[Federal Register Volume 64, Number 190 (Friday, October 1, 1999)]
[Notices]
[Pages 53332-53338]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-25619]


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DEPARTMENT OF COMMERCE

International Trade Administration
[C-351-831]


Preliminary Affirmative Countervailing Duty Determination and 
Alignment with Final Antidumping Duty Determination: Certain Cold 
Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil

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

EFFECTIVE DATE: October 1, 1999.

FOR FURTHER INFORMATION CONTACT: Javier Barrientos or Dana Mermelstein, 
Office of CVD/AD Enforcement VII, Import Administration, U.S. 
Department of Commerce, Room 7866, 14th Street

[[Page 53333]]

and Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 
482-1394 and (202) 482-3208 respectively.

PRELIMINARY DETERMINATION: The Department of Commerce (the Department) 
preliminarily determines that countervailable subsidies have been 
provided to producers and/or exporters of certain cold-rolled flat-
rolled carbon-quality steel products from Brazil. For information on 
the estimated countervailing duty rates, please see the ``Suspension of 
Liquidation'' section of this notice.

SUPPLEMENTARY INFORMATION:

Petitioners

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

Case History

    Since the publication of the notice of initiation in the Federal 
Register (see Notice of Initiation of Countervailing Duty 
Investigations: Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel 
Products From Brazil, Indonesia, Thailand, and Venezuela, 64 FR 34204 
(June 25, 1999) (Initiation Notice)), the following events have 
occurred. On June 25, 1999, we issued countervailing duty 
questionnaires to the Government of Brazil (GOB) and the producers/
exporters of the subject merchandise (cold-rolled flat-rolled carbon-
quality steel products, or ``cold-rolled steel''). On August 3, 1999, 
we received responses to our initial questionnaires from the GOB and 
the producers/exporters of the subject merchandise: Companhia 
Siderugica Nacional (CSN), Usinas Siderugicas de Minas Gerais 
(USIMINAS) and Companhia Siderurgica Paulista (COSIPA). Acesita-Cia 
Acos Especiais Itabira entered an appearance on July 16, 1999, stating 
that it had not exported subject merchandise to the United States 
during the POI. On August 24, 1999, we issued a supplemental 
questionnaire to the GOB and received the response on September 13, 
1999. We issued a second supplemental questionnaire on September 20, 
1999, and received the response on September 23, 1999.

Scope of Investigation

    For purposes of this investigation, the products covered are 
certain cold-rolled (cold-reduced) carbon steel flat products, neither 
clad, plated, nor coated with metal, but whether or not annealed, 
painted, varnished, or coated with plastics or other non-metallic 
substances, both in coils, 0.5 inch wide or wider, (whether or not in 
successively superimposed layers and/or otherwise coiled, such as 
spirally oscillated coils), and also in straight lengths, which, if 
less than 4.75 mm in thickness having a width that is 0.5 inch or 
greater and that measures at least 10 times the thickness; or, if of a 
thickness of 4.75 mm or more, having a width exceeding 150 mm and 
measuring at least twice the thickness. The products described above 
may be rectangular, square, circular or other shape and include 
products of either rectangular or non-rectangular cross-section where 
such cross-section is achieved subsequent to the rolling process (i.e., 
products which have been ``worked after rolling'')--for example, 
products which have been beveled or rounded at the edges.
    Specifically included in this scope are vacuum degassed, fully 
stabilized (commonly referred to as interstitial-free (IF)) steels, 
high strength low alloy (HSLA) steels, and motor lamination steels. IF 
steels are recognized as low carbon steels with micro-alloying levels 
of elements such as titanium and/or niobium added to stabilize carbon 
and nitrogen elements. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium, 
titanium, vanadium, and molybdenum. Motor lamination steels contain 
micro-alloying levels of elements such as silicon and aluminum.
    Steel products included in the scope of this investigation, 
regardless of definitions in the Harmonized Tariff Schedules of the 
United States (HTSUS), are products in which (1) iron predominates, by 
weight, over each of the other contained elements, (2) the carbon 
content is 2 percent or less, by weight, and (3) none of the elements 
listed below exceeds the quantity, by weight, respectively indicated:

1.80 percent of manganese, or
2.25 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium (also called columbium), or
0.15 percent of vanadium, or
0.15 percent of zirconium.

