Federal Register, Volume 64 Issue 137 (Monday, July 19, 1999)

[Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
[Notices]
[Pages 38742-38755]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18224]

[[Page 38741]]

_______________________________________________________________________

Part III

Department of Commerce

_______________________________________________________________________

International Trade Administration

_______________________________________________________________________

Hot-Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil;
Notices

Federal Register / Vol. 64, No. 137 / Monday, July 19, 1999 /
Notices

[[Page 38742]]

DEPARTMENT OF COMMERCE

International Trade Administration
[C-351-829]

Final Affirmative Countervailing Duty Determination: Certain Hot-
Rolled Flat-Rolled Carbon-Quality Steel Products From Brazil

AGENCY: Import Administration, International Trade Administration,
Department of Commerce.

EFFECTIVE DATE: July 19, 1999.

FOR FURTHER INFORMATION CONTACT: Kathleen Lockard, Group II, Office of
AD/CVD Enforcement VI, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230; telephone: (202) 482-
2786.

Final Determination

The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to Companhia Siderugica
Nacional (CSN), Usinas Siderugicas de Minas Gerais (USIMINAS) and
Companhia Siderurgica Paulista (COSIPA) producers and exporters of
certain hot-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.

Petitioners

The petition in this investigation was filed by Bethlehem Steel
Corporation, U.S. Steel Group, a unit of USX Corporation, Ispat Inland
Steel, LTV Steel Company, Inc., National Steel Corporation, California
Steel Industries, Gallatin Steel Company, Geneva Steel, Gulf States
Steel Inc., IPSCO Steel Inc., Steel Dynamics, Weirton Steel
Corporation, Independent Steelworkers Union, and United Steelworkers of
America (the petitioners).

Case History

Since the publication of our preliminary determination in this
investigation, the following events have occurred. 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 (February 19, 1999) (Preliminary
Determination).
Because the final determination of this countervailing duty
investigation was aligned with the final antidumping duty determination
(see 64 FR 8313), and the final antidumping duty determination was
postponed, the Department extended the final determination of the
countervailing duty investigation until no later than July 6, 1999. See
Postponement of Final Determination of Antidumping and Countervailing
Duty Investigations of Hot-Rolled Flat-Rolled Carbon-Quality Steel from
Brazil, 64 FR 9474 (February 26, 1999) and Postponement of Final
Determination of Antidumping and Countervailing Duty Investigations of
Hot-Rolled Flat-Rolled Carbon-Quality Steel from Brazil, 64 FR 24321
(May 6, 1999).
We conducted verification of the countervailing duty questionnaire
responses from April 5 through April 16, 1999. Petitioners, the
Government of Brazil (GOB) and respondent companies filed case briefs
on May 10, 1999, and rebuttal briefs on May 17, 1999.
On June 21, 1999, we terminated the suspension of liquidation of
all entries of the subject merchandise entered or withdrawn from
warehouse for consumption on or after that date, pursuant to section
703(d) of the Act. See the ``Suspension of Liquidation'' section of
this notice.
On June 7, 1999, the GOB and the U.S. Government initialed a
proposed suspension agreement. On July 6, 1999, the U.S. Government and
the GOB signed a suspension agreement (see Notice of Suspension of
Countervailing Duty Investigation: Certain Hot-Rolled Flat-Rolled
Carbon-Quality Steel Products from Brazil) which is being published
concurrently with this notice in the Federal Register. On July 6, 1999,
the petitioners also requested that the Department and the
International Trade Commission (ITC) continue this investigation in
accordance with section 704(g) of the Act. As such, this final
determination is being issued pursuant to section 704(g) of the Act.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (the Act).
In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations codified at 19
CFR part 351 (1998).

Scope of Investigation

For purposes of this investigation, the products covered are
certain hot-rolled flat-rolled carbon-quality steel products of a
rectangular shape, of a width of 0.5 inch or greater, neither clad,
plated, nor coated with metal and whether or not painted, varnished, or
coated with plastics or other non-metallic substances, in coils
(whether or not in successively superimposed layers) regardless of
thickness, and in straight lengths, of a thickness less than 4.75 mm
and of a width measuring at least 10 times the thickness. Universal
mill plate (i.e., flat-rolled products rolled on four faces or in a
closed box pass, of a width exceeding 150 mm but not exceeding 1250 mm
and of a thickness of not less than 4 mm, not in coils and without
patterns in relief) of a thickness not less than 4.0 mm is not included
within the scope of these investigations.
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 the substrate for 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. The substrate for
motor lamination steels contains micro-alloying levels of elements such
as silicon and aluminum.
Steel products to be included in the scope of this investigation,
regardless of HTSUS definitions, 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
1.50 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
0.012 percent of boron, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent of zirconium.

All products that meet the physical and chemical description provided
above are within the scope of this investigation unless otherwise
excluded. The following products, by way of example, are outside and/or
specifically excluded from the scope of this investigation:
Alloy hot-rolled steel products in which at least one of
the chemical

[[Page 38743]]

elements exceeds those listed above (including e.g., ASTM
specifications A543, A387, A514, A517, and A506).
SAE/AISI grades of series 2300 and higher.
Ball bearing steels, as defined in the HTSUS.
Tool steels, as defined in the HTSUS.
Silico-manganese (as defined in the HTSUS) or silicon
electrical steel with a silicon level exceeding 1.50 percent.
ASTM specifications A710 and A736.
USS Abrasion-resistant steels (USS AR 400, USS AR 500).
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:

Width = 44.80 inches maximum; Thickness = 0.063-0.198 inches;
Yield Strength = 50,000 ksi minimum; Tensile Strength = 70,000-88,000
psi.

Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni Mo
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.16%...................... 0.70-0.90%........ 0.025% Max........ 0.006% Max........ 0.30-0.50%........ 0.50-0.70%........ 0.25% Max......... 0.20% Max......... 0.21% Max.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.

Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni V (wt.) Cb
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.10-0.14%.................... 1.30-1.80%...... 0.025% Max...... 0.005% Max...... 0.30-0.50%...... 0.50-0.70%...... 0.20-0.40%...... 0.20% Max....... 0.10 Max........ 0.08% Max.
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 44.80 inches maximum; Thickness = 0.350 inches maximum;
Yield Strength = 80,000 ksi minimum; Tensile Strength = 105,000 psi
Aim.
Hot-rolled steel coil which meets the following chemical,
physical and mechanical specifications:

----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
C Mn P S Si Cr Cu Ni Nb Ca Al
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
0.15% Max....................... 1.40% Max......... 0.025% Max........ 0.010% Max........ 0.50% Max......... 1.00% Max......... 0.50% Max......... 0.20% Max......... 0.005% Min........ Treated........... 0.01-0.07%
----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Width = 39.37 inches; Thickness = 0.181 inches maximum;
Yield Strength = 70,000 psi minimum for thicknesses 0.148
inches and 65,000 psi minimum for thicknesses > 0.148 inches;
Tensile Strength = 80,000 psi minimum.
Hot-rolled dual phase steel, phase-hardened, primarily
with a ferritic-martensitic microstructure, contains 0.9 percent up to
and including 1.5 percent silicon by weight, further characterized by
either (i) tensile strength between 540 N/mm \2\ and 640 N/mm \2\ and
an elongation percentage 26 percent for thicknesses of 2 mm
and above, or (ii) a tensile strength between 590 N/mm \2\ and 690 N/mm
\2\ and an elongation percentage 25 percent for thicknesses
of 2mm and above.
Hot-rolled bearing quality steel, SAE grade 1050, in
coils, with an inclusion rating of 1.0 maximum per ASTM E 45, Method A,
with excellent surface quality and chemistry restrictions as follows:
0.012 percent maximum phosphorus, 0.015 percent maximum sulfur, and
0.20 percent maximum residuals including 0.15 percent maximum chromium.
Grade ASTM A570-50 hot-rolled steel sheet in coils or cut
lengths, width of 74 inches (nominal, within ASTM tolerances),
thickness of 11 gauge (.119 inch nominal), mill edge and skin passed,
with a minimum copper content of 0.20%.
The merchandise subject to these investigations is classified in
the Harmonized Tariff Schedule of the United States (``HTSUS'') at
subheadings: 7208.10.15.00, 7208.10.30.00, 7208.10.60.00,
7208.25.30.00, 7208.25.60.00, 7208.26.00.30, 7208.26.00.60,
7208.27.00.30, 7208.27.00.60, 7208.36.00.30, 7208.36.00.60,
7208.37.00.30, 7208.37.00.60, 7208.38.00.15, 7208.38.00.30,
7208.38.00.90, 7208.39.00.15, 7208.39.00.30, 7208.39.00.90,
7208.40.60.30, 7208.40.60.60, 7208.53.00.00, 7208.54.00.00,
7208.90.00.00, 7210.70.30.00, 7210.90.90.00, 7211.14.00.30,
7211.14.00.90, 7211.19.15.00, 7211.19.20.00, 7211.19.30.00,
7211.19.45.00, 7211.19.60.00, 7211.19.75.30, 7211.19.75.60,
7211.19.75.90, 7212.40.10.00, 7212.40.50.00, 7212.50.00.00. Certain
hot-rolled flat-rolled carbon-quality steel covered by this
investigation, including: Vacuum degassed, fully stabilized; high
strength low alloy; and the substrate for motor lamination steel may
also enter under the following tariff numbers: 7225.11.00.00,
7225.19.00.00, 7225.30.30.50, 7225.30.70.00, 7225.40.70.00,
7225.99.00.90, 7226.11.10.00, 7226.11.90.30, 7226.11.90.60,
7226.19.10.00, 7226.19.90.00, 7226.91.50.00, 7226.91.70.00,
7226.91.80.00, and 7226.99.00.00. Although the HTSUS subheadings are
provided for convenience and Customs purposes, the written description
of the merchandise under investigation is dispositive.

