NOTICES
DEPARTMENT OF COMMERCE
Leather Wearing Apparel From Uruguay; Final Affirmative
Countervailing Duty
Determination
Monday, March 30, 1981
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AGENCY: International Trade Administration,
Department of Commerce.
ACTION: Final Affirmative Countervailing Duty Determination.
SUMMARY: The U.S. Department of Commerce ("the Department")
has determined that the Government of Uruguay makes available to
the manufacturers, producers, and exporters of leather wearing
apparel incentive programs that constitute subsidies within the
meaning of the countervailing duty law.
The Department has referred this case to the International Trade
Commission for a final determination regarding material injury.
EFFECTIVE DATE: March 30, 1981.
FOR FURTHER INFORMATION CONTACT: Miguel Pardo de Zela,
Office of Investigations, International Trade Administration,
Department of Commerce, Washington, D.C. 20230, (202)
377-5050.
SUPPLEMENTARY INFORMATION:
Procedural Background
On October 15, 1980, the Department received a petition in proper
form from Ralph Edwards Sportswear, Inc., Cape Girardeau,
Missouri, on behalf of U.S. producers of leather wearing apparel.
The petitioner alleged that the Government of Uruguay provides to
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manufacturers, producers, and exporters of such apparel
certain benefits that are subsidies within the meaning of section 701
of the Tariff Act of 1930 (19 U.S.C. 1671) ("the Act").
On November 12, 1980, we published a notice (45 FR 74743) of
"Initiation of a Countervailing Duty Investigation" for this
merchandise. Since Uruguay is a "country under the Agreement," as
defined in section 701(b) of the Act, we referred this case to the
International Trade Commission (ITC) for a preliminary injury
determination. The notice stated that if the ITC determined that
there was a reasonable indication that U.S. imports of such apparel
were materially injuring or threatening to materially injure an
industry in the United States, the investigation would proceed to its
conclusion.
On December 11, 1980, the ITC preliminarily determined that there
is a reasonable indication that these imports are threatening to
materially injure an industry in the United States (45 FR 81689).
On December 17, 1980, we published a notice of "Preliminary
Affirmative Countervailing Duty Determination" (45 FR 82979).
The notice stated that the Government of Uruguay gave the leather
wearing apparel industry a subsidy of 17.387 percent of the f.o.b
value of exported merchandise through a combination of tax
certificates, a "tanner's subsidy" and income tax exemptions. We
found additional benefits of 8.63 percent ad valorem resulting from
benefits accruing to the industry from the alleged back payment of a
"tanner's subsidy" and the rebate of an export tax. Thus the
preliminary determination found that the total benefit of subsidies
amounted to 26.017 percent ad valorem. This amount was later
reduced to 18.923 percent upon confirmation that no back
payments of the "tanner's subsidy" had been made.
On February 27, 1981, we entered into a Suspension Agreement
with the government of Uruguay and "Notice of Suspension of
Countervailing Duty Investigation" was published in the Federal
Register . On March 11, 1981, we received a request by the
Government of Uruguay under section 704(g) of the Act to continue
the investigation.
Imports Investigated
The merchandise covered by this investigation is leather wearing
apparel currently provided for in item 791.76 of the Tariff
Schedules of the United States.
Programs Found to Be Subsidies
Reintegro Program
Under this program the Government of Uruguay grants tax
certificates to exporters at a fixed percentage of the f.o.b. value of
the exported item. These certificates are transferable and may be
applied against obligations for both direct and indirect taxes.
The Uruguayan Government claims that its reintegro, or rebate,
program is designed to rebate the indirect and direct taxes paid by
manufacturers of leather wearing apparel.
The non-excessive rebate of indirect taxes is, subject to certain
conditions, not considered a subsidy under U.S. countervailing
duty law. The primary considerations in determining whether
programs like the reintegro program can be considered bona fide
indirect tax rebates are (1) whether the program operates for the
purpose of rebating indirect taxes; (2) whether there is a clear link
between eligibility for payments on export and indirect taxes paid;
and (3) whether the government has reasonably calculated and
documented the actual indirect tax incidence borne by the product
concerned and has demonstrated a clear link between such tax
incidence and the amount paid on export.
The reintegro is, by its terms, designed to compensate exporters for
both direct and indirect taxes paid (the rebate of direct taxes is a
subsidy). Thus, it does not meet our first test for determining
whether the program can be considered an indirect tax rebate.
While undoubtedly compensating in some measure for indirect
taxes not otherwise, rebated, the reintegro program goes well
beyond this purpose. Further, Uruguay did not demonstrate any
link between eligibility for payments on export and indirect taxes
paid and did not demonstrate any effort to calculate the incidence of
indirect taxes borne by manufacturers of leather wearing apparel
products.
We have therefore concluded that, in this case, the reintegro
payments must be considered a subsidy program. The Government
of Uruguay applies three reintegro rates to leather wearing apparel.
In accordance with decree 206/980 of April 16, 1980, these rates
are based on the origin of the leather content of the exported
apparel. Garments made from domestic leather receive a 17 percent
reintegro; from semi-finished imported leather, a 13.6 percent
reintegro; and from finished imported leather, a 9 percent
reintegro.
The Government of Uruguay requested that three export fees and
payments be used to offset the amount of the subsidy we have found
under the reintegro program. They are: (1) a payment to the
government equal to one percent of the f.o.b. value of all exports to
compensate it for administrative and processing services, (2) a
payment of 0.3 percent of the f.o.b. value of all exports which is
collected by the government to pay for quality control services, and
(3) a direct deduction by the government of one percent of the
reintegro payment.