    All products that meet the written physical description, and in 
which the chemistry quantities do not exceed any one of the noted 
element levels listed above, are within the scope of this investigation 
unless specifically excluded. The following products, by way of 
example, are outside and/or specifically excluded from the scope of 
this investigation:
     SAE grades (formerly also called AISI grades) 2300 and 
higher;
     Ball bearing steels, as defined in the HTSUS;
     Tool steels, as defined in the HTSUS;
     Silico-manganese steel, as defined in the HTSUS;
     Grain-oriented silicon electrical steel;
     Non-grain-oriented silicon electrical steel with a silicon 
level exceeding 2.25 percent;
     All products (proprietary or otherwise) based on an alloy 
ASTM specification (sample specifications: ASTM A506, A507).
    The merchandise subject to this investigation is typically 
classified in the HTSUS at subheadings: 7209.15.0000, 7209.16.0030, 
7209.16.0060, 7209.16.0090, 7209.17.0030, 7209.17.0060, 7209.17.0090, 
7209.18.1530, 7209.18.1560, 7209.18.2510, 7209.18.2550, 7209.18.6000. 
7209.25.0000, 7209.26.0000, 7209.27.0000, 7209.28.0000, 7209.90.0000, 
7210.70.3000, 7210.90.9000, 7211.23.1500, 7211.23.2000, 7211.23.3000, 
7211.23.4500, 7211.23.6030, 7211.23.6060, 7211.23.6075, 7211.23.6085, 
7211.29.2030, 7211.29.2090, 7211.29.4500, 7211.29.6030, 7211.29.6080, 
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.19.0000, 
7225.50.6000, 7225.50.7000, 7225.50.8010, 7225.50.8015, 7225.50.8085, 
7225.99.0090, 7226.19.1000, 7226.19.9000, 7226.92.5000, 7226.92.7050, 
7226.92.8050, and 7226.99.0000.
    Although the HTSUS subheadings are provided for convenience and 
Customs purposes, the written description of the merchandise under 
investigation is dispositive.

The Applicable Statute and Regulations

    Unless otherwise indicated, all citations to the statute are 
references to the provisions effective January 1, 1995, the effective 
date of the amendments made to the Tariff Act of 1930 (the Act) by the 
Uruguay Round Agreements Act (URAA). In addition, unless otherwise 
indicated, all citations to the Department's regulations are to the

[[Page 53334]]

regulations codified at 19 C.F.R. Part 351 (1998) and to the 
substantive countervailing duty regulations published in the Federal 
Register on November 25, 1998 (63 FR 65348) (CVD Regulations).

Injury Test

    Because Brazil is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the ITC is required to determine 
whether imports of the subject merchandise from Brazil materially 
injure, or threaten material injury to, a U.S. industry. On July 30, 
1999, the ITC published its preliminary determination that there is a 
reasonable indication that an industry in the United States is being 
materially injured, or threatened with material injury, by reason of 
imports from Brazil of the subject merchandise (64 FR 41458). The 
Commission transmitted its determination in this investigation to the 
Secretary of Commerce on July 19, 1999. The views of the Commission are 
contained in USITC Publication 3214 (July 1999), entitled Certain Cold-
Rolled Steel Products from Argentina, Brazil, China, Indonesia, Japan, 
Russia, Slovakia, South Africa, Taiwan, Thailand, Turkey, and 
Venezuela: Investigations Nos. 701-TA-393-396 and 731-TA-829-840 
(Preliminary).

Alignment With Final Antidumping Duty Determination

    On September 16, 1999, the petitioners submitted a letter 
requesting alignment of the final determination in this investigation 
with the final determination in the companion antidumping duty 
investigation. See Initiation of Antidumping Duty Investigations: 
Certain Cold-Rolled Flat-Rolled Carbon-Quality Steel Products From 
Argentina, Brazil, the People's Republic of China, Indonesia, Japan, 
the Russian Federation, Slovakia, South Africa, Taiwan, Thailand, 
Turkey, and Venezuela, 64 FR 34194 (June 22, 1999). In accordance with 
section 705(a)(1) of the Act, we are aligning the final determination 
in this investigation with the final determinations in the antidumping 
investigations of certain cold-rolled flat-rolled carbon-quality steel 
products.

Period of Investigation

    The period of investigation for which we are measuring subsidies 
(the POI) is calendar year 1998.

