25, 1991) (Salmon from
Norway).
We have considered the debt-for-debt swap undertaken by ACESITA
in 1990 and the "partes beneficiarias" (PBs), as of 1989, to
constitute non-recurring grants, because the benefits are exceptional,
and the recipient cannot expect to receive benefits on an ongoing
basis from review period to review period. See, Final Affirmative
Countervailing Duty Determination; Certain Fresh Atlantic Groundfish
from Canada, 51 FR 10041 (March 24, 1986) (Groundfish from Canada).
Therefore, we have allocated the benefits over 15 years, which
the Department considers to be reflective of the average useful
life of assets in the steel industry (See section 355.49(b)(3)
of the Proposed Regulations).
The benefits from the debt-for-debt swap and the BPs were
calculated using the declining balance methodology described
in the Department's Proposed Regulations (See section 355.49(b)(3))
and used in prior investigations (see e.g., Salmon from Norway).
For the BPs, we have used as a discount rate the cost of dollar-
denominated, long-term, fixed-rate debt of ACESITA in 1989.
For the debt-for-debt swap, we have constructed a long-term,
fixed-rate, dollar-denominated benchmark for 1990 based on offers
made to ACESITA by private commercial banks in 1990. Because
ACESITA was uncreditworthy in both years, we have added a risk
premium to these benchmarks as required by the Proposed Regulations.
We consider the benefits under the Law 7554/86 IPI rebate
program to be recurring because (1) the program is not exceptional;
(2) the program is longstanding-it has been in place for over
fifteen years and although the disbursement method and our treatment
of the benefit changed in 1990, the program is scheduled to
continue in its present form until 1996; and (3) the benefits
are consistently distributed. This determination is consistent
with the Department's standard on recurring versus non-recurring
grants, as enunciated in the Proposed Regulations and recently
in the Preliminary Affirmative Countervailing Duty Determination:
Certain Steel Products From the United Kingdom, 57 FR 57734,
December 7, 1992. (Certain Steel Products From the United Kingdom.)
Based on this analysis, we expensed the IPI rebates provided
under this program in 1991, dividing the total amount of each
company's IPI rebates received during the POI by their respective
total sales in 1991.
Specificity
When receipt of benefits under a program is not contingent
upon exportation, the Department must determine whether the
program is specific to an enterprise or industry, or group of
enterprises or industries. Under the specificity analysis, the
Department examines both whether a government program is limited
by law to a specific enterprise or industry, or group thereof
(i.e., de jure specificity) and whether the government program
is in fact limited to a specific enterprise or industry, or
group thereof (i.e., de facto specificity). See section 771(5)(B)
of the Act. In section 355.43(b)(2) of the Department's Proposed
Regulations, the Department has set forth the factors that may
be considered in determining whether there is specificity:
(i) The extent to which a government acts to limit the availability
of a program;
(ii) The number of enterprises, industries, or groups thereof
that actually use a program;
(iii) Whether there are dominant users of a program, or whether
certain enterprises, industries, or groups thereof receive disproportionately
large benefits under a program; and
(iv) The extent to which a government exercises discretion
in conferring benefits under a program.
See also Final Affirmative Countervailing Duty Determination:
Certain Softwood Lumber Products from Canada, 57 FR 22570 (May
28, 1992).
I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers,
producers, or exporters in Brazil of certain additive steel
products as follows:
A. Partes Beneficiarias
In the early 1980s, ACESITA experienced serious financial
difficulties, including low liquidity levels. The Banco do Brasil,
ACESITA's major shareholder, undertook a study of the company's
financial and operating positions, and outlined options for
the Banco do Brasil to follow in assisting the company. The
study recommended that ACESITA issue PBs, which were hybrid
instruments with qualities of both debt and equity. PBs are
similar to liabilities because they carry an obligation for
the issuer to repay the bearer the nominal purchase value in
equal yearly installments following a grace period (in ACESITA's
case, the repayments were scheduled to start in 1989). PBs are
similar to equity in that the purchaser has the right to share
in the company's annual profits.
PBs were chosen over equity infusions for several reasons.
First, the Banco do Brasil was prohibited by law from increasing
its equity share in the company. Second, it was unlikely that
other shareholders would continue to participate in stock offerings.
Third, the Banco do Brasil was under pressure from the International
Monetary Fund to limit any new industrial investment to only
absolutely necessary infrastructure projects.
In 1989, ACESITA's PB-holders held a meeting in which they
voted to authorize the conversion of PBs to common stock at
an indeterminate date in the future. This vote did not change
PBs into stock; it merely laid a legal basis for eventual conversion
into common stock.
