NOTICES
DEPARTMENT OF COMMERCE
[C-307-702]
Final Affirmative Countervailing Duty Determination; Certain Electrical
Conductor Aluminum Redraw Rod From Venezuela
Thursday, June 30, 1988
*24763
AGENCY: Import Administration, International Trade Administration,
Commerce.
ACTION: Notice.
SUMMARY: We determine that benefits which constitute subsidies within the meaning of
the countervailing duty law are being provided to manufacturers, producers, or
exporters in Venezuela of certain electrical conductor aluminum redraw rod (redraw
rod). The estimated net subsidy is 64.62 percent ad valorem. However, consistent with our
policy of taking into account verified program-wide changes that occur before our
preliminary determination, we are adjusting the duty deposit rate to reflect changes in the
Exchange of Export Earnings Under the Multiple Exchange Rate System and the Export
Bond Program. Therefore, the rate for duty deposit purposes is 38.40 percent ad valorem.
We have notified the U.S. International Trade Commission (ITC) of our determination. If the
ITC determines that imports of redraw rod materially injure, or threaten material injury to,
a U.S. industry, we will direct the U.S. Customs Service to resume suspension of liquidation
of all entries of redraw rod from Venezuela that are entered, or withdrawn, from
warehouse, for consumption on or after the date of publication of our countervailing
duty order and to require a cash deposit on entries of redraw rod in an amount equal to the
duty deposit rate.
EFFECTIVE DATE: June 30, 1988.
FOR FURTHER INFORMATION CONTACT:Roy Malmrose or Barbara Tillman, Office of
Investigations, Import Administration, International trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC
20230; telephone: 202/377-2815 (Malmrose) or 202/377-2438 (Tillman).
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute subsidies
within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being
provided to manufacturers, producers, or exporters of redraw rod in Venezuela. For
purposes of this investigation, the following programs are found to confer subsidies:
- Exchange of Export Earnings Under the Multiple Exchange Rate System
- Export Bond Program
- Preferential Input Pricing
- Short-term FINEXPO Financing
- Interest-free Loan from a Government-owned Aluminum Supplier
Case History
Since the last Federal Register publication pertaining to this investigation [Preliminary
Affirmative Countervailing Duty Determination: Certain Electrical Conductor
Aluminum Redraw Rod from Venezuela (52 FR 38113, October 14, 1987)], the following
events have occurred. On October 2, 1987, we presented respondents with a supplemental
questionnaire concerning petitioner's allegations. On October 16, 1987, we presented
respondents with a supplemental questionnaire concerning an equity investment by a
government-owned aluminum supplier in one of the respondent companies.
On November 2, 1987, at petitioner's request, we extended the final determination date in
this investigation to March 7, 1988, to coincide with the final determination date in the
companion antidumping investigation (52 FR 42703, November 6, 1987). On December 1,
1987, again at petitioner's request, the date for the preliminary determination in the
companion antidumping investigation was extended until February 1, 1988, thereby
extending the final determination in both investigations until April 16, 1988 (52 FR 46386,
December 7, 1987). On January 26, 1988, we received responses from respondents to our
questionnaire concerning the equity investment. On February 9, 1988, we notified Customs
to terminate the suspension of liquidation in this investigation as of February 12, 1988. On
February 23, 1988, we presented respondents with another supplemental questionnaire
concerning aluminum input pricing, FINEXPO financing, and the equity investment. On
March 21, 1988, at respondents' request, we extended the final determination date for this
investigation and the antidumping investigation until June 22, 1988 (53 FR 9675, March
24, 1988). On March 25, 1988, we received a request from the Government of Venezuela
(GOV) for a 13-day postponement of our verification to April 18, 1988.
On April 5, and April 11, 1988, we received partial responses from respondents to our
October 2, 1987, and February 23, 1988, supplemental questionnaires. Between April 18
and May 12, 1988, we conducted verification in Venezuela. On May 4, 1988, we received
data from respondents regarding the purchase of imports by the redraw rod producers
during the review period. On May 9, 1988, we received revised data from respondents
regarding CABELUM's and ICONEL's purchases of primary aluminum. On May 16, 1988, we
received amended responses regarding the levels of FINEXPO financing received by SURAL
and ICONEL during the review period.
In response to requests made at verification, On May 27, 1988, we received all of ALCASA's
price lists for primary aluminum and an amended response concerning SURAL's purchases
of primary aluminum. On June 2, 1988, we received further information from respondents
with respect to the determination of domestic aluminum prices in Venezuela. Although no
public hearing was requested, initial briefs were filed on June 8, 1988, and rebuttal briefs on
June 10, 1988, by petitioner and respondents.
On April 19, 1988, we received a proposed suspension agreement from respondents. On
May 17, 1988, we received from respondents a public interest argument in support of their
proposed suspension agreement. On May 18, 1988, we received a letter from Reynolds
Aluminum Corporation supporting the proposed suspension agreement. We reviewed the
respondents' suspension agreement and its public interest letter. We determined that a
suspension agreement was not appropriate in this case and notified the respondents of our
decision.
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Scope of Investigation
The product covered by this investigation is certain electrical conductor aluminum redraw
rod, which is wrought rod of aluminum, electrically conductive and containing not less than
99 percent of aluminum by weight. Redraw rod is currently classified under item numbers
618.1520 and 618.1540 of the Tariff Schedules of the United States, Annotated and under
item numbers 7604.10.30 and 7604.29.30 of the Harmonized System.
Standing
An August 31,1987, the Department received a letter from Reynolds Aluminum stating that
the company takes no position with respect to the petition filed by Southwire. On
September 7, 1987, we received a letter from the respondents challenging Southwire's
standing to file the petition and requesting dismissal of the petition on the grounds that the
petition was not filed "on behalf of" the United States industry, as required by section
702(b)(1) of the Act.
On September 24, 1987, we received a letter from Alcoa Conductor Products Company
(ACPC), a division of the Aluminum Company of America (ALCOA), stating that ACPC does
not support the position taken by Southwire in its petition and that the petitioner did not
speak on behalf of or represent that firm in the proceeding. On October 8, 1987, we sent a
letter and a questionnaire to ALCOA requesting information as to the nature and extent of
the firm's activities, including its production of redraw rod in the United States, and its
percentage share of the United States market. In an October 22, 1987 letter, responded to
the Department's request for information. In its ALCOA response ALCOA included an
estimate of its share of the U.S. redraw rod market in 1986.
