[Federal Register Volume 64, Number 190 (Friday, October 1, 1999)]
[Notices]
[Pages 53332-53338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25619]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-351-831]
Preliminary Affirmative Countervailing Duty Determination and
Alignment with Final Antidumping Duty Determination: Certain Cold
Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 1, 1999.
FOR FURTHER INFORMATION CONTACT: Javier Barrientos or Dana Mermelstein,
Office of CVD/AD Enforcement VII, Import Administration, U.S.
Department of Commerce, Room 7866, 14th Street
[[Page 53333]]
and Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202)
482-1394 and (202) 482-3208 respectively.
PRELIMINARY DETERMINATION: The Department of Commerce (the Department)
preliminarily determines that countervailable subsidies have been
provided to producers and/or exporters of certain cold-rolled flat-
rolled carbon-quality steel products from Brazil. For information on
the estimated countervailing duty rates, please see the ``Suspension of
Liquidation'' section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Bethlehem Steel
Corporation, Gulf States Steel Inc., Ispat Inland, Inc., LTV Steel
Company, Inc., National Steel Corporation, Steel Dynamics Inc., U.S.
Steel Group (a unit of USX Corporation), Weirton Steel Corporation, the
Independent Steelworkers of America and the United Steelworkers of
America (collectively, ``the petitioners'').
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigations: Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel
Products From Brazil, Indonesia, Thailand, and Venezuela, 64 FR 34204
(June 25, 1999) (Initiation Notice)), the following events have
occurred. On June 25, 1999, we issued countervailing duty
questionnaires to the Government of Brazil (GOB) and the producers/
exporters of the subject merchandise (cold-rolled flat-rolled carbon-
quality steel products, or ``cold-rolled steel''). On August 3, 1999,
we received responses to our initial questionnaires from the GOB and
the producers/exporters of the subject merchandise: Companhia
Siderugica Nacional (CSN), Usinas Siderugicas de Minas Gerais
(USIMINAS) and Companhia Siderurgica Paulista (COSIPA). Acesita-Cia
Acos Especiais Itabira entered an appearance on July 16, 1999, stating
that it had not exported subject merchandise to the United States
during the POI. On August 24, 1999, we issued a supplemental
questionnaire to the GOB and received the response on September 13,
1999. We issued a second supplemental questionnaire on September 20,
1999, and received the response on September 23, 1999.
Scope of Investigation
For purposes of this investigation, the products covered are
certain cold-rolled (cold-reduced) carbon steel flat products, neither
clad, plated, nor coated with metal, but whether or not annealed,
painted, varnished, or coated with plastics or other non-metallic
substances, both in coils, 0.5 inch wide or wider, (whether or not in
successively superimposed layers and/or otherwise coiled, such as
spirally oscillated coils), and also in straight lengths, which, if
less than 4.75 mm in thickness having a width that is 0.5 inch or
greater and that measures at least 10 times the thickness; or, if of a
thickness of 4.75 mm or more, having a width exceeding 150 mm and
measuring at least twice the thickness. The products described above
may be rectangular, square, circular or other shape and include
products of either rectangular or non-rectangular cross-section where
such cross-section is achieved subsequent to the rolling process (i.e.,
products which have been ``worked after rolling'')--for example,
products which have been beveled or rounded at the edges.
Specifically included in this scope are vacuum degassed, fully
stabilized (commonly referred to as interstitial-free (IF)) steels,
high strength low alloy (HSLA) steels, and motor lamination steels. IF
steels are recognized as low carbon steels with micro-alloying levels
of elements such as titanium and/or niobium added to stabilize carbon
and nitrogen elements. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum. Motor lamination steels contain
micro-alloying levels of elements such as silicon and aluminum.
Steel products included in the scope of this investigation,
regardless of definitions in the Harmonized Tariff Schedules of the
United States (HTSUS), are products in which (1) iron predominates, by
weight, over each of the other contained elements, (2) the carbon
content is 2 percent or less, by weight, and (3) none of the elements
listed below exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
2.25 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium (also called columbium), or
0.15 percent of vanadium, or
0.15 percent of zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not exceed any one of the noted
element levels listed above, are within the scope of this investigation
unless specifically excluded. The following products, by way of
example, are outside and/or specifically excluded from the scope of
this investigation:
SAE grades (formerly also called AISI grades) 2300 and
higher;
Ball bearing steels, as defined in the HTSUS;
Tool steels, as defined in the HTSUS;
Silico-manganese steel, as defined in the HTSUS;
Grain-oriented silicon electrical steel;
Non-grain-oriented silicon electrical steel with a silicon
level exceeding 2.25 percent;
All products (proprietary or otherwise) based on an alloy
ASTM specification (sample specifications: ASTM A506, A507).