Repayment of the PB investments had originally been scheduled
to begin in 1989. However, at that time, no payments were requested
by the PB-holders, and no payments were made by ACESITA. Further,
the PBs were not converted into stock at the point the repayment
obligations ceased nor was there any schedule or timetable put
into place for the conversion. At that point, in 1989, the PBs
were neither debt nor equity, and in addition, the basic terms
of the instrument were not met. The failure to meet basic terms
of the instrument, coupled with the lack of an actual conversion
of the PBs into stock, or a concrete plan and timetable for
conversion, in effect, rendered the PBs grants as of 1989.
We have used our grant methodology to value PBs, as described
in the Grant Methodology section above. We indexed the original
nominal values of the PBs to account for Brazilian hyperinflation
by dollarizing them. On this basis, we find the estimated net
subsidy to be 10.68 percent ad valorem for ACESITA and 0.00
percent ad valorem for all other manufacturers, exporters, and
producers of the subject merchandise.
B. ACESITA Debt-for-Debt Swap
In 1990, ACESITA engaged in a debt-for-debt swap transaction
which reduced its loan obligations substantially. We find that
this transaction provides a countervailable subsidy to ACESITA.
Normally, Brazilian companies with foreign-denominated debt
governed by Resolution 4131 are required to service such debt
through local currency payments processed through the Central
Bank. Following the suspension of convertibility, the Central
Bank issued negotiable notes known as Multi-Year Deposit Facility
Agreement Certificates, or MYDFAs, in lieu of the foreign currency
due the creditor. MYDFAs entitled the bearer to immediate redemption
in cruzeiros only-redemption of the note in U.S. dollars was
suspended for an unspecified period. Because of these restrictions
and because MYDFAs are negotiable, they began selling at less
than their par value in secondary markets.
ACESITA utilized this discounting to substantially reduce
its indebtedness. ACESITA had a loan with the Banco do Brasil
which was paid, through the Central Bank, in MYDFAs. ACESITA
used an intermediary to borrow sufficient funds to purchase,
on the secondary market at a substantial discount, enough MYDFAs
to satisfy ACESITA's obligation to the Banco do Brasil. ACESITA's
original loan was paid in full with the discounted MYDFAs. ACESITA
essentially replaced its original foreign-currency denominated
loan with a new, much smaller loan. ACESITA's benefit derives
from the difference between the amounts of the two loans. ACESITA
assumed the second loan after the intermediary had paid off
the original debt with the MYDFAs.
We find that there is insufficient evidence on the record
to determine that debt buy-back transactions such as ACESITA's,
are not de facto specific. See the Specificity section above.
In the original questionnaire, the Department requested information
from the GOB and the company on the ACESITA transaction, and
also requested the GOB to provide information on the availability
of such transactions. Specifically, the questionnaire asked
the GOB to provide information regarding eligibility criteria,
types of records kept by the administering authority, numbers,
types, and locations of industries which have applied for and
received benefits, and whether there are any limitations on
eligibility based on export performance, industry groups, or
geographical location. Although the GOB provided information
regarding the transaction in question, it did not respond to
the Department's specificity questions, stating that such questions
were not applicable because the loan was not provided as part
of a government program.
In a supplemental questionnaire, the Department requested
a breakdown, by industry, of similar transactions from the Banco
do Brasil. The GOB responded that due to strict bank secrecy
laws, such information could not be provided. However, confidentiality
of information does not relieve a respondent from its obligation
to provide the Department information. Although the GOB provided
articles and other published material about MYDFAs and debt
swap arrangements, the GOB provided no further information on
the actual number and types of industries that had participated
in MYDFA-based debt swaps, all of which had to have been processed
through the Central Bank. Moreover, the GOB did not provide
any information that would allow the Department to determine
whether the ACESITA transaction was similar in its terms and
conditions to other transactions involving MYDFAs.
Absent such factual, verified information from the GOB, it
is not possible for the Department to conclude that ACESITA's
debt-for-debt swap, which, on its face, benefitted ACESITA by
relieving it of a large debt in exchange for a smaller debt,
is non-specific and therefore non-countervailable.
Because there is inadequate information on the record to
determine that debt-for-debt swaps are not specific, we have,
as best information available, found that this transaction was
specific to an enterprise or industry, or group of enterprises
or industries.
We determine that such a transaction is essentially debt
forgiveness by the GOB, and as such bestowed a countervailable
benefit to ACESITA. ACESITA was relieved from a debt that it
otherwise would have to had to pay absent government intervention.
Therefore, we have treated the difference between the first
loan and the second loan as a nonrecurring grant and used the
methodology described in the Grant Methodology section above.