In a November 2, 1987 letter, respondent asserted that on the basis of the ACPC letter, the
Department was now required to "canvass the views of all industry members to determine
whether they in fact support Southwire." On November 12, 1987, the Department received a
letter from the Aluminum Trades Council opposing Southwire's petition because jobs may
be jeopardized as a result of a lack of availability of aluminum rod. On June 6, 1988, the
Department received a letter from the Aluminum, Brick and Glass Workers International
Union expressing its opposition to the petition.
The statutory provision that governs the standing of parties to bring petitions requires the
commencement of an investigation "whenever an interested party . . . files a petition . . . on
behalf of an industry" (section 702 of the Act). As we have stated in prior cases [see e.g.,
Final Affirmative Countervailing Duty Determination; Certain Stainless Steel Hollow
Products from Sweden (52 FR 5794, February 26, 1987); Final Negative Countervailing
Duty Determinations; Certain Textile Mill Products and Apparel from Malaysis (50 FR
9852, March 12, 1985)], as well as in the preliminary determination in this case, the
Department relies upon the petitioner's representation that it has filed "on behalf of" the
domestic industry until it is affirmatively shown that a majority of the domestic industry
opposes the petition. The Department bases this position on the fact that neither the Act nor
its legislative history restricts access to the unfair trade laws by requiring that parties
petitioning for relief under these laws establish affirmatively that a majority of the members
of the relevant domestic industry support the petition. The only requirement is that the
party filing the petition act as the representative of the domestic industry.
As we have noted in other cases, to require a petitioner to establish affirmatively that it has
the support of a majority of the industry on whose behalf it has filed the petition would, in
many cases, "be so onerous as to preclude access to import relief under the antidumping
and countervailing duty laws." Frozen Concentrated Orange Juice from Brazil; Final
Determination of Sales at Less than Fair Value (52 FR 8324, 8325, March 17, 1987).
When a member or members of the domestic industry challenge the assertion of the
petitioner that it has filed "on behalf of" the domestic industry, the Department will examine
the challenge. When evaluating the challenge, the Department does not consider the
following circumstances as evidence of opposition to a petition: a statement by a member of
the domestic industry that it does not take any position with respect to the petition, e.g., the
Reynolds letter; a statement by an entity that is not a member of the domestic industry,
e.g., the letter from the Aluminum Trades Council; opposition to a petition expressed by the
respondents or the government that is subject to the investigation.
Where domestic industry members opposing a petition provide a clear indication that there
are grounds to doubt a petitioner's standing, the Department will evaluate the opposition to
determine whether the opposing parties do, in fact, represent a majority of the domestic
industry. Commerce tailors its examination of opposition to the particular facts of the case.
Typically, the Department does not canvass the entire domestic industry. Instead, it
generally requests the opponent to supply information on the nature and extent of its
involvement in the domestic industry. By cumulating the proportion of the domestic
industry that is represented by each of the parties in opposition, the Department is able to
determine the degree of opposition overall. This was the course followed by the Department
in this case.
After ACPC registered its opposition to the petition, the Department sent a questionnare to
ACPC to determine the nature and extent of its involvement in the redraw rod industry.
From the response, Commerce determined that ALCOA did not represent a majority of the
domestic industry. After the Department received the letter from the Aluminum, Brick and
Glass Workers International Union, it sent a questionnaire on June 15, 1988 to the Union to
determine the proportion of the domestic industry represented by the Union. As of the date
of the final determination, the Union had not responded to the questionnaire. No other
industry members have expressed opposition to the petition.
Absent evidence of opposition to the petition by other members of the domestic industry,
the Department had no basis to conclude that a majority of the industry opposed the
petition.
Therefore, the Department reaffirms its preliminary determination in this case that the
petition was filed on behalf of the domestic industry, and that the petitioner has standing to
bring this petition.
Analysis of Programs
For purposes of this final determination, the period for which we are measuring
subsidization (the review peroid) is calendar year 1986. As is common under our method of
analysis, if the companies under investigation have different fiscal years, which was the case
in this investigation, our review period is the most recently completed calendar year. Based
upon our analysis of the petition, the responses to our questionnaires, verification, and
written comments from respondents and petitioner, we determine the following:
I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters
of redraw rod in Venezuela under the following programs:
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A. Exchange of Export Earnings Under the Multiple Exchange Rate System
We have divided our discussion of the multiple exchange rate system into four parts. In this
section, we will provide a brief history of the multiple exchange rate system and an
overview of how the system currently operates. We will also discuss one aspect of the
multiple exchange rate system: the exchange of export earnings. The two other aspects of
the multiple exchange rate system, the granting of foreign currency at preferential rates of
exchange for the purchase of imports, and the registration of foreign currency debt, are
discussed in the "Programs Determined Not to Confer a Subsidy" section.
1. History and Overview of the Multiple Exchange Rate System. After more than 19 years
under a fixed rate system of 4.30 bolivares (Bs.) to the dollar, the GOV authorized the
establishment of a multiple exchange rate system following the devaluation of the bolivar
on February 22, 1983. The multiple exchange rate system was intended to give the
Venezuelan government greater control over Venezuela's foreign exchange reserves and
to manage the inflationary impact of the devaluation of the bolivar.
The Central Bank of Venezuela (CBV) and the Ministry of Finance (MOF) signed an
Exchange Agreement on February 28, 1983, instituting the multiple exchange rate system.
A fixed rate of Bs. 4.30 to the dollar was established for, among other things, the sale of
foreign exchange by the CBV for payments on foreign- sourced private and public debt and
the importation of products designated as "essential goods." A second fixed rate of Bs. 6.00
to the dollar was applied to, among other things, the importation of goods and services not
declared essential. In addition to these rates, a floating free market rate was established for
all exchange operations not specifically provided for elsewhere.
On February 24, 1984 a new Exchange Agreement between the MOF and the CBV was signed
altering the multiple exchange rate system. The rate of Bs. 6.00 to the dollar, as it applied to
the importation of goods and services not declared essential, was replaced by a new rate of
Bs. 7.50 to the dollar. The new Exchange Agreement also initiated a procedure whereby
exporters were required to exchange a portion of their export earnings, depending on the
value of the imported component of the exported good, at the Bs. 7.50 rate. The remainder
of their export earnings could be exchanged at the free rate.
On December 6, 1986, another new Exchange Agreement altered the multiple exchange rate
system to approximately its present state. A new fixed rate of Bs. 14.50 to the dollar was
established which applied to the importation of goods and services not declared essential
and to the conversion of export earnings. As of the date of this Agreement exporters were
required to exchange 100 percent of their foreign exchange export earnings at the Bs. 14.50
to the dollar rate. The Bs. 7.50 to the dollar rate was applied to imports deemed "essential"
and found on the "essential goods" list. This same rate also applied to the payment of private
debt which had been registered with the GOV. (Access to other rates of exchange are also
available for payment of shipping costs.)
