[Federal Register Volume 67, Number 42 (Monday, March 4, 2002)]
[Notices]
[Pages 9652-9662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-5104]


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DEPARTMENT OF COMMERCE

International Trade Administration

[C-351-835]


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

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

EFFECTIVE DATE: March 4, 2002.

FOR FURTHER INFORMATION CONTACT: Sean Carey at (202) 482-3964 or Holly 
Hawkins at (202) 482-0414, Office of AD/CVD Enforcement VII, Group III, 
Import Administration, International Trade Administration, U.S. 
Department of Commerce, Room 7866, 14th Street and Constitution Avenue, 
N.W., Washington, D.C. 20230.
PRELIMINARY DETERMINATION:
    The Department of Commerce (the Department) preliminarily 
determines that countervailable subsidies are being provided to 
producers and exporters of certain cold-rolled carbon steel flat 
products from Brazil. For information on the estimated countervailing 
duty rate, please see the ``Suspension of Liquidation'' section of this 
notice.

SUPPLEMENTARY INFORMATION:
Petitioners
    The petition in this investigation was filed, on September 28, 
2001, by Bethlehem Steel Corp.; United States Steel Corporation; LTV 
Steel Company, Inc.; Steel Dynamics, Inc.; National Steel Corp.; Nucor 
Corp.; WCI Steel, Inc.; and Weirton Steel Corp.
Case History
    We initiated this investigation on October 19, 2001. See Notice of 
Initiation of Countervailing Duty Investigations: Certain Cold-Rolled 
Carbon Steel Flat Products From Argentina, Brazil, France, and the 
Republic of Korea, 66 FR 54218 (October 26, 2001) (Initiation Notice). 
Since the initiation, the following events have occurred. On November 
2, 2001, we issued a countervailing duty questionnaire to the 
Government of Brazil (GOB). The GOB identified three producers which 
exported subject merchandise to the United States during the period of 
investigation: Companhia Siderurgica Nacional (CSN), Usinas 
Siderurgicas de Minas Gerais (USIMINAS), and Companhia Siderurgica 
Paulista (COSIPA).
    On November 13, 2001, the U.S. International Trade Commission 
notified the Department of its affirmative determination in the 
preliminary phase of the investigation. See Letter from the U.S. 
International Trade Commission to the U.S. Department of Commerce, 
dated November 20, 2001, stating that the ITC made affirmative 
determinations in the preliminary phase of the cold-rolled steel 
investigations. On November 30, 2001, the Department issued a partial 
extension of the due date for this preliminary determination until 
January 28, 2001. See Certain Cold -Rolled Carbon Steel Flat Products 
from Argentina, Brazil, France, and the Republic of Korea: Extension of 
Time Limit for Preliminary Determinations in Countervailing Duty 
Investigations, 66 FR 63523 (December 7, 2001).
    On November 14, 2001, petitioners alleged that countervailable 
benefits were being provided to cold-rolled producers and exporters 
during the POI under several additional GOB subsidy programs. On 
December 11, 2001, the Department decided to examine three of the 
newly-alleged programs and issued a second questionnaire related to 
those programs. See Memo to the File from the Team Through Barbara E. 
Tillman: Countervailing Duty Investigation of Certain Cold-Rolled 
Carbon Steel Flat Products from Brazil (December 11, 2001) (Memo to the 
File). On December 17, 2001, the GOB and CSN, USIMINAS, and COSIPA 
submitted responses to the Department's first questionnaire. 
Petitioners provided comments on these responses on December 28, 2001. 
On December 26, 2001, the GOB and CSN, USIMINAS, and COSIPA responded 
to the Department's second questionnaire. Petitioners provided comments 
on these responses on January 3, 2002. On January 17, 2001, we issued a 
supplemental questionnaire to the GOB. We received responses to this 
supplemental on February 5, 2002.
    On January 18, 2002, we fully extended the deadline for the 
preliminary determination to February 25, 2002. See Certain Cold -
Rolled Carbon Steel Flat Products from Argentina, Brazil, France, and 
the Republic of Korea: Extension of Time Limit for Preliminary 
Determinations in Countervailing Duty Investigations, 67 FR 3482 
(January 24, 2002) (Extension Notice). On January 18, 2002, in response 
to a request from Ispat Inland, Inc., we added them as a party to this 
proceeding.
    We issued another supplemental questionnaire on February 8, 2002. 
The response to these questionnaires were submitted on February 22, 
2001. We note that, given the timing of this submission, we were unable 
to analzye it for purposes of this preliminary determination.
Scope of the Investigation
    For purposes of this investigation, the products covered are 
certain cold-rolled (cold-reduced) flat-rolled carbon-quality steel 
products. For a full description of the scope of this investigation, 
please see the Scope Appendix attached to the Notice of Preliminary 
Negative Countervailing Duty Determination and Alignment of Final 
Countervailing Duty Determination With Final Antidumping Duty 
Determinations: Certain Cold-Rolled Carbon Steel Flat Products from 
Argentina, published concurrently with this preliminary determination.
Scope Comments
    In the Initiation Notice, we invited comments on the scope of this 
proceeding. On November 15, 2001, we received a request from Emerson 
Electric Company (``Emerson'') to amend the scope of this 
investigation, as well as the concurrent countervailing and antidumping 
duty investigations pertaining to subject merchandise. Specifically, 
Emerson requested that the scope be amended to exclude all types of 
nonoriented coated silicon electrical steel, whether fully- or semi-
processed, because such products are not treated in the marketplace as 
carbon steel products.
    On February 22, 2002, we received a response to the Emerson request 
from the petitioners. The petitioners objected to excluding these 
products from the scope and have explained that the scope