We have allocated that 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. The
rate for ACESITA is 5.40 percent ad valorem and 0.00 percent
ad valorem for all other manufacturers, exporters, and producers.
Although we determine that ACESITA was uncreditworthy at
the time the transaction was made, the interest rate charged
by the Banco do Brasil for the swap loan is higher than the
Department's benchmark rate including the risk premium for uncreditworthy
companies. Therefore, we determine that the new loan was made
on terms consistent with commercial considerations.
C. IPI Rebate Program Under Law 7554/86
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 products;
(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 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 ACESITA and Mannesmann received benefits
under this program.
We consider the IPI rebate program to constitute a recurring
benefit, consistent with our treatment of it in the Final Negative
Countervailing Duty Determination: Circular Welded Non-Alloy
Steel Pipe From Brazil, 57 FR 42968, (September 17, 1992), (Pipe
and Tube From Brazil). This determination is consistent with
our standards for recurring versus non-recurring grants. See
the Grant Methodology section above. The IPI rebate program
is not exceptional and the benefits are consistently distributed.
Once approved, the benefits are continuously received. No further
application or approval is required. Companies need only meet
eligibility requirements in order to automatically receive the
benefits. While the program is scheduled to terminate in 1996,
the rebates will continue to be available until that time. Recipients
can expect to receive benefits on an ongoing basis from year
to year, as long as the minimum eligibility requirements set
forth in the original program are met.
Based on this analysis, we expensed the rebates provided
under this program in 1991, in accordance with our policy regarding
recurring grants (See Grant Methodology section above). 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 net subsidy under this program to be 2.90 percent
ad valorem for ACESITA and 0.67 percent ad valorem for all other
manufacturers, exporters, and producers of the subject merchandise.
D. Exemption of IPI and Import 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. One respondent, Mannesmann, was provided
exemptions under this law during the POI. Because this exemption
is limited to exporters, and because the imported goods were
not physically incorporated into the subject merchandise, we
determine that it is countervailable.
To calculate the benefit, we divided the amount of IPI and
import duties exempted in 1991 by Mannesmann's total exports
in 1991. The rate for ACESITA is 0.00 percent ad valorem and
0.15 percent ad valorem for all other manufacturers, producers,
and exporters in Brazil of the subject merchandise. However,
this program was terminated by the expiration of the law on
December 31, 1991, and we verified that no residual benefits
were received after that date. Therefore, for this program we
have reduced the cash deposit rate to zero in accordance with
section 355.50(a)(2) of the Department's Proposed Regulations.
E. 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
described 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.
Respondents have argued that due to the national privatization
plan in place in Brazil since 1990, and the privatization auction
held on October 22, 1992, the Banco do Brasil is no longer the
majority shareholder of ACESITA, and that the Department should,
therefore, adjust the deposit rate to zero. As stated in the
Corporate History section above, we do not consider the GOB's
privatization plan in and of itself to constitute privatization.
Because the auction of ACESITA's stock was held after the preliminary
determination in this case, we have not considered the impact
of that auction on this program.
Because this exemption was limited to one company, we 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. The rate for ACESITA is 0.21 percent ad
valorem and 0.00 percent ad valorem for all other manufacturers,
exporters, and producers of the subject merchandise.
II. Program Determined Not To Be Countervailable
We determine that the following program does not provide
subsidies to manufacturers, producers, or exporters in Brazil
of certain additive steel products:
A. Long-Term Loans Through FINEP
The Fund of Studies and Projects (FINEP; Financiadora de
Estudos e Projectos) is a government agency that provides and
administers loans in connection with technological development
projects. ACESITA had two loans outstanding during the POI from
FINEP. We verified that the following sectors received financing
from FINEP in the years in which ACESITA received financing:
Livestock, fisheries and agriculture; mining, metallurgy and
mechanics; electric, electronic and communications equipment;
infrastructure, transportation and communication equipment;
wood, paper and paperboard; chemicals, plastics, and alcohol;
textiles, apparel, footwear, and artifacts; food products; civil
construction, engineering and consulting; electrical energy,
gas, and sanitation; and others. Steel is classified as part
of the metallurgy sector. We also verified that FINEP loans
were not limited to geographical regions of Brazil. We found
no new evidence that ACESITA or the steel industry, as a whole,
received a disproportionate share of FINEP funds. We also found
no evidence at verification that FINEP applied different criteria
or standards in approving ACESITA's loan application than for
other applicants.
Given that a wide array of industries received FINEP loans,
and there is no evidence that steel received a disproportionate
share or that FINEP exercised discretion in awarding ACESITA
its loans, we determine that FINEP is not de facto limited to
a specific enterprise or industry or group of enterprises or
industries. Therefore, we determine that FINEP loans do not
bestow a countervailable benefit to producers or exporters of
the subject merchandise.