2. Exchange of Export Earnings Under the Multiple Exchange Rate System. As noted above,
beginning in 1984, exporters were required to exchange a portion of their export earnings
at the official controlled rate of Bs. 7.50 to the dollar. The exact percentage of export
earnings that had to be exchanced at this rate was determined by the imported value of the
exported product. The imported content of a company's exports was determined by
deducting a company's national value-added (VAN) percentage from 100 percent. The VAN
percentage is calculated for every exporter in Venezuela by the Institute of Foreign
Trade. A company's VAN percentage is based on the difference between the FOB value of a
company's exported goods and the cost of the goods' imported components.
From January through June 1986, exporters wre required to sell 50 percent of the value of
the imported component of their exported goods at the official controlled rate of Bs. 7.50
per dollar. In July 1986, the percentage was increased to 80 percent. Finally in December
1986, Decree 1379 obligated exporters to sell 100 percent of their export earnings at the
official Bs. 14.50 per dollar rate of exchange.
Until the December 1986 change in the multiple exchange rate system, the redraw rod
producers were able to buy imports at the official controlled rate of exchange of Bs. 7.50
per dollar but convert a portion of their export earnings at the free market rate of exchange,
which was substantially higher. (The imports found on the essential goods list applicable for
the period, which could be purchased at the Bs. 4.30 per dollar rate, consisted of medicinal
and agricultural products; thus, the Bs. 4.30 rate did not benefit the redraw rod producers.)
The difference between the official controlled exchange rate of Bs. 7.50 to the dollar,
available to purchase the majority of Venezuelan imports, and the higher composite
rate--consisting of the free and the official controlled rates--used for exchanging export
earnings, provided a benefit to exporters.
We determine that, under the multiple exchange rate system as it existed bedfore December
1986, a subsidy was conferred on exports because one dollar received from export sales
yielded more bolivares than the amount exporters had to pay to purchase one dollar for
imports. Because receipt of the higher exchange rate is contingent upon selling dollars
earned from export sales, we determine that the exchange of export earnings under the
multiple exchange rate system conferred an export subsidy.
To calculate the benefit from this program during the review period, we first converted the
total FOB dollar value of redraw rod sales to the United States to bolivares at the official
controlled rate of exchange (i.e., Bs 7.50 to the dollar). We then subtracted this amount
from the total bolivar amount, as recorded in the accounting records of the redraw rod
producers, actually received from sales of redraw rod to the United States. (The bolivar
amount recorded in the accounting records of the redraw rod producers is reflective of a
composite exchange rate, consisting of the free and official controlled rate). The difference
is the benefit. We then divided the beneift by the total bolivar value of sales of redraw rod to
the United States. On this basis, we calculated an estimated net subsidy of 53.06 percent ad
valorem.
We verified that the December 6, 1986 change in the multiple exchange rate system unified
the rate at which exporters must convert their export earnings and the rate available to buy
the vast majority of Venezuelan imports, i.e., Bs. 14.50 per dollar. We also verified that the
number of essential goods eligible to be imported at the Bs. 7.50 rate is very limited, has
been decreasing over time, and consists of medicinal and agricultural products. This rate
for essential goods is not used by the redraw rod producers to purchase imports; the
imports of the redraw rod producers can only be obtained at the Bs. 14.50 rate.
Because the GOV eliminated the differential between the rate for purchasing imports and the
rate at which export proceeds are converted, we determine the benefit to exporters of
redraw rod under the multiple exchange rate system to be eliminated. Therefore, consistent
with our policy of taking into account verified and measurable program-wide changes that
occur before our preliminary determination, we determine that the multiple exchange rate
system no longer confers an export
*24766
subsidy on exports of redraw rod. Therefore,
the duty deposit rate for this program is zero.
B. Export Bond Program
The export bond program was established in 1973 by the Law on Export Incentives. It is
administered by the Fund for Financing Exports (FINEXPO). Under the program,
Venezuelan redraw rod exporters are remunerated for their exports by the GOV in the form
of export bonds which may be used to pay taxes or sold for cash.
The value of the export bond is based on a percentage, known as the export bond
percentage, of the FOB value of the product exported. The applicable export bond
percentage for a company corresponds to that company's VAN percentage. For example,
during part of the review period, a company with a VAN of 70 percent was eligible for a 25
percent export bond percentage.
The face value of the export bond is calculated by multiplying the export bond percentage
by the FOB value of the exported goods expressed in bolivares (converted at the official rate
of exchange: Bs. 7.50 to the dollar prior to December 1986 and Bs. 14.50 to the dollar after
December 1986). The resulting figure is the face value of the export bond. We verified that
the redraw rod producers enter the value of the export bonds into their accounting records
on the date of the invoice.
To receive an export bond, a firm submits to its commercial bank the invoice and shipping
documents for the exported merchandise. The bank reviews the documents and remits
them to the CBV which issues the export bond.
We verified that all three redraw rod producers took advantage of the export bond program
during the review period. We also verified that during the review period, the export bond
percentage for the redraw rod producers varied from 20 to 25 percent. Because this
program is limited to exporters and does not operate to rebate any indirect taxes, we
determine that this program confers an export subsidy on redraw rod.
To calculate the benefit for the review period, we divided the bolivar amount of bonds
earned on export sales of redraw rod to the United States by the export sales of redraw rod
to the United States. On this basis, we calculated a net subsidy of 11.06 percent ad valorem.
The various export bond percentages were increased in January and June of 1987. In
January 1987, the applicable export bond percentages for the redraw rod producers rose
from 18 and 25 percent to 25 and 30 percent, respectively. In July 1987, the applicable
rates were increased again from 25 and 30 percent to 30 and 38 percent, respectively.
Consistent with our policy of taking into account verified and measurable program-wide
changes that occur before the preliminary determination, we are taking into account the
latest increase in the applicable export bond percentages for duty deposit purposes.
To calculate the benefit for duty deposit purposes, we weight-averaged the export bond
percentage applicable to each redraw rod producer by each company's proportion of the
value of Venezuelan exports of redraw rod to the United States. (This methodological
approach was not feasible for the review period because the dollar FOB value for export
bond calculation purposes during the review period was totally converted at the official
controlled rate, while the redraw rod producers were able to convert part of the dollar FOB
value of each sale into bolivares at the free market rate). On this basis, the duty deposit is
37.90 percent ad valorem.