Company Histories

    USIMINAS was founded in 1956 as a venture between the Brazilian 
Government, various stockholders and Nippon Usiminas. In 1974, the 
majority interest in USIMINAS was transferred to SIDERBRAS, the 
government holding company for steel interests. The company underwent 
several expansions of capacity throughout the 1980s. In 1990, SIDERBRAS 
was put into liquidation and the GOB decided to include its operating 
companies, including USIMINAS, in its National Privatization Program 
(NPP). In 1991, USIMINAS was partially privatized; as a result of the 
initial auction, Companhia do Vale do Rio Doce (CVRD), a majority 
government-owned iron ore producer, acquired 15 percent of USIMINAS's 
common shares. In 1994, the Government disposed of additional holdings, 
amounting to 16.2 percent of the company's equity. USIMINAS is now 
owned by CVRD and a consortium of private investors, including Nippon 
Usiminas, Caixa de Previdencia dos Funcionarios do Banco do Brasil 
(Previ) and the USIMINAS Employee Investment Club. CVRD was partially 
privatized in 1997, when 31 percent of the company's shares were sold.
    COSIPA was established in 1953 as a government-owned steel 
production company. In 1974, COSIPA was transferred to SIDERBRAS. Like 
USIMINAS, COSIPA was included in the NPP after SIDERBRAS was put into 
liquidation. In 1993, COSIPA was partially privatized, with the GOB 
retaining a minority of the preferred shares. Control of the company 
was acquired by a consortium of investors led by USIMINAS. In 1994, 
additional government-held shares were sold, but the GOB still 
maintained approximately 25 percent of COSIPA's preferred shares. 
During the POI, USIMINAS owned 49.8 percent of the voting capital stock 
of the company. Other principal owners include Bozano Simonsen Asset 
Management Ltd., the COSIPA Employee Investment Club, and COSIPA's 
Pension Fund (FEMCO).
    CSN was established in 1941 and commenced operations in 1946 as a 
government-owned steel company. In 1974, CSN was transferred to 
SIDERBRAS. In 1990, when SIDERBRAS was put into liquidation, the GOB 
included CSN in its NPP. In 1991, 12 percent of the equity of the 
company was transferred to the CSN employee pension fund. In 1993, CSN 
was partially privatized; CVRD, through its subsidiary Vale do Rio Doce 
Navegacao S.A. (Docenave), acquired 9.4 percent of the common shares. 
The GOB's remaining share of the firm was sold in 1994. CSN is now 
owned by Docenave/CVRD and a consortium of private investors, including 
Uniao Comercio e Partipacoes Ltda., Textilia S.A., Previ, the CSN 
Employee Investment Club, and the CSN employee pension fund. As 
discussed above, CVRD was partially privatized in 1997; CSN was part of 
the consortium that acquired control of CVRD through this partial 
privatization.

Attribution of Subsidies

    The GOB has identified three producers/exporters of the subject 
merchandise in this investigation: USIMINAS, COSIPA, and CSN. As 
discussed above, USIMINAS owns 49.8 percent of COSIPA. The CVD 
Regulations, at section 351.525(b)(6)(ii) provide guidance with respect 
to the attribution of subsidies between or among companies which have 
cross-ownership. Specifically, with respect to two or more corporations 
producing the subject merchandise which have cross-ownership, the 
regulations direct us to attribute the subsidies received by either or 
both corporations to the products produced by both corporations. 
Further, section 351.525(b)(6)(vi) defines cross-ownership as existing 
``between two or more corporations where one corporation can use or 
direct the individual assets of the other corporation(s) in essentially 
the same ways it can use its own assets. Normally, this standard will 
be met where there is a majority voting ownership interest between two 
corporations through common ownership of two (or more) corporations.'' 
The preamble to the CVD Regulations identifies situations where cross-
ownership may exist even though there is less than a majority voting 
interest between two corporations: ``in certain circumstances, a large 
minority interest (for example, 40 percent) or a ``golden share'' may 
also result in cross-ownership'' (63 FR at 65401).
    In this investigation, we have preliminarily determined that 
USIMINAS's 49.8 percent ownership interest in COSIPA is sufficient to 
establish cross-ownership between the two companies because USIMINAS is 
capable of using or directing the individual assets of COSIPA in 
essentially the same ways it can use its own assets. We base this 
determination on the following facts: (1) USIMINAS has virtually a 
majority share in COSIPA; and (2) the remaining shareholdings are 
divided among numerous shareholders (more than ten), with no one 
shareholder controlling even one-quarter of the shares which USIMINAS 
controls. Thus, for purposes of this preliminary determination, we have 
calculated one subsidy rate for USIMINAS/COSIPA, by adding together 
their countervailable subsidies during

[[Page 53335]]