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.

[[Page 38744]]

Period of Investigation

The period for which we are measuring subsidies (the POI) is
calendar year 1997.

Company History

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; only a very small amount of shares, a fraction of a percent,
were held by private investors. 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's 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.

Affiliated Parties

In the present investigation, there are affiliated parties (within
the meaning of section 771(33) of the Act) whose relationship is
sufficient to warrant treatment as a single company. In the
countervailing duty questionnaire, consistent with our past practice,
the Department defined companies as sufficiently affiliated to warrant
potential treatment as a single company where one company owns 20
percent or more of the other company, or where companies prepare
consolidated financial statements. The Department also has stated that
companies may be considered sufficiently affiliated where there are
common directors or one company performs services for the other
company. See Final Affirmative Countervailing Duty Determination:
Certain Pasta (``Pasta'') From Italy, 61 FR 30287 (June 14, 1996)
(Pasta). Companies that are sufficiently affiliated to warrant
potential treatment as a single company and either (1) produce the
subject merchandise or (2) have engaged in certain financial
transactions, are required by the Department to respond to the
questionnaire. This standard is designed to identify instances where
two companies interests have merged and either both produce subject
merchandise or there is ``evidence of the transmittal of subsidies
between the companies.'' See Pasta, 61 FR at 30308.
USIMINAS owns 49.79 percent of COSIPA. As such, the companies are
affiliated within the meaning of section 771(33)(E) of the Act.
Moreover, given the level of ownership and the fact that both companies
produce the subject merchandise, we determine that it is appropriate to
treat these two producers as a single company for purposes of this
investigation. Accordingly, we calculated a single countervailing duty
rate for these companies by dividing their combined subsidy benefits by
their combined sales.
We also examined the relationship between USIMINAS and CSN in order
to determine whether these two companies were affiliated and, if so,
whether the level of affiliation between the two companies was
sufficient to warrant treatment as a single company. As discussed in
the Preliminary Determination, two entities, CVRD and Previ (the
pension fund of the Bank of Brasil) have 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 have merged interests through
these investors.
CVRD holds 15.48 percent of USIMINAS and 10.3 percent of CSN
(through Docenave) and holds two of the eight seats on each company's
board of directors. Previ holds 15 percent of the common shares of
USIMINAS and one seat on its board of directors and 13 percent of CSN
and two seats on its board of directors. At verification, we learned
more about the operations of the companies. Both companies are
controlled through shareholders agreements, in which, 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, in order to control the company. CVRD and Previ both participate
in the CSN shareholders agreement, and therefore, exercise considerable
control over the operations of the company. However, while both CVRD
and Previ elect representatives to USIMINAS's Board of Directors,
neither entity participates in the USIMINAS shareholders agreement, and
therefore, neither is in a position to exercise control over the
company's operations. See CSN and USIMINAS Verification Reports, dated
April 29, 1999, and April 28, 1999, respectively, public versions on
file in the CRU.
Thus, neither CVRD nor Previ exerts meaningful control over
USIMINAS. There is no common control of USIMINAS and CSN which could
lead to the interests of the companies being merged. Therefore, we do
not consider that the record evidence supports a finding that USIMINAS
and CSN are affiliated, and as a result, the record evidence is also
not sufficient to warrant treating the two companies as a single
entity. See Department's Position on Comment #8, below.

[[Page 38745]]

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
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. Further, we have determined that it is appropriate to
make an additional adjustment to USIMINAS and CSN's calculations to
account for CVRD's 1997 partial privatization. See Calculation Memo,
dated July 6, 1999, public version on file in the CRU. In addition, we
have adjusted certain figures included in the privatization
calculations to account for inflationary accounting practices. See
Department's Position on Comment #3, below.
In the Preliminary Determination, we noted that the use of
privatization currencies, i.e., certain existing government bonds,
privatization certificates and frozen currencies, warranted additional
examination in the context of our privatization methodology. Since the
Preliminary Determination, we have obtained additional information
about the use and valuation of the privatization currencies that were
used in the NPP. At verification, we asked the GOB to explain how
privatization currencies were valued in the context of the
privatization auctions. Officials explained that the GOB accepted most
of these currencies at their full redeemable value (face value
discounted according to the time remaining until maturity); foreign
debt and restructuring bonds (MYDFAs) were accepted at 75 percent of
their redeemable value. Officials acknowledged that many of the
government bonds that were accepted as privatization currencies traded
at a discount on secondary markets, but the GOB officials were unable
to provide any data or estimation of what discounts applied. See
Verification Report of the Government of Brazil, dated April 28, 1999,
public version on file in the Central Records Unit (CRU), Room B-099 of
the Main Commerce Building (GOB Verification Report). In addition, the
respondent companies were unable to provide any data on secondary
market trading of currencies. See COSIPA, CSN and USIMINAS Verification
Reports, dated April 29, 1999, April 29, 1999, and April 28, 1999,
respectively, public versions on file in the CRU.
During verification we also met with an independent banker who
provided information about how the bonds that were accepted as
privatization currencies were valued in contemporary secondary markets.
The banker said that it was common knowledge that these bonds traded at
a fairly steep 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 banker indicated that 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, the banker indicated that
during the period 1991-1994 most bonds traded with discounts ranging
from 40 to 60 percent. He also stated that 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, reflecting their low yield. See Independent Banker Report, a
public document on file in the CRU. Prior to the Preliminary
Determination, petitioners submitted information to the record
indicating that the privatization currencies traded at a discount. For
example, according to a press report submitted by petitioners, the
market price for MYDFAs was about 30 percent of the face value, rather
than the 75 percent accepted by the GOB. Thus, information submitted by
petitioners and gathered by the Department prior to the preliminary
determination from public sources corroborates the information provided
by this banker. See Petitioners' October 22, 1998, submission, a public
document on file in the CRU and attachments to Calculation Memo, dated
February 12, 1999, public version on file in the CRU.
Record evidence supports the conclusion that some adjustment to the
purchase price of the companies is warranted because of the use of
privatization currencies in the auctions. In the Preliminary
Determination, we discounted the MYDFAs based on the 30 percent value
reported in the press article and then applied a ratio reflecting the
percentage difference between the value assigned to the MYDFAs and
accepted by the GOB and the actual market value of the MYDFAs to the
other privatization currencies. Based on the information we gathered at
verification, we have modified this approach in this final
determination. We have continued to apply the discount reported in the
press article to the MYDFAs. In addition, we have applied a 60 percent
discount to the CPs, reflecting the information provided by the banker.
For the remaining currencies, in accordance with section 776(a)(1) of
the Act, we applied a 50 percent discount as facts available,
reflecting the average of the range of discounts estimated by the
banker. See Department's Position on Comment #3, below.

Subsidies Valuation Information

Discount Rates: In the years relevant to this investigation through
1994, Brazil has 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
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Brazil, 68 FR 37295, (July 9, 1993) (Certain Steel from
Brazil), 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

[[Page 38746]]

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 from Brazil (58 FR at 37298) and Final Affirmative
Countervailing Duty Determination: Steel Wire Rod from Venezuela 62 FR
55014, 55019, 55023 (October 21, 1997) (Steel Wire Rod from Venezuela).
Because we have determined CSN, COSIPA and USIMINAS to be
uncreditworthy, as described below, we added to the discount rates a
risk premium equal to 12 percent of the U.S. prime rate for each of the
years the companies were determined to be uncreditworthy.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets (AUL) in determining the
allocation period for non-recurring subsidies. See GIA, 58 FR at 37227.
However, in British Steel plc v. United States, 879 F. Supp. 1254 (CIT
1995) (British Steel I), the U.S. Court of International Trade (the
Court) ruled against this allocation methodology. In accordance with
the Court's remand order, the Department calculated a company-specific
allocation period for non-recurring subsidies based on the AUL of non-
renewable physical assets. This remand determination was affirmed by
the Court on June 4, 1996. See British Steel plc v. United States, 929
F. Supp. 426, 439 (CIT 1996) (British Steel II). In accordance with our
new practice following British Steel II, we intend to determine the
allocation period for non-recurring subsidies using company-specific
AUL data where reasonable and practicable. See, e.g., Certain Cut-to-
Length Carbon Steel Plate from Sweden; Final Results of Countervailing
Duty Administrative Review, 62 FR 16551, 16552 (April 7, 1997). When
such data are not available (or are otherwise unusable), our practice
is to rely upon the IRS depreciation tables.
In this investigation the Department, in accordance with British
Steel II, requested that the respondents submit information relating to
their average useful life of assets. However, as discussed in the
Preliminary Determination, our analysis of the data submitted by
COSIPA, CSN, and USIMINAS regarding the AUL of their assets revealed
several problems related to the companies' changes in ownership which
resulted in changes in investment patterns, asset revaluations, and in
some cases, changed amortization periods. See Preliminary
Determination, 64 FR at 8317. Our review of the record, findings at
verification, and analysis of the comments submitted by the interested
parties, summarized below, has not led us to change our findings from
the Preliminary Determination. Accordingly, we determine that the most
appropriate allocation period is 15 years, as set out in the U.S.
Internal Revenue Service (IRS) depreciation tables.