C. Preferential Pricing of Inputs Used To Produce Exports
Petitioner alleged that ALCASA and VENALUM, government-owned producers of primary
aluminum, are directed by the GOV to charge preferential prices to domestic customers
who purchase aluminum for further processing and subsequent export.
The questionnaire responses indicated that the price of primary aluminum for
incorporation into domestically sold products (the domestic price) was set based on an
average of the London Metals Exchange (LME) price in the three months previous to the
sale of the primary aluminum. Contrary to this information, it now appears that the
domestic price of primary aluminum in Venezuela has generally been based upon the cost
of production of ALCASA, plus a reasonable profit.
The price charged by ALCASA and VENALUM for primary aluminum to be incorporated
into exported products (the export price) is calculated according to the export price
formula agreed to by certain government agencies and the two aluminum suppliers,
ALCASA and VENALUM. The basis of the export price formula is the LME cash settlement
price, in the month previous to the export date, as listed in Metals Week. To calculate the
final price charged, certain discounts are first deducted from the LME price. Then the
discoutned LME price is converted into bolivares. For most of the review period, the
exchange rate at which the LME price was converted was the rate at which the aluminum
suppliers could exchange their export earnings. (This was a composite rate, similar to that
described with respect to the redraw rod producers in the section, "Exchange of Export
Earnings Under the Multiple Exchange Rate System", above.) Beginning in December 1986,
the official controlled rate of Bs. 14.50 to the dollar was used to convert the discounted LME
into bolivares.
The general practice of VENALUM and ALCASA is to first invoice their customers at the
domestic price. When the amount of product exported by their customers can be
confirmed, through the provision of quarterly reports, a price adjustment is made. This
procedure was followed by two of the three redraw rod producers. The third redraw rod
producer was invoiced at the export price for January through August of 1986. Thereafter,
this redraw rod producer was billed the domestic price. The price adjustment, covering the
second half of 1986 and the first half of 1987 (the adjustment for the second half of 1987 has
not yet been made), for this redraw rod producer was made on April 21, 1988. The
information obtained regarding this price adjustment indicates that the LME base price for
this redraw rod producer differed from the LME price charged the other redraw rod
producers.
We verified the final monthly net domestic and export prices charged and paid by each of
the three redraw rod producers. We found that in two months, for two producers, the
export price charged was lower than the domestic price. Since receipt of the lower export
price was contingent upon export performance, we determine that the difference between
the domestic price and the export price in the above-referenced months constitutes an
export subsidy.
We calculated the benefit by subtracting the amount paid under the export price from the
amount that would have been paid under the domestic price. The difference is the benefit.
Dividing the benefit by the total export sales of the three redraw rod producers, we
calculated an estimated net subsidy of 0.22 percent ad valorem.
D. Short-Term FINEXPO Financing
The Fund for Financing Exports (FINEXPO) administers a number of financing programs
available to exporters. (See the "Programs Determined Not To Be Used" section of this notice
for a description of all the FINEXPO programs.) We verified that
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two of the three
producers of redraw rod had loans on which interest was paid during the review period
under one of the FINEXPO short-term financing programs. Under this program, FINEXPO,
in conjunction with Venezuelan commercial banks, provides short-term loans to
Venezuelan exporters. Export receivables, such as drafts under letters of credit, are used as
collateral. FINEXPO provides to the participating commercial bank up to 60 percent of the
loan principal for these loans at five percent interest. The commercial bank provides the
remaining loan principal amount and is required to charge the exporter an average of the
FINEXPO rate and its own commercial rate.
Because only exporters are eligible for these loans, we determine that they are
countervailable to the extent that they are provided at preferential interest rates. It is our
practice to use the national average commercial interest rate or the most comparable,
predominant commercial rate for short- term financing as the benchmark for short-term
loans. We are using as our benchmark rate the national average interest rate charged on
loans of less than one year, as shown in the 1986 Annual Report of the CBV. Based on our
discussions at the CBV, this rate reflects the average short-term commercial lending rate of
commercial banks. Comparing this interest rate to the rate charged under the FINEXPO
program, we find that the rate on the FINEXPO financing is preferential. Therefore, we
determine the FINEXPO loans under this program to be countervailable.
To derive the benefit for one of the redraw rod producers, we calculated the amount of
interest that would have been paid at the benchmark rate on those loans related to sales to
the United States on which interest was paid during the review period. For the other
producer, we calculated the amount of interest that would have been paid at the benchmark
interest rate on those FINEXPO loans related only to sales of redraw rod to the United States
(this methodology was not feasible for the first redraw rod producer because the export
receivables of the first producer, used as collateral, related to both redraw rod and other
products). We subtracted from the above two figures the amount of interest that was
actually paid. We then divided the difference by the total sales to the United States by the
first producer and the total sales of redraw rod to the United States by the other two
producers. On this basis, we calculate an estimated net subsidy of 0.14 percent ad valorem.
E. Interest-Free Loan From a Government-Owned Aluminum Supplier
During verification we discovered that one of the government-owned primary aluminum
supplier companies had provided one of the redraw rod producers with a large loan. In
response to our questions, company officials stated that no principal or interest payments
had been made on this loan since 1985. No other information concerning this loan was
offered. Using the limited information on the record as best information available, we
assume that this loan was made to a specific enterprise and that it was given on terms
inconsistent with commercial considerations. Therefore, the loan is countervailable.
To calulate the benefit, we considered this loan to be a one-year interest- free loan during
the review period. We calculated the interest that would have been paid at the national
average short-term interest rate found in the 1985 Annual Report of the CBV. The interest
that would have been paid at the national average interest rate is the amount of the benefit.
We then divided the benefit by the total sales of all three redraw rod producers. On this
basis, we calculated an estimated net subsidy of 0.14 percent ad valorem.
II. Programs Determined Not To Confer a Subsidy
We determine that subsidies are not being provided to manufacturers, producers, or
exporters of redraw rod in Venezuela under the following programs:
A. Granting of Foreign Currency at Preferential Rates for Imports Under the Multiple
Exchange Rate System
As discussed above, one of the purposes in instituting the multiple exchange rate system
was to establish greater control over Venezuela's foreign currency reserves. To this end,
the MOF through its Office of the Differential Exchange Rate System (RECADI) issues import
permits (DCIs) to importers which allow them access to preferential exchange rates for their
imports.
As explained previously, imports into the Venezuelan economy are separated by the GOV
into goods considered essential and non-essential. In December 1986, the exchange rate at
which essential goods could be imported into Venezuela rose from Bs. 4.30 to the dollar
to Bs. 7.50 to the dollar. The rate for non- essential goods rose rom Bs. 7.50 to the dollar to
Bs. 14.50 to the dollar. We verified that goods considered essential were for agricultural or
medicinal use and were not used by the redraw rod producers.
