CITE = 58 FR 6215 (1/27/93) Filename = 93-127.htm
 

-----------------------------------------------------------

[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