the POI and dividing that amount by the sum of the two companies' sales 
during the POI.
    We have also examined the ownership of CSN. We note that during the 
POI, two entities, CVRD and Previ (the pension fund of the Bank of 
Brasil), had meaningful holdings in both USIMINAS and CSN. As these 
entities both have ownership interests in and elect members to the 
Boards of Directors of both companies, we examined whether CSN and 
USIMINAS could, notwithstanding the absence of direct cross-ownership 
between them, have cross-ownership such that their interests are 
merged, and one company could have the ability to use or direct the 
assets of the other through their common investors. CVRD holds 15.48 
percent of USIMINAS and 10.3 percent of CSN (through Docenave); Previ 
holds 15 percent of the common shares of USIMINAS and 13 percent of 
CSN. Both USIMINAS and CSN are controlled through shareholders' 
agreements, which require the participating shareholders (who account 
for more than 50 percent of the shares of the company) pre-vote issues 
before the Board of Directors and vote as a block. While CVRD and Previ 
both participate in the CSN shareholders' agreement, and thus exercise 
considerable influence over the use of CSN's assets, neither CVRD or 
Previ participates in the USIMINAS shareholders' agreement and neither 
CVRD or Previ has any appreciable influence (beyond their respective 
15.48 and 15 percent USIMINAS shareholdings) over the use of USIMINAS's 
assets. Therefore, CVRD's and Previ's shareholdings in both USIMINAS 
and CSN are not sufficient to establish cross-ownership between those 
two companies under our regulatory standard. This lack of common 
majority shareholders leads us to preliminarily determine that 
USIMINAS's and CSN's interests have not merged, i.e., one company is 
not able to use or direct the individual assets of the other as though 
the assets were their own. Thus, for the purposes of this preliminary 
determination, we have calculated a separate countervailing duty rate 
for CSN.

Changes in Ownership

    In the General Issues Appendix (GIA), attached to the Final 
Affirmative Countervailing Duty Determination; Certain Steel Products 
from Austria, 58 FR 37217, 37226 (July 9, 1993), we applied a new 
methodology with respect to the treatment of subsidies received prior 
to the sale of the company (privatization).
    Under this methodology, we estimate the portion of the company's 
purchase price which is attributable to prior subsidies. We compute 
this by first dividing the face value of the company's subsidies by the 
company's net worth for each of the years corresponding to the 
company's allocation period, ending one year prior to the 
privatization. We then take the simple average of these ratios, which 
serves as a reasonable surrogate for the percentage that subsidies 
constitute of the overall value, i.e., net worth, of the company. Next, 
we multiply the purchase price of the company by this average ratio to 
derive the portion of the purchase price that we estimate to reflect 
the repayment of prior subsidies. Then, we reduce the benefit streams 
of the prior subsidies by the ratio of the repayment/reallocation 
amount to the net present value of all remaining benefits at the time 
of the change in ownership.
    In the current investigation, we are analyzing the privatizations 
of USIMINAS, COSIPA and CSN, including the various partial 
privatizations. In conducting these analyses, to the extent that 
partially government-owned companies purchased shares, we have not 
applied our methodology to a percentage of the acquired shares equal to 
the percentage of government ownership in the partially government-
owned purchaser. We have adjusted certain figures included in the 
privatization calculations to account for inflationary accounting 
practices. Further, we have made additional adjustments to USIMINAS and 
CSN's calculations to account for CVRD's 1997 partial privatization. 
See Brazil Hot-Rolled Final at 38745, 38752 (Department's Position on 
Comment 3).
    In the Brazil Hot-Rolled Final, we noted the use of privatization 
currencies, i.e., certain existing government bonds, privatization 
certificates and frozen currencies, and examined them in the context of 
our privatization methodology. We obtained information about the use 
and valuation of the privatization currencies that were used in the 
NPP, and we learned about how privatization currencies were valued in 
the context of the privatization auctions. Specifically, we found that 
the GOB accepted most of these currencies at their full redeemable 
value (face value discounted according to the time remaining until 
maturity). Additionally, foreign debt and restructuring bonds (MYDFAs) 
were accepted at 75 percent of their redeemable value. Many of the 
government bonds that were accepted as privatization currencies were 
trading at a discount on secondary markets. However, no data or 
estimation of what discounts applied was provided for the record. See 
Brazil Hot-Rolled Final at 38745. Further, it was common knowledge that 
these bonds traded at a discount in these markets, and that investors 
actively traded to obtain the cheapest bonds in order to maximize their 
positions in the privatization auctions. The value of the bonds varied 
depending on the instrument's yield and length to maturity and traded 
within a range of 40 percent to 90 percent of the redeemable value, 
i.e., with a discount ranging from 10 percent to 60 percent. Because 
various issues of bonds were accepted as privatization currencies, with 
different yields and terms, precise valuation data was not available. 
However, public information from the record of the hot-rolled 
investigation subsequently placed on the record of this investigation, 
indicates that during the period of 1991-1994 most bonds traded with 
discounts ranging from 40 to 60 percent on average. Privatization 
Certificates (CPs), which banks were forced to purchase and could only 
be used in the privatization auctions, traded at a discount of 
approximately 60 percent on average. See Brazil Hot-Rolled Final, 64 FR 
at 38745.
    In the hot-rolled investigation, we concluded that some adjustment 
to the purchase price of the companies is warranted because of the use 
of privatization currencies in the auctions. See Brazil Hot-Rolled 
Final, at 38745, 38752 (the Department's Position on Comment 3). No 
further information has been provided in the record of this 
investigation which would enable us to refine or otherwise cause us to 
change the approach we developed in the hot-rolled investigation. Thus, 
we have followed the same approach and have applied a 30 percent 
discount to the MYDFAs. In addition, as we did in the hot-rolled 
investigation, we have applied a 60 percent discount to the CPs. See 
Id. For the remaining privatization currencies, in the Brazil Hot-
Rolled Final, we applied a 50 percent discount as facts available, 
which reflected an average of the range of discounts estimated. Because 
no information has been provided to date in this investigation which 
accurately indicates the relevant secondary market discounts for these 
instruments, and in accordance with section 776(a) of the Act, we are 
again applying, as facts available, the 50 percent discount to the 
remaining privatization currencies.