Equityworthiness

In analyzing whether a company is equityworthy, the Department
considers whether that company could have attracted investment capital
from a reasonable private investor in the year of the government equity
infusion based on the information available at that time. In this
regard, the Department has consistently stated that a key factor for a
company in attracting investment capital is its ability to generate a
reasonable return on investment within a reasonable period of time. In
making an equityworthiness determination, the Department may examine
the following factors, among others:
1. Current and past indicators of a firm's financial condition
calculated from that firm's financial statements and accounts,
2. Future financial prospects of the firm including market studies,
economic forecasts, and project or loan appraisals,
3. Rates of return on equity in the three years prior to the
government equity infusion,
4. Equity investment in the firm by private investors, and
5. Prospects in the marketplace for the product under
consideration.
For a more detailed discussion of the Department's equityworthiness
criteria, see the GIA, 58 FR at 37244, and Steel Wire Rod from
Venezuela.
The Department has examined the respondents' equityworthiness for
each equity infusion covered by the initiation: For COSIPA, 1977
through 1989, and 1992 through 1993; USIMINAS, 1980 through 1988; and
CSN, 1977 through 1992. 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 1982 do not provide a benefit in the POI. In a prior
investigation we found that COSIPA was unequityworthy in 1983-1989 and
1991, USIMINAS in 1983 through 1988, and CSN in 1983 through 1991. See
Certain Steel from Brazil, 58 FR at 37296. No new information has been
provided in this investigation that would cause us to reconsider these
determinations.
As discussed in the Preliminary Determination, in considering
whether COSIPA was equityworthy in 1992 and 1993, we examined
information on the above-listed factors. See, 64 FR at 8318. Our review
of the record, findings at verification, and analysis of the comments
submitted by the interested parties, summarized below, has not led us
to change our findings from the Preliminary Determination. Accordingly,
we find that COSIPA was unequityworthy in 1992 and 1993.
As discussed in the Preliminary Determination, in considering
whether CSN was equityworthy in 1992, we examined information on the
above-listed factors. See, 64 FR at 8318-19. Our review of the record,
findings at verification, and analysis of the comments submitted by the
interested parties, summarized below, has not led us to change our
findings from the Preliminary Determination. Accordingly, we find that
CSN was unequityworthy in 1992.

Equity Methodology

In measuring the benefit from a government equity infusion to an
unequityworthy company, the Department compares the price paid by the
government for the equity to a market benchmark, if such a benchmark
exists. A market benchmark can be obtained, for example, where the
company's shares are publicly traded. See, e.g., Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from Spain,
58 FR 37374, 37376 (July 9, 1993).
Where a market benchmark does not exist, the Department has
determined in this investigation to continue to follow the methodology
described in the GIA. See 58 FR at 37239. Following this methodology,
equity infusions made to unequityworthy companies are treated as
grants. 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. See also Department's
Position on Comment #2, below.

Creditworthiness

When the Department examines whether a company is creditworthy, it
is

[[Page 38747]]

attempting to determine if the company in question could obtain
commercial financing at commonly available interest rates. To do so,
the Department examines whether the company received long-term
commercial loans in the year in question, and, if necessary, the
overall financial health and future prospects of the company. If a
company receives long-term financing from commercial sources without
government guarantees, that company will normally be considered
creditworthy. In the absence of commercial borrowings, the Department
examines the following factors, among others, to determine whether or
not a firm is creditworthy:
1. Current and past indicators of a firm's financial health
calculated from the firm's financial statements and accounts,
2. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow, and
3. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals.
For a more detailed discussion of the Department's creditworthiness
criteria, see, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from the United Kingdom, 58 FR
37393 (July 9, 1993).
The Department has previously determined that respondents were
uncreditworthy in the following years: USIMINAS, 1983-1988; COSIPA,
1983-1989 and 1991; and CSN 1983-1991. See Certain Steel from Brazil,
58 FR at 37297. No new information has been presented in this
investigation that would lead us to reconsider these findings.
COSIPA received no long-term financing from commercial sources in
the years in question. As discussed in the Preliminary Determination,
to determine whether COSIPA was creditworthy in 1992 and 1993, in
accordance with the Department's past practice, we analyzed financial
ratios for each of the three years prior to the year under examination.
See, 64 FR at 8319. Our review of the record, findings at verification,
and analysis of the comments submitted by the interested parties,
summarized below, has not led us to change our findings from the
Preliminary Determination. Thus, we find that COSIPA was uncreditworthy
in 1992 and 1993.
As discussed in the Preliminary Determination, CSN received one
small commercial loan in 1992. However, the terms and insignificant
principal amount of this loan render it inconclusive in determining
whether CSN was creditworthy in 1992. Therefore, to determine whether
CSN was creditworthy in 1992, we also analyzed financial data for the
prior three years. See, 64 FR 8319. Our review of the record, findings
at verification, and analysis of the comments submitted by the
interested parties, summarized below, has not led us to change our
findings from the Preliminary Determination. Thus, we find that CSN was
uncreditworthy in 1992.

I. Programs Determined To Be Countervailable

A. Pre-1992 Equity Infusions

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.
We 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 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 because no market benchmark
exists. We have further determined these infusions to be non-recurring
subsidies because each required separate authorization from SIDERBRAS,
the shareholder. Because USIMINAS, COSIPA and CSN were uncreditworthy
in the year of receipt, we applied a discount rate that included a risk
premium. Since USIMINAS, COSIPA and CSN have been privatized, we
followed the methodology outlined in the ``Change in Ownership''
section above to determine the amount of each equity infusion
attributable to the companies after privatization. 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 determine the net subsidy to be 5.20
percent ad valorem for CSN and 5.55 percent ad valorem for USIMINAS/
COSIPA.

B. GOB Debt-to-Equity Conversions Provided to COSIPA in 1992 and 1993

In 1990, the GOB decided to liquidate SIDERBRAS and to include the
SIDERBRAS operating companies, including respondents, in its National
Privatization Program. The NPP was a major initiative proposed by
President Collor that was part of the GOB's larger strategy to
liberalize the Brazilian economy. Under the NPP, approved in Law 8031
of April 12, 1990, a general framework was established to govern all
privatizations. Two entities were charged with oversight of the
process: the Privatization Committee and the Banco Nacionale de
Desenvolvimento Economico e Social (BNDES), which acted as the general
coordinator. The Privatization Committee, composed of government and
private sector representatives, was responsible for approving the
conditions of sale, guidelines and the minimum price for each
privatization. BNDES commissioned three consultants to make
recommendations with respect to each company undergoing privatization:
two consultants to make an economic assessment of the company including
its competitiveness and to recommend a minimum price and one consultant
to act as an independent auditor.
One of the consultants who examined COSIPA's financial health and
competitiveness recommended that financial adjustments be made to the
company before privatization including debt-to-equity conversions and
deferring certain tax liabilities (see ``Negotiated Deferrals of Tax
Liabilities'' in the section ``Programs Determined to be Non-
Countervailable'' below). In accordance with this consultant's
recommendation, the GOB made two debt-to-equity conversions in 1992 and
1993 in preparation for COSIPA's privatization.
We determine that pursuant to section 771(5)(E)(i) of the Act,
these debt-to-equity conversions were not consistent with the usual
investment practices of private investors and confer a benefit in the
amount of each conversion (see ``Equityworthiness'' section above).
These debt-to-equity conversions 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-to-equity conversions provided
to COSIPA in 1992 and 1993 are countervailable

[[Page 38748]]

subsidies within the meaning of section 771(5) of the Act.
As explained in the ``Equity Methodology'' section above, we have
treated each debt-to-equity conversion as a grant given in the year the
conversion was made. We have further determined that these conversions
are non-recurring subsidies because they were specifically approved by
the GOB. Because COSIPA was uncreditworthy in the years of receipt, we
applied a discount rate that included a risk premium. Because COSIPA
has been privatized, we followed the methodology outlined in the
``Change in Ownership'' section above to determine the amount of each
debt-to-equity conversion attributable to the company after
privatization. After accounting for the change in ownership, we divided
the benefit allocable to the POI from these debt-to-equity conversions
by the combined total sales of USIMINAS/COSIPA. On this basis, we
determine the net subsidy to be 4.12 percent ad valorem for USIMINAS/
COSIPA.