[[Page 9653]]

language is not overly inclusive with respect to these products. 
Therefore, we determine that nonoriented coated silicon electric steel 
is within the scope of these proceedings.
    The Department has also received several other scope exclusion 
requests in the cold-rolled steel investigations. We are continuing to 
examine these exclusion requests, and plan to reach a decision as early 
as possible in the proceedings. Interested parties will be advised of 
our intentions prior to the final determinations and will have the 
opportunity to comment.
The Applicable Statute and Regulations
    Unless otherwise indicated, all citations to the statute are 
references to the Tariff Act of 1930 (the Act). In addition, all 
citations to the Department's regulations are to the regulations 
codified at 19 CFR Part 351 (2001).
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 November 19, 2001, 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 
subject merchandise (66 FR 57985). The views of the Commission are 
contained in the USITC Publication 3471 (November 2001), Certain Cold-
Rolled Steel Products from Argentina, Australia, Belgium, Brazil, 
China, France, Germany, India, Japan, Korea, the Netherlands, New 
Zealand, Russia, South Africa, Spain, Sweden, Taiwan, Thailand, Turkey 
and Venezuela; Investigation Nos. 701-TA-422-425 (Preliminary) and 731-
TA-964-983 (Preliminary).
Alignment with Final Antidumping Duty Determinations
    On February 21, 2002, petitioners submitted a letter requesting 
alignment of the final determination in this investigation with the 
final determinations in the antidumping duty investigations of certain 
cold-rolled carbon steel flat products from Argentina, Australia, 
Belgium, Brazil, France, Germany, India, Japan, Korea, the Netherlands, 
New Zealand, the People's Republic of China, the Russian Federation, 
South Africa, Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela. 
See Notice of Initiation of Antidumping Duty Investigations: Certain 
Cold-Rolled Carbon Steel Flat Products From Argentina, et al, 66 FR 
54198 (October 26, 2001). 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 companion antidumping investigations of 
certain cold-rolled carbon steel flat products.
    In accordance with section 703(d) of the Act, the suspension of 
liquidation resulting from this preliminary affirmative countervailing 
duty determination will remain in effect no longer than four months.
Period of Investigation
    The period of investigation (POI) for which we are measuring 
subsidies is calendar year 2000.
Company Histories

USIMINAS

    As stated in the Final Affirmative Countervailing Duty 
Determination: Certain Cold Rolled Flat-Rolled Carbon-Quality Steel 
Products From Brazil, 65 FR 5536 (February 4, 2000) (Cold-Rolled from 
Brazil Final), Usinas Siderurgicas de Minas Gerais (``USIMINAS'') was 
founded in 1956 as a venture between the GOB, 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 included SIDERBRAS' operating companies, including USIMINAS, in 
its National Privatization Program (NPP). In 1991, USIMINAS was 
partially privatized; as a result of the initial auction, Companhia 
Vale do Rio Doce ``CVRD'', a majority government-owned iron ore 
producer, acquired 15 percent of USIMINAS' 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) (the pension fund of the 
Bank of Brazil) and the USIMINAS Employee Investment Club. CVRD was 
partially privatized in 1997, when 31 percent of the company's shares 
were sold.
    In January 1999, a project was implemented for the corporate, 
financial, equity, and operational restructuring of USIMINAS and 
COSIPA. The result of this project was the reallocation of assets and 
liabilities between the two companies. According to the questionnaire 
responses, one result of this restructuring was a slight change in 
USIMINAS' shareholdings in COSIPA, to 49.77 percent from 49.8 percent 
in January 1999. Another result of the restructuring was the 
subscription by USIMINAS to 892 million Reais in convertible debentures 
issued by COSIPA. These debentures are not redeemable. They are 
convertible on demand, at a fixed price, in groups of three, to one 
common (voting) and two preferred shares. As of the end of the POI, 
USIMINAS had not converted any of these debentures to shareholdings.
    One of USIMINAS' minority shareholders is ``CVRD'', one of the 
world's largest producers of iron ore. CVRD also owns stock in 
Companhia Siderurgica Nacional (``CSN''). However, CVRD does not 
exercise direct or indirect control of either USIMINAS or CSN. See 
``Cross-Ownership and Attribution of Subsidies'' section below, for a 
complete analysis of the extent of CVRD's control over USIMINAS and 
CSN.

COSIPA

    Companhia Siderurgica Paulista (``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 49.77 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). See Cold Rolled from Brazil Final, 
65 FR at 5544. The President of USIMINAS is a member of COSIPA's 
administrative council, which operates similarly to a board of 
directors. As discussed in the history of USIMINAS above, COSIPA and 
USIMINAS underwent a major corporate restructuring in January, 1999, 
resulting in the reallocation of assets and liabilities between the two 
companies and the subscription by USIMINAS to 892 million Reais in 
convertible debentures issued by COSIPA.

[[Page 9654]]

CSN

    Companhia Siderurgica Nacional (``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/
CVRD), acquired 9.4 percent of the common shares. The GOB's remaining 
share of the firm was sold in 1994. CSN's shareholders during the POI 
were Vicunha Siderurgia, with 46.48 percent of the voting shares; 
Previ, with 13.85 percent; Docepar/CVRD (formerly known as Docenave/
CVRD), with 10.33 percent; and a consortium of private investors, 
including Uniao Comercio e Partipacoes, Ltda.; Textilia, S.A.; 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. See Cold Rolled from Brazil Final, 65 FR at 5544.
SUBSIDIES VALUATION INFORMATION:
Allocation Period
    Section 351.524(d)(2) of the Department's 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, as 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.
    Respondents did not rebut the presumption that the IRS tables 
should be used. Therefore, we are using the 15-year AUL as reported in 
the IRS tables to allocate any non-recurring subsidies under 
investigation which were provided directly to the producers and 
exporters of the subject merchandise.
Cross-Ownership and Attribution of Subsidies
    There are three producers/exporters of the subject merchandise in 
this investigation: USIMINAS, COSIPA, and CSN. As discussed above, 
during the POI, USIMINAS owned 49.77 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 manufactured 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.'' See 
Countervailing Duties Final Rule, 63 FR 63548, 65401 (November 25, 
1998).
    In this investigation, we preliminarily determine that USIMINAS' 
49.77 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. In the Cold Rolled from Brazil 
Final, we found that USIMINAS' 49.8 percent shareholding, given the 
number and shareholdings of the remaining shareholders, was sufficient 
to establish cross ownership of the two companies and attribution of 
the two companies' subsidies to both companies. 65 FR at 5544.
    In the instant investigation, we preliminarily determine that 
USIMINAS' shareholding, at 49.77 percent, together with the COSIPA 
convertible debentures that USIMINAS holds, are sufficient to establish 
that USIMINAS effectively held a majority interest in COSIPA during the 
POI. This satisfies the definition of cross-ownership provided in 
section 351.525(b)(6)(iv) of the regulations. Therefore, we 
preliminarily determine that USIMINAS' virtual majority share in 
COSIPA, and the COSIPA debentures held by USIMINAS that are not 
redeemable and are convertible to shares in COSIPA, are sufficient to 
establish cross-ownership between USIMINAS and COSIPA. Thus, we will 
continue to calculate one subsidy rate for USIMINAS/COSIPA. For all 
domestic subsidies, we will follow the methodology outlined in section 
351.525(b)(6)(ii) of the regulations. In the case of export subsidies 
for USIMINAS/COSIPA, we will determine the countervailable subsidy by 
following the methodology outlined in sections 351.525(b)(2) and 
351.525(b)(6)(ii) of the regulations.
    In the Cold-Rolled from Brazil Final, the Department also examined 
the ownership of CSN. We note that, in the instant investigation, the 
same two entities, CVRD and Previ (the pension fund of the Bank of 
Brasil) that were found to have minority shareholdings in CSN in the 
Cold-Rolled from Brazil Final, still have minority holdings in both 
USIMINAS and CSN. 65 FR at 5544. 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. Since the Cold-Rolled from Brazil Final, CVRD's 
common shares in USIMINAS increased from 15.48 percent to 22.99 
percent, while its common shares in CSN, through its wholly-owned 
subsidiary Docepar/CVRD, remained unchanged at 10.33 percent at the end 
of the POI. For this same period, Previ's holdings of common shares in 
USIMINAS fell slightly from 15 percent to 14.90 percent, and remained 
unchanged for its holdings in CSN at 13.85 percent.
    As noted in the Cold Rolled from Brazil Final, both USIMINAS and 
CSN are controlled through shareholders' agreements which require 
participating shareholders (who together account for more than 50 
percent of the shares of the company) to pre-vote issues before the 
Board of Directors and to vote as a block. 65 FR at 5544. 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 nor Previ participates in the USIMINAS