The merchandise subject to this investigation is typically
classified in the HTSUS at subheadings: 7209.15.0000, 7209.16.0030,
7209.16.0060, 7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090,
7209.18.1530, 7209.18.1560, 7209.18.2510, 7209.18.2550, 7209.18.6000.
7209.25.0000, 7209.26.0000, 7209.27.0000, 7209.28.0000, 7209.90.0000,
7210.70.3000, 7210.90.9000, 7211.23.1500, 7211.23.2000, 7211.23.3000,
7211.23.4500, 7211.23.6030, 7211.23.6060, 7211.23.6075, 7211.23.6085,
7211.29.2030, 7211.29.2090, 7211.29.4500, 7211.29.6030, 7211.29.6080,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.19.0000,
7225.50.6000, 7225.50.7000, 7225.50.8010, 7225.50.8015, 7225.50.8085,
7225.99.0090, 7226.19.1000, 7226.19.9000, 7226.92.5000, 7226.92.7050,
7226.92.8050, and 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
[[Page 53334]]
regulations codified at 19 C.F.R. Part 351 (1998) and to the
substantive countervailing duty regulations published in the Federal
Register on November 25, 1998 (63 FR 65348) (CVD Regulations).
Injury Test
Because Brazil is a ``Subsidies Agreement Country'' within the
meaning of 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. On July 30,
1999, the ITC published its preliminary determination that there is a
reasonable indication that an industry in the United States is being
materially injured, or threatened with material injury, by reason of
imports from Brazil of the subject merchandise (64 FR 41458). The
Commission transmitted its determination in this investigation to the
Secretary of Commerce on July 19, 1999. The views of the Commission are
contained in USITC Publication 3214 (July 1999), entitled Certain Cold-
Rolled Steel Products from Argentina, Brazil, China, Indonesia, Japan,
Russia, Slovakia, South Africa, Taiwan, Thailand, Turkey, and
Venezuela: Investigations Nos. 701-TA-393-396 and 731-TA-829-840
(Preliminary).
Alignment With Final Antidumping Duty Determination
On September 16, 1999, the petitioners submitted a letter
requesting alignment of the final determination in this investigation
with the final determination in the companion antidumping duty
investigation. See Initiation of Antidumping Duty Investigations:
Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel Products From
Argentina, Brazil, the People's Republic of China, Indonesia, Japan,
the Russian Federation, Slovakia, South Africa, Taiwan, Thailand,
Turkey, and Venezuela, 64 FR 34194 (June 22, 1999). In accordance with
section 705(a)(1) of the Act, we are aligning the final determination
in this investigation with the final determinations in the antidumping
investigations of certain cold-rolled flat-rolled carbon-quality steel
products.
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1998.
Company Histories
USIMINAS was founded in 1956 as a venture between the Brazilian
Government, various stockholders and Nippon Usiminas. In 1974, the
majority interest in USIMINAS was transferred to SIDERBRAS, the
government holding company for steel interests. The company underwent
several expansions of capacity throughout the 1980s. In 1990, SIDERBRAS
was put into liquidation and the GOB decided to include its operating
companies, including USIMINAS, in its National Privatization Program
(NPP). In 1991, USIMINAS was partially privatized; as a result of the
initial auction, Companhia do Vale do Rio Doce (CVRD), a majority
government-owned iron ore producer, acquired 15 percent of USIMINAS's
common shares. In 1994, the Government disposed of additional holdings,
amounting to 16.2 percent of the company's equity. USIMINAS is now
owned by CVRD and a consortium of private investors, including Nippon
Usiminas, Caixa de Previdencia dos Funcionarios do Banco do Brasil
(Previ) and the USIMINAS Employee Investment Club. CVRD was partially
privatized in 1997, when 31 percent of the company's shares were sold.