[[Page 53336]]

Subsidies Valuation Information:

Allocation Period

    Section 351.524(d)(2) of the CVD Regulations states that we will 
presume the allocation period for non-recurring subsidies to be the 
average useful life (AUL) of renewable physical assets for the industry 
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class 
Life Asset Depreciation Range System and updated by the Department of 
Treasury. The presumption will apply unless a party claims and 
establishes that these tables do not reasonably reflect the AUL of the 
renewable physical assets for the company or industry under 
investigation, and the party can establish that the difference between 
the company-specific or country-wide AUL for the industry under 
investigation is significant.
    No company requested or submitted information which yielded a 
company-specific AUL significantly different from the AUL listed in the 
IRS tables. Therefore, we are using the 15 year AUL as reported in the 
IRS tables to allocate non-recurring subsidies under investigation in 
the preliminary calculations.

Equityworthiness

    In measuring the benefit from a government equity infusion, in 
accordance with section 351.507 (a)(1) of the Department's CVD 
Regulations, a government-provided equity infusion confers a benefit to 
the extent that the investment decision is inconsistent with the usual 
investment practice of private investors, including the practice 
regarding the provision of risk capital, in the country in which the 
equity infusion is made. See also section 771(5)(E)(i) of the Act. Our 
review of the record in this investigation has not led us to change our 
finding from prior investigations. Specifically, we determined an 
unequityworthy status: (1) for COSIPA, 1977 through 1989, and 1992 
through 1993; (2) for USIMINAS, 1980 through 1988; and (3) for CSN, 
1977 through 1992. Final Affirmative Countervailing Duty 
Determinations: Certain Steel Products from Brazil, 58 FR 37295, 37297 
(July 9, 1993) (1993 Certain Steel Final); Brazil Hot-Rolled Final, 64 
FR at 38746. We note that because the Department determined that it is 
appropriate to use a 15-year allocation period for non-recurring 
subsidies, equity infusions provided in the years 1977 through 1983 no 
longer provide a benefit in the POI. No new information has been 
submitted in this investigation that would cause us to reconsider these 
determinations.
    Section 351.507(a)(3) of the Department's CVD Regulations provides 
that a determination that a firm is unequityworthy constitutes a 
determination that the equity infusion was inconsistent with usual 
investment practices of private investors. The Department will then 
apply the methodology described in section 351.507(a)(6) of the 
regulations, and treat the equity infusion as a grant. Use of the grant 
methodology for equity infusions into an unequityworthy company is 
based on the premise that an unequityworthiness finding by the 
Department is tantamount to saying that the company could not have 
attracted investment capital from a reasonable investor in the infusion 
year based on the available information.

Creditworthiness

    To determine whether a company is uncreditworthy, the Department 
must examine whether the firm could have obtained long-term loans from 
conventional commercial sources based on information available at the 
time of the government-provided loan. See section 351.505 (a)(4) of the 
CVD Regulations. In this context, the term ``commercial sources'' 
refers to bank loans and non-speculative grade bond issues. See section 
351.505 (a)(2)(ii) of the CVD Regulations.
    The Department has previously determined that respondents were 
uncreditworthy in the following years: USIMINAS, 1983-1988; COSIPA, 
1983-1989 and 1991-1993; and CSN 1983-1992. See Certain Steel from 
Brazil, 58 FR at 37297; Brazil Hot-Rolled Final, 64 FR at 38746-38747. 
No new information has been presented in this investigation that would 
lead us to reconsider these findings.