III. Programs Determined Not To Be Used
We verified that the following programs were not used by
manufacturers, producers, or exporters in Brazil of certain
additive steel products:
A. BNDES Preferential Financing
B. FINEX Preferential Export Financing
C. PROEX Preferential Export Financing
D. Tax Incentives and Funds Through Project CONSERVE
E. IPI and Import Duty Exemptions Through the BEFIEX Program
IV. Program Determined Not To Exist
We verified that the following program does not exist:
Import-Export Reform Plan Preferential Financing
Comments
Comment 1-Petitioners contend that the Department should
abandon the standard for recurring versus non-recurring grants,
because there is no basis for it in the statute. If the Department
continues to apply this standard, petitioners argue that the
IPI rebate program is non-recurring according to the standards
in the Department's Proposed Regulations and recent steel cases
because the rebates are based on a one-time authorization of
a capital improvement project. See, e.g., Preliminary Affirmative
Countervailing Duty Determination: Certain Steel Products From
the United Kingdom, 57 FR 57734, (December 7, 1992). (Certain
Steel Products From the United Kingdom).
They argue that until Pipe and Tube from Brazil, IPI rebates
under Law 1547, as amended by Law 7554/86, were treated as non-
recurring grants by the Department. See, e.g., Certain Carbon
Steel Products From Brazil; Final Results of Countervailing
Duty Administrative Review, 52 FR 829, (January 9, 1987) (Certain
Steel From Brazil).
Petitioners argue that because the benefits are non-recurring,
they should be allocated over fifteen years, rather than expensed
in the year of receipt. Petitioners also argue that the cancellation
of the IPI rebate program in 1990 provides further evidence
that the program is non-recurring, because respondents could
not expect to receive benefits on an ongoing basis in the future.
Respondents contend that if the Department continues to consider
IPI rebates to be a subsidy, the Department should continue
to consider them to be recurring benefits, and should continue
to expense the rebates in the year of receipt.
Respondents contend that this determination is consistent
with the standard in the Proposed Regulations: (1) The IPI rebate
program is not exceptional, as the program has operated regularly
over a long period of time; (2) the program should be considered
long-standing because it has been in existence for over fifteen
years; and (3) there is great certainty that the program will
continue to operate as usual in the future, until its effective
termination date in 1996. Respondents also contend that IPI
rebates were treated as recurring benefits in the Pipe and Tube
From Brazil case and the recent Certain Steel From Brazil preliminary
determination.
DOC Position-We determine the IPI rebate program to be a
recurring benefit, consistent with our treatment of it in Pipe
and Tube From Brazil. This determination is consistent with
our criteria for recurring versus non-recurring grants, as enunciated
recently in Certain Steel Products From the United Kingdom.
The IPI rebate program is not exceptional. Further, it is longstanding-
it has been in place over fifteen years, and although its method
of disbursement and our treatment of the program changed in
1990, it will continue to operate as it does currently until
its termination in 1996. Recipients can expect to receive benefits
on an ongoing basis from year to year, as long as the minimum
eligibility requirements set forth in the original program are
met.
We have expensed IPI rebates in the year of receipt, consistent
with our treatment of recurring benefits. This determination
is not inconsistent with previous Department determinations,
as argued by petitioners.
There has been an important change in the method of disbursement
of the IPI rebates. Prior to 1990, companies would remit the
full IPI tax to the government, which then rebated 95 percent
to SIDERBRAS (the government-owned steel holding company), and
SIDERBRAS returned the funds to the companies in the form of
equity infusions. Accordingly, we countervailed those pre-1990
IPI rebates according to our methodology for valuing equity
infusions. SIDERBRAS entered liquidation in 1990, and is no
longer involved in the IPI rebate procedure. At present, companies
remit the full amount of IPI owed to the government, and receive
the rebates directly from the government on a regular basis.
Due to the fact that the rebated funds are no longer provided
to the companies in the form of equity infusions, the equity
infusion allocation methodology is no longer appropriate. Based
on the factors cited above, we determine that IPI rebates, as
presently disbursed, constitute recurring benefits, and we have
valued them in accordance with our recurring grant methodology
as described in the Grant Methodology section above.
Comment 2-Petitioners contend that the 1989 decision by the
Banco do Brasil to convert its PBs into equity constitutes a
countervailable equity infusion. Prior to 1989, PBs cannot be
considered equity because they had a fixed redemption obligation.
PBs should only be considered to be equity after the 1989 shareholders'
meeting in which the PBs were converted into equity.
