86-619

NOTICES

DEPARTMENT OF COMMERCE

[C-351-604]

Preliminary Negative Countervailing Duty Determination; Brass Sheet and Strip
From Brazil

Monday, June 9, 1986

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AGENCY: Import Administration, International Trade Administration,
Commerce.

ACTION: Notice.

SUMMARY: We preliminarily determine that no benefits which constitute subsidies within
the meaning of the countervailing duty law are being provided to manufacturers,
producers, or exporters in Brazil of brass sheet and strip. The estimated net subsidy is
0.48 percent ad valorem. The rate is de minimis, and therefore our preliminary
countervailing duty determination is negative. We have notified the U.S. International
Trade Commission (ITC) of our determination.

If this investigation proceeds normally, we will make our final determination by August 18,
1986.

EFFECTIVE DATE: June 9, 1986.

FOR FURTHER INFORMATION CONTACT:Thomas Bombelles or Barbara Tillman, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC.
20230; telephone: (202) 377-3174, or (202) 377-2438.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

Based upon our investigation, we preliminarily determine that the following programs are
countervailable:
- Preferential Working Capital Financing for Exports--Resolution 950;
- Export Financing Under the CIC-CREGE 14-11 Circular; and
- Income Tax Exemption for Export Earnings.
We preliminarily determine the estimated net subsidy to be 0.48 percent ad valorem.
Although we have determined these programs to be countervailable, the respondents
received de minimis benefits during the review period, calendar year 1985. Therefore, we
preliminarily determine that no benefits which constitute subsidies within the meaning of
section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to
manufacturers, producers, or exporters in Brazil of brass sheet and strip.

Case History

On March 10, 1986, we received a petition in proper form from American Brass, Bridgeport
Brass Corporation, Chase Brass and Copper Company, Hussey Copper Ltd., the Miller
Company, Olin Corporation-Brass group, and Revere Copper Products, Inc., domestic
manufacturers of brass sheet and strip, and by the International Association of Machinists
and Aerospace Workers, the International Union, Allied Industrial Workers of America
(AFL-CIO), the Mechanics

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Educational Society of America (Local 56), and the
United Steelworkers of America (AFL-CIO/CLC), filed on behalf of the U.S. industry
producing brass sheet and strip.
In compliance with the filing requirements of § 355.26 of the Commerce Regulations (19
CFR 355.26), the petition alleges that manufacturers, producers, or exporters in Brazil of
brass sheet and strip receive, directly or indirectly, subsidies within the meaning of section
701 of the Act, and that these imports materially injure, or threaten material injury to, a
U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate a
countervailing duty investigation, and on March 31, 1986, we initiated such an
investigation (51 FR 11776). We stated that we expected to issue a preliminary
determination by June 3, 1986.
Since Brazil is entitled to an injury determination under section 701(b) of the Act, the ITC
is required to determine whether imports of the subject merchandise from Brazil
materially injure, or threaten material injury to, a U.S. industry. Therefore, we notified the
ITC of our initiation. On April 24, 1986, the ITC determined that there is a reasonable
indication that an industry in the United States is materially injured by reason of imports
from Brazil of brass sheet and strip (51 FR 16235).
On April 9, 1986, we presented a questionnaire to the government of Brazil in Washington,
D.C. concerning the petitioners' allegations and we requested a response by May 9, 1986. On
April 30, 1986, upon request of respondent, we granted additional time to submit a
response. On May 16, 1986, we received a response to our questionnaire.
There are two known producers and exporters in Brazil of brass sheet and strip that
exported to the United States during the review period. These are Laminacao Nacional de
Metais S.A. (Laminacao) and Eluma S.A. Industria e Comercio (Eluma). According to the
government of Brazil, Laminacao and Eluma account for substantially all exports of brass
sheet and strip to the United States.

Scope of Investigation

The products covered by this investigation are brass sheet and strip, other than leaded
brass and tin brass sheet and strip, currently classified under the Tariff Schedules of the
United States Annotated (TSUSA) item numbers 612.3960, 612.3982, and 612.3986. The
chemical compositions of the products under investigation are currently defined in the
Copper Development Association (C.D.A.) 200 series or the Unified Numbering System
(U.N.S.) C20000 series. Products whose chemical compositions are defined by other C.D.A.
or U.N.S. series are not covered by this investigation.

