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