Respondents argue that, to the extent the Department finds
the PB investments to be countervailable, it should consider
the original investment dates (1983, 1984, and 1985) to be the
dates of the equity infusions because the PBs functioned in
many ways similar to stock from the time of purchase.
Respondents argue that the Department's preliminary determination
that the PBs were converted to equity in 1989 was incorrect.
Respondents contend that no such conversion occurred. The holders
of the PBs voted only to authorize the conversion of PBs to
equity in the future, prior to the privatization of the company.
Respondents argue that the 1989 vote did not change the status
of the PBs; it merely provided a legal basis for an eventual
conversion to equity. Respondents argue that the actual conversion
to equity occurred in October 1992, a few days prior to the
auction of the company. Therefore, respondents argue that if
the Department does not consider 1983, 1984, and 1985 to be
the dates of the equity infusions, the only other date which
could be considered would be 1992, when the PBs were actually
converted into stock.
Respondents argue that because the equity infusions occurred
in 1983, 1984, and 1985, the Department should revise its grant
cap calculation accordingly.
DOC Position-At the time of the initial investment, PBs were
hybrid instruments having the qualities of both debt and equity.
From their initiation, the PBs carried a repayment obligation,
with the first payments due in 1989. No repayment of PBs was
ever made in accordance with the prescribed schedule. ACESITA
did not begin the repayment process, nor did the PB-holders
request any payment. In 1989, the PB-holders voted to authorize
the eventual conversion of PBs into common stock. However, there
were no fixed terms or timetables for this conversion. Because
the obligation to repay was not met, and there was no concrete
plan for the conversion into stock, we consider that, in 1989,
the PBs effectively became grants.
Comment 3-Petitioners argue that the Department's rate of
return shortfall methodology (RORS) does not adequately capture
benefits from government equity infusions. Petitioners contend
that because ACESITA was unequityworthy at the time of the 1989
PB equity infusion, the infusion should be treated as a grant,
and calculated using the Department's grant methodology.
Respondents argue that the Department should continue to
value the PB equity infusions using RORS. Respondents claim
that using the grant methodology to value equity infusions is
contrary to the law and Departmental practice. Respondents argue
that use of the grant methodology to value equity infusions
is inconsistent with the Department's equityworthiness methodology,
and produces inconsistent results.
Respondents also contend that the Department should revise
its calculation of the benchmark rate of return in using the
RORS methodology to value the benefit from the PB equity infusions.
The Department should use the national average rate of return
in the RORS methodology, rather than the steel industry's rate
of return, as was used in the preliminary determination. This
change would be consistent with the Department's past use of
the RORS methodology.
DOC Position-We have determined that PBs should be characterized
as grants after 1989, not equity. We do not consider any program
in this investigation to constitute an equity infusion during
the POI. Therefore, arguments regarding the appropriate valuation
methodology for equity infusions are moot.
Comment 4-Petitioners argue that the Department correctly
characterized ACESITA's debt swap arrangement as debt forgiveness
by the Banco do Brasil. Respondents failed to provide sufficient
evidence that such an arrangement was not specific to ACESITA,
either in submissions or at verification. Although the Department
requested information regarding debt swaps from the Banco do
Brasil during verification, the Banco do Brasil refused to supply
any information regarding debt swaps arranged for other clients
because of Brazilian regulations regarding confidentiality of
such information. Petitioners argue that claims of confidentiality
cannot be used as a reason for not supplying the Department
with information. Petitioners cite Allied Tube and Conduit Corp.
v. United States, 898 F2d 780,785 (Fed. Cir. 1990) Accordingly,
petitioners argue that the Department should use the information
submitted in the petition as best information available (BIA)
regarding the specificity of the debt swap arrangement.
Respondents argue that ACESITA's debt restructuring did not
confer a countervailable benefit to the company. First, respondents
argue that the debt swap was not specific to ACESITA, but rather
such debt swaps are commonly used by Brazilian companies. Respondents
argue that the Department should reject petitioners' request
for the use of best information available. Second, respondents
argue that ACESITA's debt restructuring cannot be characterized
as debt forgiveness because ACESITA has fully satisfied all
of its loan obligations to its creditor, Banco do Brasil.
Respondents argue that they have provided sufficient information
on the record to demonstrate that debt restructuring such as
ACESITA's arrangement are the result of Brazil's economic situation
and market forces. Debt buy-back transactions similar to ACESITA's
transaction are commonplace. Respondents argue that petitioners'
characterization of the Banco do Brasil's "refusal" to provide
information regarding similar transactions is misleading. The
Banco do Brasil informed the Department that it could not provide
additional detailed information regarding other transactions,
due to strict Brazilian laws governing the disclosure of details
of banking transactions to third parties. Respondents argue
that the restrictions placed on Brazilian banks are very similar
to those placed on U.S. banks.
