[Federal Register Volume 67, Number 27 (Friday, February 8, 2002)]
[Notices]
[Pages 5967-5976]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-3118]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-351-833]


Preliminary Negative Countervailing Duty Determination: Carbon 
and Certain Alloy Steel Wire Rod from Brazil

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

ACTION: Notice of preliminary negative countervailing duty 
determination.

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SUMMARY: The Department of Commerce preliminarily determines that 
countervailable subsidies are not being provided to producers or 
exporters of carbon and certain alloy steel wire rod from Brazil.

EFFECTIVE DATE: February 8, 2002

FOR FURTHER INFORMATION CONTACT: Melani Miller or Jennifer Jones, 
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Import 
Administration, U.S. Department of Commerce, Room 3099, 14th Street and 
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-
0116 and (202) 482-4194, respectively.

SUPPLEMENTARY INFORMATION:

The Applicable Statute

    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 19 CFR Part 351 (April 2001).

Petitioners

    The petitioners in this investigation are Co-Steel Raritan, Inc., 
GS Industries, Keystone Consolidated Industries, Inc., and North Star 
Steel Texas, Inc. (collectively, ``petitioners'').

Case History

    The following events have occurred since the publication of the 
notice of initiation in the Federal Register. See Notice of Initiation 
of Countervailing Duty Investigations: Carbon and Certain Alloy Steel 
Wire Rod from Brazil, Canada, Germany, Trinidad and Tobago, and Turkey, 
66 FR 49931 (October 1, 2001) (``Initiation Notice'').
    On October 9, 2001, we issued countervailing duty (``CVD'') 
questionnaires to the Government of Brazil (``GOB'') and the producers/
exporters of the subject merchandise. Due to the large number of 
producers and exporters of carbon and certain alloy steel wire rod 
(``wire rod'' or ``subject merchandise'') in Brazil, we decided to 
limit the number of responding companies to the three producers/
exporters with the largest volumes of exports to the United States 
during the period of investigation: Companhia Siderurgica Belgo-Mineira 
(``Belgo Mineira''), Companhia Siderurgica de Tubarao (``CST''), and 
Gerdau S.A. (``Gerdau''). See October 9, 2001 memorandum to Susan 
Kuhbach, Respondent Selection, which is on file in the Department of 
Commerce's (``the Department's'') Central Records Unit in Room B-099 of 
the main Department building (``CRU'').
    Also on October 9, we received a request from the petitioners to 
amend the scope of this investigation to exclude certain wire rod. The 
petitioners submitted further clarification with respect to their scope 
amendment request on November 28, 2001. Also on November 28, 2001, the 
five largest U.S. tire manufacturers and the industry trade 
association, the Rubber Manufacturers Association (``tire 
manufacturers''), submitted comments on the proposed exclusion. The 
tire manufacturers submitted further comments on January 28, 2002. See, 
infra, ``Scope Comments'' section.
    On October 18, 2001, the petitioners filed a letter raising several 
concerns with respect to the Department's initiation of this 
investigation and the concurrent investigations in Canada, Germany, and 
Trinidad and Tobago. With respect to Brazil, the petitioners also re-
alleged certain subsidy allegations. The Department initiated an 
investigation of one of these re-alleged programs on November 2, 2001, 
and issued a questionnaire with respect to this new subsidy allegation 
on November 5, 2001. The Department addressed most of the remaining 
concerns in a memo dated December 4, 2001. This memorandum is on file 
in the Department's CRU.
    On October 22, 2001, CST notified the Department that it neither 
shipped nor manufactured the subject merchandise during the period of 
investigation (``POI''). We will verify this information prior to 
issuing the final determination in this investigation.
    On November 14, 2001, we published a postponement of the 
preliminary determination of this investigation until February 1, 2002. 
See Carbon and Certain Alloy Steel Wire Rod From Brazil, Canada, 
Germany, Trinidad and Tobago, and Turkey: Postponement of Preliminary 
Determinations of Countervailing Duty Investigations, 66 FR 57036 
(November 14, 2001).
    The Department received the GOB and company responses to the 
Department's questionnaires (including the new subsidy allegation 
questionnaire) on November 29, 2001. On December 6, 2001, the 
petitioners submitted comments regarding these questionnaire responses. 
The Department issued supplemental questionnaires to the GOB and the 
companies on December 13, 2001, and received responses to those 
questionnaires on January 7 and January 14, 2002.
    On December 5, 2001, the petitioners filed a critical circumstances 
allegation with respect to Brazil, Germany, and Turkey. Supplemental 
critical circumstances information and arguments relating to Brazil 
were filed by the petitioners on December 19, December 21, and December 
27, 2001, and January 25, 2002; and by the respondents on January 10 
and January 28, 2002. Additionally, comments on the critical 
circumstances allegations were filed on behalf of the American

[[Page 5968]]

Wire Producers Association on December 17, 2001. See, infra, ``Critical 
Circumstances'' section for a discussion on the Department's critical 
circumstances analysis for this preliminary determination.
    Finally, both the petitioners and the respondents submitted 
comments on the upcoming preliminary determination on January 14 and 
January 18, 2002, respectively. In their January 14 submission, the 
petitioners made several new allegations that relate to several 
specific programs that we are investigating. Each allegation will be 
addressed infra in the ``Analysis of Programs'' section.

Period of Investigation

    The period for which we are measuring subsidies is calendar year 
2000.

Scope of Investigation

    The merchandise covered by this investigation is certain hot-rolled 
products of carbon steel and alloy steel, in coils, of approximately 
round cross section, 5.00 mm or more, but less than 19.0 mm, in solid 
cross-sectional diameter.
    Specifically excluded are steel products possessing the above-noted 
physical characteristics and meeting the Harmonized Tariff Schedule of 
the United States (``HTSUS'') definitions for (a) stainless steel; (b) 
tool steel; (c) high nickel steel; (d) ball bearing steel; and (e) 
concrete reinforcing bars and rods. Also excluded are (f) free 
machining steel products (i.e., products that contain by weight one or 
more of the following elements: 0.03 percent or more of lead, 0.05 
percent or more of bismuth, 0.08 percent or more of sulfur, more than 
0.04 percent of phosphorus, more than 0.05 percent of selenium, or more 
than 0.01 percent of tellurium). All products meeting the physical 
description of subject merchandise that are not specifically excluded 
are included in this scope.
    The products under investigation are currently classifiable under 
subheadings 7213.91.3010, 7213.91.3090, 7213.91.4510, 7213.91.4590, 
7213.91.6010, 7213.91.6090, 7213.99.0031, 7213.99.0038, 7213.99.0090, 
7227.20.0010, 7227.20.0090, 7227.90.6051 and 7227.90.6058 of the HTSUS. 
Although the HTSUS subheadings are provided for convenience and customs 
purposes, the written description of the scope of these investigations 
is dispositive.