[[Page 9655]]

shareholders' agreement, and therefore, neither is in a position to 
exercise any appreciable influence (beyond their respective 22.99 and 
14.90 percent USIMINAS shareholdings) over the use of USIMINAS' assets. 
See Final Affirmative Countervailing Duty Determination: Certain Hot-
Rolled Flat-Rolled Carbon-Quality Steel Products from Brazil, 64 FR 
38741, 38744 (July 19, 1999) (Hot-Rolled from Brazil Final), which 
noted the Department's verification of USIMINAS' shareholder agreement.
    No new information has been submitted on the record of this 
investigation to indicate any changes in the terms of USIMINAS' 
shareholders' agreement since the Department's verification in the Hot-
Rolled from Brazil Final. Therefore, consistent with our finding in the 
Cold-Rolled from Brazil Final and the Hot-Rolled from Brazil Final, we 
preliminarily determine that 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 absence 
of common majority or significant minority shareholders leads us to 
preliminarily determine that USIMINAS' 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.
Equityworthiness
    In accordance with section 351.507(a)(1) of the Department's 
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. In 
past investigations, we determined that COSIPA was unequityworthy from 
1977 through 1989, and 1992 through 1993; USIMINAS was unequityworthy 
from 1980 through 1988; and CSN was unequityworthy from 1977 through 
1992. See Cold-Rolled from Brazil Final, 65 FR at 5545, citing to 
Affirmative Countervailing Duty Determinations: Certain Steel Products 
from Brazil, 58 FR 37295, 37297 (July 9, 1993) (Certain Steel Final); 
Hot-Rolled from Brazil Final, 64 FR at 38746. For purposes of this 
investigation, no new information or evidence of changed circumstances 
has been submitted which would cause us to reconsider these findings.
    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 prior to 1986 no longer provide 
benefits in the POI. None of the parties have submitted information or 
argument, nor is there evidence of changed circumstances, which would 
cause us to reconsider these determinations.
Equity Methodology
    Section 351.507(a)(3) of the Department's 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 applicable methodology 
is described in section 351.507(a)(6) of the regulations, which 
provides that the Department will 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 equivalent 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 
Department's 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 Cold Rolled from Brazil 
Final, 65 FR at 5546, citing to Certain Steel Final, 58 FR at 37298 and 
Hot-Rolled from Brazil Final, 64 FR at 38747. No new information or 
evidence of changed circumstances 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, the Hot-Rolled 
from Brazil Final, 64 FR at 38745-38746 and the Cold-Rolled from Brazil 
Final, 65 FR at 5546, 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 currency discount rate, 
is to convert the information on non-recurring subsidies provided in 
Brazilian currency into U.S. dollars. If the date of receipt of the 
equity infusion was provided, we applied the exchange rate applicable 
on the day the subsidies were received, or, if that date was 
unavailable, the average exchange rate in the month the subsidies were 
received. Then we applied, as the discount rate, a long-term dollar 
lending rate in Brazil. 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 the 
methodology applied in the Certain Steel Final; Hot-Rolled from Brazil 
Final; and Final Affirmative Countervailing Duty Determination: Steel 
Wire Rod from Venezuela, 62 FR 55014, 55019, 55023 (October 21, 1997).
    As discussed above, we preliminarily determine that USIMINAS, 
COSIPA, and CSN were uncreditworthy in all the years in which they 
received equity infusions. Section 351.505 (a)(3)(iii) of the CVD 
Regulations directs us regarding the calculation of the benchmark 
interest rate for purposes of calculating the benefits for 
uncreditworthy companies: to calculate the appropriate 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). See 19 CFR 351.505(a)(3)(iii). 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. The use 
of the weighted average is appropriate because the data reported by 
Moody's for the Caa to C-rated companies are also weighted

[[Page 9656]]

averages. 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.
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.

Methodology

    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. See Final Affirmative 
Countervailing Duty Determination: Pure Magnesium From Israel, 66 FR 
49351 (September 27, 2001).
    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. See id.