C. GOB Debt-to-Equity Conversion Provided to CSN in 1992

As discussed above, under the GOB's National Privatization program,
companies were privatized under the supervision of BNDES and the
Privatization Committee. In accordance with the established
privatization procedures, BNDES commissioned three consultants with
respect to the privatization of CSN: Two to analyze the firm's
financial performance, make recommendations, and formulate the minimum
price and one to act as an independent auditor. One of the consultants,
after analysis of CSN's financial data, recommended that additional
capital be provided to the firm in advance of its privatization. The
GOB followed this recommendation and made a pre-privatization debt-to-
equity conversion in 1992. We note that in the Preliminary
Determination, we considered this program to be an ``equity infusion.''
At verification, we learned that the GOB converted debt into equity as
opposed to providing new equity in the form of cash infusions. Thus, we
have modified the description of this program accordingly.
We determine that, pursuant to section 771(5)(E)(i) of the Act,
this debt-to-equity conversion was not consistent with the usual
investment practices of private investors and confers a benefit in the
amount of the conversion (see ``Equityworthiness'' section above). This
conversion is specific within the meaning of section 771(5A)(D) of the
Act because it was limited to CSN. Accordingly, we find that the GOB
debt-to-equity conversion provided to CSN in 1992 is a countervailable
subsidy within the meaning of section 771(5) of the Act.
As explained in the ``Equity Methodology'' section above, we have
treated this debt-to-equity conversion as a grant given in the year the
conversion was received. We have further determined that this infusion
is a non-recurring subsidy because it required separate authorization
from the GOB. Because CSN was uncreditworthy in the year of receipt, we
applied a discount rate that included a risk premium. Because CSN was
privatized, we followed the methodology outlined in the ``Change in
Ownership'' section above to determine the amount of each equity
infusion attributable to the company after privatization. After
accounting for the change in ownership, we divided the benefit
allocable to the POI from the debt conversion by CSN's total sales
during the POI. On this basis, we determine the net subsidy to be 1.15
percent ad valorem for CSN.

II. Program Determined To Be Non-Countervailable

Negotiated Deferrals of Tax Liabilities

As discussed above, one of the privatization consultants
recommended that COSIPA negotiate with the various tax authorities in
order to arrange to pay its large tax arrears in deferred installments.
COSIPA petitioned four different tax authorities in order to arrange
for installment payments for ten different types of taxes owed. In
addition, CSN petitioned to arrange for installment payments for one
tax liability.
Each of the tax agencies, the Revenue Service, Social Security
Authority, State of Sao Paulo, and City authority has established legal
procedures for arranging installment payments for delinquent tax
payers. The authorities established these rules in order to collect tax
arrears without resorting to legal action. These procedures were
contained in Law 8383/91, Law 8620/93 and Decree 612/92, Decree 33.118/
91 and Law 1383/83, respectively, and specified penalties, interest
rates, and in some cases, the maximum repayment term. For example, law
8383/91 that governs the Revenue Service's operations and applies to
six of the ten types of taxes COSIPA deferred and the tax that CSN
deferred, specifies that fines of 20 percent and interest of one per
cent per month will be charged and that all amounts will be subject to
monetary correction, i.e., adjustments for inflation. To the extent
that terms, such as the maximum repayment period, were not covered in
the agency's laws and regulations, they were negotiated by COSIPA or
CSN and the relevant tax authority. Once the parties completed
negotiations, the authority would endorse the petition and, in some
cases, execute a separate agreement.
When determining whether a program is countervailable, we must
ascertain whether it provides benefits to a specific enterprise,
industry, or group thereof within the meaning of section 771(5A)(D) of
the Act. By comparing the terms included in the agencies' laws and
regulations and the terms provided to COSIPA and CSN, we were able to
conclude that the respondent companies received the same terms as those
specified in the laws and regulations. Therefore, as the GOB did not
favor COSIPA or CSN over other companies, we turned to an examination
of the general programs themselves in order to determine whether they
are specific. We examined whether the programs are de jure specific and
found that the laws do not limit eligibility to an enterprise,
industry, or group thereof. We then analyzed whether the program meets
the criteria for de facto specificity. The GOB indicated in its
response that ``[d]eferred payment terms are generally available for
all companies that have outstanding tax obligations to the underlying
tax authority.'' See GOB Supplemental Questionnaire Response dated
January 12, 1999, public version on file in the CRU. Further, at
verification we saw that tax deferral petitions are automatically
approved by the authorities as long as they conform with the
establishing laws and regulations and, as stated above, neither the
laws nor regulations provide differential or special treatment to any
company or industry. Authorities explained that an extremely broad
range of companies and industries have used the programs--from
industrial firms to professional soccer clubs. Further, at verification
we saw that tens of thousands of taxpayers have petitioned the tax
authorities to arrange for these tax deferral agreements. See GOB
Verification Report, public version on file in the CRU. While the
number of companies that receive benefits under a program is not
dispositive as to a program's non-specificity, the extremely large
number of companies receiving deferrals indicates that a broad range of
companies and industries received benefits under the program, as was
indicated by the tax authorities. Further, since the authorities
automatically approved all applicants that requested the terms and
agreed to the conditions specified in the agencies' laws and
regulations, there is no basis for

[[Page 38749]]

concluding that these tax deferrals are limited to a specific
enterprise, industry or group thereof. Thus, we determine that these
tax deferrals are not countervailable.

III. Program Determined Not To Exist

GOB Equity Infusions to COSIPA in 1992 and 1993

The Department included two programs in its initiation relating to
benefits provided to COSIPA in advance of the company's privatization:
debt assumptions and equity infusions. According to information
provided by respondents, there were no equity infusions, per se.
Instead, all benefits were in the form of debt assumptions that were
converted into equity and have been addressed in the ``GOB Debt-to-
Equity Conversions Provided to COSIPA in 1992 and 1993'' section above.
Accordingly, we determine that the separate ``GOB Equity Infusions to
COSIPA in 1992 and 1993'' program does not exist.

Interested Party Comments

Comment #1: Privatization
Respondents state that 19 U.S.C. 1677(5)(B) and Article 1.1 of the
Agreement on Subsidies and Countervailing Measures (SCM) require that a
financial contribution is made and a benefit is thereby conferred in
order for the subsidy to exist and that both legal structures require a
finding of a causal connection between the two on a continuing basis.
Respondents hold that the Department is required to consider subsequent
events and the Department's analysis only identifies a past financial
contribution and presumes irrebuttably that the contribution continues
to confer a benefit after the company has changed owners. They argue
that the Department may not hide behind the fact that it is not
required to conduct an ``effects test'' in explaining the lack of
analysis of subsequent events. Respondents state that their position
does not require analysis of the effects of a subsidy in all
circumstances, rather only when a ``significant event'' occurs, such as
privatization. This requirement, they explain, is the only
justification for the inclusion of 19 U.S.C. 1677(5)(F), which directs
the Department to consider that some privatizations do not eliminate
the benefits of pre-privatization subsidies.
Respondents further argue that if the Department properly
considered the impact of the subsequent event in this case, we would
find that the arm's-length privatizations eliminated the pass-through
of pre-privatization benefits. They state that unless there is some
analytical basis to presume that subsidies have been passed through
after an arm's-length privatization, the Department must conclude that
the post-privatization owners do not benefit from pre-privatization
subsidies. Respondents use a hypothetical example of a company
purchasing a machine with government assistance, then selling that
machine to another party for a market price to illustrate their point
that the benefit from the original government assistance remains with
the original company. Respondents further hold that the ownership of
the company cannot be separated from consideration of the operating
entity that uses the assets and liabilities. Thus, if the ownership of
a company has changed, the company itself has changed. Respondents
conclude that the Department's current methodology ignores the
relevance of the new owners.
Respondents point to the Department's Final Regulations, 63 FR
65348, 65361, stating, ``where a firm does not pay less for its inputs
than it would otherwise have to pay * * * as a result of a (government)
financial contribution, it would be very difficult to contend that a
benefit exists.'' Since the new owners of the respondent companies did
not pay less than they otherwise would have had to acquire these
companies, they conclude that no benefit exists.
In addition, respondents state that the GOB's residual and/or
indirect interest in the companies during the POI does not undermine
this conclusion. Respondents state that GOB-owned entities such as CVRD
outbid private investors to acquire shares; thus, no benefit arises
from or passes through in this transaction. Further, they state that
the GOB's residual holding in COSIPA is irrelevant to COSIPA's
production and sales since privatization.
Petitioners reject respondents' argument as without authority.
Petitioners submit that this argument may be reduced to an effects
test, expressly not required by the Act and which has been prohibited
by the Courts. Petitioners state that the Department's repayment/change
in ownership methodology does not represent an inquiry into whether
subsidies continue to exist; instead it merely allocates the remaining
benefit stream between the seller and the purchaser.
Petitioners state that 19 U.S.C. 1677(5)(F) was intended to make
clear that the Department does not have any obligation to reevaluate
the subsidy after a significant event. Petitioners state that this
provision was added expressly to overrule findings in which the Court
ruled that an arms-length sale extinguished subsidies. See Saarstahl AG
v. United States (Saarstahl I) and Inland Steel Bar Co. v. United
States (Inland I). These findings were subsequently reversed by the
CAFC. See Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996)
(Saarstahl II) and Inland Steel Bar Co. v. United States, 86 F.3d 1174
(Fed. Cir. 1996) (Inland II). Petitioners further object to
respondents' interpretation of SCM Article 1.1 and the virtually
identical 19 U.S.C. 1677(5)(B). Petitioners state that the CIT has held
that this language does not require a finding of a current competitive
benefit during the POI.
Petitioners argue that respondents mischaracterize the Department's
obligation to consider significant subsequent events, as respondents
attempt to define all subsequent events as significant. Petitioners
conclude that under this definition, all subsequent events would have
to be considered and subsidy benefits would have to be traced, a
proposition that is unworkable.
Finally, petitioners disagree with respondents' focus on the
ownership of the company. Petitioners state that the inquiry must focus
on the ``manufacture, production or export'' of subject merchandise. To
support this position, petitioners cite Delverde II, in which the CIT
stated that there are practical reasons for excluding ``the current
owner of the goods at issue entirely from the determination of benefit
* * *.'' See Delverde SrL v. United States, 24 F. Supp. 2d 314 (Ct.
Int'l Trade 1998). In addition, petitioners state that the logical
conclusion of respondents' arguments would require any change in
ownership of shares on the open market to be examined, a result that
the Department rejected as absurd in Final Affirmative Countervailing
Duty Determination: Stainless Steel Plate in Coils from Italy, 64 FR
15508 (March 31, 1999). Petitioners conclude that focusing on
production demonstrates that the benefits continue to exist after
privatization.
Department's Position: We disagree with respondents. In accordance
with the provisions of the statute (Sec. 771(5)(B) and 771(5)(E)), the
Department has found that COSIPA, CSN and USIMINAS continue to benefit
from pre-privatization equity infusions. We have examined the facts of
this case in light of the above cited provisions and find that the
methodology we follow is in accordance with the statute. As petitioners
noted, the Departments' privatization/change-in-ownership methodology
has been upheld by the