Analysis of Programs

Throughout this notice, we refer to certain general principles applied to the facts of the
current investigation. These principles are described in the "Subsidies Appendix" attached
to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from Argentina: Final
Affirmative Countervailing Duty Determination and Countervailing Duty Order,"
which was published in the April 26, 1984 issue of the Federal Register (49 FR 18006).
Consistent with our practice in preliminary determinations, when a response to an
allegation denies the existence of a program, receipt of benefits under a program, or
eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for
purposes of the preliminary determination. All such responses are subject to verification. If
the response cannot be supported at verification, and the program is otherwise
countervailable, the program will be considered a subsidy in the final determination.
For purposes of this preliminary determination, the period for which we are measuring
subsidization ("the review period") is calendar year 1985. In its response, the government of
Brazil provided data for the applicable period, including financial statements for
Laminacao and Eluma.
Based upon our analysis of the petition and the response to our questionnaire, we
preliminary determine the following:

I. Programs Preliminarily Determined To Be Countervailable

We preliminarily determine that countervailable benefits are being provided to
manufacturers, producers, or exporters in Brazil of brass sheet and strip under the
following programs:

A. Preferential Working-Capital Financing for Exports. The Carteira do Comercio Exterior
(Foreign Trade Department, or CACEX) of the Banco do Brasil administers a program of
short-term working capital financing for the purchase of imputs. These working-capital
loans were originally authorized by Resolution 674. During the review period, these loans
were provided under Resolution 950 as amended by Resolution 1009.
Eligibility for this type of financing is determined on the basis of past export performance or
of an acceptable export plan. The amount of available financing is calculated by making a
series of adjustments to the dollar value of exports. During the review period, the maximum
level of eligibility for such financing was 20 percent of the adjusted value of exports.
Following approval by CACEX of their applications, participants in the program receive
certificates representing portions of the total dollar amount for which they are eligible. The
certificates, which must be used within one year of their issue, may be presented to banks in
return for cruzeiros at the exchange rate in effect on the date of presentation. Loans
provided through this program are made for a term of up to one year.
Resolution 950 loans are available from commercial banks, with interest calculated at the
time of repayment. Under Resolution 950, the Banco do Brasil paid the lending institution
an equalization fee of up to 10 percent of the interest (after monetary correction).
Resolution 950 was amended in May 1985 and the equalization fee was increased to 15
percent of the interest (after monetary correction). Therefore, if the interest rate charged to
the borrower is less than full monetary correction plus 15 percent, the Banco do Brasil pays
the lending bank the difference, up to 15 percent. According to the response, the lending
bank passes the 15 percent equalization fee on to the borrower in the form of a reduction of
the interest due. Receipt of the equalization fee by the borrower reduces the interest rate on
these working capital loans below the commercial rate of interest. Resolution 950 loans are
also exempt from the Imposto Sobre Operacoes Financieras (IOF), a tax charged on all
domestic financial transactions in Brazil.
Since receipt of working-capital financing under Resolution 950 is contingent on export
performance, and provides funds to participants at preferential rates, we preliminarily
determine that this program confers an export subsidy.
In order to calculate the benefit, we multiplied the value of the Resolution 950 loans repaid
in 1985 by the sum of the equalization fee and the IOF. We then allocated the benefit over
the total value of all 1985 exports, resulting in an estimated net subsidy of 0.43 percent ad
valorem.

B. Export Financing Under the CIC-CREGE 14-11 Circular. Under its CIC-CREGE 14-11
Circular (14-11), the

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Banco do Brasil provides 180- and 360-day cruzeiro loans for
export financing, on the condition that companies applying for these loans negotiate
fixed-level exchange contracts with the bank. Companies obtaining a 360-day loan must
negotiate exchange contracts with the bank in an amount equal to twice the value of the
loan. Companies obtaining a 180-day loan must negotiate an exchange contract equal to the
amount of the loan. Loans under this program are also exempt from the IOF.
According to the response, one company received one 14-11 loan on which interest was
paid during the review period. We compared the interest charged on the 14-11 loan to our
short-term loan benchmark for Brazil, i.e., the nominal discount rate on accounts
receivable. This comparison shows that the rate on the 14-11 loan is below the benchmark.
Since 14-11 loans are available only to exporters and since the interest charged is less than
the benchmark, we preliminarily determine that the 14-11 loan confers an export subsidy.
In order to calculate the benefit from this program, we multiplied the principal of the 14-11
loan by the difference between our benchmark rate and the interest rate charged on 14-11
loan, adjusted by the value of the I0F exemption. We allocated that benefit over the total
value of all exports, resulting in an estimated net subsidy of 0.05 percent ad valorem.