Since the amount of foreign exchange available in any given year for imports into
Venezuela is limited, a system of allocating it among Venezuelan companies has been
devised. Each year a series of negotiations takes place between the MOF and the Venezuelan
Federation of Chambers of Commerce in which all Venezuelan industries are represented.
As a result of these negotiations, companies receive a foreign exchange budget to purchase
imports at the official controlled rate. We verified that over 8,000 individual companies,
representing a broad range of industries, have been given foreign currency budgets.
Because the allocation of foreign currency at preferential rates for imports is not limited to
a specific enterprise or industry, or group of enterprises or industries, we determine that it
is not countervailable.
B. Registration of Foreign Currency Debt Under the Multiple Exchange Rate System
The process of registering foreign debt was begun in 1983 under Decree 1930 in order to
allow Venezuelan companies to continue paying their debts at the original rate of exchange
even though the GOV was devaluing the bolivar. After debts are registered at RECADI,
companies are eligible to pay off the debt with foreign currency obtained at preferential
exchange rates. Originally, debtors were eligible to repay their debts at Bs. 4.30 to the
dollar, but the system was revised in December 1986. Debts are now eligible for a
repayment rate of Bs. 7.50 to the dollar with a guarantee permium added for locking in that
preferential rate. We verified that all three redraw rod producers had at least some of their
foreign debt registered.
To be eligible for a registration, a company's debt must have been contracted before
February 1983. The application form and all necessary documentation of the loan was to be
filed with RECADI by June 1983. The ultimate decision- making power for granting debt
registration was placed in a body named "Commisison 61." We verified that the registration
criteria used by this body did not not favor certain industries or regions over others and did
not provide a preference for exporters. We also verified through a random sample of
decisions made by Commission 61 that registration decisions were made solely on the basis
of the established legal criteria. In addition, we verified that the companies
*24768
which
benefitted from this program were regionally diverse and included producers of a wide
variety of products, including the following: tools, pumps, shoes, chemicals, plastics,
non-ferrous metals, refrigeration equipment, electrical goods, petrochemicals and graphic
arts.
Because registration of foreign currency debt is not limited to a specific enterprise or
industry, or group of enterprises or industries, we determine that this program is not
countervailable.
C. Import Duty Reductions
Petitioner alleged that a system of import duty reductions is maintained by the GOV which
is aimed specifically at providing a benefit to the aluminum products industry. We verified
that all three redraw rod producers received import duty reductions.
The sole program allowing import duty reductions is provided by Title IV of the Venezuelan
Organic Customs Law. We verified that import duty reductions under this law are granted
whenever national production or supply is inadequate to meet the demand for a particular
item. We also verified that a board range of products were granted import duty reductions,
including: storage batteries, adhesives and gums, coal briquets, spring water, ferrous alloys,
pottery, foodstuffs, electrical insulation, carpets and fatty acids. Furthermore, we verified
that if an import duty reduction is provided to one company, an other company can receive
the same reduction. Since import duty reductions are not limited to a specific enterprise or
industry, or group of enterprises or industries, we determine that this program is not
countervailable.
D. The Financing Company of Venezuela (FIVCA)
FIVCA was established in 1976 as the financing society subsidiary to the Industrial Bank of
Venezuela. (Financing societies serve to provide long-term financing in Venezuela). Its
objectives are to make long-term funds available to the Venezuelan industrial sector
according to the economic policies established by the GOV. FIVCA financing is covered
under Article 2 of Resolution 85-10-03 of the CBV, which specifies a maximum interest rate
of 14 percent for financing societies operating under Article 63, Number 6 of the General
Law on Banks. Article 63 relates to the financing of industrial, agricultural, and forestry
activities.
We verified that the one FIVCA loan outstanding to one of the rod producers was set at the
maximum interest rate of 14 percent and that the company was making the scheduled
principal and interest payments. Furthermore, we verified through an examination of the
loan documentation that the interest rate charged is variable according to the maximum
interest rate allowable under CBV regulations. Because this loan program does not offer
financing on terms inconsistent with commercial considerations, we determine that it is not
countervailable.
E. The Industrial Credit Fund (FONCREI)
FONCREI was created in 1974 by the Government of Venezuela in order to make
long-term credits available to the Venezuelan industrial sector. FONCREI does not loan to
applicant companies directly but does so through commercial banks and financing
societies. We verified that one redraw rod producer had a FONCREI loan outstanding during
the review period.
FONCREI applies the same interest rate to all of its loans in a single year. The interest rate is
set by FONCREI subject to the approval of the CBV. The term of a loan differs depending on
a company's ability to repay, which, in turn, depends upon a company's projected rate of
return. However, no term can exceed 15 years.
Applicant companies must first be approved under a process of "prior consultation," and
then after acceptance by a commercial bank, must gain final approval by FONCREI. We
reviewed the criteria used by FONCREI in its decision- making process and did not find any
preference given to exporters. We verified that FONCREI financing was used by the
producers of: foodstuffs, footwear, basic metals, textiles, lumber, chemicals, rubber
products, machinery and graphic arts. We also verified that industries throughout
Venezuela benefitted from FONCREI loans. Because this loan program is not limited to a
specific enterprise or industry, or group of enterprises or industries, we determine that it is
not countervailable.
F. Government Equity Investment in CABELUM
In March 1986, ALCASA acquired 30 percent of CABELUM's capital stock. We examined
CABELUM's financial condition by an analysis of the financial statements for the years prior
to the equity acquisition. We found that prior to this acquisition, profts were increasing, the
company had a positive shareholders equity, and the return on equity was adequate.
Therefore, we find that CABELUM was equityworthy in 1986 at the date of the acquisition.
Thus, we determine that ALCASA's acquisition of equity was not on terms inconsistent with
commercial considerations.
III. Programs Determined Not To Be Used
Based on verified information, we determine that manufacturers, producers, or exporters of
redraw rod in Venezuela did not apply for, claim, or receive benefits, unless otherwise
noted, during the review period for exports of redraw rod to the United States under the
programs listed below. Programs not described below are fully described in the preliminary
determination of this investigation (52 FR 38113, October 14, 1987).
A. Preferential Tax Incentives
Petitioner originally alleged that tax incentives were available to the redraw rod producers
under decrees 1384, 1374, and 1776. We verified that Decree 1384 was part of the
Venezuelan customs code and that Decree 1374 had lapsed prior to the review period. At
verification, we found that certain tax benefits are available to Venezuelan manufacturers
under decrees 1776 and 1775, which were both promulgated on December 31, 1982.