[[Page 38750]]

Courts both pre-and post-URAA. See Saarstahl II, Inland II and Delverde
II.
The Department has satisfied both 19 U.S.C. 1677(5)(B) and Article
1.1. of the SCM in this investigation. We found that the GOB provided
financial contributions to respondents, in the form of equity infusions
and debt-to-equity conversions in the above-mentioned years which
confer countervailable benefits through the POI. In accordance with the
Department's standard methodology, the benefits from these subsidies
were allocated over time. Neither of the above-mentioned provisions
require the Department to revisit these determinations.
Under both the SCM and the Act, the Department has the discretion
to determine the impact of a change in ownership on the
countervailability of past subsidies. The Department has consistently
applied its privatization/change in ownership methodology to determine
the impact that a privatization/change in ownership has on pre-
privatization subsidies. But, it has not done this by re-identifying or
re-valuing the subsidy benefit based on events as of the time when the
ownership of the subsidized company changed hands. The Department does
not re-visit the determination identifying and valuing the subsidy
event as of the time of the subsidy bestowal. As petitioners correctly
note, the Department is not required to examine the effects of
subsidies, i.e., trace how benefits are used by companies and whether
they provide competitive advantages. Instead, the Department's
methodology addresses the impact of the change in ownership on the
allocation of pre-privatization subsidies. The Department's methodology
accounts for the impact that the change in ownership has on pre-
privatization subsidies, by looking at how the Department already has
allocated the subsidy benefit over time (based on events as of the time
of the subsidy bestowal) under our normal allocation methodology and
then allocating, or apportioning, that benefit between the buyer and
the seller. As the Department said in Stainless Steel Plate in Coils
from Italy, ``[o]ur methodology recognizes that a change in ownership
has some impact on the allocation of previously-bestowed subsidies and,
through an analysis based on the facts of each transaction, determine
the extent to which the subsidies pass through to the buyer.'' 64 FR at
15518. Thus, our methodology is wholly consistent with 19 U.S.C.
1677(5)(F) and, contrary to respondents' argument, provides the
analytical basis for determining whether and to what extent subsidies
have passed through to the privatized company in a change in ownership
or remain, in whole or in part, with the seller.
In addition, section 701(a)(1) of the Act directs the Department to
determine whether a government-entity is providing a countervailable
subsidy ``with respect to the manufacture, production, or export of a
class or kind of merchandise.'' We note that the same terminology is
also reflected in the SCM (footnote 34). Given this focus on the
manufacture, production and/or exportation of merchandise, the focus of
the inquiry here should not be on the new owners of the company and how
they may or may not have benefitted from the privatization transaction.
The Department has not separated the ownership of the company from its
analysis. Rather we have, as directed by law, focused on the activities
of the company, rather than its ownership structure. Our privatization
methodology has accounted for the change in the ownership of the
company conducting these activities. Thus, we have measured the amount
of the benefit that passes through this transaction as respondent
companies continued to manufacture, produce and export subject
merchandise.
Respondents' reliance on the adequate remuneration standard is
misplaced. This provision applies only to inquiries of whether
government provided inputs are sold for adequate remuneration. The sale
of an input and sale of an ongoing company are materially different.
Finally, we note that we have properly analyzed the GOB's residual
and indirect interests in companies during the POI in the context of
our standard privatization methodology. We have not considered shares
bought by government-owned companies in privatization auctions as
privatizations; these transactions do not reflect the change in
ownership of the shares from government to private ownership, but
rather a transfer from one government holding to another. However, when
such companies were, themselves, privatized, we have made adjustments
to reflect the change in ownership at that time.
Comment #2: Valuation of Equity Infusion Benefits
Respondents argue that the Department's policy of treating the
benefit from equity infusions (into unequityworthy companies) as grants
overstates the net benefits associated with the investments.
Respondents hold that ignoring post-investment activities, such as the
payment of dividends or privatizations, violates the principle
contained in 19 U.S.C. 1671(a) specifying that the Department
countervail the net subsidy. Respondents state that grants and equity
infusions are different as equity infusions impose financial
obligations on the firm, specifically, to pay dividends and the
obligation to cede a claim on the company's assets to the investor.
Respondents point to the pre-1993 equity methodology, the so-called
``rate of return shortfall'' methodology, as recognition of the
differences in benefits between grants and equity investments. Further,
respondents state that the Department should recognize that paying
dividends is, in a certain sense, the company's attempt to offset the
benefits of a subsidy, and this is a result that the CVD law should
encourage to eliminate subsidization. Respondents state that applying
the grant methodology to equity infusions is tantamount to forming an
irrebuttable presumption that unequityworthy companies incur absolutely
no costs in connection with government investments.
Respondents state that the Department must accommodate all post-
investment events in the calculation of the benefit to the company
during the POI including the effects of privatization, increases in net
worth, and the issuance of dividends to the investor.
Petitioners state that the Department has previously considered and
rejected respondents' arguments with respect to treating equity
infusions into unequityworthy companies as grants. Petitioners hold
that this methodology correctly recognizes that a reasonable private
investor would not invest in companies that are unable to generate a
reasonable rate of return. Petitioners reject the notion that equity
investments into unequityworthy companies impose costs on firms, citing
British Steel I, in which the CIT stated that ``* * * the Court is
unconvinced by the argument that equity infusions impose costs on
recipient firms, costs that differentiate equity infusions into
unequityworthy firms from grants.'' In addition, petitioners argue that
the Court has further rejected consideration of subsequent dividends
and retained earnings in measuring the benefit from equity infusions.
Petitioners further state that the Department may not consider these
events as they do not appear on the list of offsets contained in 19
U.S.C. 1677(6).
Department's Position: Respondents are basically arguing a return
to the pre-1993 equity methodology, known as the

[[Page 38751]]

rate of ``return shortfall methodology'' (RORS). The Department
rejected RORS in 1993 because, among other things, it relied on an ex
post facto analysis of events and represented a cost-to-government
analysis of the benefit. The Department instead determined that the
grant methodology was the most appropriate for analyzing the benefit
from an equity infusion into an unequityworthy company. As the
Department said in the GIA, 58 FR at 37239:

[u]sing the grant methodology for equity infusions into
unequityworthy companies 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. Thus, neither the benefit nor the equityworthiness
determination should be reexamined post hoc since such information
could not have been known to the investor at the time of the
investment. Therefore, the grant methodology, when used for equity
infusions into unequityworthy companies * * * should not be adjusted
based on subsequent events (e.g., dividends, profits).