C. Income Tax Exemptions for Export Earnings. Under Decree-Laws 1158 and 1721,
Brazilian exporters are eligible for an exemption from income tax on a portion of profits
attributable to export revenue. Because this exemption is tied to exports and is not
available for domestic sales, we preliminarily determine that this exemption confers an
export subsidy.
In its response, the government of Brazil stated that even though the brass sheet and strip
producers under investigation claimed this deduction on their 1984 tax returns, this claim
did not affect their tax liability during the review period because the respondents would
have incurred a tax loss even absent this exemption. Therefore, although we preliminarily
determine this tax exemption program to be countervailable, the estimated net
countervailable benefit during the review period is zero.

II. Programs Preliminarily Determined Not To Be Used

We preliminarily determine that manufacturers, producers, or exporters in Brazil of brass
sheet and strip did not use the following programs which were listed in our notice of
"Initiation of a Countervailing Duty Investigation: Brass Sheet and Strip from Brazil"
(51 Fed. Reg. 11776).

A. Resolution 330 of the Banco Central do Brasil. Resolution 330 provides financing for up
to 80 percent of the value of the merchandise placed in a specified bonded warehouse and
destined for export. Exporters of brass sheet and strip would be eligible for financing under
this program. However, the government of Brazil stated in its response that none of the
brass sheet and strip producers under investigation participated in this program during the
review period; therefore, we preliminarily determine that this program was not used.

B. Exemption of IPI Tax and Customs Duties on Imported Equipment (CDI). Under
Decree-Law 1428, the Conselho do Desenvolvimento Industrial (Industrial Development
Council, or CDI) provides for the exemption of 80 to 100 percent of the customs duties and
80 to 100 percent of the IPI tax on certain imported machinery for projects approved by
the CDI. The recipient must demonstrate that the machinery or equipment for which an
exemption is sought was not available from a Brazilian producer. The investment project
must be deemed to be feasible and the recipient must demonstrate that there is a need for
added capacity in Brazil.
The government of Brazil stated in its response that none of the brass sheet and strip
producers subject to the investigation received incentives under this program during the
review period.

C. The BEFIEX Program. The Comissao para a Concessao de Beneficios Fiscais a Programas
Especiais de Exportacao (Commission for the Granting of Fiscal Benefits to Special Export
Programs, or BEFIEX) grants at least three categories of benefits to Brazilian exporters:
- Under Decree-Law 77.065, BEFIEX may reduce by 70 to 90 percent import duties and the
IPI tax on the importation of machinery, equipment, apparatus, instruments, accessories
and tools necessary for special export programs approved by the Ministry of Industry and
Trade, and may reduce by 50 percent import duties and the IPI tax on imports of
components, raw materials and intermediary products;
- Under article 13 of Decree No. 72.1219, BEFIEX may extend the carry-forward period for
tax losses from four to six years; and
- Undr article 14 of the same decree, BEFIEX may allow special amortization of
pre-operationsl expenses related to approved products.
In its response, the government of Brazil stated that brass sheet and strip producers
under investigation did not participate in this program during the review period.

D. The CIEX Program. Decree-Law 1428 authorized the Comissao para Incentivos a
Exportacao (Commission for Export Incentives, or CIEX) to reduce import taxes and the
IPI tax up to 10 percent on certain equipment for use in export production. In its response,
the government of Brazil stated that none of the brass sheet and strip producers under
investigation participated in this program during the review period.

E. Accelerated Depreciation for Brazilian-Made Capital Equipment. Pursuant to Decree-Law
1137, any company which purchases Brazilian-made capital equipment and has an
expansion project approved by the CDI may depreciate this equipment at twice the rate
normally permitted under Brazilian tax laws. In the response, the government of Brazil
stated that none of the brass sheet and strip producers under investigation used this
program during the review period.