COSIPA was established in 1953 as a government-owned steel
production company. In 1974, COSIPA was transferred to SIDERBRAS. Like
USIMINAS, COSIPA was included in the NPP after SIDERBRAS was put into
liquidation. In 1993, COSIPA was partially privatized, with the GOB
retaining a minority of the preferred shares. Control of the company
was acquired by a consortium of investors led by USIMINAS. In 1994,
additional government-held shares were sold, but the GOB still
maintained approximately 25 percent of COSIPA's preferred shares.
During the POI, USIMINAS owned 49.8 percent of the voting capital stock
of the company. Other principal owners include Bozano Simonsen Asset
Management Ltd., the COSIPA Employee Investment Club, and COSIPA's
Pension Fund (FEMCO).
CSN was established in 1941 and commenced operations in 1946 as a
government-owned steel company. In 1974, CSN was transferred to
SIDERBRAS. In 1990, when SIDERBRAS was put into liquidation, the GOB
included CSN in its NPP. In 1991, 12 percent of the equity of the
company was transferred to the CSN employee pension fund. In 1993, CSN
was partially privatized; CVRD, through its subsidiary Vale do Rio Doce
Navegacao S.A. (Docenave), acquired 9.4 percent of the common shares.
The GOB's remaining share of the firm was sold in 1994. CSN is now
owned by Docenave/CVRD and a consortium of private investors, including
Uniao Comercio e Partipacoes Ltda., Textilia S.A., Previ, the CSN
Employee Investment Club, and the CSN employee pension fund. As
discussed above, CVRD was partially privatized in 1997; CSN was part of
the consortium that acquired control of CVRD through this partial
privatization.
Attribution of Subsidies
The GOB has identified three producers/exporters of the subject
merchandise in this investigation: USIMINAS, COSIPA, and CSN. As
discussed above, USIMINAS owns 49.8 percent of COSIPA. The CVD
Regulations, at section 351.525(b)(6)(ii) provide guidance with respect
to the attribution of subsidies between or among companies which have
cross-ownership. Specifically, with respect to two or more corporations
producing the subject merchandise which have cross-ownership, the
regulations direct us to attribute the subsidies received by either or
both corporations to the products produced by both corporations.
Further, section 351.525(b)(6)(vi) defines cross-ownership as existing
``between two or more corporations where one corporation can use or
direct the individual assets of the other corporation(s) in essentially
the same ways it can use its own assets. Normally, this standard will
be met where there is a majority voting ownership interest between two
corporations through common ownership of two (or more) corporations.''
The preamble to the CVD Regulations identifies situations where cross-
ownership may exist even though there is less than a majority voting
interest between two corporations: ``in certain circumstances, a large
minority interest (for example, 40 percent) or a ``golden share'' may
also result in cross-ownership'' (63 FR at 65401).
In this investigation, we have preliminarily determined that
USIMINAS's 49.8 percent ownership interest in COSIPA is sufficient to
establish cross-ownership between the two companies because USIMINAS is
capable of using or directing the individual assets of COSIPA in
essentially the same ways it can use its own assets. We base this
determination on the following facts: (1) USIMINAS has virtually a
majority share in COSIPA; and (2) the remaining shareholdings are
divided among numerous shareholders (more than ten), with no one
shareholder controlling even one-quarter of the shares which USIMINAS
controls. Thus, for purposes of this preliminary determination, we have
calculated one subsidy rate for USIMINAS/COSIPA, by adding together
their countervailable subsidies during
[[Page 53335]]
the POI and dividing that amount by the sum of the two companies' sales
during the POI.