Scope Comments

    In the Initiation Notice, we invited comments on the scope of this 
proceeding. As noted above, on October 9, 2001, we received a request 
from the petitioners to amend the scope of this investigation and the 
companion CVD and antidumping duty (``AD'') wire rod investigations. 
Specifically, the petitioners requested that the scope be amended to 
exclude high carbon, high tensile 1080 grade tire cord and tire bead 
quality wire rod actually used in the production of tire cord and bead, 
as defined by specific dimensional characteristics and specifications.
    On November 28, 2001, the petitioners further clarified and 
modified their October 9 request. The petitioners suggested the 
following five modifications and clarifications: (1) Expand the end-use 
language of the scope exclusion request to exclude 1080 grade tire cord 
and tire bead quality that is used in the production of tire cord, tire 
bead, and rubber reinforcement applications; (2) clarify that the scope 
exclusion requires a carbon segregation per heat average of 3.0 or 
better to comport with recognized industry standards; (3) replace the 
surface quality requirement for tire cord and tire bead with simplified 
language specifying maximum surface defect length; (4) modify the 
maximum soluble aluminum from 0.03 to 0.01 for tire bead wire rod; and 
(5) reduce the maximum residual element requirements to 0.15 percent 
from 0.18 percent for both tire bead and tire cord wire rod and add an 
exception for chromium-added tire bead wire rod to allow a residual of 
0.10 percent for copper and nickel and a chromium content of 0.24 to 
0.30 percent.
    Also on November 28, 2001, the tire manufacturers submitted a 
letter to the Department in response to petitioners' October 9, 2001 
submission regarding the scope exclusion. In this letter, the tire 
manufacturers supported the petitioners' request to exclude certain 
1080 grade tire cord and tire bead wire rod used in the production of 
tire cord and bead.
    Additionally, the tire manufacturers requested that the Department 
clarify whether 1090 grade was covered by the petitioners' exclusion 
request. The tire manufacturers further requested an exclusion from the 
scope of this investigation for 1070 grade wire rod and related grades 
(0.69 percent or more of carbon) because, according to the tire 
manufacturers, domestic production cannot meet the requirements of the 
tire industry.
    The tire manufacturers stated their opposition to defining scope 
exclusions on the basis of actual end use of the product. Instead, the 
tire manufacturers support excluding the product if it is imported 
pursuant to a purchase order from a tire manufacturer or a tire cord 
wire manufacturer in the Untied States. Finally, the tire manufacturers 
urged the Department to adopt the following specifications to define 
the excluded product: A maximum nitrogen content of 0.0008 percent for 
tire cord and 0.0004 percent for tire bead; maximum weight for copper, 
nickel, and chromium, in the aggregate, of 0.0005 percent for both 
types of wire rod. In their view, there should be no additional 
specifications and tests, as proposed by the petitioners.
    On January 28, 2002, the tire manufacturers responded to the 
petitioners' November 28, 2001 letter. The tire manufacturers continue 
to have three major concerns about the product exclusion requested by 
the petitioners. First, the tire manufacturers urge that 1070 grade 
tire cord quality wire rod be excluded (as it was in the 1999 Section 
201 investigation). Second, they continue to object to defining the 
exclusion by actual end use. Finally, they reiterate their earlier 
position on the chemical specifications for the excluded product.
    At this point in the proceeding, we recognize that the interested 
parties have both advocated excluding certain tire rod and tire core 
quality wire rod. However, the Department continues to examine this 
issue. Therefore, for this preliminary determination we have not 
amended the scope, and this preliminary determination applies to the 
scope as described in the Initiation Notice.
    We plan to reach a decision as early as possible in these 
proceedings. Interested parties will be advised of our intentions prior 
to the final determination and will have the opportunity to comment.

Injury Test

    Because Brazil is a ``Subsidies Agreement Country'' within the 
meaning of section 701(b) of the Act, the International Trade 
Commission (``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 October 15, 2001, the ITC transmitted to 
the Department its preliminary determination that there is a reasonable 
indication that an industry in the United States is being materially 
injured by reason of imports from Brazil of the subject merchandise. 
See Carbon and Certain Alloy Steel Wire Rod From Brazil, Canada, Egypt, 
Germany, Indonesia, Mexico, Moldova, South Africa, Trinidad and Tobago, 
Turkey, Ukraine, and Venezuela, 66 FR 54539 (October 29, 2001).

[[Page 5969]]

Critical Circumstances

    The petitioners have alleged that critical circumstances within the 
meaning of section 703(e) of the Act exist with respect to the subject 
merchandise.
    We need not address the critical circumstances allegation at this 
time. Because our preliminary determination is negative, we are not 
ordering a suspension of liquidation pursuant to section 703(d) of the 
Act. Consequently, retroactive suspension of liquidation pursuant to 
section 703(e)(2) of the Act is not applicable.

Changes in Ownership

    On February 2, 2000, the U.S. Court of Appeals for the Federal 
Circuit (``CAFC'') in Delverde Srl v. United States, 202 F.3d 1360, 
1365 (Fed. Cir. 2000), reh'g en banc denied (June 20, 2000) (``Delverde 
III''), rejected the Department's change-in-ownership methodology as 
explained in the General Issues Appendix of the Final Affirmative 
Countervailing Duty Determination: Certain Steel Products from Austria, 
58 FR 37217, 37225 (July 9, 1993). The CAFC held that ``the Tariff Act, 
as amended, does not allow Commerce to presume conclusively that the 
subsidies granted to the former owner of Delverde's corporate assets 
automatically 'passed through' to Delverde following the sale. Rather, 
the Tariff Act requires that Commerce make such a determination by 
examining the particular facts and circumstances of the sale and 
determining whether Delverde directly or indirectly received both a 
financial contribution and benefit from the government.'' Delverde III, 
202 F.3d at 1364.
    Pursuant to the CAFC finding, the Department developed a new 
change-in-ownership methodology. This new methodology was first 
announced in a remand determination on December 4, 2000, and was also 
applied in Grain-Oriented Electrical Steel from Italy; Final Results of 
Countervailing Duty Administrative Review, 66 FR 2885 (January 12, 
2001). Likewise, we have applied this new methodology in analyzing the 
changes in ownership in this preliminary determination.
    The first step under this new methodology is to determine whether 
the legal person (entity) to which the subsidies were given is, in 
fact, distinct from the legal person that produced the subject 
merchandise exported to the United States. If we determine the two 
persons are distinct, we then analyze whether a subsidy has been 
provided to the purchasing entity as a result of the change-in-
ownership transaction. If we find, however, that the original subsidy 
recipient and the current producer/exporter are the same person, then 
that person benefits from the original subsidies, and its exports are 
subject to countervailing duties to offset those subsidies. In other 
words, we will determine that a ``financial contribution'' and a 
``benefit'' have been received by the ``person'' under investigation. 
Assuming that the original subsidy has not been fully amortized under 
the Department's normal allocation methodology as of the beginning of 
the POI, the Department would then continue to countervail the 
remaining benefits of that subsidy.
    In making the ``person'' determination, where appropriate and 
applicable, we analyze factors such as (1) continuity of general 
business operations, including whether the successor holds itself out 
as the continuation of the previous enterprise, as may be indicated, 
for example, by use of the same name, (2) continuity of production 
facilities, (3) continuity of assets and liabilities, and (4) retention 
of personnel. No single factor will necessarily provide a dispositive 
indication of any change in the entity under analysis. Instead, the 
Department will generally consider the post-sale person to be the same 
person as the pre-sale person if, based on the totality of the factors 
considered, we determine the entity in question can be considered a 
continuous business entity because it was operated in substantially the 
same manner before and after the change in ownership.
    We have preliminarily determined that Gerdau is the only respondent 
with changes in ownership requiring this type of analysis because no 
other respondent (or its predecessor) received subsidies prior to a 
change in ownership that were not fully expensed or allocated prior to 
the POI. For Gerdau, the two changes in ownership are Gerdau's 
acquisition of Cia Siderurgica do Nordeste (``Cosinor'') in 1991 and 
Gerdau's acquisition of Usina Siderurgica da Bahia S.A. (``Usiba'') in 
1989.
    We have not made a finding for the purposes of this preliminary 
determination as to whether pre-sale Cosinor and pre-sale Usiba are 
distinct persons from the respondent Gerdau. This is because the 
potential POI benefits for the pre-sale subsidies to Cosinor found in 
this preliminary determination (e.g., 1991 Debt-to-Equity Conversion 
Provided to Cosinor) are insignificant, amounting to 0.06 percent. 
Additionally, the POI benefits for any pre-sale subsidies found in this 
preliminary determination (e.g., 1988 Equity Infusions/Debt Forgiveness 
Provided to Usiba) are insignificant, amounting to 0.35 percent. 
Assuming, arguendo, that these pre-sale subsidies continued to benefit 
Gerdau in the POI, the preliminary ad valorem rate (reflecting, in 
full, any POI benefits of pre-sale subsidies) for Gerdau would be de 
minimis. Therefore, application of the change in ownership methodology 
is not relevant in this investigation.
    However, we are seeking further information on potential subsidies 
Cosinor and Usiba may have received in addition to those found to be 
countervailable in this preliminary determination. Should we obtain any 
information subsequent to this preliminary determination indicating the 
final ad valorem rate for Gerdau would be above de minimis, we will 
give all parties sufficient opportunity to comment on whether and how 
Usiba's 1989 sale and Cosinor's 1991 sale affect the POI benefit to 
Gerdau of any pre-sale subsidies.