Respondents contend that the Department's characterization,
in the preliminary determination, of the debt buy-back as debt
forgiveness is incorrect. Respondents argue that no forgiveness
was involved in either of the two loan transactions involved
in the debt swap. The first, underlying loan from the Banco
do Brasil was paid in full. There can be no forgiveness when
a loan is paid in full. ACESITA continues to service its obligations
on the second loan. The Department properly evaluated the second
loan on its own terms, and determined that it did not confer
a benefit.
DOC Position-We consider that the debt buy-back transaction
undertaken by ACESITA does confer a countervailable subsidy,
as described above. In the preliminary determination, we characterized
this transaction as debt forgiveness based on the information
provided in the questionnaire response. It was only from information
submitted after the preliminary determination and at verification,
that we learned the exact nature of this debt-for-debt swap.
There is insufficient information on the record to determine
that debt buy-back transactions such as ACESITA's, are not de
facto specific. See the Specificity section above and Section
Two, Appendix One of the Department's questionnaire. The Department
requested detailed information from respondents regarding actual
industry use of such transactions, and the actual terms and
conditions of similar transactions, but respondents failed to
provide this information. Confidentiality of information does
not relieve a respondent from its obligation to provide the
Department with information.
Comment 5-Petitoners argue that the Department erred in calculating
a nominal, rather than an effective, benchmark rate for evaluating
the second loan provided to ACESITA in its debt swap arrangement.
Petitioners contend that the loan was provided free of certain
fees and charges which ACESITA would normally have to pay, including
a financial tax (IOF) and a withholding tax on interest payments,
making its true cost of money cheaper than alternative commercially-
available financing. Petitioners contend that the Department
should use information on the record to construct a company-
specific benchmark rate for ACESITA.
Respondents argue that the benchmark interest rate used by
the Department in the preliminary determination was correct
and should be used for this final determination. Respondents
argue that petitioners are incorrect in their assertion that
other charges should be included in a benchmark rate.
DOC Position-We disagree with petitioners. First, information
on the record demonstrates that the IOF tax is applicable to
short-term debt only; it is not charged on loans with periods
over 90 days.
Second, the withholding tax, for which petitioners seek an
adjustment, is applicable to interest remitted abroad. Petitioners
have argued that because the only likely source for dollar-denominated
financing is outside Brazil, the benchmark interest rate must
incorporate this withholding tax. Petitioners assertions to
the contrary, information on the record indicates that ACESITA
has previously secured long-term dollar-denominated financing
in Brazil. This debt was not subject to the withholding tax.
It cannot be assumed, therefore that all potential alternative
financing for the debt swap would have been subject to this
withholding tax.
Finally, ACESITA's debt swap loan package did include "fees
or commissions" imposed upon it by the intermediary involved
in the debt swap. These fees were incorporated into the loan
that ACESITA assumed, a loan which was greater than the amount
necessary to purchase the MYDFAs necessary to retire ACESITA's
loan with the Banco do Brasil.
We determine, therefore, that the LIBOR plus spread and risk
premium benchmark used by the Department in its preliminary
determination is correct, and that petitioners suggested adjustments
to the benchmark are not warranted.
Comment 6-Respondents contend that the privatization of ACESITA
constitutes a program-wide change. Respondents state that, according
to the Proposed Regulations, (54 FR 23378, 23385), a program-
wide change is defined as a change which is not limited to a
specific company or companies, and is implemented by an official
act, such as a statute, regulation, or decree. Respondents argue
that the privatization of ACESITA meets all these criteria.
Respondents argue that this program-wide change occurred prior
to the preliminary determination in this investigation, and
that the Department should, therefore, set the deposit rate
associated with the PB equity infusions at zero.
Respondents argue that ACESITA's privatization was initiated
by Law 8031 on April 4, 1991, which, along with subsequent legislation
and regulations, established the procedures to be used in the
privatization process. Because these laws governed the privatization
not just of ACESITA but also of various other companies, it
meets the requirement that a program-wide change not be limited
to a specific enterprise.
Respondents argue that, as the privatization program was
initiated in 1990, it occurred and was verifiable prior to the
preliminary determination in this investigation. Respondents
argue that the controlling events of the privatization, including
the establishment of procedures, consultants' studies, and development
of conditions of sale and minimum price, were completed prior
to the preliminary determination.
Respondents argue that the Department's approach to privatization
published in the preliminary determination in Preliminary Affirmative
Countervailing Duty Determination: Certain Steel Products From
Brazil, 57 FR 57806 (December 7, 1991), is contrary to law and
should not be applied to ACESITA in this investigation. That
determination stated the Department's position that equity benefits
provided to an unequityworthy company prior to privatization
are not extinguished by the privatization unless the benefits
were repaid prior to privatization.