We have also examined the ownership of CSN. We note that during the
POI, two entities, CVRD and Previ (the pension fund of the Bank of
Brasil), had meaningful holdings in both USIMINAS and CSN. As these
entities both have ownership interests in and elect members to the
Boards of Directors of both companies, we examined whether CSN and
USIMINAS could, notwithstanding the absence of direct cross-ownership
between them, have cross-ownership such that their interests are
merged, and one company could have the ability to use or direct the
assets of the other through their common investors. CVRD holds 15.48
percent of USIMINAS and 10.3 percent of CSN (through Docenave); Previ
holds 15 percent of the common shares of USIMINAS and 13 percent of
CSN. Both USIMINAS and CSN are controlled through shareholders'
agreements, which require the participating shareholders (who account
for more than 50 percent of the shares of the company) pre-vote issues
before the Board of Directors and vote as a block. While CVRD and Previ
both participate in the CSN shareholders' agreement, and thus exercise
considerable influence over the use of CSN's assets, neither CVRD or
Previ participates in the USIMINAS shareholders' agreement and neither
CVRD or Previ has any appreciable influence (beyond their respective
15.48 and 15 percent USIMINAS shareholdings) over the use of USIMINAS's
assets. Therefore, CVRD's and Previ's shareholdings in both USIMINAS
and CSN are not sufficient to establish cross-ownership between those
two companies under our regulatory standard. This lack of common
majority shareholders leads us to preliminarily determine that
USIMINAS's and CSN's interests have not merged, i.e., one company is
not able to use or direct the individual assets of the other as though
the assets were their own. Thus, for the purposes of this preliminary
determination, we have calculated a separate countervailing duty rate
for CSN.
Changes in Ownership
In the General Issues Appendix (GIA), attached to the Final
Affirmative Countervailing Duty Determination; Certain Steel Products
from Austria, 58 FR 37217, 37226 (July 9, 1993), we applied a new
methodology with respect to the treatment of subsidies received prior
to the sale of the company (privatization).
Under this methodology, we estimate the portion of the company's
purchase price which is attributable to prior subsidies. We compute
this by first dividing the face value of the company's subsidies by the
company's net worth for each of the years corresponding to the
company's allocation period, ending one year prior to the
privatization. We then take the simple average of these ratios, which
serves as a reasonable surrogate for the percentage that subsidies
constitute of the overall value, i.e., net worth, of the company. Next,
we multiply the purchase price of the company by this average ratio to
derive the portion of the purchase price that we estimate to reflect
the repayment of prior subsidies. Then, we reduce the benefit streams
of the prior subsidies by the ratio of the repayment/reallocation
amount to the net present value of all remaining benefits at the time
of the change in ownership.
In the current investigation, we are analyzing the privatizations
of USIMINAS, COSIPA and CSN, including the various partial
privatizations. In conducting these analyses, to the extent that
partially government-owned companies purchased shares, we have not
applied our methodology to a percentage of the acquired shares equal to
the percentage of government ownership in the partially government-
owned purchaser. We have adjusted certain figures included in the
privatization calculations to account for inflationary accounting
practices. Further, we have made additional adjustments to USIMINAS and
CSN's calculations to account for CVRD's 1997 partial privatization.
See Brazil Hot-Rolled Final at 38745, 38752 (Department's Position on
Comment 3).
In the Brazil Hot-Rolled Final, we noted the use of privatization
currencies, i.e., certain existing government bonds, privatization
certificates and frozen currencies, and examined them in the context of
our privatization methodology. We obtained information about the use
and valuation of the privatization currencies that were used in the
NPP, and we learned about how privatization currencies were valued in
the context of the privatization auctions. Specifically, we found that
the GOB accepted most of these currencies at their full redeemable
value (face value discounted according to the time remaining until
maturity). Additionally, foreign debt and restructuring bonds (MYDFAs)
were accepted at 75 percent of their redeemable value. Many of the
government bonds that were accepted as privatization currencies were
trading at a discount on secondary markets. However, no data or
estimation of what discounts applied was provided for the record. See
Brazil Hot-Rolled Final at 38745. Further, it was common knowledge that
these bonds traded at a discount in these markets, and that investors
actively traded to obtain the cheapest bonds in order to maximize their
positions in the privatization auctions. The value of the bonds varied
depending on the instrument's yield and length to maturity and traded
within a range of 40 percent to 90 percent of the redeemable value,
i.e., with a discount ranging from 10 percent to 60 percent. Because
various issues of bonds were accepted as privatization currencies, with
different yields and terms, precise valuation data was not available.
However, public information from the record of the hot-rolled
investigation subsequently placed on the record of this investigation,
indicates that during the period of 1991-1994 most bonds traded with
discounts ranging from 40 to 60 percent on average. Privatization
Certificates (CPs), which banks were forced to purchase and could only
be used in the privatization auctions, traded at a discount of
approximately 60 percent on average. See Brazil Hot-Rolled Final, 64 FR
at 38745.