Under section 771(6) of the Act an offset may be granted only
where (1) application payments and fees are aid to qualify for or
receive a subsidy, (2) there is a loss in the value of a subsidy
resulting from a government-mandated delay in receipt of payment
or, (3) export taxes or duties on export merchandise are specifically
intended to offset the subsidy received.
Of the fees and payments cited, we determined that only one the one
percent deduction from reintegro payment is eligible as an offset to
our gross subsidy calculation. We have determined that this
deduction is specifically intended to reduce the amount of subsidy
received and accordingly, have reduced that amount of the
reintegro subsidy by 1 percent of the reintegro payments.
The Government of Uruguay also requested that a value-added tax
on agricultural inputs be used as an offset to the subsidy element of
the reintegro (and other subsidies we have found). We disallowed
this as an offset because there is no demonstration of a link between
this indirect tax and the rebate program.
Tax Exemption Program
This program exempts from taxation a fraction of the value-added
portion of the company's export income, after expenses and before
taxes. Since 1979 the exemption rate has declined from 100 percent
to a current rate of 30 percent of export income. As an exemption
from income tax for export earnings, this is clearly a subsidy under
our law.
Reviewing the tax exemption program for companies that
accounted for more than 85 percent of all exports to the United
States, we concluded that the program conferred a benefit of 0.016
percent ad valorem.
Non-Payment of Social Security Taxes
Uruguay has a social security tax for most workers. The tax is due
from employers at specified intervals. Since mid-1979 the
Government of Uruguay has not collected this tax specifically from
manufacturers of leather wearing
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apparel (it is collected
from other producers in other manufacturing sectors). The
Government is currently taking action to recover the unpaid
amounts.
Because the industry has received a special benefit, we consider the
industry's de facto exemption of social security taxes is a subsidy.
The benefit is 0.41 percent ad valorem. If and when their taxes are
collected, our estimated subsidy will be revised.
Programs Not in Effect
Preferential Financing
Exports of leather wearing apparel are eligible for preferential
financing, but the Central Bank of Uruguay has the discretion to
implement or rescind this program. At present it is suspended.
(Directive (Circular) No. 970 of 28 March 1979 and Directive
(Circular) No. 996 of 13 November 1979).
"Tanner's Subsidy"
The tanners subsidy existed through April 16, 1980 at which time it
was rescinded. The reintegro program subsequent to April 16, 1980
incorporates the concept, and any benefit, of the tanners subsidy.
Export Tax Rebate
In 1980, leather wearing apparel producers were subject to an
export tax. On April 16, 1980, the Government of Uruguay ordered
the suspension of this tax and a rebate of the amount of the tax paid
from January 1, 1980 to April 16, 1980. We consider the rebate of
this tax to be a subsidy of 0.76 percent ad valorem, the benefit of
which we allocate over a 12 month period. We estimate the receipt
and usuage of these rebated taxes to have begun May 31, 1980.
Under the conditions of the Suspension Agreement signed by the
Government of Uruguay, Uruguay has until June 1, 1981 to
eliminate programs found to be subsidies. The benefit of the export
tax rebate, using our 12 month allocation projection, ends May 31,
1981. Consequently, no exports of leather wearing apparel subject
to the Suspension Agreement will benefit from the tax rebate.
Verification
We verified the information used in reaching this determination by
examining Government decrees, corporate records, and tax
returns.
Final Determination
As a result of our investigation, and in accordance with section 705
of the Act, we have determined that the Government of Uruguay
provides manufacturers, producers, and exporters of leather
wearing apparel subsidies within the meaning of section 701 of the
Act. The aggregate net amount of these subsidies equals the
following subsidy rates:
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Leather origin
----------------------------------------
Domestic Semi finished Finished
origin imported imported
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Reintegro program ........................... 17.00 13.60 9.00
Tax exemption program ......................... .02 .02 .02
Noncollection of social security tax .......... .41 .41 .41
Gross subsidy ............................... 17.43 14.03 9.43
Less: Offset equal to 1 pct of the
Reintegro payments .......................... .17 .14 .09
----------------------------------------
Total: Net subsidy ......................... 17.26 13.89 9.34
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In the event the February 27 Suspension Agreement is violated, or
no longer meets the requirements of subsections (b) or (d) of
section 704 of the Act, then the Department will suspend
liquidation and issue a final countervailing duty order as
required under section 704(i)(1)(C) of the Act.
Critical Circumstance Determination
As we noted in our preliminary determination, imports or
Uruguayan leather wearing apparel have fallen since 1979 in both
relative and absolute terms. Therefore, we have not found "massive
imports of leather wearing apparel from Uruguay over a
relatively short period". Accordingly, I determine that critical
circumstances do not exist in this case.
Public Comment
In accordance with § 355.35 of the Commerce Department
Regulations (19 CFR 355.35), we offered the petitioner, Ralph
Edwards Sportswear Inc., and the respondent, the Government of
Uruguay, an opportunity to present oral views. However, neither
party requested a hearing.
John D. Greenwald,
Acting Assistant Secretary for Trade Administration.
March 24, 1981.
[FR Doc. 81-9425 Filed 3-27-81; 8:45 am]
BILLING CODE 3510-25-M