Subsidies Valuation Information

Allocation Period

    Pursuant to 19 CFR 351.524(b), non-recurring subsidies are 
allocated over a period corresponding to the average useful life 
(``AUL'') of the renewable physical assets used to produce the subject 
merchandise. 19 CFR 351.524(d)(2) creates a rebuttable presumption that 
the AUL will be taken from the U.S. Internal Revenue Service's 1977 
Class Life Asset Depreciation Range System (the ``IRS Tables''). For 
wire rod, the IRS Tables prescribe an AUL of 15 years. None of the 
responding companies or interested parties disputed this allocation 
period. Therefore, we have used the 15-year allocation period for all 
respondents.

Attribution of Subsidies

    19 CFR 351.525(a)(6) directs that the Department will attribute 
subsidies received by certain affiliated companies to the combined 
sales of those companies. Based on our review of the responses, we find 
that ``cross ownership'' exists with respect to certain companies, as 
described below, and we have attributed subsidies accordingly.
    Belgo Mineira: Belgo Mineira, the parent company, is responding on 
behalf of itself and its four manufacturing facilities at Montevade, 
Vitoria, Sabara, and Piracicaba (formerly Dedini Siderurgicia de 
Piracicaba (``Dedini'')). Belgo Mineira is also responding on behalf of 
one of its subsidiaries, Belgo Mineira Participacao Industria e 
Comercio S.A. (``BMP''),

[[Page 5970]]

which was formerly Mendes Junior Siderurgia S.A. (``Mendes Junior''). 
Belgo Mineira is a manufacturing company which is involved in all 
stages of steel production, including wire rod. BMP also produces wire 
rod.
    In accordance with 19 CFR 351.525(b)(6)(i) and (ii) we are 
attributing any subsidies received by Belgo Mineira (including its 
above-noted production facilities) and BMP to the combined sales of 
these entities.
    Belgo Mineira also reports that it has numerous other subsidiaries 
and affiliations with various companies. However, our analysis 
indicates no basis to attribute any subsidies received by these other 
subsidiaries or affiliates to the production of the subject 
merchandise. Specifically, although cross-ownership may exist with 
these other companies, they do not produce the subject merchandise as 
required in 19 CFR 351.525(b)(6), nor do they meet any of the other 
criteria specified in 19 CFR 351.525(b)(6).
    Gerdau: Gerdau, the parent company, is responding on behalf of 
itself and its four manufacturing facilities at Aconorte, Cosigua, 
Riograndense, and Usiba, all of which produce the subject merchandise. 
Gerdau is also reporting on behalf of its parent company, Metalurgica 
Gerdau S.A., a holding company which owns 82.97 percent of Gerdau's 
shares. In accordance with 19 CFR 351.525(b)(6)(i) and (ii), we are 
attributing subsidies received by all of these entities to the combined 
total sales of Gerdau.
    Gerdau produces a wide variety of products, such as civil 
construction products, industrial products, agricultural products, 
nails, metallurgy products, and specialty steel products, including 
wire rod. Our analysis indicates no basis to attribute any subsidies 
received by these other subsidiaries or affiliates to the production of 
the subject merchandise. Specifically, although cross-ownership may 
exist with these other companies, they do not produce the subject 
merchandise as required in 19 CFR 351.525(b)(6), nor do they meet any 
of the other criteria specified in 19 CFR 351.525(b)(6).
    Gerdau has reported that it has an affiliate, Aco Minas Gerais S.A. 
(``Acominas''), which supplies billets to Cosigua for use in its wire 
rod production. Gerdau contends that, although Acominas provides inputs 
into the production process of the subject merchandise, cross-ownership 
does not exist between the two companies. Specifically, Gerdau argues 
that its equity holding in Acominas does not position Gerdau to ``use 
or direct the individual assets of'' Acominas ``in essentially the same 
way its uses its own assets'' as required for cross-ownership pursuant 
to 19 CFR 351.525(b)(6)(vi).
    Based on our analysis, we preliminarily determine that, because of 
Gerdau's minority percentage of ownership of Acominas, Gerdau is not in 
a position to ``use or direct'' Acominas' individual assets as required 
by 19 CFR 351.525(b)(6)(vi). Thus, we have preliminarily determined 
that cross-ownership does not exist between Gerdau and Acominas 
pursuant to 19 CFR 351.525(b)(6)(vi).