In the hot-rolled investigation, we concluded that some adjustment
to the purchase price of the companies is warranted because of the use
of privatization currencies in the auctions. See Brazil Hot-Rolled
Final, at 38745, 38752 (the Department's Position on Comment 3). No
further information has been provided in the record of this
investigation which would enable us to refine or otherwise cause us to
change the approach we developed in the hot-rolled investigation. Thus,
we have followed the same approach and have applied a 30 percent
discount to the MYDFAs. In addition, as we did in the hot-rolled
investigation, we have applied a 60 percent discount to the CPs. See
Id. For the remaining privatization currencies, in the Brazil Hot-
Rolled Final, we applied a 50 percent discount as facts available,
which reflected an average of the range of discounts estimated. Because
no information has been provided to date in this investigation which
accurately indicates the relevant secondary market discounts for these
instruments, and in accordance with section 776(a) of the Act, we are
again applying, as facts available, the 50 percent discount to the
remaining privatization currencies.
[[Page 53336]]
Subsidies Valuation Information:
Allocation Period
Section 351.524(d)(2) of the CVD Regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System and updated by the Department of
Treasury. The presumption will apply unless a party claims and
establishes that these tables do not reasonably reflect the AUL of the
renewable physical assets for the company or industry under
investigation, and the party can establish that the difference between
the company-specific or country-wide AUL for the industry under
investigation is significant.
No company requested or submitted information which yielded a
company-specific AUL significantly different from the AUL listed in the
IRS tables. Therefore, we are using the 15 year AUL as reported in the
IRS tables to allocate non-recurring subsidies under investigation in
the preliminary calculations.
Equityworthiness
In measuring the benefit from a government equity infusion, in
accordance with section 351.507 (a)(1) of the Department's CVD
Regulations, a government-provided equity infusion confers a benefit to
the extent that the investment decision is inconsistent with the usual
investment practice of private investors, including the practice
regarding the provision of risk capital, in the country in which the
equity infusion is made. See also section 771(5)(E)(i) of the Act. Our
review of the record in this investigation has not led us to change our
finding from prior investigations. Specifically, we determined an
unequityworthy status: (1) for COSIPA, 1977 through 1989, and 1992
through 1993; (2) for USIMINAS, 1980 through 1988; and (3) for CSN,
1977 through 1992. Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Brazil, 58 FR 37295, 37297
(July 9, 1993) (1993 Certain Steel Final); Brazil Hot-Rolled Final, 64
FR at 38746. We note that because the Department determined that it is
appropriate to use a 15-year allocation period for non-recurring
subsidies, equity infusions provided in the years 1977 through 1983 no
longer provide a benefit in the POI. No new information has been
submitted in this investigation that would cause us to reconsider these
determinations.
Section 351.507(a)(3) of the Department's CVD Regulations provides
that a determination that a firm is unequityworthy constitutes a
determination that the equity infusion was inconsistent with usual
investment practices of private investors. The Department will then
apply the methodology described in section 351.507(a)(6) of the
regulations, and treat the equity infusion as a grant. Use of the grant
methodology for equity infusions into an unequityworthy company is
based on the premise that an unequityworthiness finding by the
Department is tantamount to saying that the company could not have
attracted investment capital from a reasonable investor in the infusion
year based on the available information.
Creditworthiness
To determine whether a company is uncreditworthy, the Department
must examine whether the firm could have obtained long-term loans from
conventional commercial sources based on information available at the
time of the government-provided loan. See section 351.505 (a)(4) of the
CVD Regulations. In this context, the term ``commercial sources''
refers to bank loans and non-speculative grade bond issues. See section
351.505 (a)(2)(ii) of the CVD Regulations.
The Department has previously determined that respondents were
uncreditworthy in the following years: USIMINAS, 1983-1988; COSIPA,
1983-1989 and 1991-1993; and CSN 1983-1992. See Certain Steel from
Brazil, 58 FR at 37297; Brazil Hot-Rolled Final, 64 FR at 38746-38747.
No new information has been presented in this investigation that would
lead us to reconsider these findings.