Background

    Using the approach described above, we have analyzed the 
information provided by the GOB and USIMINAS, COSIPA, and CSN to 
determine whether the pre-sale and post-sale entities of each company 
can be considered the same person. We began our analysis by estimating 
the point in time where government control of these companies was 
transferred to private entities as a result of their changes in 
ownership. As noted in their questionnaire responses, respondents state 
that since their initial privatization auctions of common shares, 
USIMINAS, COSIPA, and CSN have operated as independent entities. The 
Department finds that the information on the record of this 
investigation supports respondents' statement.
    USIMINAS' International Offering Circular, provided in exhibit 28, 
appendix E of the GOB's December 17, 2001 questionnaire response, 
reflects USIMINAS' ownership status after its 1991 partial 
privatizations and before its international public offerings made in 
1994. This circular notes, on page 64, that GOB control of USIMINAS had 
transferred to ``certain shareholders of the Company (including Bozano; 
Simonsen Centros Comerciais, S.A.; Nippon Usiminas; CIU; Banco 
Economico, S.A.; and certain other private sector shareholders), which 
in aggregate have voting power in excess of 50 percent of the voting 
shares of the Company.'' Furthermore, it states that these shareholders 
``agreed to vote together on major corporate governance matters, 
corporate events and fundamental policies (including mergers, 
declaration of dividends and issuance of shares).'' Therefore, we 
preliminarily determine that control of USIMINAS was transferred from 
the GOB in 1991, after the initial privatization auctions.
    As mentioned above in the ``Company Histories'' section, COSIPA was 
partially privatized by auction in 1993, and control of the company was 
acquired by a consortium of investors led by USIMINAS, with the GOB 
retaining a minority of the preferred shares. Based on our finding 
above that USIMINAS was no longer under the control of the GOB by 1991, 
we find that COSIPA's partial privatization in 1993, led by a 
privatized USIMIMAS, is the appropriate point in time to analyze 
whether COSIPA is the same entity that existed prior to and after its 
transfer of control to USIMINAS.
    We reviewed the GOB's Notice of Conclusion of Privatization Process 
regarding CSN, which was provided in exhibit 29, appendix G of the 
GOB's December 17, 2001 questionnaire response. This exhibit reflects 
the initial ``Auction of Control Shares,'' on April 2, 1993, of 60.13 
percent of CSN's capital stock that was acquired by 196 different 
participants. Only five of these participants acquired more than 5 
percent of the capital stock, the largest acquisition being that of 
Docenave/CVRD, with 9.41 percent. By the end of 1993, the GOB had sold 
an additional 11.87 percent of CSN's capital stock in an offering to 
employees, and another 9.92 percent in the public offering noted above, 
resulting in the sale of 81.92 percent of CSN's capital stock. CSN's 
Employee's Pension Fund (CBS) controlled 9.2 percent of CSN's shares 
prior to its privatization. We, therefore, find that the year 1993 is 
the appropriate point in time to analyze whether CSN is the same 
business entity that existed before and after its change in ownership.

Continuity of General Business Operations

    Although respondents state that there have been numerous changes in 
the operations of USIMIMAS, COSIPA, and

[[Page 9657]]

CSN since their privatizations, respondents have also noted that these 
changes were made as part of their ongoing operations and business 
decisions. See USIMINAS', COSIPA's, and CSN's December 17, 2001 
questionnaire response at 79. According to respondents, since their 
privatizations, all of these companies have acquired interests in steel 
distributors or service centers; have initiated new management 
techniques or sales strategies; and, have focused on developing new 
product lines and value-added products. However, respondents add that 
none of these changes were directly related to their privatizations. 
Id. at 79.

Continuity of Production Facilities

    Respondents note that, since their privatizations, USIMINAS, 
COSIPA, and CSN have all added and shut down facilities and equipment 
in order to upgrade their production processes. According to 
respondents, all the companies have upgraded their blast furnaces in 
order to increase production capacities; USIMINAS and CSN have also 
added coating facilities in an effort to expand their product lines. 
Again, respondents note that these changes were not directly related to 
their privatizations, but were part of the companies' ongoing and 
business decisions.
    Our review of USIMINAS' production information indicates little 
change in the quantity and composition of its production following its 
privatization. The comparative production data provided at pages 4-5 of 
USIMINAS' 1992-1993 financial statement (exhibit 34 of the GOB's 
December 17, 2001 response) indicates that USIMINAS' production totals 
declined slightly, by 1.6 percent, from 1991 to 1992, and that its 
product mix remained essentially unchanged for this period. In 
addition, there was only a slight change in its labor productivity 
ratio of 386 tons/man/year in 1992 (an increase of 3 over 1991). A 
similar review of COSIPA's 1993 financial statement at pages 5 and 11, 
indicated that annual production of uncoated flat-rolled steel products 
remained steady, declining slightly from 2.6 in 1992 to 2.5 million 
tons in 1993. However, COSIPA's labor productivity ratio in 1993 did 
increase to 223.9 tons/man/year from 208.6 tons/man/year in 1992. No 
specific information was provided about CSN's continuity of production 
facilities made as a result of its change in ownership in 1993.

Continuity of Assets and Liabilities

    The privatizations of USIMINAS, COSIPA, and CSN were accomplished 
through the sale of the GOB's shares to private investors, and did not 
involve the transfer of any of the corporate assets of the companies in 
question. According to respondents, the privatizations of these 
companies involved the purchasing of shares of an ongoing corporation. 
As a result, the new shareholders of these companies continued to 
maintain an ownership interest that included both the assets and 
liabilities of the privatized companies. Therefore, the liabilities and 
assets of USIMINAS, COSIPA, and CSN remained intact throughout the 
privatization process. See GOB's December 17, 2001 questionnaire 
response at 56.

Retention of Personnel

    After the privatizations of USIMINAS, COSIPA, and CSN, respondents 
state that management began to reorganize the personnel of these 
companies in order to adjust to the private sector and improve 
production efficiencies. Specifically, USIMINAS revised its sales 
strategy by establishing closer customer relationships and additional 
customer services that required a modest increase in its sales staff 
and a reduction in the number of sales managers. This is supported by 
information provided at page 9 of USIMINAS' 1992-1993 financial 
statement, indicating that the number of USIMINAS' hired personnel in 
1992 was 2.7 percent below the number of its personnel in 1991. COSIPA 
also experienced a 16.8 percent reduction in personnel from December 
1992 to December 1993, as reflected on page 11 of COSIPA's 1993 
financial statement. This period encompasses four months from the time 
of COSIPA's initial privatization auction in August 1993, in which 
control was transferred from the GOB to USIMINAS. No specific 
information was provided about CSN's personnel adjustments made as a 
result of its change in ownership in 1993.