Petitioners argue that the privatization of ACESITA does
not constitute a program-wide change. Petitioners argue that
the privatization of ACESITA did not take place until October
22, 1992, the date of the auction of the company. The fact that
the plans for privatization were in place does not mean that
privatization took place. Privatization is only accomplished
by the successful sale of the company.
DOC Position-We do not consider that privatization, in and
of itself constitutes a program-wide change, or that a privatization
program is the type of program contemplated for consideration
under the program-wide change section of the Proposed Regulations.
Even assuming arguendo, however, that privatization could be
construed as a program-wide change, we do not consider that
privatization occurs prior to the actual sale of the company.
It would not be possible to assess such a program-wide change
until after the conclusion of the actual sale of the company
so that all the effects of the privatization program could be
analyzed.
In this case, while plans for the auction of ACESITA were
in place prior to the preliminary determination, the auction
did not take place until after the preliminary determination.
Therefore, we do not consider Brazil's national privatization
plan to constitute a program-wide change in this investigation.
As such, there is no basis for considering any impact such a
change would have on any program in this investigation, nor
for making any adjustment to the cash deposit rates.
Comment 7-Petitioners contend that the GOB exercised considerable
discretion in providing ACESITA with loans from FINEP and that,
therefore, the financing confers a countervailable benefit because
it fails the Department's specificity test. Petitioners contend
that the ACESITA's loans from FINEP were not provided in accordance
with the agency's guidelines. One of the criteria used to evaluate
potential recipients of FINEP loans is the creditworthiness
of the borrower. Petitioners argue that because ACESITA was
uncreditworthy at the time it received loans from FINEP in 1987
and 1990, it did not meet the program criteria, and would not
have received the loans absent the exercise of discretion by
the GOB. Petitioners contend that because of the discretion
used by the GOB to grant these loans, the program fails the
specificity test, and the benefit should be countervailed.
Respondents argue that petitioners are incorrect that FINEP
loans were provided to ACESITA in violation of FINEP's lending
policies. Respondents argue that ACESITA guaranteed its loans
from FINEP with its fixed assets, and that therefore FINEP was
protected in the transaction. The Department confirmed at verification
that ACESITA has made every payment under the FINEP loans. All
information on the record confirms that the FINEP loans to ACESITA
were in no way different from its loans to other companies and
industries. Respondents argue that the loans cannot be considered
specific to ACESITA.
DOC Position-There is no evidence on the record to indicate
that the GOB used discretion in granting FINEP loans to ACESITA.
We have no reason to believe the consideration accorded ACESITA's
loan applications was inconsistent with that accorded to any
other company's application. Our review at verification of the
actual number of sectors using FINEP, the amount of FINEP funding
to the steel industry, and the criteria used by FINEP officials
to approve loans leads us to conclude that FINEP financing is
not specific to an enterprise or industry, or group of enterprises
or industries.
Comment 8-Respondents argue that Law 2324 terminated prior
to the preliminary determination in this case, and that the
Department should adjust the deposit rate accordingly. Respondents
claim that, while the GOB holds the position that the law terminated
in 1990, there is no question that the law self-terminated by
its own decree on December 31, 1991. Because this constitutes
a program-wide change, the Department should follow its practice
of adjusting the cash deposit rate for a program-wide change
which occurs before the preliminary determination.
Petitioners argue that the Department correctly determined
that Law 2324 provided a countervailable subsidy to ACESITA.
Petitioners claim that the Department based its determination
in part on the fact that respondents did not provide a copy
of the law to the Department. Petitioners claim that because
respondents still have not provided a copy of the law to the
Department, the Department should, in this final determination,
consider Law 2324 to provide a countervailable benefit.
DOC Position-During verification, we examined Law 2324 and
discussed its operation with GOB and company officials. A copy
of the law was included in the verification exhibits. There
is sufficient information on the record to determine that Law
2324 provides a countervailable benefit, and also that it terminated
prior to the preliminary determination in this investigation.
We verified that no residual benefits were provided after the
termination of the program. We have, therefore, adjusted the
cash deposit rate to zero, in accordance with our practice regarding
program-wide changes.
Comment 9-Respondents argue that the Department should adjust
the deposit rate to zero for the exemption of IPI and import
duties under Law 2894. Respondents argue that benefits under
Law 2894 were only provided to ACESITA as long as the Banco
do Brasil was the majority shareholder. Respondents contend
that the privatization of ACESITA, which resulted in the Banco
do Brasil becoming a minority shareholder, constitutes a program-
wide change occurring prior to the preliminary determination.