Discount Rates
From 1984 through 1994, Brazil experienced persistent high
inflation. There were no long-term fixed-rate commercial loans made in
domestic currencies during those years that could be used as discount
rates. As in the Certain Steel Final (58 FR at 37298) and the Brazil
Hot-Rolled Final (64 FR 38745-38746), we have determined that the most
reasonable way to account for the high inflation in the Brazilian
economy through 1994, and the lack of an appropriate Brazilian discount
rate, is to convert the non-recurring subsidies into U.S. dollars. If
available, we applied the exchange rate applicable on the day the
subsidies were granted, or, if unavailable, the average exchange rate
in the month the subsidies were granted. Then we applied, as the
discount rate, a long-term dollar lending rate. Therefore, for our
discount rate, we used data for U.S. dollar lending in Brazil for long-
term non-guaranteed loans from private lenders, as published in the
World Bank Debt Tables: External Finance for Developing Countries. This
conforms with our practice in Certain Steel Final (58 FR at 37298);
Brazil Hot-Rolled Final (64 FR at 38746) and Final Affirmative
Countervailing Duty Determination: Steel Wire Rod from Venezuela (62 FR
55014, 55019, 55023) (October 21, 1997).
Because we have determined that USIMINAS, COSIPA, and CSN were
uncreditworthy in the years in which they received equity infusions,
section 351.505 (a)(3)(iii) of the CVD Regulations directs us regarding
the calculation of a discount rate for purposes of calculating the
benefits for uncreditworthy companies.
To calculate the discount rate for uncreditworthy companies, the
Department must identify values for the probability of default by
uncreditworthy and creditworthy companies. For the probability of
default by an uncreditworthy company, we normally rely on the average
cumulative default rates reported for the Caa to C-rated category of
companies as published in Moody's Investors Service, ``Historical
Default Rates of Corporate Bond Issuers, 1920-1997'' (February
1998).1 For the probability of default by a creditworthy
company, we used the cumulative default rates for Investment Grade
bonds as reported by Moody's. We established that this figure
represents a weighted average of the cumulative default rates for Aaa
to Baa-rated companies. See September 24, 1999, Memorandum to the File,
``Conversations and correspondence regarding the weighted average
default rates of corporate bond issuers as published by Moody's,'' on
file in the CRU. The use of the weighted average is appropriate because
the data reported by Moody's for the Caa to C-rated companies is also a
weighted average. See Id. For non-recurring subsidies, we used the
average cumulative default rates for both uncreditworthy and
creditworthy companies based on a 15-year term, since all of the non-
recurring subsidies examined were allocated over a 15-year period.
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\1\ We note that since publication of the CVD Regulations,
Moody's Investors Service no longer reports default rates for Caa to
C-rated category of companies. Therefore for the calculation of
uncreditworthy interest rates, we will continue to rely on the
default rates as reported in Moody Investor Service's publication
dated February 1998 (at Exhibit 28).
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[[Page 53337]]
I. Programs Preliminarily Determined To Be Countervailable
A. Pre-1992 Equity Infusions
As discussed above, the GOB, through SIDERBRAS, provided equity
infusions to USIMINAS (1983 through 1988), COSIPA (1983 through 1989
and 1991) and CSN (1983 through 1991) that have previously been
investigated by the Department. See Certain Steel from Brazil, 58 FR at
37298; Brazil Hot-Rolled Final, 64 FR at 38747-38748.
We preliminarily determine that under section 771(5)(E)(i) of the
Act, the equity infusions into USIMINAS, COSIPA and CSN were not
consistent with the usual investment practices of private investors.
Thus, these infusions constitute financial contributions within the
meaning of section 771(5)(D) of the Act and confer a benefit in the
amount of each infusion (see ``Equityworthiness'' section above). These
equity infusions are specific within the meaning of section 771(5A)(D)
of the Act because they were limited to each of the companies.
Accordingly, we find that the pre-1992 equity infusions are
countervailable subsidies within the meaning of section 771(5) of the
Act.
As explained in the ``Equity Methodology'' section above, we have
treated equity infusions into unequityworthy companies as grants given
in the year the infusion was received. These infusions are non-
recurring subsidies in accordance with section 351.524(c)(1) of the CVD
Regulations. Consistent with section 351.524(d)(3)(ii) of the CVD
Regulations, because USIMINAS, COSIPA and CSN were uncreditworthy in
the relevant years (the years the equity infusions were received), we
applied a discount rate that takes into account the differences between
the probabilities of default of creditworthy and uncreditworthy
borrowers. From the time USIMINAS, COSIPA and CSN were privatized, we
have been following the methodology outlined in the ``Change in
Ownership'' section above to determine the amount of each equity
infusion attributable to the companies after privatization. We still
continue to rely on this methodology except for the selection of the
discount rate as discussed above.