F. Incentives for Trading Companies. Under Resolution 643 of the Banco Central do Brasil,
trading companies can obtain export financing similar to that obtained by manufacturers
under Resolution 950. In its response, the government of Brazil stated that the brass
sheet and strip producers under investigation did not receive any benefits under this
program during the review period.

G. The PROEX Program. Short-term credits for exports are available under the Programa de
Financiamento a Producao para a Exportacao (PROEX), a loan program operated by Banco
Nacional do Desenvolvimento Economico e Social (National Bank of Economic and Social
Development, or BNDES). In its response, the government of Brazil stated that none of the
brass sheet and strip producers under investigation received loans or had loans
outstanding under this program during the review period.

H. Resolution 68 and 509 (FINEX) Financing. Resolutions 68 and 509 of the Conselho
Nacional do Comercio Exterior (CONCEX) provide that CACEX may draw upon the
resources of the Fundo de Financiamento a Exportacao (FINEX) to extend
dollar-denominated loans to both exporters and foreign buyers of Brazilian goods.
Financing is granted on a transaction-by-transaction basis. In its response, the government
of Brazil stated that neither the brass sheet and strip producers under investigation nor
U.S. buyers of

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the subject merchandise received Resolution 68 or 509 financing or
had outstanding loans during the review period.

I. Loans Through the Apoio o Desenvolvimento Tecnologica a Empresa Nacional (ADTEN).
Petitioners allege that the government of Brazil maintains, through the Financiadora de
Estudos Projectos (FINEP), a loan program, ADTEN, that provides long-term loans on terms
inconsistent with commercial considerations to encourage the growth of industries and
development of technology. In its response, the government of Brazil stated that none of
the companies under investigation had loans through this program outstanding during the
review period.

J. Preferential Pricing of Electricity. Petitioners allege that the government of Brazil
provides electricity at preferential prices to manufacturers, producers, and exporters of
brass sheet and strip in Brazil. In its response the government of Brazil stated that the
brass sheet and strip producers under investigation paid normal published rates for all
electricity consumed.

K. BANDES Financing and Other Regional Financing. Petitioners allege that the government
of Brazil provides financing on terms inconsistent with commercial considerations to the
brass sheet and strip industry through regional development banks, such as BANDES.
BANDES is the regional development bank for the state of Espirito Santo, where the
respondent companies are located. In its response, the government of Brazil stated that a
BANDES loan was made to a subsidiary of Eluma. However, that company does not produce
the product under investigation. Accordingly, we preliminarily determine that BANDES
financing was not used by producers of the subject merchandise.

Verification

In accordance with section 776(a) of the Act, we will verify the data used in making our
final determination. We will not accept any statement in a response that cannot be verified
for our final determination.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In
addition, we are making available to the ITC all non- privileged and non-confidential
information relating to this investigation. We will allow the ITC access to all privileged and
confidential 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
consent of the Deputy Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will determine whether these imports
materially injure, or threaten material injury to, a U.S. industry within 75 days after the
Department makes its final determination.

Public Comment

In accordance with § 355.35 of the Commerce Regulations (19 CFR 355.35) we will hold a
public hearing, if requested to afford interested parties an opportunity to comment on this
preliminary determination at 10:00 on July 11, 1986, at the U.S. Department of Commerce,
Room 1851, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Individuals
who wish to participate in the hearing must submit a request to the Deputy Assistant
Secretary, Import Administration, Room B-099, at the above address within 10 days of the
publication of this notice in the Federal Register.
Requests should contain: (1) The party's name, address, and telephone number; (2) the
number of participants; (3) the reason for attending; and (4) a list of the issues to be
discussed. In addition, at least 10 copies of the confidential version and seven copies of the
nonconfidential version of the prehearing briefs must be submitted to the Deputy Assistant
Secretary by June 30, 1986. Oral presentations will be limited to issues raised in the briefs.
All written views should be filed in accordance with 19 CFR 353.34, within 30 days of
publication of this notice, at the above address in at least 10 copies.
This determination is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: June 4, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary for Import Administration.

[FR Doc. 86-12929 Filed 6-6-86; 8:45 am]

BILLING CODE 3510-DS-M