The Department has consistently applied the grant methodology to
measure the benefit from equity infusions into unequityworthy companies
since 1993. See, e.g., Certain Steel from Brazil; Final Affirmative
Countervailing Duty Determination: Grain-Oriented Electrical Steel from
Italy, 59 FR 18357 (March 18, 19994); Final Affirmative Countervailing
Duty Determination: Steel Wire Rod from Venezuela, 62 FR 55014 (October
22, 1997); and Final Affirmative Countervailing Duty Determination;
Stainless Steel Plate in Coils from Belgium, 64 FR 15567, 15569 (March
31, 1999). This methodology has been upheld by the Court, as discussed
by petitioners, above. Respondents' argument that equity investments
impose additional costs on companies is not relevant and has been
rejected by the Court. We have found respondents to be unequityworthy
as discussed in the ``Equityworthiness'' section above. This finding
has not been disputed by respondents. Our finding of unequityworthiness
is tantamount to saying that private investors would not have invested
any capital in the firm. Therefore, we have applied the grant
methodology to measure the benefit of equity infusions (and debt-to-
equity conversions), as discussed in the ``Equity Methodology'' section
above.
Comment #3: Repayment Calculations
Respondents argue that if the Department continues to apply its
standard privatization methodology, it must revise these calculations
because the gamma ratio does not properly reflect the proportion of the
purchase price that reflects repayment of prior subsides because they
hold that an average of infusion values to net worth ratios over time
does not provide a meaningful ratio. Respondents instead suggest using
the present value of the unamortized pre-privatization infusions (at
the time of the infusion) to the total net worth of the company at the
time of privatization. They argue that this approach more properly
accounts for the difference between a company that received an infusion
ten years prior to subsidization from a company that receives the same
infusion the year before privatization.
Respondents further argue that the Department incorrectly deflated
the purchase price in each privatization because of privatization
currencies. Respondents argue that the relevant value of the
currencies, in identifying the purchase price of the companies, is the
present value of the currencies (face value, discounted to account for
the time remaining until maturity), the amount at which the currencies
were accepted by the GOB. Respondents hold that this value is correct
because it represents the value of the debt that the GOB retired
through the sales. Further, the GOB had a real liability equal to the
present value of the instrument and the value to the GOB must be used
in the calculation as it attempts to identify the amount of subsidy
``paid back'' to the government in the privatization. Respondents state
that the value of the privatization currencies to the purchasers of the
shares is irrelevant. Respondents use examples of different currency
exchange rates and different bond values to illustrate the point that
the value to the GOB remains the same in each scenario. Respondents
also argue that the Department's valuation of the privatization
currencies assumes that all currencies were acquired by the users at a
discount. They point to the Privatization Certificates (CPs), which
banks were forced to purchase under the Collor Plan for 100 percent of
their value. Respondents state that many banks chose to use the CPs in
privatization auctions, exchanging one-to-one for shares, despite
secondary market discounts. They hold that if instruments were not
traded on secondary markets, a secondary market discount cannot be
applied, and to do so is to apply an adverse inference without
justification.
In addition, respondents state that the Department did not make any
adjustments to the purchase price in its examination of the 1991
USIMINAS privatization examined in Certain Steel From Brazil.
Respondents argue that the Department has changed its analysis without
explaining the reasons for the departure.
Finally, respondents disagree with the treatment of shares
purchased by CVRD in the privatizations. Respondents state that CVRD's
share purchases were made on commercial terms, and cannot be considered
to provide a financial benefit to the companies. Respondents state they
cannot be penalized for a GOB investment made on terms consistent with
commercial considerations.
Petitioners argue that respondents' suggested change to the gamma
calculation is ambiguous. Petitioners state that the Department has
rejected similar changes to the gamma in prior cases, specifically
Industrial Phosphoric Acid from Israel and Stainless Steel Plate in
Coils from Italy. They also note that the current gamma calculation
received Court approval in Saarstahl II, British Steel II and Delverde
II.
Petitioners support the Department's preliminary adjustments to
account for the market value of privatization currencies. Petitioners
state that record evidence demonstrates that the currencies traded at
deep discounts from their face values on secondary markets. Petitioners
state that CVD law and practice reveal a strong preference for using
market-determined prices to make valuation decisions. They hold that
the GOB could purchase the securities on the secondary market, just
like private investors, and thus the value to the GOB was exactly the
same as the market value. Petitioners disagree with respondents'
arguments with respect to the CPs, noting that the Department must seek
the market value at the time the currency as exchanged for shares.
Petitioners state that respondents never provided specific
information on the secondary market prices of privatization currencies.
Petitioners state that the repayment methodology, in effecting a
downward adjustment on the benefit stream, benefits respondents and
respondents bear the burden of demonstrating their entitlement to this
adjustment. Thus, petitioners argue that the Department should apply
the steepest discount on the record, 70 percent, in valuing the
privatization currencies.
Petitioners disagree with respondents' arguments with respect to
the valuation of privatization currencies in Certain Steel From Brazil.
Petitioners state that the parties in that investigation did not
address this issue as the Department did not apply the current
privatization methodology until the final

[[Page 38752]]

determination. Thus, Certain Steel From Brazil should not be seen as a
precedent on this matter.
Petitioners support the Department's treatment of CVRD share
purchases in the Preliminary Determination, arguing that the repayment
methodology may not be applied to public-to-public sales. Petitioners
hold that applying the privatization methodology to such sales would
create a massive loophole in the law where a government could reduce
benefit streams simply by rearranging the holdings of government-owned
companies.
Department's Position: For this final determination, we have
continued to calculate gamma using historical subsidy and net worth
data. The gamma calculation serves as a reasonable estimate of the
percent that subsidies constitute of the overall value of the company.
This methodology has been upheld by the courts in Saarstahl II and
British Steel II. Respondents' criticism of the Department's current
methodology centers on the fact that the average of subsidies to net
worth does not take into account the timing of the receipt of subsidies
and the corresponding net present value of the subsidies. We note that
while gamma itself does not factor in the net present value of the
subsidies, the results of the gamma calculation are applied to the
present value of the remaining benefit streams at the time of
privatization. Thus, our current calculations, as a whole, do properly
account for the present value of the remaining benefits at the time of
privatization.
Respondents' arguments regarding the valuation of privatization
currencies are also flawed. While we do not deny that the GOB's retired
debts are equal to the present value of the currencies accepted in
exchange for shares, the proper value used in the privatization
calculation is the market selling price of the company, as indicated by
the market selling price of the currencies. Since the currencies were
discounted on secondary markets, the present value of the currencies
overstates the cash, market value of the purchase price. As petitioners
correctly point out, it is the Department's preference to use market
values in calculations where possible.
Respondents' arguments with respect to CPs are also flawed. In
discounting the CPs as described above, we have appropriately estimated
their market values at the times of the privatization transactions.
We also agree with petitioners regarding the examination of the
currencies in Certain Steel From Brazil. While the fact that
privatization currencies were used to acquire USIMINAS shares was
contained in the record of that case, parties did not have the
opportunity to comment on the final privatization methodology applied
and the implications that various facts in evidence may have had on
this methodology. Furthermore, Certain Steel From Brazil, and the
companion Certain Steel cases, were the first time that the Department
applied this methodology. We have gained experience with the
methodology since that time. In this investigation, we have properly
determined that privatization currencies were overvalued by the GOB and
that the discounted, market value should be used in the privatization
calculation as discussed above. As discussed in the ``Subsidies
Valuation'' section above, we have applied discounts to the various
privatization currencies based on the record evidence.
Finally, we agree with petitioners with respect to the treatment of
CVRD share purchases. Government purchases of government assets cannot
be seen properly as a ``privatization'' or ``change in ownership'' that
would give rise to a reallocation of subsidies between buyer and
seller. Instead, these transactions represent a transfer of government
funds from one account to another. Thus, we have continued to remove
the CVRD purchases from the calculations as discussed above. In
addition, we note that we have accounted for the 1997 partial
privatization of CVRD in the calculations.
Comment #4: Asymmetrical Comparisons in Calculations
Respondents state that the Department must ensure that the ratios,
such as gamma, used in the privatization calculations use symmetrical
comparisons: both the numerator and denominator should be in either
corrected values, or historical values. Respondents suggest that the
Department apply historical values as the equity infusions were
reported in historical terms; if historical values are unavailable, the
Department should dollarize the net worth figure and the equity
infusion amounts.
Petitioners argue that the Department must ensure that a
symmetrical comparison is used in applying the 0.5 percent test.
Because respondents have reported a mix of historical and corrected
figures, petitioners state that the 0.5 percent test has been
distorted.
In their reply brief, respondents agree with petitioners that
symmetrical comparisons must be used in all calculations. In
petitioners' reply brief, petitioners argue that the distortion
identified by respondents was the result of a failure on the part of
respondents to report consistent data. Petitioners disagree that
dollarizing the net worth would correct the asymmetrical comparison
problem and should not be applied as the problem arises from
respondents' poor reporting and the correction should not benefit
respondents. Petitioners further argue that if the Department does not
have a historical value for total sales, the 0.5 percent test should
not be applied in that year.
Department's Position: For the final determination, we have revised
our calculations to include symmetrical comparisons in the numerator
and denominator of the ratios used in the privatization calculation and
0.5 percent test where data on the record allows us to make this
comparison. We used historical values for the subsidy to net worth
ratios that are averaged to derive gamma. For the years in which
historical values are not available for use in the gamma, we have
continued to use corrected values. For the 0.5 percent test, in the
instance where the asymmetrical comparison has a meaningful impact on
the ratio, we used the historical sales value.
Comment #5: Application of New Risk Premium Methodology
Petitioners argue that the Department should apply the risk premium
methodology contained in the Final Regulations, even though the Final
Regulations do not govern this proceeding. Petitioners state that the
Department has described the new methodology as ``more appropriate''
and ``more accurate'' and argues that the Court has reversed the
Department when it has declined to apply a ``more accurate''
methodology. Finally, petitioners state that all parties have had ample
notice as the new methodology was proposed in the 1997 Proposed
Regulations and was applied in the petition.
Respondents reject petitioners' argument as they state there is no
justification in departing from the current risk premium methodology at
this stage. Respondents state that the Final Regulations do not apply
to this investigation. Respondents argue that there would be procedural
difficulties in applying this methodology as no parties have had the
opportunity to comment and review its use. Respondents further state
that the new methodology is complicated and requires the Department to
consider default rates in the country if that information is submitted
to the record and that the parties did not have the opportunity to
submit such information in this case.