For CSN, we summed the benefits allocable to the POI from all
equity infusions and divided by CSN's total sales during the POI. For
USIMINAS/COSIPA, we summed the benefits allocable to the POI from all
of the equity infusions and divided this amount by the combined total
sales of USIMINAS/COSIPA during the POI. On this basis, we
preliminarily determine the net subsidy to be 5.37 percent ad valorem
for CSN and 5.99 percent ad valorem for USIMINAS/COSIPA.
B. GOB Debt-for-Equity Swaps Provided to COSIPA in 1992 and 1993
Prior to COSIPA's privatization, and in accordance with the
recommendations of one of the consultants who examined COSIPA, the GOB
made two debt-for-equity swaps in 1992 and 1993. We previously examined
these swaps and determined that they were not consistent with the usual
investment practices of private investors, constituted a financial
contribution within the meaning of section 771(5)(D) of the Act, and
therefore conferred countervailable benefits on COSIPA in the amount of
each conversion. See Brazil Hot-Rolled Final, 64 FR at 38747. No
information has been provided in this investigation which would warrant
the reconsideration of this finding. Thus, we preliminarily determine
that pursuant to section 771(5)(E)(i) of the Act, these debt-for-equity
swaps confer a benefit in the amount of each swap (see
``Equityworthiness'' section above). These debt-for-equity swaps are
specific within the meaning of section 771(5A)(D) of the Act because
they were limited to COSIPA. Accordingly, we find that the GOB debt-
for-equity swaps provided to COSIPA in 1992 and 1993 are
countervailable subsidies within the meaning of section 771(5) of the
Act.
Each debt-to-equity swap constitutes an equity infusion in the year
in which the swap was made. As such, we have treated each debt-for-
equity swap as a grant given in the year the swap was made in
accordance with section 351.507(a)(6) of the CVD Regulations. Further
these swaps, as equity infusions, are non-recurring in accordance with
section 351.524(c)(1) of the CVD Regulations. Because COSIPA was
uncreditworthy in the years of receipt, we applied a discount rate
consistent with section 351.524(d)(3)(ii) of the CVD Regulations as
discussed in the ``Uncreditworthy Rate'' section above. Since COSIPA
has been privatized, we followed the methodology outlined in the
``Change in Ownership'' section above to determine the amount of each
debt-for-equity swap attributable to the company after privatization.
We divided the benefit allocable to the POI from these debt-for-equity
swaps by the combined total sales of USIMINAS/COSIPA. On this basis, we
preliminarily determine the net subsidy to be 5.89 percent ad valorem
for USIMINAS/COSIPA.
C. GOB Debt-to-Equity Swap Provided to CSN in 1992
Prior to CSN's privatization, and in accordance with the
recommendations of one of the consultants who examined CSN, in 1992,
the GOB converted some of CSN debt into GOB equity in CSN. In this
investigation, we initiated on this debt-for-equity swap as a straight
equity infusion (see Initiation Notice 64 FR 34204), but subsequent to
our initiation, in the Brazil Hot-Rolled Final, we determined that this
constituted a debt-for-equity swap (64 FR at 38748). In the Brazil Hot-
Rolled Final, we determined that this swap was not consistent with the
usual investment practices of private investors and therefore conferred
countervailable benefits on CSN in the amount of the swap. See Id. No
information has been provided in this investigation which would warrant
reconsideration of that finding. Thus, we preliminarily determine that
pursuant to section 771(5)(E)(i) of the Act, this debt-to-equity swap
constitutes a financial contribution which confers a benefit in the
amount of the swap (see ``Equityworthiness'' section above). This debt-
for-equity swap is specific within the meaning of section 771(5A)(D) of
the Act because it is limited to CSN. Accordingly, we find that the GOB
debt-for-equity swaps provided to CSN in 1992 is a countervailable
subsidy within the meaning of section 771(5) of the Act.