Summary

    Based on the analysis above, we determine that the vast majority of 
the business aspects of USIMINAS, COSIPA, and CSN remained unchanged by 
their respective privatizations. All of these companies still operate 
in a manner similar to that characterizing their operations prior to 
privatization. As respondents themselves noted, the legal status of 
these businesses did not change as a result of their privatizations. 
Instead, the GOB's privatization process involved the purchasing of 
shares of ongoing corporations that resulted in the transfer of control 
and ownership, and in the assumption of each company's existing assets 
and liabilities. Any changes made in the business operations of 
USIMINAS, COSIPA, and CSN can be attributed to the ongoing operations 
and business decisions of these companies, as stated by respondents 
themselves. In addition, the production levels and product mix of each 
company remained essentially the same after its change in ownership. 
While there is information that indicates that the management and 
personnel of these companies may have been altered as a result of their 
privatizations, on balance, we do not consider these changes to be 
sufficient to find that USIMINAS, COSIPA, and CSN were different 
entities after privatization. As respondents themselves have noted, 
most of the changes were due to ongoing business decisions and were not 
directly related to privatization itself. Accordingly, our analysis 
leads us to preliminarily determine USIMINAS, COSIPA, and CSN to be the 
same entities which benefitted from subsidies bestowed by the GOB prior 
to their privatizations.
Trading Companies
    Section 351.525(c) of the regulations requires that the benefits 
from subsidies provided to a trading company which exports subject 
merchandise be cumulated with the benefits from subsidies provided to 
the firm which is producing the subject merchandise that is sold 
through the trading company, regardless of their affiliation. In its 
questionnaire response, the GOB indicated that seven trading companies 
exported cold-rolled steel to the United States during the POI. These 
trading companies purchased the cold-rolled steel from the producers 
subject to this investigation. The GOB, however, did not identify by 
name these trading companies nor did the GOB provide any quantity and 
value information, explaining that it was unable to determine whether 
any of the steel products exported by these trading companies to the 
United States consisted of subject merchandise. We issued supplemental 
questionnaires to the GOB and USIMINAS, COSIPA, and CSN, and requested 
that they identify these trading companies and provide the quantity and 
value of subject merchandise shipped by them during the POI and that 
they provide information concerning the use by the trading companies of 
any of the non-company-specific subsidy programs during the POI. This 
information was provided by the parties on February 22, 2002. We have 
not had the opportunity to analyze this information for purposes of 
this preliminary determination, but

[[Page 9658]]

we will consider this information for purposes of our final 
determination.
Programs Preliminarily Determined to be Countervailable

I. Equity Infusions into CSN, USIMINAS, and COSIPA

    Petitioners alleged that the GOB provided equity infusions during 
the following periods: to CSN from 1986 through 1992; to USIMINAS from 
1986 through 1988; and to COSIPA from 1986 through 1993. In our past 
investigations of hot-rolled steel from Brazil and cold-rolled steel 
from Brazil, we found that the GOB, through SIDERBRAS, provided equity 
infusions to USIMINAS, CSN and COSIPA. See Hot-Rolled from Brazil 
Final, 64 FR at 38747, 38748 and Cold-Rolled from Brazil Final, 65 FR 
at 5546, 5547. For the reasons cited in the last cold-rolled 
investigation by the Department (see id.), and because none of the 
parties have provided new information or argument which would lead us 
to reconsider this determination, we are continuing to find, under 
section 771(5)(E) of the Act, that equity infusions were provided to 
CSN from 1986 through 1992, to USIMINAS from 1986 through 1988, and to 
COSIPA from 1986 through 1993. The equity infusions into CSN in 1992, 
and into COSIPA in 1992 and 1993, were made through debt-for-equity 
swaps and are discussed in more detail below.
    As in the previous cold-rolled investigation, we will treat the 
pre-1991 equity infusions as grants given in the year the infusions 
were received. These equity infusions constitute a financial 
contribution within the meaning of section 771(5)(D)(i) of the Act and 
confer a benefit in the amount of each infusion. These equity infusions 
are specific within the meaning of section 771(5A)(D)(i) of the Act 
because they were provided specifically to each company. Accordingly, 
we preliminarily determined 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 treat 
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 an uncreditworthy discount rate, as discussed in the ``Discount 
Rate'' section above. As a result of our privatization approach 
outlined in the ``Changes in Ownership'' section above, we 
preliminarily find that the three companies continue to benefit from 
subsidies received prior to their privatizations, and, therefore, the 
full value of the benefits allocable to the POI from these equity 
infusions is being used in the calculation of the companies' subsidy 
rates.
    Additionally, we find, as in the last cold-rolled investigation, 
that the GOB provided debt-for-equity swaps to CSN in 1992 and COSIPA 
in 1992 and 1993. See Cold-Rolled from Brazil Final, 65 FR at 5547, 
5548. Prior to COSIPA's privatization, and on the recommendation of 
consultants who examined CSN and COSIPA, the GOB made a debt-for-equity 
swap for CSN in 1992 and two debt-for-equity swaps for COSIPA 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)(i) of the Act; and, therefore, conferred benefits to 
CSN and COSIPA in the amount of each conversion. See id., citing to 
Hot-Rolled from Brazil Final, 64 FR at 38747, 38748. These debt-for-
equity swaps are specific within the meaning of section 771(5A)(D)(i) 
of the Act because they were limited to CSN and COSIPA. Accordingly, we 
preliminarily determine that the GOB debt-for-equity swaps provided to 
CSN in 1992 and COSIPA in 1992 and 1993 are countervailable subsidies 
within the meaning of section 771(5) of the Act. No party has provided 
any new information or argument which would lead us to reconsider this 
determination.
    Each debt-for-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(b) of the regulations. Further, these 
swaps, as equity infusions, are non-recurring in accordance with 
section 351.524(c)(1) of the regulations. Because CSN and COSIPA were 
uncreditworthy in the years of receipt, we applied a discount rate 
consistent with section 351.524(d)(3)(ii) of the regulations, as 
discussed in the ``Discount Rates'' section above.
    As a result of our privatization approach outlined in the ``Changes 
in Ownership'' section above, we preliminarily find that CSN and COSIPA 
continue to benefit from subsidies received prior to its privatization, 
and therefore, the full value of the benefits allocable to the POI from 
these equity infusions and debt-for-equity swaps is being used in the 
calculation of CSN's and COSIPA's subsidy rate. We summed the benefits 
allocable to the POI from each equity infusion and swap, and divided 
this total by the combined total sales of USIMINAS/COSIPA during the 
POI. On this basis, we determine the net subsidy to be 11.27 percent ad 
valorem for USIMINAS/COSIPA. For CSN, we summed the benefits allocable 
to the POI from each equity infusion and swap, and divided this total 
by CSN's total sales during the POI. On this basis, we determine the 
net subsidy to be 7.44 percent ad valorem for CSN.