Decree 1776 seeks to stimulate the domestic production of capital goods in order to reduce
Venezuela's dependence on foreign supplies of technology. The decree sets out a series of
tax benefits for makers of specific capital goods which are listed in the decree. Eligible
companies may receive a variety of fiscal and financial incentives.
Decree 1775 establishes tax credits for manufacturers of finished or intermediate goods
based on their level of domestic value-added. Eligible companies could receive tax credits
ranging from 10 to 25 percent of the value of new investments depending on the percentage
of domestic value-added of the acquired asset. These rates of credit applied only in the
three years subsequent to the publication of the decree after which the rate fell to 10
percent for all eligible investments.
Although one redraw rod producer claimed Decree 1775 benefits on its tax return filed in
the review period, we verified that the MOF rejected the claim. The other redraw rod
producers claimed Decree 1775 benefits on their tax returns filed in 1987. Thus under our
standard lag methodology for income tax programs, no benefit was provided during the
review period. However, if a countervailing duty order is issued as a result of this
investigation, Decree 1775 benefits will be examined closely in any administrative review
under section 751 of the Act, if a review is requested.
*24769
B. Preferential Export Financing (FINEXPO)
FINEXPO was established in 1973 to promote the export of non- traditional goods and
services of Venezuelan origin. FINEXPO operates a variety of programs which provide
financing at preferential rates to Venezuelan exporters and, under one program, foreign
importers of Venezuelan goods. Operations or capital needs for which companies can
receive this financing include feasibility studies, market research, promotional expenses,
fixed capital investment, working capital, bills financing, inventory financing, financing of
services rendered abroad, and financing for importers representing foreign state-owned
companies. FINEXPO also provides financing of bills of exchange of foreign importers of
Venezuelan goods by foreign banks through lines of credit established with FINEXPO.
At verification, we discovered that one redraw rod producer applied, and was approved, for
a FINEXPO working capital loan after the review period. However, FINEXPO officials stated
that the loan documents had not yet been signed. We will examine this loan in any
administrative review under section 751 of the Act, if a review is requested.
We verified that the other redraw rod producers did not have any other FINEXPO financing
on which principal or interest was outstanding during the review period.
C. The Basic Ingredient Export Program (PIBE)
PIBE, which was established by Decree 1645 of July 8, 1987, allows for expedited approval
of foreign exchange acquisitions to purchase raw material imports intended for exported
goods. The program is managed by the Institute for Foreign Trade under RECADI's budget.
Users of PIBE are required to resell to the CBV at the official exchange rate a percentage of
their export earnings equal to the percentage of those earnings accounted for by the
imported raw materials. This provision is intended to remain in effect even if the law
requiring all export earnings to be exchanged at the official rate is revised. We verified that
none of the redraw rod producers have been approved for the PIBE program.
D. Other Government Loans
1. Ministry of Finance (MOF)
2. The Industrial Bank of Venezuela (BIV)
3. The Venezuela Investment Fund (FIV)
E. Government Loan Guarantees
F. Sales Tax Exemption
IV. Programs Determined Not To Exist
Based on verified information, we determine that the following programs do not exist. These
programs were discussed in the preliminary determination in this investigation (52 FR
38113, October 14, 1987).
A. Tax Contributions to Cover Debt Service Costs
B. Assumption of Foreign Currency Debt
Interested Party Comments
Comment 1: Respondents challenge the standing of petitioner to bring the petition "on
behalf of" the domestic industry. For the proposition that a petitioner must establish that a
majority of the domestic industry supports the petition, respondents rely upon Gilmore
Steel Corp. v. United States, 7 CIT 219, 585 F. Supp. 670 (CIT 1984). In particular,
respondents point to a statement by the Court that a petitioner "must also show that a
majority of that industry backs its petition." Gilmore, 585 F. Supp. at 676. Respondents
argue that because Southwire has not demonstrated that its petition has the support of a
majority of the domestic industry, Southwire lacks standing to bring the petition.
DOC Position: A close examination of the Gilmore case reveals that the particular statement
relied upon by respondent is dicta; it was not part of the holding or even the reasoning for
the decision. It was part of the Court's recognition that there are two standing requirements
in the statute: the "interested party" requirement and the "on behalf of an industry"
requirement. The Court determined that the plain meaning of the words "on behalf of" is "as
the representative of," "as the proxy for," or "as the surrogate." 585 F. Supp. at 675.
Accordingly, the Court concluded that a petitioner may file in a representative capacity, on
behalf of an industry. Id. at 676. The Court did not consider the question as to who bears
the burden of establishing whether a petitioner is in fact representative of the industry.
Indeed, there was no issue in the Gilmore case as to who bore the burden of establishing the
petitioner's representation of the industry, because the record in that case established that
Gilmore's petition was opposed nearly unanimously by the entire industry. [See, Carbon
Steel Plate from Belgium and the Federal Republic of Germany; Rescission of Notice
Announcing Initiation of Antidumping Investigation and Dismissal of Petition, 49 FR 3504
(January 27, 1984)]. The issue before the Court in Gilmore was whether the Department had
the authority to terminate an investigation where a majority of the domestic industry
affirmatively opposed the petition.
There is nothing in the statute, its legislative history, or our regulations which requires that
petitioners establish affirmatively that they have the support of a majority of their industry.
(See "Standing" section above.)
Comment 2: Although respondents do not agree that section 771(6) of the Act is
inapplicable in this case, they argue that the export bond program and exchange control
system must be viewed as component parts of a single mechanism through which the GOV
controls exchange transactions. Respondents contend that the issue is not whether the
multiple exchange rate system should be an "offset" to the export bond market. Rather, the
issue is whether the net effect of the multiple exchange rate system and the export bond
program confers any benefit upon the producers of redraw rod. Respondents further
maintain that the relevant legislation establishing the two programs should not be expected
to show a link because the legislation was not written to meet the requirements of the
verification process.
Respondents make four arguments to support their proposition that the two programs are
interrelated. First, they argue that the interrelationship was confirmed by statements of
GOV officials during verification. Second, they point out that the original purpose of the
export bond program was to compensate Venezuelan exporters for the overvaluation of the
bolivar, then fixed at Bs. 4.30/dollar. Third, respondents assert that the interrelationship of
the two programs is evidenced by the fact that, as the differential between the free market
rate and the official controlled rate has widened, the GOV has reponded by increasing the
value of the export bond. Finally, respondents contend that the interrelationship of the two
programs is shown by the high correlation between the prevailing free market exchange
rate and the "effective" exchange rate realized by the exporters after taking into account the
value of the export bonds received.