Therefore, they argue that an adjustment of the deposit rate
would be consistent with the Department's treatment of program-
wide changes.
DOC Position-As discussed in the Corporate History section
and Comment 6 above, we do not consider that the national privatization
plan, in and of itself, constitutes a program-wide change.
Additionally, the Banco do Brasil remained the majority shareholder
until the auction of the company on October 22, 1992, which
is after the preliminary determination in this investigation.
Therefore, we have not adjusted the deposit rate for this program.
Comment 10-Petitioners argue that the Department was incorrect
in determining not to initiate an equityworthiness investigation
of ACESITA in 1982, 1983, and 1984. Petitioners argue that their
petition contained all reasonably available information to the
Department regarding their unequityworthiness allegation, and
that the Department is therefore obligated to initiate an investigation
and compel the production of evidence from the respondents.
DOC Position-As stated in the Department's May 1, 1992, Equitworthy
and Creditworthy Analysis Memorandum; May 4, 1992, Initiation
Memorandum; and Notice of Initiation of Countervailing Duty
Investigations: Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from Brazil, France, Germany, and the United Kingdom,
FR 19884 (May 8, 1992); and as reiterated in the Department's
September 10, 1992, Equitworthy and Creditworthy Analysis Memorandum,
we determined that information provided by petitioner at the
time of initiation was insufficient to demonstrate that equity
infusions into ACESITA during 1982, 1983 and 1984 were made
on terms inconsistent with commercial considerations. Petitioner
has not provided any additional information that would cause
us to reconsider our previous determination.
Comment 11-Petitioners argue that the Department was incorrect
in excluding the Villares Group, a producer of the subject merchandise,
from this investigation. Petitioners argue that the company's
request for exclusion was untimely and did not meet the documentation
requirements for justifying and exclusion.
DOC Position-The Villares Group did not request exclusion
from this investigation, and it is not excluded from this determination.
The Villares Group requested that the Department not require
that it respond the questionnaire. We decided that the Villares
Group would not be required to respond to the questionnaire
because its share of exports of the subject merchandise to the
United States is extremely small. We verified the Villares Group's
volume and value of exports of the subject merchandise to the
United States during the POI.
Even without a response from the Villares Group, we verified
responses from companies accounting for almost 100 percent of
exports to the United States. While the Department usually attempts
to examine those companies in countervailing duty cases which
account for 100 percent of imports subject to investigation,
nothing in either the statute or the regulations requires the
Department to examine any particular percentage of imports or
companies in a countervailing duty investigation. Not requiring
the Villares Group to respond is consistent with the Department's
practice in prior investigations. See, e.g., Fresh Cut Flowers
from Costa Rica, 52 FR 32030 (August 25, 1987); Certain Textile
Mill Products and Apparel from Malaysia, 50 FR 9852 (March 12,
1985); Circular Welded Non-Alloy Steel Pipe from Brazil, 57
FR 24466 (June 9, 1992).
Exports of subject merchandise from the Villares Group are
subject to the country-wide rate calculated in this investigation.
Vertification
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, examination of relevant accounting records,
and examination of 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).
Suspension of Liquidation
In accordance with section 705(c) of the Act, we are directing
the Customs Service to continue to suspend liquidation of entries
of certain additive steel products from Brazil which are entered
or withdrawn from warehouse for consumption on or after the
date of publication of this notice in the Federal Register,
and to require a cash deposit or bond of estimated countervailing
duties at the following rate:
------------------------------------------------------------------------------
| Net subsidy | Cash
| rate | deposit
| (percent) | rate
| | (percent)
------------------------------------------------------------------------------
| |
ACESITA........................................ | 19.19 | 19.19
Country-wide Rate.............................. | 0.82 | 0.67
------------------------------------------------------------------------------
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.
If the ITC determines that material injury, or the threat
of material injury, does not exist, these proceedings will be
terminated and all estimated duties deposited or securities
posted as a result of the suspension of liquidation will be
refunded or canceled. If, however, the ITC determines that such
injury does exist, we will issue a countervailing duty order,
directing Customs officers to assess countervailing duties on
entries of certain additive steel products from Brazil.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject
to Administrative Protective Order (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. 1671d(d)) and 19 CFR 355.20(a)(4).
Dated: January 19, 1993.
Alan M. Dunn,
Assistant Secretary for Import Administration.
[FR Doc. 93-2001 Filed 1-26-93; 8:45 am]
BILLING CODE 3510-DS-M
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Countervailing duties:
Hot-rolled lead and bismuth carbon steel products from-
Brazil, 6213