Benchmarks for Loans and Discount Rates

    Pursuant to 19 CFR 351.505(a) and 19 CFR 351.524(d)(3)(i), the 
Department will use as a long-term loan benchmark and a discount rate 
the actual cost of comparable long-term borrowing by the company, when 
available. 19 CFR 351.505(a)(2) defines a comparable commercial loan as 
one that, when compared to the government-provided loan in question, 
has similarities in the structure of the loan (e.g. fixed interest rate 
v. variable interest rate), the maturity of the loan (e.g. short-term 
v. long-term), and the currency in which the loan is denominated. In 
instances where no applicable company-specific comparable commercial 
loans are available, 19 CFR 351.505(a)(3)(ii) requires the Department 
to use a national average interest rate for comparable commercial 
loans.
    Both Gerdau and Belgo Mineira have reported that they have loans 
from commercial lending institutions that can be used as benchmarks. 
Specifically, both Belgo Mineira and Gerdau report that they have 
commercial loans in certain years that can be used as benchmarks for 
the long-term, variable interest rate loans provided through the 
Financing for the Acquisition or Lease of Machinery and Equipment 
through the Special Agency for Industrial Financing (``FINAME'') 
program. Belgo Mineira has also reported short-term, variable interest 
rate commercial loans that can be used as the benchmark for its short-
term, variable interest rate National Bank for Economic and Social 
Development (``BNDES'') Export Financing loans.
    Belgo Mineira's commercial short-term loans were made in the same 
currency as the BNDES Export Financing loans. Therefore, because the 
Belgo Mineira short-term, variable interest rate loans are comparable 
to the government loans pursuant to 19 CFR 351.505(a)(2), we are using 
these loans as the benchmark for Belgo Mineira's BNDES Export Financing 
loans.
    The long-term commercial loans reported by Belgo Mineira and Gerdau 
are similar in maturity and structure to the government loans being 
provided by the GOB. However, the proposed benchmark commercial loans 
were reported in U.S. dollars, whereas the FINAME long-term, variable 
interest rate loans were denominated in Brazilian currency.
    As stated in 19 CFR 351.505(a)(2), it is the Department's 
preference when choosing a comparable commercial loan for benchmark 
purposes to have a benchmark rate that is denominated in the same 
currency as the government-provided loan. The Department has found in 
past Brazilian CVD cases, however, that there were no long-term 
commercial loans made in Brazilian currency that could be used as 
benchmark or discount rates because BNDES was the only Brazilian 
institution that provided long-term Brazilian-currency denominated 
loans. See, e.g., Final Affirmative Countervailing Duty Determination: 
Certain Cold Rolled Flat-Rolled Carbon-Quality Steel Products from 
Brazil, 65 FR 5538 (February 4, 2000) (``Brazil Cold-Rolled Steel''), 
Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled 
Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR 38741 
(July 19, 1999) (``Brazil Hot-Rolled Steel''), and Final Affirmative 
Countervailing Duty Determinations: Certain Steel Products from Brazil, 
58 FR 37295 (July 9, 1993) (``Brazil Certain Steel'').
    In those same cases, the Department determined that the most 
reasonable way to deal with the lack of an appropriate Brazilian long-
term benchmark rate was to use 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 
(``World Bank Debt Tables''). See, e.g., Brazil Certain Steel, Brazil 
Hot-Rolled Steel; and Final Affirmative Countervailing Duty 
Determination: Steel Wire Rod from Venezuela, 62 FR 55014, 55019, 55023 
(October 21, 1997).
    In the instant investigation the Department has found, as it has in 
the past, that there are no similar long-term loans made in Brazilian 
currency. Therefore, consistent with the Department's past practice of 
employing benchmarks denominated in different currencies, we are using 
a weight-average rate from the dollar-denominated variable rate 
commercial loans as the benchmark for Gerdau and

[[Page 5971]]

Belgo Mineira for the years in which they had such loans. In years for 
which this benchmark is not available, pursuant to 19 CFR 
351.505(a)(3)(ii) and consistent with past Brazilian cases as noted 
above, we are using as a benchmark for comparison purposes long-term 
interest rate data from the World Bank Debt Tables.
    Additionally, because we have found one of Gerdau's subsidiary 
companies, Usiba, to be uncreditworthy in 1988 (see, infra, section on 
``Creditworthiness''), we have calculated for Usiba only a long-term 
uncreditworthy discount rate for 1988 in accordance with 19 CFR 
351.524(c)(3)(ii).
    In accordance with 19 CFR 351.524(d)(3)(ii), the discount rate for 
companies considered uncreditworthy is the rate described in 19 CFR 
351.505(a)(3)(iii). According to 19 CFR 351.505(a)(3)(iii), to 
calculate that rate, the Department must specify values for four 
variables: (1) the probability of default by an uncreditworthy company; 
(2) the probability of default by a creditworthy company; (3) the long-
term interest rate for creditworthy borrowers; and (4) the term of the 
debt.
    For the probability of default by an uncreditworthy company, we 
have used 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). For the probability of default by a 
creditworthy company, we used the cumulative default rates for 
investment grade bonds as published in Moody's Investor Services: 
``Statistical Tables of Default Rates and Recovery Rates'' (February 
1998). For the commercial interest rate charged to creditworthy 
borrowers, we used the World Bank Debt Tables, discussed above. For the 
term of the debt, we used 15 years because all of the non-recurring 
subsidies examined were allocated over a 15-year period.

Equityworthiness

    Section 771(5)(E)(i) of the Act and 19 CFR 351.507 state that, in 
the case of a government-provided equity infusion, a benefit is 
conferred if an equity investment decision is inconsistent with the 
usual investment practice of private investors. 19 CFR 351.507 states 
that the first step in determining whether an equity investment 
decision is inconsistent with the usual investment practice of private 
investors is examining whether, at the time of the infusion, there was 
a market price for similar newly-issued equity. If so, the Department 
will consider an equity infusion to be inconsistent with the usual 
investment practice of private investors if the price paid by the 
government for newly-issued shares is greater than the price paid by 
private investors for the same, or similar, newly-issued shares.
    If actual private investor prices are not available, then, pursuant 
to 19 CFR 351.507(a)(3)(i), the Department will determine whether the 
firm funded by the government-provided infusion was equityworthy or 
unequityworthy at the time of the equity infusion. In making the 
equityworthiness determination, pursuant to 19 CFR 351.507(a)(4), the 
Department will normally determine that a firm is equityworthy if, from 
the perspective of a reasonable private investor examining the firm at 
the time the government-provided equity infusion was made, the firm 
showed an ability to generate a reasonable rate of return within a 
reasonable time. To do so, the Department normally examines the 
following factors: 1) objective analyses of the future financial 
prospects of the recipient firm; 2) current and past indicators of the 
firm's financial health; 3) rates of return on equity in the three 
years prior to the government equity infusion; and 4) equity investment 
in the firm by private investors.
    19 CFR 351.507(a)(4)(ii) further stipulates that the Department 
will ``normally require from the respondents the information and 
analysis completed prior to the infusion, upon which the government 
based its decision to provide the equity infusion.'' Absent an analysis 
containing information typically examined by potential private 
investors considering an equity investment, the Department will 
normally determine that the equity infusion provides a countervailable 
benefit. This is because, before making a significant equity infusion, 
it is the usual investment practice of private investors to evaluate 
the potential risk versus the expected return, using the most objective 
criteria and information available to the investor.
    The individual equityworthiness analyses relating to any equity 
programs being examined in the instant investigation are in the 
program-specific ``Analysis of Programs'' sections, below.

Creditworthiness

    The examination of creditworthiness is an attempt to determine if 
the company in question could obtain long-term financing from 
conventional commercial sources. See 19 CFR 351.505(a)(4). According to 
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm 
to be uncreditworthy if, based on information available at the time of 
the government-provided loan, for example, the firm could not have 
obtained long-term loans from conventional commercial sources. In 
making this determination, according to 19 CFR 351.505(a)(4)(i), the 
Department normally examines the following four types of information: 
1) the receipt by the firm of comparable commercial long-term loans; 2) 
present and past indicators of the firm's financial health; 3) present 
and past indicators of the firm's ability to meet its costs and fixed 
financial obligations with its cash flow; and 4) evidence of the firm's 
future financial position. With respect to item number one, above, it 
is the Department's practice to not consider in the case of a 
government-owned firm the receipt of comparable commercial loans as 
being dispositive of a firm's likely ability to obtain long-term 
commercial credit. This is because, in the Department's view, in the 
case of a government-owned firm, a bank is likely to consider that the 
government will repay the loan in the event of a default. See 
Countervailing Duties; Final Rule, 63 FR 65348, 65367 (November 28, 
1998).
    In the Initiation Notice, we initiated a creditworthiness 
investigation for Usiba for 1988 only. In its questionnaire responses, 
Gerdau does not challenge the creditworthiness of Usiba in 1988, and 
does not provide a response to the Department's questions relating to 
Usiba's creditworthiness in 1988. Therefore, because Gerdau has not 
provided information requested by the Department pursuant to section 
776(a)(2), we are, as facts available, preliminarily determining that 
Usiba was uncreditworthy in 1988. Thus, any non-recurring benefits 
received by Usiba in 1988 which are also attributable to Gerdau have 
been allocated using an uncreditworthy discount rate.