Discount Rates

    From 1984 through 1994, Brazil experienced persistent high 
inflation. There were no long-term fixed-rate commercial loans made in 
domestic currencies during those years that could be used as discount 
rates. As in the Certain Steel Final (58 FR at 37298) and the Brazil 
Hot-Rolled Final (64 FR 38745-38746), we have determined that the most 
reasonable way to account for the high inflation in the Brazilian 
economy through 1994, and the lack of an appropriate Brazilian discount 
rate, is to convert the non-recurring subsidies into U.S. dollars. If 
available, we applied the exchange rate applicable on the day the 
subsidies were granted, or, if unavailable, the average exchange rate 
in the month the subsidies were granted. Then we applied, as the 
discount rate, a long-term dollar lending rate. Therefore, for our 
discount rate, we used data for U.S. dollar lending in Brazil for long-
term non-guaranteed loans from private lenders, as published in the 
World Bank Debt Tables: External Finance for Developing Countries. This 
conforms with our practice in Certain Steel Final (58 FR at 37298); 
Brazil Hot-Rolled Final (64 FR at 38746) and Final Affirmative 
Countervailing Duty Determination: Steel Wire Rod from Venezuela (62 FR 
55014, 55019, 55023) (October 21, 1997).
    Because we have determined that USIMINAS, COSIPA, and CSN were 
uncreditworthy in the years in which they received equity infusions, 
section 351.505 (a)(3)(iii) of the CVD Regulations directs us regarding 
the calculation of a discount rate for purposes of calculating the 
benefits for uncreditworthy companies.
    To calculate the discount rate for uncreditworthy companies, the 
Department must identify values for the probability of default by 
uncreditworthy and creditworthy companies. For the probability of 
default by an uncreditworthy company, we normally rely on the average 
cumulative default rates reported for the Caa to C-rated category of 
companies as published in Moody's Investors Service, ``Historical 
Default Rates of Corporate Bond Issuers, 1920-1997'' (February 
1998).1 For the probability of default by a creditworthy 
company, we used the cumulative default rates for Investment Grade 
bonds as reported by Moody's. We established that this figure 
represents a weighted average of the cumulative default rates for Aaa 
to Baa-rated companies. See September 24, 1999, Memorandum to the File, 
``Conversations and correspondence regarding the weighted average 
default rates of corporate bond issuers as published by Moody's,'' on 
file in the CRU. The use of the weighted average is appropriate because 
the data reported by Moody's for the Caa to C-rated companies is also a 
weighted average. See Id. For non-recurring subsidies, we used the 
average cumulative default rates for both uncreditworthy and 
creditworthy companies based on a 15-year term, since all of the non-
recurring subsidies examined were allocated over a 15-year period.
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    \1\ We note that since publication of the CVD Regulations, 
Moody's Investors Service no longer reports default rates for Caa to 
C-rated category of companies. Therefore for the calculation of 
uncreditworthy interest rates, we will continue to rely on the 
default rates as reported in Moody Investor Service's publication 
dated February 1998 (at Exhibit 28).

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[[Page 53337]]

I. Programs Preliminarily Determined To Be Countervailable

A. Pre-1992 Equity Infusions

    As discussed above, the GOB, through SIDERBRAS, provided equity 
infusions to USIMINAS (1983 through 1988), COSIPA (1983 through 1989 
and 1991) and CSN (1983 through 1991) that have previously been 
investigated by the Department. See Certain Steel from Brazil, 58 FR at 
37298; Brazil Hot-Rolled Final, 64 FR at 38747-38748.
    We preliminarily determine that under section 771(5)(E)(i) of the 
Act, the equity infusions into USIMINAS, COSIPA and CSN were not 
consistent with the usual investment practices of private investors. 
Thus, these infusions constitute financial contributions within the 
meaning of section 771(5)(D) of the Act and confer a benefit in the 
amount of each infusion (see ``Equityworthiness'' section above). These 
equity infusions are specific within the meaning of section 771(5A)(D) 
of the Act because they were limited to each of the companies. 
Accordingly, we find that the pre-1992 equity infusions are 
countervailable subsidies within the meaning of section 771(5) of the 
Act.
    As explained in the ``Equity Methodology'' section above, we have 
treated equity infusions into unequityworthy companies as grants given 
in the year the infusion was received. These infusions are non-
recurring subsidies in accordance with section 351.524(c)(1) of the CVD 
Regulations. Consistent with section 351.524(d)(3)(ii) of the CVD 
Regulations, because USIMINAS, COSIPA and CSN were uncreditworthy in 
the relevant years (the years the equity infusions were received), we 
applied a discount rate that takes into account the differences between 
the probabilities of default of creditworthy and uncreditworthy 
borrowers. From the time USIMINAS, COSIPA and CSN were privatized, we 
have been following the methodology outlined in the ``Change in 
Ownership'' section above to determine the amount of each equity 
infusion attributable to the companies after privatization. We still 
continue to rely on this methodology except for the selection of the 
discount rate as discussed above.
    For CSN, we summed the benefits allocable to the POI from all 
equity infusions and divided by CSN's total sales during the POI. For 
USIMINAS/COSIPA, we summed the benefits allocable to the POI from all 
of the equity infusions and divided this amount by the combined total 
sales of USIMINAS/COSIPA during the POI. On this basis, we 
preliminarily determine the net subsidy to be 5.37 percent ad valorem 
for CSN and 5.99 percent ad valorem for USIMINAS/COSIPA.