This debt-to-equity swap constitutes an equity infusion in the year
in which the swap was made. As such, we have treated this debt-for-
equity swap as a grant given in the year the swap was made in
accordance with section 351.507(a)(6) of the CVD Regulations. Further
these swaps, as equity infusions, are non-recurring in accordance with
section 351.524(c)(1) of the CVD Regulations. Because CSN was
uncreditworthy in the years of receipt, we applied a discount rate
consistent with section 351.524(d)(3)(ii) of the CVD Regulations as
discussed in the ``Uncreditworthy Rate'' section above. Since CSN has
been privatized, we followed the methodology outlined in the ``Change
in Ownership'' section above to determine the amount of the debt-for-
equity swap attributable to the company after privatization. We divided
the benefit allocable to the POI from the equity infusion by CSN's
total sales during the POI. On this basis, we preliminarily determine
the net subsidy to be 1.30 percent ad valorem for CSN.
[[Page 53338]]
II. Program for Which the Investigation is Being Rescinded
Negotiated Deferrals of Tax Liabilities
Prior to COSIPA's privatization, and on the recommendation of one
of the consultants who examined COSIPA, COSIPA negotiated with the
various tax authorities in order to arrange to pay its large tax
arrears in deferred installments. COSIPA was able to arrange for
installment payments for ten different types of taxes owed. CSN also
arranged for installment payments for one tax liability.
Petitioners alleged that these negotiated tax deferrals provided
countervailable subsidies to COSIPA and CSN. The Department initiated
on these deferrals, acknowledging the then-preliminary determination in
the hot-rolled investigation that these deferrals were not
countervailable. See Preliminary Affirmative Countervailing Duty
Determination and Alignment of Final Countervailing Duty Determination
with Final Antidumping Duty Determination: Certain Hot-Rolled Flat-
Rolled Carbon-Quality Steel Products from Brazil 64 FR 8313, 8321
(February 19, 1999) (Brazil Hot-Rolled Prelim). The Department has
since made a final determination that this program is not specific and
therefore does not provide countervailable subsidies. See Brazil Hot-
Rolled Final, 64 FR at 38748-38749. No information has been placed on
the record of this investigation which would warrant the
reconsideration of this finding. Thus, we are rescinding our
investigation of this program. See Memorandum to the File,
Countervailing Duty Investigation of Certain Cold-Rolled Flat-Rolled
Carbon-Quality Steel Products from Brazil, August 2, 1999, on file in
the Import Administration Central Records Unit (CRU), Room B-099 of the
Department of Commerce.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated a combined ad valorem rate for USIMINAS and COSIPA and an
individual rate for CSN. The total estimated net countervailable
subsidy rates are stated below.
------------------------------------------------------------------------
Company Net subsidy rate
------------------------------------------------------------------------
USIMINAS/COSIPA........................... 11.88 % ad valorem.
CSN....................................... 6.67 % ad valorem.
All Others................................ 9.76 % ad valorem.
------------------------------------------------------------------------
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of certain
cold-rolled flat-rolled carbon-quality steel products from Brazil,
which are entered or withdrawn from warehouse, for consumption on or
after the date of the publication of this notice in the Federal
Register, and to require a cash deposit or bond for such entries of the
merchandise in the amounts listed above. This suspension of liquidation
will remain in effect until further notice.
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 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 Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will make its
final determination within 45 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination at the U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish
to request a hearing must submit a written request within 30 days of
the publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230. Parties should confirm by telephone the time, date, and place of
the hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) the party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In addition, six copies of the business
proprietary version and six copies of the non-proprietary version of
the case briefs must be submitted to the Assistant Secretary no later
than 50 days from the date of publication of the preliminary
determination. As part of the case brief, parties are encouraged to
provide a summary of the arguments not to exceed five pages and a table
of statutes, regulations, and cases cited. Six copies of the business
proprietary version and six copies of the non-proprietary version of
the rebuttal briefs must be submitted to the Assistant Secretary no
later than 5 days from the date of filing of the case briefs. An
interested party may make an affirmative presentation only on arguments
included in that party's case or rebuttal briefs. Written arguments
should be submitted in accordance with 19 C.F.R. 351.309 and will be
considered if received within the time limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: September 27, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-25619 Filed 9-30-99; 8:45 am]
BILLING CODE 3510-DS-P