II. ``Presumed'' Tax Credit for the Program of Social Integration 
(PIS) and the Social Contributions of Billings (COFINS) on Inputs 
Used in Exports

Background

    In the new allegations submitted on November 14, 2001, petitioners 
stated that the GOB provides a ``presumed'' tax credit for PIS and 
COFINS taxes. Petitioners allege that PIS and COFINS are social welfare 
charges and, therefore, fall within the Department's definition of a 
direct tax under section 351.102(b) of the Department's regulations. 
The remission of direct taxes constitutes a countervailable subsidy 
under section 351.509(a) of the Department's regulations. However, 
petitioners alleged that, even if the Department should find these to 
be indirect taxes, the remission of these taxes through the 
``presumed'' tax credit would still confer a countervailable benefit, 
because the credit is excessive and is not tied to the actual tax 
incidence of PIS and COFINS taxes paid on inputs consumed in the 
production of the exported merchandise. On December 11, 2001, the 
Department initiated on this program to determine whether the 
``presumed'' tax credits exceeded the actual incidence of PIS and 
COFINS taxes. See Memo to the File.
    According to the PIS/COFINS tax credit legislation provided by the 
GOB, this tax credit program was established on December 13, 1996. See 
PIS/COFINS Credit Legislation in exhibit 3 of the GOB's questionnaire 
response dated February 5, 2002. The ``presumed'' tax credit rate for 
PIS and COFINS is 5.37 percent. The GOB has devised a single rule for 
``administrative convenience'' in calculating the ``presumed'' tax 
credit which applies to all industries, and assumes two stages of 
processing and therefore, two stages of tax incidence of

[[Page 9659]]

PIS and COFINS on all inputs consumed in exports.
    The GOB states that PIS and COFINS taxes are incident on all 
domestic sales of goods and services. Each company is responsible for 
making monthly payments of PIS and COFINS based on the total sales 
value of its domestic sales of goods and services. Our review of the 
legislation governing COFINS indicates that these tax proceeds are used 
for financing the ``Social Insurance Services,'' which are ``intended 
solely to defray {the} cost of health care and social security and 
assistance work.'' The goal of the PIS tax program, as reflected in the 
legislation, is to ``bring about the integration of employees in the 
life and growth of their companies.'' See PIS and COFINS legislation in 
exhibit 3 of the GOB's December 26, 2001 questionnaire response. During 
the POI, PIS and COFINS taxes were calculated at rates of 0.65 percent 
and 3.0 percent, respectively. The original COFINS rate, as reflected 
in its tax legislation noted above, was 2.0 percent.
    The GOB states that the minimum incidence of PIS and COFINS taxes 
that can occur on domestic inputs is at 3.65 percent, since each input 
is produced and purchased at least once, and every good and service 
sold in Brazil is subject to these taxes. However, the GOB also notes 
that the incidence of PIS and COFINS can vary from once to more than 
five times, depending on the complexity of the goods purchased, and the 
number of distinct stages of production and intermediate producers. The 
GOB has not undertaken an examination of the PIS and COFINS tax 
incidence on an industry-specific basis. The GOB states that because 
''... the incidence of PIS/COFINS on inputs could vary not only from 
industry to industry, but also within the industry itself as well as by 
virtue of the nature of the inputs purchased, the GOB determined that 
it would be a practical impossibility to determine the actual incidence 
in every case. Nor was it in any position to check the actual incidence 
from individual taxpayer claims, as it would in effect have to look at 
every input and determine how many stages of processing each input had 
undergone.'' See GOB's February 5, 2002 submission at 14-15. As a 
result, the GOB adopted a single method for determining the 
``presumed'' tax credit of 5.37 percent. Companies can claim the credit 
of 5.37 percent as part of their regular monthly federal taxes. The 
credit of 5.37 percent is calculated based on the previous PIS/COFINS 
rate of 2.65 percent with the presumption that the PIS and COFINS taxes 
are paid at two stages of production before the final stage of 
production when the product is then exported. During the POI, CSN, 
COSIPA, and USIMINAS all applied for and received the PIS/COFINS tax 
credit.
    Our review of the information provided by respondents indicates 
that the ``presumed'' PIS and COFINS tax credit is applied quarterly 
against IPI tax payments. To calculate the PIS/COFINS tax credit, a 
company divides its export revenues, accumulated through the prior 
month, by its total gross sales revenues for the same period. This 
export revenue ratio is then multiplied by the company's production 
costs or total domestically-purchased inputs accumulated over the same 
period in order to determine the percentage of domestically- purchased 
inputs used in the production of the export products. This figure is 
multiplied by the ``presumed'' tax credit rate of 5.37 percent to yield 
the year-to-date accumulated tax credit. In order to calculate the 
credit for the current month, the credit used through the prior month 
is deducted from this accumulated tax credit. CSN stated that, in order 
to be conservative, they do not claim the total amount of available 
credit permitted by law. See USIMINAS', COSIPA's, and CSN's February 5, 
2002 submission at 9.
    The GOB uses the company income tax return and information 
pertaining to a company's cost of goods sold to track the costs of 
domestically-purchased inputs which are used in calculating the PIS/
COFINS tax credit. According to the GOB, each company maintains a 
record of the costs of domestic inputs consumed in production. We 
reviewed the PIS/COFINS tax credit legislation and noted that the 
calculation of the costs of these domestic inputs is intended to be 
based on the ``total value of the purchases of raw materials, semi-
finished products and packaging materials.'' See exhibit 3 of the GOB's 
February 5, 2002 questionnaire response.

Analysis

    We examined the information provided by the GOB in the PIS and 
COFINS legislation, as noted above, to determine the manner in which 
the GOB assesses PIS and COFINS taxes. Article 2 of the COFINS 
legislation states that ``corporate bodies'' will contribute two 
percent, ``charged against monthly billings, that is, gross revenue 
derived from the sale of goods and services of any nature.'' Likewise, 
Article ``Second'' of the PIS tax law (also found in the PIS and COFINS 
legislation) provides similar language stating that this tax 
contribution will be calculated ``on the basis of the invoicing.'' The 
PIS legislation further defines invoicing under Article ``Third'' to be 
the gross revenue ``originating from the sale of goods.''
    Section 351.102(b) of the Department's regulations defines an 
indirect tax as a ``sales, excise, turnover, value added, franchise, 
stamp, transfer, inventory, or equipment tax, border tax, or any other 
tax other than a direct tax or an import charge.'' As noted in the PIS 
and COFINS legislation, these taxes are derived from the ``monthly 
invoicing'' or ``invoicing'' originating from the sale of goods and 
services. The GOB supported this interpretation by stating that ``PIS 
and COFINS taxes are, by law, incident on all domestic sales of goods 
and services sold.'' See GOB's February 5, 2002 questionnaire response 
at 12. Therefore, we preliminarily find that the manner in which these 
taxes are assessed is characteristic of an indirect tax, and we are 
treating PIS and COFINS taxes as indirect taxes for purposes of this 
preliminary determination.
    We intend to continue to examine whether PIS and COFINS taxes 
should be construed as social welfare charges. Pursuant to section 
351.102(b) of the Department's regulations, if we determined a tax 
program to be a social welfare charge, then it would be classified as a 
direct tax rather than an indirect tax.
    The GOB has stated in its response that PIS and COFINS are not 
social welfare charges, but are normal taxes. According to the GOB, 
social welfare charges are administered by the agencies responsible for 
their disbursement. Thus, the Imposto Nacional para Seguridade Social 
(INSS), the GOB's social security tax, is administered by the National 
Social Security Institute, whereas the PIS and COFINS taxes are 
administered by the Secretariat of Federal Revenue. In addition, most 
Brazilian companies have a special account (denominated ``encargos 
sociais'') for social welfare charges, such as the social security tax, 
but PIS and COFINS are not included in this account and are instead 
accounted for as normal taxes on the companies' accounting books. Id. 
at 9-10. However, we intend to examine whether the stated purpose of 
the COFINS legislation in supporting ``health care and social security 
and assistance work,'' renders this tax a social welfare charge.
    Based on our preliminary determination that PIS and COFINS are 
indirect taxes, we examined how the GOB calculates the ``presumed'' tax 
credit related to these taxes. The law pertaining to this tax credit, 
as