Analysis of Programs

    Based upon our analysis of the petition and the responses to our 
questionnaires, we determine the following:

I. Programs Preliminarily Determined to Be Countervailable

A. Financing for the Acquisition or Lease of Machinery and Equipment 
through the Special Agency for Industrial Financing
    The FINAME program, which is administered through BNDES and agent 
banks throughout Brazil, was established in 1966 by Decree No. 59.170 
of September 2, 1966 and Decree/Law No. 45 of November 18,

[[Page 5972]]

1966. FINAME loans provide capital financing to companies located in 
Brazil for the acquisition or leasing of new machinery and equipment. 
Although financing is available for both machinery manufactured in 
Brazil and non-domestic machinery, most FINAME financing is provided 
for new machinery and equipment manufactured in Brazil. FINAME 
financing is available for non-Brazilian machinery only when 
domestically-manufactured machinery is unavailable. FINAME financing 
for leasing of equipment or machinery is only available for domestic 
equipment. Under the terms of this program, FINAME loans may be used to 
finance no more than 80 percent of the purchase price of the machinery.
    Both Belgo Mineira and Gerdau received loans through this program 
that had interest and principal outstanding during the POI. 
Specifically, Belgo Mineira has reported that it has FINAME loans 
outstanding during the POI that originated in each year from 1995 
through 2000, and Gerdau has reported that it has FINAME loans 
outstanding during the POI from 1990 and in each year from 1993 through 
2000.
    We preliminarily determine that FINAME loans are specific because 
they constitute an import substitution subsidy within the meaning of 
771(5A)(C) of the Act because, although these loans are available for 
machinery and equipment manufactured outside of Brazil, most loans for 
the acquisition of merchandise are made for Brazilian-produced 
merchandise. Additionally, loans to lease equipment are limited only to 
Brazilian-produced machinery. We also preliminarily determine that 
these FINAME loans provide a financial contribution in the form of a 
direct transfer of funds as described in section 771(5)(D)(i) of the 
Act.
    Finally, we determine that a benefit exists for loans originating 
in certain years for both Belgo Mineira and Gerdau pursuant to section 
771(5)(E)(ii) of the Act. According to 19 CFR 351.505(a)(5), in order 
to determine whether long-term variable interest rate loans confer a 
benefit, the Department first compares the variable benchmark interest 
rate to the rate on the government-provided loan for the year in which 
the government loan terms were established. For instance, for a FINAME 
loan originating in 1993, we compare the FINAME interest rate in 1993 
to the rate on the comparable commercial loans also originating in 
1993.
    According to 19 CFR 351.505(a)(5), if the comparison shows that the 
interest rate on the government-provided loan was equal to or higher 
than the interest rate on the comparable commercial loan, the 
Department will determine that the government-provided loan did not 
confer a benefit. However, if the interest rate in the year of 
origination of the government-provided loan was lower than the 
origination-year interest rate on the comparable commercial loan, the 
Department will examine that loan in the POI to measure the benefit.
    In this instance, only Gerdau reported the FINAME loan rates for 
some of the years in which its loans originated. Specifically, Gerdau 
has reported FINAME loan interest rates for loans originating in 1995 
through 2000. Based on a comparison of the origination year interest 
rates of the FINAME and the benchmark loans, we found that the 
government loan rates were lower than the benchmark rates in 1997 
through 2000. However, the government loan rates were higher than the 
benchmark rates in 1995 and 1996. Thus, we preliminarily determine that 
no benefit exists according to 19 CFR 351.505(a)(5) for the 1995 and 
1996 FINAME loans. With respect to the 1997 through 2000 loans, because 
the government loan rates were preferential when compared with the 
benchmark rates in those years, we preliminarily determine that a 
benefit was conferred through these loans as described in 19 CFR 
351.505(a)(5), and that the Gerdau FINAME loans that originated in 1997 
through 2000 constitute a countervailable subsidies pursuant to section 
771(5) of the Act. Thus, as is further discussed below, we will 
calculate a benefit during the POI in accordance with 19 CFR 
351.505(c)(4).
    Belgo Mineira did not provide FINAME loan interest rates by year of 
origination for the loans it received from 1995 through 2000. 
Additionally, Gerdau did not provide origination year FINAME loan rates 
for its loans from 1990, 1993, and 1994.
    Therefore, we were unable to make the comparison described in 19 
CFR 351.505(a)(5), noted above. Instead, we determined whether a 
benefit existed, as well as the amount of the benefit, by calculating 
the difference between the amount actually paid on the outstanding 
loans during the POI and the amount the firms would have paid on a 
comparable commercial loan during the POI consistent with 19 CFR 
351.505(c)(4). Based on this comparison, we preliminarily determine 
that Belgo Mineira received a benefit on all FINAME loans outstanding 
during the POI. For Gerdau, we preliminarily determine that Gerdau 
received a benefit on all FINAME loans taken out in 1993, 1994, and 
1997 through 2000.
    To calculate the POI subsidy amount, we divided the total POI 
benefit from these loans for each company by each company's total sales 
during the POI. Accordingly, we preliminarily determine that a 
countervailable benefit of 0.01 percent ad valorem exists for Gerdau 
and a countervailable benefit of 0.00 percent ad valorem exists for 
Belgo Mineira.
B. Programa de Financiamento as Exportacoes (``PROEX'')
    The PROEX program, which allows Brazilian companies to finance 
exports on terms consistent with the international market, is 
administered by the Banco do Brasil. PROEX funding is available to 
Brazilian companies involved in exporting only. PROEX funds are 
available in two forms: 1) PROEX Financing, which involves the direct 
financing of a company's exports and 2) PROEX Equalization, which 
reimburses certain interest costs to Brazilian exporters.
    Under the PROEX Equalization program, exporters discount their 
receivables with a private lender. After payment is collected by the 
private bank from the customer, the GOB remits to the bank the 
difference between the financing costs collected from the exporter and 
the financing costs that would have been collected based on 
international financial rates at the time. The private bank then 
forwards this differential to the Brazilian company. Thus, the Banco do 
Brasil, in effect, reimburses the exporter for the part of the 
financing costs actually incurred so that the net financial costs to 
the Brazilian company are consistent with financial expenses incurred 
in the international market.
    During the POI, neither Gerdau nor Belgo Mineira utilized the PROEX 
Financing program; Gerdau also did not use the PROEX Equalization 
program. However, Belgo Mineira did use the PROEX Equalization program 
during the POI.
    We preliminarily determine that the PROEX Equalization program 
constitutes an export subsidy pursuant to 771(5A)(B) of the Act because 
equalization funds are provided only for export-related activities. We 
furthermore preliminarily determine that PROEX equalization funds 
provided by the GOB through this program constitute a financial 
contribution as described in section 771(5)(D)(i) of the Act and a 
corresponding benefit in the amount of equalization funds received.
    Because the interest reimbursement reasonably can be anticipated by 
the exporter at the time the loan is taken