Petitioner disagrees with respondents' position that the export bond program is a
mechanism whereby Venezuelan exporters are compensated for losses allegedly sustained
under the multiple exchange rate system. Petitioner asserts that the legislative history of
the statutory offset provision in section 771(6) of the Act precludes treatment of
*24770
the alleged currency exchange losses as an offset to benefits received under the export
bond program. Petitioner also cites the Final Affirmative Countervailing Duty
Determination: Certain Fresh Cut Flowers from Ecuador (52 FR 1361, January 13, 1987) and
a recent opinion by the Court of International Trade in Fabricas El Carmen, S.A. v. U.S., 9
ITRD 1457 (CIT 1987), to support its position that the requirement of exchanging foreign
exchange earnings at the official controlled rate of exchange is not a permissible offset to
other subsidies received. Moreover, petitioner notes that the verification process failed to
establish any relationship between the export bond program and the multiple exchange
rate system.
Finally, petitioner points out that respondents' efforts to establish a linkage between the
export bond program and the multiple exchange rate system in Venezuela by reference to
a 1971 study of the overvaluation of Venezuela's currency actually undermines
respondents' position. In particular, petitioner contends that devaluation through the
adoption of a single free market exchange rate would have assisted exporters and would
have had a broad impact on the Venezuelan economy. However, the GOV chose not to
devalue fully the currency; it decided to maintain an overvalued currency and simply pay
exporters, through the export bond program, to export merchandise. This, petitioner
argues, is the most fundamental form of export subsidization.
DOC Position: We disagree with respondents that an interrelationship between the two
programs has been established. First, we do not consider the exchange of export earnings
under the multiple exchange rate system prior to December 1986 to be an offset to the
export bond program, as provided for under section 771(6) of the Act. This section of the
Act permits the Department to subtract from the gross subsidy the amount of "any
application fee, deposit or similar payment." We have consistently interpreted this
provision very narrowly, in accordance with the plain meaning of the language and, as
petitioner points out, the very clear legislative history.
The restrictions of the multiple exchange rate system are clearly not in the nature of an
"application fee, deposit or similar payment." Such payments are an essential first step in
qualifying for the receipt of a benefit. The fundamental characteristic of an application fee,
for example, is that it is a procedural step intrinsic to the program providing the benefit. In
this case, there is a very limited amount of probative evidence that the exchange of export
earnings under the multiple exchange rate system is intrinsic to satisfying the
administrative and procedural requirements for qualifying for export bonds. Furthermore,
we note that the legislative history makes it very clear that the list of offsets cited in section
771(6) is all-inclusive. The Department has no discretion in expanding the list of allowable
offsets.
Respondents' assertion that the two programs are, in fact, components of a single
mechanism by which the GOV control exchange transactions clearly poses an even more
onerous burden of proof on the respondents than demonstrating that the multiple exchange
rate system is an offset. The respondents are, in essence, asking the Department to find that
the two programs are actually one. Yet, no hard evidence has been offered by respondents
to support their assertion of an interrelationship. Despite numerous clear and repeated
requests to do so, in our verification outline and during verification, respondents were
unable to produce a single piece of documentary evidence showing that the two programs
are related.
The Department is well aware of the fact that national legislation is not written to satisfy the
requirements of a countervailing duty investigation. However, as respondents know, the
Department did not limit its request for evidence of some interrelationship to national
legislation. The verification outline only asked for "documentary evidence." Despite
respondents' claims that the two programs are interrelated and our repeated requests for
documentary evidence, we were not shown any relevant legal documents, legislative
history, government agency annual reports, policy statements, internal memoranda, or
academic studies which even superficially indicate that the two programs are interrelated.
The annual reports of the administering authority for the export bond program, the Fund
for Financing Exports, strongly indicates that the policy behind the export bond program is
to stimulate non-traditional exports. In the same report, the multiple exchange rate system
is not even mentioned in the description of the export bond program.
Although respondents have been able to show some correlation between the prevailing free
market exchange rate and the "effective" exchange rate in 1986, this still fails to prove that a
unitary system exists. (We note that the correlation is negligible in 1987.) Furthermore,
without any hard evidence that the GOV created or administers these two programs as a
single unified policy, this correlation is meaningless in terms of the standards set forth in
the Act for determining whether a program confers a subsidy. For these reasons, we
determine that respondents have not met their burden of providing that the two programs
are in fact one integrated program.
Comment 3: Respondents argue that the purpose and effect of the multiple exchange rate
program, as it existed for most of 1986, was to provide special treatment for certain
imported goods. Therefore, according to respondents, the Department's assumption, in its
preliminary determination, that the intended benefit under the multiple exchange rate
system was to allow exporters to exchange a portion of their exports earnings at the free
rate, is incorrect. Respondents maintain that the correct analytical approach to the
multiple exchange rate system is to examine whether or not the granting of foreign
currency at preferential rates of exchange to purchase imports constitutes a subsidy under
U.S. law.
Respondents also take issue with the Department's statement in the preliminary
determination that "one dollar received for export sales yields more bolivares than
exporters paid to purchase one dollar for imports." Respondents maintain this statement is
incorrect because during 1986: (1) exporters could not exchange all their earnings at the
free market rate and (2) exporters often had to make use of the free market rate to import
goods. In a related argument, respondents assert that the calculation of the benefit under
the multipe exchange rate system did not take into account the extent to which exporters
had actually utilized the preferential rates available for imports.
Respondents further contend that the implicit rationale of the Department's analysis, that a
subsidy automatically arises where exporters are permitted to exchange their export
earnings at a free market rate when a lower, controlled rate exists for other transactions, is
without statutory support. According to respondents, the theory would lead to the
imposition of countervailing duties even in situations where only a limited class of
products was eligible for importation at the official rate.
Finally, respondents point out that benefitting from the exchange rate differential was not
dependent upon "selling dollars earned from export sales" as was stated in the preliminary
determination. According to
*24771
respondents, under Venezula's exchange control law,
companies and individuals are permitted to maintain foreign currency accounts outside
Venezuela and exchange such funds for bolivares at the free market rate.
Petitioner disagrees with respondents' argument that the purpose and effect of the multiple
exchange rate system was to subsidize imports. Petitioner, citing a report by the United
States Trade Representative, claims that since 1983, Venezuela has actively restricted
imports to conserve foreign exchange.