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

    Prior to COSIPA's privatization, and in accordance with the 
recommendations of one of the consultants who examined COSIPA, the GOB 
made two debt-for-equity swaps in 1992 and 1993. We previously examined 
these swaps and determined that they were not consistent with the usual 
investment practices of private investors, constituted a financial 
contribution within the meaning of section 771(5)(D) of the Act, and 
therefore conferred countervailable benefits on COSIPA in the amount of 
each conversion. See Brazil Hot-Rolled Final, 64 FR at 38747. No 
information has been provided in this investigation which would warrant 
the reconsideration of this finding. Thus, we preliminarily determine 
that pursuant to section 771(5)(E)(i) of the Act, these debt-for-equity 
swaps confer a benefit in the amount of each swap (see 
``Equityworthiness'' section above). These debt-for-equity swaps are 
specific within the meaning of section 771(5A)(D) of the Act because 
they were limited to COSIPA. Accordingly, we find that the GOB debt-
for-equity swaps provided to COSIPA in 1992 and 1993 are 
countervailable subsidies within the meaning of section 771(5) of the 
Act.
    Each debt-to-equity swap constitutes an equity infusion in the year 
in which the swap was made. As such, we have treated each debt-for-
equity swap as a grant given in the year the swap was made in 
accordance with section 351.507(a)(6) of the CVD Regulations. Further 
these swaps, as equity infusions, are non-recurring in accordance with 
section 351.524(c)(1) of the CVD Regulations. Because COSIPA was 
uncreditworthy in the years of receipt, we applied a discount rate 
consistent with section 351.524(d)(3)(ii) of the CVD Regulations as 
discussed in the ``Uncreditworthy Rate'' section above. Since COSIPA 
has been privatized, we followed the methodology outlined in the 
``Change in Ownership'' section above to determine the amount of each 
debt-for-equity swap attributable to the company after privatization. 
We divided the benefit allocable to the POI from these debt-for-equity 
swaps by the combined total sales of USIMINAS/COSIPA. On this basis, we 
preliminarily determine the net subsidy to be 5.89 percent ad valorem 
for USIMINAS/COSIPA.

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

    Prior to CSN's privatization, and in accordance with the 
recommendations of one of the consultants who examined CSN, in 1992, 
the GOB converted some of CSN debt into GOB equity in CSN. In this 
investigation, we initiated on this debt-for-equity swap as a straight 
equity infusion (see Initiation Notice 64 FR 34204), but subsequent to 
our initiation, in the Brazil Hot-Rolled Final, we determined that this 
constituted a debt-for-equity swap (64 FR at 38748). In the Brazil Hot-
Rolled Final, we determined that this swap was not consistent with the 
usual investment practices of private investors and therefore conferred 
countervailable benefits on CSN in the amount of the swap. See Id. No 
information has been provided in this investigation which would warrant 
reconsideration of that finding. Thus, we preliminarily determine that 
pursuant to section 771(5)(E)(i) of the Act, this debt-to-equity swap 
constitutes a financial contribution which confers a benefit in the 
amount of the swap (see ``Equityworthiness'' section above). This debt-
for-equity swap is specific within the meaning of section 771(5A)(D) of 
the Act because it is limited to CSN. Accordingly, we find that the GOB 
debt-for-equity swaps provided to CSN in 1992 is a countervailable 
subsidy within the meaning of section 771(5) of the Act.
    This debt-to-equity swap constitutes an equity infusion in the year 
in which the swap was made. As such, we have treated this debt-for-
equity swap as a grant given in the year the swap was made in 
accordance with section 351.507(a)(6) of the CVD Regulations. Further 
these swaps, as equity infusions, are non-recurring in accordance with 
section 351.524(c)(1) of the CVD Regulations. Because CSN was 
uncreditworthy in the years of receipt, we applied a discount rate 
consistent with section 351.524(d)(3)(ii) of the CVD Regulations as 
discussed in the ``Uncreditworthy Rate'' section above. Since CSN has 
been privatized, we followed the methodology outlined in the ``Change 
in Ownership'' section above to determine the amount of the debt-for-
equity swap attributable to the company after privatization. We divided 
the benefit allocable to the POI from the equity infusion by CSN's 
total sales during the POI. On this basis, we preliminarily determine 
the net subsidy to be 1.30 percent ad valorem for CSN.