[[Page 5973]]

out, we are treating these equalization payments as reduced-rate loans 
in accordance with 19 CFR 351.508(c)(2). Thus, to calculate the subsidy 
rate for Belgo Mineira, we divided the total equalization payments 
received by Belgo Mineira during the POI by Belgo Mineira's export 
sales during the POI. On this basis, we preliminarily determine that a 
countervailable benefit of 0.01 percent ad valorem exists for Belgo 
Mineira.
    The GOB has argued in its response that these equalization payments 
are not countervailable because they fall within the exemption provided 
by 19 CFR 351.516(a)(1), i.e., that the equalization payments merely 
serve to equate financing terms to those commercially available on 
world markets. We preliminarily disagree with this claim because the 
exception applies only to ``products,'' and we do not view export 
financing loans as products.
C. Tax Incentives Provided by Amazon Region Development Authority 
(``SUDAM'') and the Northeast Region Development Authority (``SUDENE'')
    The SUDENE program was created under Law No. 3692 in order to 
promote the development of the Northeast Region of Brazil. The SUDAM 
program is a similar program that promotes the development of the 
Amazonia Region of Brazil. Both programs are administered by the 
Brazilian federal government, and are linked to the Ministry of 
National Integration. Under these programs, companies can receive 
either a partial or complete tax exemption on the standard income tax 
for Brazilian companies, which is 25 percent of annual income. The tax 
exemption applies only to income from facilities operating in the 
designated regions. Both programs allow companies a 100 percent 
exemption if the company 1) makes an initial investment in the region 
involved, 2) increases capacity in the applicable region, or 3) 
modernizes its facilities in the specific region. If a company does not 
meet these three criteria, it is permitted to exempt 37.5 percent of 
its income from facilities operating in that region from taxation.
    During the POI, only Gerdau used the SUDENE program. Neither Gerdau 
nor Belgo Mineira reported using the SUDAM program.
    A tax benefit is a financial contribution as described in section 
771(5)(D)(ii) of the Act which provides a benefit to the recipient in 
the amount of the tax savings pursuant to section 771(5)(E) of the Act 
and 19 CFR 351.509(a)(1). Moreover, we preliminarily determine that 
SUDENE tax benefits are de jure specific pursuant to section 
771(5A)(D)(ii) of the Act because
    SUDENE tax benefits are limited to operations in the Northeast 
Region. Therefore, we find these benefits to constitute a 
countervailable subsidy.
    In calculating the benefit, consistent with 19 CFR 351.524(c)(1), 
we treated the tax savings as a recurring benefit and divided the tax 
savings received by Gerdau during the POI by Gerdau's total sales 
during the POI. On this basis, we preliminarily determine that a 
countervailable benefit of 0.28 percent ad valorem exists for Gerdau.
D. Gerdau
1. 1988 Equity Infusions/Debt Forgiveness Provided to Usina Siderurgica 
da Bahia S.A.
    In 1988, as part of the Federal Privatization Program established 
by decree No. 95866/88, SIDERBRAS began a privatization program for 
Usiba. As part of the privatization program, SIDERBRAS restructured 
Usiba's debt in a debt for equity swap. According to Usiba's 1988 
Financial Statement, SIDERBRAS ``cleans{ed}'' past due debt of US$79.6 
million in exchange for increased equity. The responses to our 
questionnaire further indicate that SIDERBRAS made additional 
investments in Usiba in 1986, 1987 and 1989, for the following amounts: 
$US 6,799,395.57; $US 17,424,755.80; and $US 48,241.80, respectively.
    Ultimately, the Usiba privatization program culminated in the 
company's being sold at auction in October 1999 to Gerdau. BNDES 
Particapacoes S.A.- BNDESPAR (``BNDESPAR''), a subsidiary of BNDES, was 
responsible for administering the privatization of Usiba, as well as 
other companies being privatized under the Federal Privatization 
Program. As part of these privatizations, BNDESPAR hired private 
consultants to set minimum share prices based on the company's 
discounted cash flow. Additionally, certain requirements were set to 
qualify potential bidders based on residency, economic capacity, and 
prior business success. After having its bid accepted, a purchasing 
company could complete the transaction through BNDES by paying 30 
percent of the purchase price down and 70 percent of the purchase price 
on an installment basis at 12 percent per year.
    Neither the GOB nor Gerdau are contesting the unequityworthiness of 
Usiba at the time of the 1988 infusion, and neither respondent provided 
a response to the Department's questions relating to Usiba's 
equityworthiness in 1988. Therefore, because neither Gerdau nor the GOB 
has provided information requested by the Department pursuant to 
section 776(a)(2), as facts available, we preliminarily determine that 
under section 771(5)(E)(i) of the Act and 19 CFR 351.507(a), the 1988 
equity infusion into Usiba conferred a benefit because the infusion was 
not consistent with the usual investment practices of private 
investors. Furthermore, the 1988 infusion constitutes a financial 
contribution within the meaning of section 771(5)(D)(i) of the Act. 
Finally, the 1988 equity infusion is specific within the meaning of 
section 771(5A)(D)(i) of the Act because it was limited to Usiba. 
Accordingly, we find that this equity infusion confers a 
countervailable subsidy within the meaning of section 771(5) of the 
Act.
    Assuming, arguendo, that this subsidy is properly assigned to 
Gerdau (see, supra, related discussion in ``Changes in Ownership'' 
section), we have treated the 1988 debt-for-equity swap as a benefit to 
Usiba in the amount of the equity infusion pursuant to 19 CFR 
351.507(a)(6). Because Usiba was uncreditworthy in 1988, the year in 
which the equity infusion was received, we used the uncreditworthy 
discount rate described in the ``Subsidies Valuation Information'' 
section, above. We divided the amount allocated to the POI by Gerdau's 
sales during the POI and preliminarily determine the net subsidy to be 
0.35 percent ad valorem for Gerdau.
    Regarding the 1989 equity infusion into Usiba for $US 48,241.80, 
which was reported by the GOB in its January 8, 2002 supplemental 
response, we note that, under 19 CFR 351.524(b)(2), if the total amount 
of a non-recurring subsidy is less than 0.5 percent of the recipient's 
sales during the year in which the subsidy was approved, then the 
benefit under the program will be allocated to the year of receipt. 
Thus, although we have incomplete information on the nature of the 1989 
transaction, if we assume, arguendo, that the 1989 equity infusion is 
countervailable, then the benefit received thereunder would be 
completely allocated to the year of receipt pursuant to 19 CFR 
351.524(b)(2) with no benefit remaining in the POI.
    Regarding the 1986 and 1987 equity infusions into Usiba also 
reported by the GOB in its January 8, 2002 response, we find that there 
is a reasonable basis to believe or suspect that Usiba was 
unequityworthy in 1986 and 1987. Specifically, the 1989 ``Usiba Pre-
qualification Notice for Interested Parties,'' published as part of the 
GOB's Federal Program of Privatization, indicates that Usiba operated 
at a significant net loss during 1986 and

[[Page 5974]]