[[Page 38753]]

Finally, respondents reiterate their argument that the Department has
improperly measured the benefit from the equity infusions by treating
these amounts as grants.
Department's Position: We agree with respondents. The Department's
Final Regulations do not govern this proceeding. While we have
described the new risk premium methodology contained in the Final
Regulations as ``more accurate,'' because of the logistical reasons
identified by respondents, it is not appropriate to apply this
methodology in this case. To do so, without having given parties
sufficient opportunity to address the options contained in the
regulation, would forestall the participation of the parties.
Comment #6: Verification Clarifications
Respondents argue that minor refinements clarified at verification
should be changed in the calculations for the final determination.
Specifically the amount of the 1988 CSN equity infusions, USIMINAS'
total and subject merchandise sales values, and COSIPA's total sales
value.
COSIPA explained at verification that an amount contained in its
1993 capital advance account was actually the repayment of a debt from
Siderbras. See COSIPA Verification Report, public version on file in
the CRU.
Petitioners argue that COSIPA's claim about the debt does not
withstand scrutiny as COSIPA did not provide information about how the
debt arose or what it represents. Petitioners further state that while
COSIPA demonstrated to the Department that the debt existed, the
company did not show that the debt was paid with amounts from the
capital advances account; on the contrary, they argue that since the
amount remained in the capital advances account, it was not utilized to
cancel the outstanding debt. Petitioners conclude that this amount
should be added to the amount of the debt-to-equity conversion
countervailed for 1992.
Respondents reply that the existence of the Siderbras debt was
verified to the Department's satisfaction, and thus, petitioners'
arguments with regard to the bona fides of the debt are inappropriate.
Respondents state that verification exhibits demonstrate that the
Siderbras debt was deducted from the capital advances account.
In addition, Petitioners argue that COSIPA withheld information
pertaining to the date each equity infusion was received despite
repeated requests from the Department for this information. COSIPA
provided the specific dates that the 1992 and 1993 debt-to-equity
conversions were made at verification. Petitioners reason that COSIPA
withheld the relevant information and that the Department should reject
the information obtained at verification as untimely. Petitioners
conclude that the Department should apply an adverse inference as facts
available and treat all equity infusions as having been received on the
first day of the month.
Respondents reply that COSIPA did not attempt to conceal
information from the Department with respect to the actual dates that
the conversions were granted. Respondents state that COSIPA relied on
information that was verified in other cases as some of the equity
infusions are from years that the company no longer maintains records
and that COSIPA was not able to determine the actual dates of the
infusions in these cases. COSIPA was able to determine the dates of the
1992 and 1993 infusions and these dates were discussed at verification
and the 1993 dates were reported in the February 8, 1999, questionnaire
response. Finally, respondents state that use of the actual dates
favors COSIPA; thus, there was no attempt by the company to withhold
this information.
Petitioners also dispute the accuracy of corrections made to CSN's
1988 equity infusion amount at verification. Petitioners argue that the
amount of the infusion was verified in the 1993 Certain Steel from
Brazil investigation, and that the Department should not accept any
changes at this point.
Department's Position: We agree with respondents. The corrections
identified by the parties--the amount of the CSN 1988 equity infusion,
dates of the COSIPA infusions, and sales amounts--were verified to the
Department's satisfaction and tied directly to the respective
companies' accounting documents. Further, COSIPA did report the dates
of the 1993 conversions in the February 8, 1999, response as identified
by respondents. Finally, CSN demonstrated that the numbers verified in
this proceeding were accurate irrespective of their difference from
amounts countervailed in the Certain Steel from Brazil investigation.
It is standard Department practice to accept minor corrections at
verifications, and the opportunity to make minor corrections was
included in the companies' verification outlines that were used to
prepare for verification. None of the corrections at issue are
significant in nature; thus it is entirely appropriate to use the
corrected numbers in our final calculations.
Comment #7: Tax Deferral Programs
Petitioners argue that COSIPA received deferral terms more
favorable than those granted to other taxpayers and that record
evidence indicates that COSIPA was a predominant user of the IPI,
Social Contribution and ICMS tax deferral programs. Petitioners state
that respondents failed to provide information regarding the terms of
tax deferrals granted to other taxpayers. They submit that the
administering authorities granted COSIPA installment periods for the
IPI and Social Contribution tax longer than provided for in the
applicable regulation. Petitioners reject the explanation provided at
verification--that the Minister could grant longer periods than
provided for in the regulations. They argue that the fact that COSIPA
received an extended term, demonstrates that the laws and regulations
were not followed and that the program is specific. Petitioners state
that because COSIPA needed such a long period to repay the large debts,
it is likely that COSIPA received a disproportionate amount of the
subsidy. They conclude that the GOB exercised discretion to favor
COSIPA over others.
With respect to the IRPJ tax, Petitioners state that the record
shows COSIPA applied for and received the deferral program after the
statutorily-mandated guideline expired. Petitioners argue that
respondents have not demonstrated that any other taxpayer received the
program after the deadline expired; thus, the Department should find
that the program is specific.
Petitioners argue that COSIPA received a repayment term longer than
specified in the applicable law for the INSS tax. Petitioners state
that law 8630/93 provides for a 240-month deferral period only for
applications submitted in February 1993, and that record evidence
demonstrates that COSIPA did not submit its application in that month.
Since respondents have not provided any evidence indicating that other
taxpayers also received this term under these circumstances,
Petitioners conclude that the program is specific to COSIPA.
Finally, Petitioners argue that COSIPA was a predominant user of
the Sao Paulo State ICMS tax deferral program. Relying on press
articles which mentioned the company's upcoming privatization,
petitioners state that COSIPA's massive ICMS debts and reported
negotiations with federal and state authorities dispute claims made by
the GOB at verification. Petitioners submit that if all parties receive
the same treatment under the law, there

[[Page 38754]]