[[Page 53338]]

II. Program for Which the Investigation is Being Rescinded

Negotiated Deferrals of Tax Liabilities

    Prior to COSIPA's privatization, and on the recommendation of one 
of the consultants who examined COSIPA, COSIPA negotiated with the 
various tax authorities in order to arrange to pay its large tax 
arrears in deferred installments. COSIPA was able to arrange for 
installment payments for ten different types of taxes owed. CSN also 
arranged for installment payments for one tax liability.
    Petitioners alleged that these negotiated tax deferrals provided 
countervailable subsidies to COSIPA and CSN. The Department initiated 
on these deferrals, acknowledging the then-preliminary determination in 
the hot-rolled investigation that these deferrals were not 
countervailable. See Preliminary Affirmative Countervailing Duty 
Determination and Alignment of Final Countervailing Duty Determination 
with Final Antidumping Duty Determination: Certain Hot-Rolled Flat-
Rolled Carbon-Quality Steel Products from Brazil 64 FR 8313, 8321 
(February 19, 1999) (Brazil Hot-Rolled Prelim). The Department has 
since made a final determination that this program is not specific and 
therefore does not provide countervailable subsidies. See Brazil Hot-
Rolled Final, 64 FR at 38748-38749. No information has been placed on 
the record of this investigation which would warrant the 
reconsideration of this finding. Thus, we are rescinding our 
investigation of this program. See Memorandum to the File, 
Countervailing Duty Investigation of Certain Cold-Rolled Flat-Rolled 
Carbon-Quality Steel Products from Brazil, August 2, 1999, on file in 
the Import Administration Central Records Unit (CRU), Room B-099 of the 
Department of Commerce.

Verification

    In accordance with section 782(i)(1) of the Act, we will verify the 
information submitted by respondents prior to making our final 
determination.

Suspension of Liquidation

    In accordance with section 703(d)(1)(A)(i) of the Act, we 
calculated a combined ad valorem rate for USIMINAS and COSIPA and an 
individual rate for CSN. The total estimated net countervailable 
subsidy rates are stated below.

------------------------------------------------------------------------
                  Company                         Net subsidy rate
------------------------------------------------------------------------
USIMINAS/COSIPA...........................  11.88 % ad valorem.
CSN.......................................  6.67 % ad valorem.
All Others................................  9.76 % ad valorem.
------------------------------------------------------------------------

    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of certain 
cold-rolled flat-rolled carbon-quality steel products from Brazil, 
which are entered or withdrawn from warehouse, for consumption on or 
after the date of the publication of this notice in the Federal 
Register, and to require a cash deposit or bond for such entries of the 
merchandise in the amounts listed above. This suspension of liquidation 
will remain in effect until further notice.

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all nonprivileged and nonproprietary information relating to this 
investigation. We will allow the ITC access to all privileged and 
business proprietary information in our files, provided the ITC 
confirms that it will not disclose such information, either publicly or 
under an administrative protective order, without the written consent 
of the Assistant Secretary for Import Administration.
    If our final determination is affirmative, the ITC will make its 
final determination within 45 days after the Department makes its final 
determination.

Public Comment

    In accordance with 19 CFR 351.310, we will hold a public hearing, 
if requested, to afford interested parties an opportunity to comment on 
this preliminary determination. The hearing is tentatively scheduled to 
be held 57 days from the date of publication of the preliminary 
determination at the U.S. Department of Commerce, 14th Street and 
Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish 
to request a hearing must submit a written request within 30 days of 
the publication of this notice in the Federal Register to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, 14th Street and Constitution Avenue, N.W., Washington, D.C. 
20230. Parties should confirm by telephone the time, date, and place of 
the hearing 48 hours before the scheduled time.
    Requests for a public hearing should contain: (1) the party's name, 
address, and telephone number; (2) the number of participants; and, (3) 
to the extent practicable, an identification of the arguments to be 
raised at the hearing. In addition, six copies of the business 
proprietary version and six copies of the non-proprietary version of 
the case briefs must be submitted to the Assistant Secretary no later 
than 50 days from the date of publication of the preliminary 
determination. As part of the case brief, parties are encouraged to 
provide a summary of the arguments not to exceed five pages and a table 
of statutes, regulations, and cases cited. Six copies of the business 
proprietary version and six copies of the non-proprietary version of 
the rebuttal briefs must be submitted to the Assistant Secretary no 
later than 5 days from the date of filing of the case briefs. An 
interested party may make an affirmative presentation only on arguments 
included in that party's case or rebuttal briefs. Written arguments 
should be submitted in accordance with 19 C.F.R. 351.309 and will be 
considered if received within the time limits specified above.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    Dated: September 27, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-25619 Filed 9-30-99; 8:45 am]
BILLING CODE 3510-DS-P