1987. While we do not currently have enough information to analyze 
these infusions for the preliminary determination, based on the above 
analysis and pursuant to section 775(1) of the Act, we will be 
requesting additional information on the nature of these infusions and 
on Usiba's equityworthiness during these years prior to the final 
determination.
    Finally, regarding the BNDES financing provided to Gerdau for its 
purchase of Usiba, we note that this program potentially constitutes a 
direct transfer of funds under section 771(5)(D)(i) of the Act. 
Furthermore, a comparison of the interest rate charged on the loan to 
contemporaneous commercial interest rates in Brazil as discussed in the 
``Subsidies Valuation Information'' section, above, indicates that a 
benefit may have been provided to Gerdau. Therefore, although we also 
do not currently have enough information to fully analyze this program 
for the preliminarily determination, we will be requesting additional 
information on the nature of this program prior to the final 
determination pursuant to section 775(1) of the Act.
2. 1991 Debt-to-Equity Conversion Provided to Cia Siderurgica do 
Nordeste (previously referred to as 1991 Debt Forgiveness Provided to 
Cia Siderurgica do Nordeste)
    In 1991, the GOB, through BNDES and BNDESPAR, converted as much as 
US$12.8 million of Cosinor's debt into equity. In return for this 
forgiveness of debt, BNDES received 8,965,103 common shares of Cosinor 
stock, and BNDESPAR received 4,806,439 common shares of Cosinor stock, 
for a total of 13,771,542 shares of Cosinor common stock.
    We preliminarily determine that this debt-to-equity conversion is 
specific pursuant to section 771(5A)(D)(i) of the Act because it was 
limited only to Cosinor. We also preliminarily determine that this 
debt-to-equity conversion constitutes a financial contribution pursuant 
to section 771(5)(D)(i) of the Act in the form of a direct transfer of 
funds.
    Regarding the benefit to Cosinor, neither Gerdau nor the GOB 
contests that Cosinor was unequityworthy in 1991, and neither provided 
the information the Department would need to make an equityworthiness 
determination. Therefore, because neither Gerdau nor the GOB has 
provided information requested by the Department, as facts available, 
pursuant to section 776(a)(2), we preliminarily determine that Cosinor 
was unequityworthy. Consequently, the 1991 debt-to-equity conversion 
conferred a benefit upon Cosinor pursuant to section 771(5)(E)(i) of 
the Act because this debt-to-equity conversion was not consistent with 
the usual investment practices of private investors.
    Assuming, arguendo, that this subsidy is properly assigned to 
Gerdau (see, infra, related discussion in ``Change in Ownership'' 
section), we first had to determine the actual amount of debt converted 
by the GOB. In its response, Gerdau reported three different possible 
amounts, stating that the exact amount was not known because of the age 
of the transaction and the inability of Gerdau and the GOB to obtain 
related records. We have preliminarily determined that $12.8 million is 
the appropriate amount of the debt that was converted based on 
references in the Privatization Notice for this company.
    To calculate the subsidy rate, we divided the amount of the debt 
conversion attributable to Gerdau during the POI by Gerdau's total 
sales during the POI. On this basis, we preliminarily determine that a 
countervailable benefit of 0.06 percent ad valorem exists for Gerdau.
    With respect to the capital increases reported in Cosinor's 
financial statements through the injection of ``shareholders' funds'' 
in 1987, 1988, and 1989, based on the information on the record, there 
is a reasonable basis to believe or suspect that Cosinor was 
unequityworthy in 1987 through 1989. Specifically, Cosinor's financial 
statements show that Cosinor operated at a loss in all of those years. 
Furthermore, in the September 1991 Public Notice announcing Cosinor's 
sale, it states that ``Cosinor did not revert its loss curve during all 
of the period in which it was under government control.'' This Public 
Notice also cites to ``Cosinor's incapacity of transforming its 
operations into economical-financial results'' as justification for 
privatizing the company. Finally, because the GOB was the majority 
shareholder in Cosinor prior to its privatization, it is reasonable to 
assume that the ``shareholder'' that made the contributions or advances 
to Cosinor was the GOB.
    While we do not currently have enough information to analyze these 
infusions for the preliminary determination, based on the above 
analysis and pursuant to section 775(1) of the Act, we will be 
requesting additional information on the nature of these infusions and 
on Cosinor's equityworthiness during these years prior to the final 
determination.

II. Programs Preliminarily Determined to Be Not Countervailable

A. BNDES Export Financing
    BNDES provides three types of export loans (``exim loans'') to 
exporters meeting certain criteria: (1) Pre-shipment loans, (2) Special 
Pre-shipment loans, and (3) Post-shipment loans. Pre-shipment loans are 
linked to specific export shipments. Special Pre-shipment loans are not 
linked to specific export shipments but rather are granted to exporters 
who pledge to increase exports. BNDES only grants special pre-shipment 
loans to a company that has previously exported and seems in a likely 
position to increase exports. Post-shipment loans finance the export 
sales of goods or services abroad by financing an exporter's accounts 
receivable.
    A company may apply directly to BNDES or through agent banks to 
receive BNDES exim loans. However, regardless of a company's 
application method, exim loans are disbursed through agent banks rather 
than directly to the recipient company. BNDES long-term exim loans are 
provided in either Brazilian reals or in foreign currency, usually US 
dollars.
    The terms of these loans are determined by the agent bank after 
evaluating a company's creditworthiness and the proposed use of the 
loan. The interest rate for exim loans is determined by either the 
London Interbank Offered Rate (``LIBOR'') or the official long-term 
interest rate (``TJLP''), which is set periodically by the Brazilian 
Central Bank, plus a basic spread of 1 percent or 2 percent, which is 
paid to BNDES. If an agent bank provides a guarantee to BNDES, then the 
basic spread is 1 percent. If no such guarantee is provided, then the 
basic spread is 2 percent. Additionally, the agent bank charges an 
additional spread which is negotiated with the borrowing company. This 
spread covers, inter alia, any cost associated with administering the 
loan.
    Belgo Mineira had certain long-term Brazilian real and short-term 
U.S. dollar denominated loans outstanding during the POI. Because all 
of the long-term Brazilian real loans were initially received during 
2000, no payments were due during the POI. Therefore, we preliminarily 
determine that no benefit exists for the long-term Brazilian real loans 
during the POI. (See 19 CFR 351.505(c)(2).)
    Regarding Belgo Mineira's U.S. dollar-denominated loans, the 
interest rate on the BNDES loans exceeds the benchmark. Therefore, we 
preliminarily determine that BNDES U.S. dollar-

[[Page 5975]]