would have been no need for lengthy negotiations. They also state that
the magnitude of the tax arrears demonstrates that COSIPA was a
disproportionate user of the program--the size of the debt, viewed in
the context of the large number of users of the tax deferral program
suggests that program was specific to COSIPA.
Petitioners also argue that in measuring the benefit from the tax
deferral programs, the Department should apply the monthly average
overnight rate as the benchmark, which was applied in Certain Steel
from Brazil.
Respondents reject petitioners arguments with respect to the tax
deferral programs. Respondents state that the GOB provided the
Department with all information requested, except for the proprietary
information of companies not involved with this case.
With respect to the IPI and Social Contribution taxes, respondents
state that petitioners mischaracterized the normative instruction cited
by petitioners as this document does not apply to the Minister and does
not limit the Minister's discretion to alter these instructions.
Respondents state that record evidence demonstrates that more than 200
companies received terms other than those contained in the normative
instruction in all sectors of the economy and that nothing points to
the conclusion that these agreements are specific. Respondents also
reject the argument that since COSIPA received a term of more than 60
months, the underlying debt must have been large and thus COSIPA was a
disproportionate user of the program. Respondents instead state that
the technical analysis required to receive a period longer than 60
months analyzed a number of factors, in particular cash flow and thus
does not support Petitioners' assertion.
Respondents also characterize petitioners' arguments on the IRPJ
program as innuendo. Respondents state that record evidence does not
support the conclusion that COSIPA's IRPJ application was submitted
after the deadline expired. Finally, respondents note that COSIPA did
not make any IRPJ payments during the POI; thus, petitioners' arguments
are moot.
Respondents also reject petitioners' argument that the INSS
application was submitted after the deadline expired for receiving the
maximum deferral. Respondents state that record evidence demonstrates
that the petition was submitted within the relevant deadline.
With respect to the ICMS program, respondents reject the
information contained in the press articles cited by petitioners.
Respondents state that negotiations are a normal part of the deferral
application process and that the fact that the authorities were aware
of the company's upcoming privatization supports no conclusion one way
or the other. They state that record evidence does not support the
conclusion that COSIPA was a disproportionate user of the program.
Finally, respondents reject the petitioners' proposed benchmark,
instead suggesting that the rate applied to other taxpayers should be
applied. Alternatively, respondents suggest other long-term interest
rates on the record.
Department's Position: We disagree with petitioners. As discussed
in the ``Programs Determined to Be Non-Countervailable'' section above,
we have found the negotiated tax deferral agreement programs to be non-
countervailable because they are not specific within the meaning of the
Act. Because of the nature of the programs, it was difficult for the
GOB to provide the information required to address all of the questions
addressing the de facto specificity criteria. At verification, we asked
for and received sufficient information to determine that the programs
are not specific including charts specifying the total number of
applicants/users, regions of the applicants/users and amount of debts
covered by the programs for the relevant years. See, GOB Verification
Report, public version on file in the CRU. None of the GOB agencies
collect information on an industry basis. However, we were able to
determine from the record evidence that the programs are not de facto
specific. Respondents demonstrated that tens of thousands of taxpayers
applied for and received tax deferrals under these programs. Further,
all applicants are automatically approved if they satisfy the
eligibility criteria contained in the laws and regulations--basic
criteria such as having a debt, not being delinquent on another tax
deferral agreement, and willingness to pay within the specified period.
The GOB not only did not exercise discretion to favor COSIPA over
others, it exercised no discretion in the operation of the program.
The GOB explained at verification that applicants for deferral
agreements of IPI and Social Contribution arrears could receive
repayment periods longer than the 60 months specified in the normative
instructions if the company demonstrated that it could not afford to
repay the debt within the period. The GOB conducted a technical
analysis of the cash-flow position of each applicant that requested
longer than 60 months to repay and the Minister followed the
recommendation of the technical experts in approving the more than 200
applicants that requested an extended period. Further, the companies
that receive the extended period are required to pay the same amount of
interest, penalty and monetary correction as the applicants that pay
within 60 months. Thus, the record evidence does not support the
conclusion that COSIPA was favored over other applicants with respect
to its IPI and Social Contribution deferral agreements.
As respondents noted, COSIPA did not make any payments on its IRPJ
agreement during the POI; thus, no benefit could arise from this tax
deferral agreement in 1997. In addition, as respondents discuss in
their reply brief, the tax consolidation table submitted in the
response was dated February 19, 1993, within the time period specified
in the regulations to receive the maximum deferral period.
With regard to the ICMS tax, officials demonstrated at verification
that COSIPA applied for and received the tax deferral agreements
because it satisfied the conditions contained in the laws and
regulations. Further, petitioners misinterpret the significance of the
``negotiation'' for these agreements; as discussed with GOB officials
during verification, COSIPA was automatically approved based on the
analysis by the data processing system. In addition, the GOB officials
explained that the only applicants that have been denied were due to
the fact that the taxpayers have already exceeded the number of
deferrals allowed by law. Thus, record evidence does not support
petitioners' arguments regarding the IPRJ, INSS and ICMS tax deferral
programs.
As we have found the programs non-countervailable on the basis that
they are non-specific, both parties' comments regarding the benchmark
are moot.
Comment #8: Affiliation of CSN and USIMINAS
Petitioners state that record evidence demonstrates that CSN and
USIMINAS/COSIPA are sufficiently related to each other so as to find
that their interests have merged. Petitioners state that respondents'
reliance on the fact that neither CVRD nor Previ is a party to the
USIMINAS shareholders agreement, and therefore, CSN does not exercise
any control over USIMINAS, is incorrect. Petitioners argue that
absolute control is not required for a finding of affiliation, merely
that the companies are ``sufficiently related''--if one company owns 20
percent of the other, the companies prepare consolidated financial
statements, there are common directors, or one company performs
services for the other. Petitioners state

[[Page 38755]]

that CSN, through CVRD, and Previ have significant influence over
USIMINAS through its substantial, albeit minority, presence on
USIMINAS' Board of Directors. Petitioners conclude that record evidence
supports a finding that USIMINAS and CSN are affiliated and should be
treated as a single company for purposes of calculating the
countervailing duty rate.
Respondents disagree with petitioners' arguments stating that the
record indicates that CSN and USIMINAS are competitors. In addition,
the record demonstrates that there is insufficient overlap in
shareholder interests and/or directors to support a finding of
affiliation and presumption that subsidy benefits could have been
transferred between the companies. Respondents also state that the
Department did not collapse the respondents when they were all owned
and controlled by Siderbras, and thus, to do so now, when they have
even less affinity of interests, would be inappropriate.
Department's Position: We disagree with petitioners. As discussed
in the ``Affiliation'' section above, record evidence does not support
a finding of affiliation between CSN and USIMINAS. We disagree with
petitioners that the fact that CVRD and Previ do not participate in the
USIMINAS shareholders agreement is not dispositive of a finding of no
affiliation. The shareholders that participate in the shareholders
agreements of USIMINAS are required to pre-vote all issues before the
respective Boards of Directors and their representatives on the Boards
are then required to vote as a block. See USIMINAS Verification Report
at 2. Therefore, shareholders that do not participate in the
shareholders agreement are effectively prevented from exercising any
control over the operations of the company, irrespective of the size of
their shareholdings. Neither CVRD nor Previ, on their own, are
sufficiently related to satisfy the affiliation standard identified in
the Department's countervailing duty questionnaire. CVRD and Previ are
also not in the position to exercise joint control over USIMINAS since
they do not participate in the shareholders agreement. There are no
other connections between CSN and USIMINAS that could result in a
finding of affiliation between the two companies. Therefore, no finding
of affiliation is warranted and the issue of collapsing is moot.

Verification

In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with the government
and company officials, and examining relevant accounting records and
original source documents. Our verification results are outlined in
detail in the public versions of the verification reports, which are on
file in the CRU.

Ad Valorem Rates

In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated individual subsidy rates for each of the companies under
investigation. As discussed in the ``Affiliated Parties'' section of
this notice, we are treating USIMINAS/COSIPA as one company and have
calculated a single rate for USIMINAS/COSIPA. To calculate the ``all
others'' rate, we weight-averaged the company rates by each company's
exports of the subject merchandise to the United States.

------------------------------------------------------------------------
Net subsidy
Producer/exporter rate %
------------------------------------------------------------------------
USIMINAS/COSIPA......................................... 9.67
CSN..................................................... 6.35
All Others.............................................. 7.81
------------------------------------------------------------------------

Suspension of Liquidation

In accordance with our preliminary affirmative determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of hot-rolled flat-rolled carbon-quality steel from Brazil
which were entered, or withdrawn from warehouse, for consumption on or
after February 19, 1999, the date of the publication of our preliminary
determination in the Federal Register. In accordance with section
703(d) of the Act, we instructed the U.S. Customs Service to
discontinue the suspension of liquidation for merchandise entered on or
after June 21, 1999, but to continue the suspension of liquidation of
entries made between February 19, 1999, and June 20, 1999.
We have concluded a suspension agreement with the Government of
Brazil which eliminates the injurious effects of imports from Brazil
(see, Notice of Suspension of Investigation: Certain Hot-Rolled Flat-
Rolled Carbon-Quality Steel Products from Brazil being published
concurrently with this notice). As indicated in the notice announcing
the suspension agreement, pursuant to section 704(h)(3) of the Act, we
are directing the U.S. Customs Service to continue the suspension of
liquidation for entries of subject merchandise entered, or withdrawn
from warehouse, for consumption between February 19, 1999, and June 21,
1999. This suspension will terminate 20 days after publication of the
suspension agreement or, if a review is requested pursuant to section
704(h)(1) of the Act, at the completion of that review. Pursuant to
section 704(f)(2)(B) of the Act, however, we are not applying the final
determination rate to entries of subject merchandise from Brazil;
rather, we have adjusted the rate to zero to reflect the effect of the
agreement.

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 non-privileged and non-proprietary information related 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 the ITC determines that material injury, or threat of material
injury, does not exist, the suspension agreement will have no force or
effect, this investigation will be terminated, and the Department will
instruct the U.S. Customs Service to refund or cancel all securities
posted (see, section 704(f)(3)(A) of the Act). If the ITC's injury
determination is affirmative, the Department will not issue a
countervailing duty order as long as the suspension agreement remains
in force, and the Department will instruct the U.S. Customs Service to
refund or cancel all securities posted (see, section 704(f)(3)(B) of
the Act).

Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO) of their responsibility
concerning the destruction of proprietary information disclosed under
APO in accordance with 19 CFR 351.305(a)(3). Failure to comply is a
violation of the APO.
This determination is published pursuant to sections 704(g) and
777(i) of the Act.

Dated: July 6, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-18224 Filed 7-16-99; 8:45 am]
BILLING CODE 3510-DS-P