[[Page 9660]]

mentioned above, states that this tax credit is determined by using 
``the total value of the purchases of raw materials, semi-finished 
products and packaging materials.'' These items fit the description of 
what the Department normally considers prior-stage inputs. Therefore, 
we are examining the countervailability of this program under section 
351.518(a)(2) of our regulations, which covers the ``Remission of 
prior-stage cumulative indirect taxes'' upon export. As noted above, 
these tax credits are calculated using an ``export revenue ratio'' in 
order to segregate and credit those inputs that were used in 
respondents' exported products.
    In order for the Department to determine whether a benefit exists, 
we must determine whether the amount remitted exceeds the incidence of 
prior-stage cumulative indirect taxes paid on inputs that are consumed 
in the production of exports. Generally, the Department will determine 
the amount of the benefit to be the difference between the amount 
remitted and the amount of prior-stage cumulative taxes paid on inputs 
that are consumed in the production of the exported product, making 
normal allowance for waste. However, to use this measure of the 
benefit, the Department must be satisfied that certain criteria are 
met. Thus, section 351.518(a)(4)(i) provides that the Department will 
consider that the entire amount of the remission confers a benefit 
unless;
    (i) The government in question has in place and applies a system or 
procedure to confirm which inputs are consumed in the production of the 
exported product and in what amounts, and to confirm which indirect 
taxes are imposed on these inputs, and the system or procedure is 
reasonable, effective for the purposes intended, and is based on 
generally accepted commercial practices in the country of export.
    Our review of the information on the record of this investigation 
indicates that, although the GOB does have a system in place for 
calculating an amount for the ``presumed'' credit due, the system is 
not effective for calculating the credit corresponding to the 
``actual'' inputs consumed in the exports of these companies. As noted 
above, the GOB stated that a single rule was used for ``administrative 
convenience'' to determine the rate of the credit. This rule applies to 
all industries and assumes two stages of production, and therefore, two 
levels of tax incidence for the PIS and COFINS taxes charged on inputs. 
However, the GOB was unable to demonstrate how the PIS/COFINS tax 
credit of 5.37 percent is reflective of the tax incidence incurred by 
the inputs through the stages of production associated with the steel 
industry.
    Respondents' explanation of how each of the companies calculate the 
``presumed'' tax credit for PIS and COFINS states that the export 
revenue ratio is multiplied by either ``raw material'' costs or 
``production costs.'' See USIMINAS', COSIPA's, and CSN's February 5, 
2001 submission at 8. Production costs usually include cost elements in 
addition to prior-stage inputs, such as depreciation, overhead and 
labor costs. In addition, USIMINAS provided the list of ``raw 
material'' inputs it uses to calculate this tax credit. This list 
includes machine parts, which are items that are not normally 
considered inputs. See e.g., Final Results of Countervailing Duty 
Review: Ball Bearings and Parts Thereof from Thailand, 62 FR 728, 731 
(January 6, 1997). Therefore, we preliminarily determine that the GOB's 
system used for calculating the amount of this ``presumed'' tax credit, 
of tracking the appropriate inputs consumed and measuring the actual 
PIS and COFINS tax incidence, is ineffective.
    In section 351.518(a)(4)(ii) of the regulations, additional 
criteria are to be considered before the Department reaches a 
determination that the entire amount of the rebate or remission confers 
a benefit:
    (ii) If the government in question does not have a system or 
procedure in place, if the system or procedure is not reasonable, or if 
the system or procedure is instituted and considered reasonable, but is 
found not to be applied or not to be applied effectively, the 
government in question has carried out an examination of actual inputs 
involved to confirm which inputs are consumed in the production of the 
exported product, in what amounts, and which indirect taxes are imposed 
on the inputs.
    Neither the GOB nor the companies involved have met the terms of 
section 351.518(a)(4)(ii) by carrying out an examination of the actual 
inputs involved, nor of whether the inputs are consumed in production 
and in what amounts.
    As a result, the Department preliminarily finds that the entire 
amount of this tax credit is countervailable as an export subsidy. For 
CSN, we have calculated the ad valorem rate in accordance with section 
351.525(b)(2) by dividing the total tax credit claimed during the POI 
by CSN's total export sales during the POI. In calculating a combined 
rate for USIMINAS/COSIPA, we calculated the benefit by first combining 
the tax credits claimed by both USIMINAS and COSIPA during the POI, and 
then dividing this total benefit amount by their combined export sales 
during the POI. This is consistent with the calculation methodology 
outlined under section 351.525(b)(6)(ii) for corporations with cross-
ownership. On this basis, we determine the net subsidy to be 0.78 
percent ad valorem for CSN and 1.31 percent ad valorem for USIMINAS/
COSIPA.
Program Preliminarily Determined to be Not Used

Programa de Financiamento as Exportacoes (``PROEX'')