denominated short-term export financing does not confer a benefit 
during the POI under section 771(5)(E)(ii) of the Act.
B. Reduction of Urban Building and Land Tax (``IPTU'')
    The IPTU tax in Brazil is administered by each individual 
municipality in Brazil. Thus, the collection of the IPTU tax is the 
responsibility of each municipality, and any individual tax exemption 
results from direct negotiations between the municipality and the 
recipient of the exemption. Gerdau did not receive an IPTU tax 
exemption during the POI. However, one municipality in Minas Gerais 
offered an IPTU tax concession to Belgo Mineira during the POI. 
Specifically, the city of Sabara provided a 50 percent reduction of 
IPTU taxes beginning in 1996 through 2003 to Belgo Mineira's facility 
in the city of Sabara. This tax abatement was given to Belgo Mineira as 
payment for a parcel of land Belgo Mineira transferred to Sabara.
    In comparing the net present value of the tax abatement and the 
value of the land, we found that these values are approximately 
equivalent. Additionally, it is the Department's practice in situations 
where any benefit to the subject merchandise would be so small that 
there would be no impact on the overall subsidy rate, regardless of a 
determination of countervailability, to not determine whether benefits 
conferred under these programs to the subject merchandise are 
countervailable. (See, e.g., Live Cattle From Canada; Final Negative 
Countervailing Duty Determination, 64 FR 57040, 57055 (October 22, 
1999).) In this instance, any benefit to the subject merchandise 
resulting from these transactions would be so small that there would be 
no impact on the overall subsidy rate, regardless of a determination of 
countervailability. Thus, consistent with our past practice, we do not 
consider it necessary to determine whether benefits conferred 
thereunder to the subject merchandise are countervailable.
C. Gerdau BNDES Financing for the Acquisition of Acominas
    In 1999, Acominas, Gerdau, and BNDES agreed on a modernization 
program in which Acominas issued a total of 165,501,872,821 shares of 
common stock to the public for R$339 million. At the same time, Gerdau 
agreed to purchase 79,769,148,475 shares of Acominas common stock for 
R$164 million. Acominas agreed to use this investment for the purchase 
of new machinery in order to modernize and improve the Acominas 
production facilities.
    Based on Acominas' pledge to use the funding in the above manner, 
BNDES agreed to provide Gerdau with a FINEM loan, typically intended to 
finance capacity expansions or modernizations, to provide Gerdau with 
the necessary funds for the Gerdau investment in Acominas. Normally, 
BNDES makes these loans available at variable interest rates dependent 
on the credit rating of the borrower and the size of the project. The 
Acominas FINEM loan to Gerdau covered a period of over six years and 
consisted of four sub-credits all with different conditions for 
repayment and financing.
    We preliminarily determine that this type of FINEM loan, including 
the loan Gerdau received to invest in Acominas, is widely available to 
all producers in Brazil. Moreover, the steel industry received only 4.7 
percent of the funds distributed under this program. In light of the 
shares received by other industries (e.g., 33.7 percent by the mail/
telecommunications sector, 13.9 percent by the electricity/gas/water 
sector, and 8.2 percent by the automotive vehicle sector) the steel 
sector is not a predominant or disproportionate user of the program. 
Therefore, we preliminarily determine that this program, and FINEM 
loans in general, are not specific within the meaning of section 
771(5A) of the Act.
D. Belgo Mineira BNDES Financing for the Acquisition of Mendes Junior 
Siderurgia S.A.
    Mendes Junior operated a steel mill in the state of Minas Gerais. 
In 1995, because Mendes Junior could no longer service its existing 
debt obligation, it entered into negotiations with Belgo Mineira. 
Mendes Junior and Belgo Mineira reached an agreement in which Belgo 
Mineira would lease Mendes Junior's facility in the state of Minas 
Gerais. In 1998, Belgo Mineira negotiated an agreement with BNDES in 
which BNDES transferred Mendes Junior's debt to Belgo Mineira in 
exchange for R$98 million in debentures and certain other rights, the 
details of which are proprietary. At the point of the BNDES 
negotiation, Mendes Junior's debt was categorized by BNDES as a non-
performing loan.
    The debentures issued by Belgo Mineira to BNDES in this transaction 
are for a term of 12 years at the interest rate of TJLP plus 3 percent. 
Belgo Mineira has not received any payment from Mendes Junior toward 
the debt acquired from BNDES and has made no efforts to recover this 
debt from Mendes Junior. Furthermore, the agreement between BNDES and 
Belgo Mineira is structured so that if Belgo Mineira reached agreement 
with other creditors of Mendes Junior on terms more favorable than 
those included in the BNDES-Belgo Mineira agreement, then Belgo Mineira 
would compensate BNDES in the amount of the difference.
    We preliminarily determine that this transaction between BNDES and 
Belgo Mineira is not countervailable. We find that the amount paid by 
Belgo Mineira to BNDES for the acquisition of Mendes Junior's debt is 
not less than the amount Belgo Mineira paid to the other Mendes Junior 
creditors. Thus, BNDES sold the debt on commercial terms. Furthermore, 
the interest rate being paid by Belgo Mineira on its debentures, TJLP 
plus 3 percent, is a commercial rate. Therefore, we preliminarily 
determine that no benefit exists under section 771(5)(E)(ii) of the 
Act. As a result, we find the transaction between BNDES and Belgo 
Mineira related to the acquisition of Mendes Junior's debt to be not 
countervailable.

III. Programs Preliminarily Determined Not To Have Been Used

    Based on the information provided in the responses, we determine no 
responding companies applied for or received benefits under the 
following programs during the POI:
A. Amazonia Investment Fund (``FINAM'') and Northeast Investment Fund 
(``FINOR'') Tax Subsidies
B. Constitutional Funds for Financing Productive Sectors in the 
Northeast, North, and Midwest Regions (Fundos Constitucionais de 
Financiamento do Nordeste, do Norte, e do Centro-Oeste)
C. Fiscal Incentives for Regional Development (Provisional Measure No. 
1532 of Dec. 18, 1996)
D. Accelerated Depreciation

IV. Program Preliminarily Determined to Have Been Terminated

    Based on the information provided in the responses, we 
preliminarily determine that the following program has been terminated:
    Exemption of Import Duties, the Industrial Products Tax (``IPI''), 
the Merchandise Circulation Tax (``ICMS''), and the Merchant Marine 
Renewal Tax (``AFRMM'') on the Imports of Spare Parts and Machinery

V. Program Preliminarily Determined to Not Exist

    Based on the information provided in the responses, we 
preliminarily determine that the following program does not exist:

[[Page 5976]]

A. BNDES Programa de Modernizacao de Siderurgia Brasilera - Fund for 
the Modernization of the Steel Industry
B. Belgo Mineira BNDES Financing for the Acquisition of Dedini 
Siderurgicia de Piracicaba
    In 1998, Belgo Mineira purchased 51 percent of Dedini. Prior to 
this transaction, Belgo Mineira owned 49 percent of the outstanding 
shares in Dedini. Although the petitioners alleged that Belgo Mineira 
purchased the remaining 51 percent of Dedini using preferential loans 
from BNDES, the GOB confirmed that Belgo Mineira used no BNDES 
financing for this purchase. Based on these facts, we determine that 
BNDES financing for the acquisition of Dedini does not exist.

Verification

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

ITC Notification

    In accordance with section 703(f) of the Act, we will notify the 
ITC of our determination. In addition, we are making available to the 
ITC all 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.
    In accordance with section 705(b)(3) of the Act, if our final 
determination is negative, the ITC will make its final determination 
within 75 days after the Department makes its final determination.

Public Comment

    Case briefs for this investigation must be submitted no later than 
one week after the issuance of the last verification report. Rebuttal 
briefs must be filed within five days after the deadline for submission 
of case briefs. A list of authorities relied upon, a table of contents, 
and an executive summary of issues should accompany any briefs 
submitted to the Department. Executive summaries should be limited to 
five pages total, including footnotes. Section 774 of the Act provides 
that the Department will hold a public hearing to afford interested 
parties an opportunity to comment on arguments raised in case or 
rebuttal briefs, provided that such a hearing is requested by an 
interested party. If a request for a hearing is made in this 
investigation, the hearing will tentatively be held two days after the 
deadline for submission of the rebuttal briefs at the U.S. Department 
of Commerce, 14th Street and Constitution Avenue, NW, Washington, DC 
20230. Parties should confirm by telephone the time, date, and place of 
the hearing 48 hours before the scheduled time.
    Interested parties who wish to request a hearing, or to participate 
if one is requested, must submit a written request to the Assistant 
Secretary for Import Administration, U.S. Department of Commerce, Room 
1870, within 30 days of the publication of this notice. Requests should 
contain: (1) the party's name, address, and telephone number; (2) the 
number of participants; and (3) a list of the issues to be discussed. 
Oral presentations will be limited to issues raised in the briefs.
    This determination is published pursuant to sections 703(f) and 
777(i) of the Act.

    February 2, 2002
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-3118 Filed 2-7-02; 8:45 am]
BILLING CODE 3510-DS-S