    We initiated on this program based on petitioners' allegation that 
the GOB provided export financing through the Programa de Financiamento 
as Exportacoes (``PROEX'') at preferential interest rates.
    According to the questionnaire responses, PROEX was created by the 
GOB on June 1, 1991 by Law No. 8187/91 with the purpose of offering 
Brazilian companies the opportunity to finance exports at rates 
equivalent to those available on international markets. PROEX is 
administered by the Comite de Credito as Exportacoes (``the 
Committee''), with the Ministry of Finance serving as its executive. 
Day-to-day operations of PROEX are conducted by the Banco do Brasil, 
the Central Bank of Brazil. There are two components to the PROEX 
program. ``PROEX Financiamento'' (or PROEX Financing) provides direct 
financing for a portion of the funds required for the transaction. 
``PROEX Equalizacao'' (or PROEX Equalization) permits interest 
equalization, by which the government covers the difference between the 
interest rate obtained from a private bank and the prevailing rate in 
the international market.
    According to the GOB and USIMINAS, CSN, and COSIPA, no PROEX funds 
were disbursed to finance any exports of subject merchandise to the 
United States during the POI. Therefore, we preliminarily determine 
that this program was not used during the POI.
Programs for Which Additional Information Is Needed

I. National Bank for Economic and Social Development (``BNDES'') 
Fund for the Modernization of the Steel Industry

    In their submission of November 14, 2001, petitioners alleged that 
the National Bank for Economic and Social Development (``BNDES'') 
offers financing for the steel industry through

[[Page 9661]]

the Fund for the Modernization of the Steel Industry (Fund). 
Petitioners alleged that the Fund was specifically created by BNDES, a 
GOB development bank, to support the development of the Brazilian steel 
industry after its privatization. Petitioners provided information 
showing that loans through the Fund were allegedly made by BNDES to the 
Brazilian steel industry at interest rates below those on comparable 
commercial loans. On December 11, 2001, we decided to investigate this 
program. See Memo to the File.
    The GOB reported that the Fund for the Modernization of the Steel 
Industry does not exist. However, based on our review of the 
questionnaire responses, we found that all of the companies under 
investigation had outstanding loans from BNDES during the POI and that 
BNDES operates a number of different financing programs, some of which 
may provide countervailable benefits. We note that, in the Preliminary 
Negative Countervailing Duty Determination: Carbon and Certain Alloy 
Steel Wire Rod from Brazil, the FINAME program, which is administered 
by BNDES and agent banks throughout Brazil, and provides capital 
financing to companies located in Brazil, was found to be an import 
substitution program that provided countervailable benefits to 
producers and exporters of wire rod. 67 FR 5967, 5972 (February 8, 
2002). The FINAME program provides for the leasing of new machinery and 
equipment to producers in Brazil. Although the GOB reported that the 
BNDES Fund for the Modernization of the Steel Industry does not exist, 
we are continuing to investigate BNDES and a number of lending programs 
that may be offered by BNDES to determine whether they provided 
countervailable subsidies, during the POI, to producers and exporters 
of cold-rolled steel from Brazil. We are seeking additional information 
from the GOB and the companies on BNDES loan programs for purposes of 
our final determination.

II. Program to Induce Industrial Modernization of the State of 
Minas Gerais (PROIM)

    In their allegations filed on November 14, 2001, petitioners 
alleged that the state of Minas Gerais provides concessionary project 
financing through the PROIM program for up to 50 percent of the total 
investment, with grace periods not to exceed 36 months. On December 11, 
2001, we decided to investigate this program because petitioners' 
arguments and supporting documentation indicated that PROIM may be an 
import substitution program which finances the use of Minas Gerais-
produced raw materials and inputs. See Memo to the File.
    According to the questionnaire responses, the PROIM program is a 
state-administered program that is intended to encourage companies 
located in the state of Minas Gerais to increase production; of the 
three respondent companies, only USIMINAS is located in Minas Gerais. 
PROIM allows for the deferral of state taxes in the state of Minas 
Gerais. The tax that is deferred is known as the Imposto Sobre 
Circulacao da Mercadoria e Servicos (tax on the circulation of 
merchandise and services), or ICMS. ICMS is a value-added tax. 
Companies located in the state of Minas Gerais must charge 18 percent 
on sales within the state, 12 percent on sales to outside of the state 
other than to states in the North and Northeast regions, and 7 percent 
on sales to states in the North and Northeast regions. Sales for export 
and sales to the free port of Manaus are exempt from the tax.
    The PROIM program provides that companies that increase their 
production within the state of Minas Gerais may obtain a deferral of 
that portion of the ICMS which applies to the increased production.
    Since there is a deferral of a state tax that is administered by a 
state government, our specificity analysis must focus on whether the 
deferral is limited to an enterprise or industry or group thereof 
located within the state of Minas Gerais. See section 351.502 of the 
Department's regulations. We are still in the process of gathering 
additional information concerning use of this program within the state 
and, therefore, for purposes of this preliminary determination, we are 
not making a finding with respect to this program.
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 have 
calculated an individual rate for the companies under investigation. We 
have preliminarily determined that the total estimated countervailable 
subsidy rate is 12.58 percent ad valorem for USIMINAS/COSIPA and 8.22 
percent ad valorem for CSN. With respect to the ``all others'' rate, 
section 705(c)(5)(A)(i) of the Act requires that the ``all others'' 
rate equal the weighted average countervailable subsidy rates 
established for exporters and producers individually investigated, 
excluding any zero and de minimis countervailable subsidy rates and 
rates based entirely on facts available. Because none of the companies 
has a de minimis or zero rate, or a rate based entirely on facts 
available, we have weight-averaged the companies' rates to calculate an 
``all others'' rate of 11.90 percent ad valorem.

------------------------------------------------------------------------
                                                         Countervailable
                   Producer/Exporter                       Subsidy Rate
------------------------------------------------------------------------
USIMINAS / COSIPA......................................       12.58%
CSN....................................................        8.22%
All Others.............................................       11.90%
------------------------------------------------------------------------

    In accordance with section 703(d) of the Act, we are directing the 
U.S. Customs Service to suspend liquidation of all entries of the 
subject merchandise from Brazil produced or exported by USIMINAS, 
COSIPA, CSN, or any other company, 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 indicated 
above. This suspension 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 non-privileged and non-proprietary 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)(2) of the Act, 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, N.W., Washington, D.C. 20230. Individuals

[[Page 9662]]

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, unless otherwise informed by the 
Department, 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 five 
days from the date of filing of the case briefs. An interested party 
may make an oral presentation only on arguments included in that 
party's case or rebuttal briefs. Written arguments should be submitted 
in accordance with 19 CFR 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.

    February 25, 2002
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-5104 Filed 3-1-02; 8:45 am]
BILLING CODE 3510-DS-S