DOC Position: The Department does not take into account the intent of the foreign
government when determining the countervailability of a program. However, even if we
were to assume that the intention of the GOV in establishing the multiple exchange rate
system was to insulate the economy from higher price imports, the fact remains that
exporters, during the review period, were able to convert a portion of their export earnings
at an exchange rate more beneficial than the official controlled rate used to purchase most
imports. Thus, we disagree that the focus of our attention should be solely on whether or
not the granting of foreign currency at preferential rates to purchase imports constitutes a
subsidy under U.S. law.
We are cognizant of the fact that during 1986 exporters could not exchange all their
earnings at the free market rate and that exporters in 1986 may have had to use the free
market rate to import goods. These facts, however do not change our analysis. We did not
assume, in our calculation of the benefit under the multiple exchange rate system, that
exporters could exchange all their export earnings at the free rate. The benefit under our
methodology is the difference between the composite rate (a combination of the free and
official controlled rates of exchange) used by the producers of redraw rod and the rate at
which foreign currency could be obtained to purchase the vast majority of Venezuelan
imports. Although respondents maintain that exporters in 1986 often had to make use of
the free market rate to import goods, this assertion could not be verified.
We also disagree with respondents' contention that the implicit rationale of the
Department's analysis is that a subsidy automatically arises where exporters are permitted
to exchange their export earnings at a free rate when a lower controlled rate applies only to
a limited class of products. These essence of our methodological approach with respect to
the exchange of export earnings under the multiple exchange rate system is that the
effective rate upon which the Venezuelan economy operates is the exchange rate used to
import goods not designated by GOV as "essential goods." In this regard, we note that at
verification we obtained a periodic economic report prepared by CBV. This report indicates
that the weighted-average exchange rate for imports is predominantly reflective of the
exchange rate used to obtain foreign currency to purchase products not designated as
essential. We verified that "essential goods," as designated by GOV, is a rather limited class
of products. Therefore, we did not use the exchange rate used to buy these goods. Instead,
we used the exchange rate used to obtain foreign currency for the purchase of most other
Venezuelan imports (i.e., Bs. 7.50 to the dollar during most of the review period) as our
benchmark.
The fact that we are not countervailing the conversion of the export earnings under the
multiple exchange rate system as it now exists, despite the existence of a lower rate for
importing "essential goods" belies respondents' contention that we would find a benefit
where only a limited class of products was eligible for a lower rate.
While respondents' last point, that benefitting from the exchange rate differential was not
dependent upon "selling dollars earned from export sales," may have merit, respondents
provided no information at verification to demonstrate or support their argument.
Therefore, we cannot consider it for purposes of our final determination.
Comment 4: Respondents contend that Venezuelan exporters would have to obtain dollars
at the free rate of exchange to pay any possible countervailing duties assessed. If the
Department were to use the current applicable nominal percentage of the export bond
program, the resulting duty deposit rate should be at most, 18.37 percent, assuming a free
rate of exchange rate of Bs. 30 to the dollar.
Petitioner disagrees with respondents' position that the methodology used by the
Department to calculate the benefit of the export bond program overstates the real
economic benefit of the program because the basis of the calculation assumes that a
Venezuelan exporter can obtain foreign exchange at the official rate to pay any resulting
countervailing duty. Petitioner maintains that countervailing duties are paid by the
U.S. importer of record, not the Venezuelan exporter.
DOC Position: The importer is responsible for the payment of any countervailing duty.
Therefore, respondents' argument is irrelevant.
Comment 5: Petitioner contends that, in the preliminary determination, the Department
improperly included subsidy income, derived from the multiple exchange rate system, in
the denominator of the benefit calculation for the export bond program. Petitioner cites the
Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from Brazil
(Brazil Sheet and Strip) (51 FR 40837, November 10, 1986) to support its position. For the
final determination, petitioner asserts that any counter-vailable exchange earnings
received by the redraw rod producers under the multiple exchange rate system in 1986
should be excluded from the sales value over which the Department allocates the bolivar
value of export bonds and other subsidies received by the companies during the review
period. Finally, petitioner argues that the exclusion of subsidy income from the
denominator will not result in the double counting of subsidies because the subsidy income
to be excluded from the denominator was provided under a program the termination of
which was taken into account in establishing the duty deposit rate.
Respondents argue that even if the multiple exchange rate system could be properly
described as conferring a subsidy, exclusion of the alleged subsidy income under the
system would double count the amount of any benefit.
DOC Position: We do not agree with petitioner that exchange earnings earned under the
multiple exchange rate system should be excluded from the sales value used as the
denominator in calculating the estimated net subsidy of the other countervailable
programs. It is reasonable to assume that, if Venezuelan exporters of redraw rod are denied
the subsidy inherent in the higher rate of exchange available for converting export earnings
than for buying imports, they would have exported less redraw rod in quantity terms. It is
impossible to say precisely, however, by what quantity the level of exports would have
fallen. If we were to accept petitioner's contention, by eliminating the subsidy income from
the denominator, we may inadvertently penalize exporters for exports that they would
never have made absent the subsidy income.
The present case is distinguishable from Brazil Sheet and Strip because the benefit in that
case was clearly identifiable and recorded as a separate line item in the accounting records
of the respondent companies. In the instant case, the value of the benefit cannot be
similarly isolated. Therefore, it would be
*24772
too speculative to attempt to extract the
benefit from the multiple exchange rate system from the companies' sales values.
Comment 6: Petitioner contends that the duty deposit rate should reflect increases in the
export bond percentage which occurred after the review period but prior to the
preliminary determination.
Respondents argue that the continued fluctuation in the dollar/bolivar exchange rate (see
Comment 4) and the possibility that the value of the export bond might be reduced,
mandate that the Department base its calculation on data for the review period.
DOC Position: We verified that the export bond percentages under this program were
increased both during and after the review period, with the most recent change occurring in
July 1987. This latest increase became effective after the review period but prior to our
preliminary determination and we were able to verify and measure the benefits from that
increase. Therefore, our criteria for a program-wide change determination have been met
and we have accordingly adjusted the duty deposit rate to reflect this change.
Comment 7: Petitioner argues that the benefit under the export bond program should be
calculated according to the current nominal export bond percentage applicable to redraw
rod producers. Petitioner maintains that the value of the export bonds does not depend
upon any future contingency, such as the recipients' total taxable income or income tax
liability and can be calculated precisely at the time of export. Petitioner refers to the Final
Affirmative Countervailing Duty Determination: Certain Steel Wire Nails from New
Zealand ("New Zealand Nails") (52 FR 37196, October 5, 1987) as support for its position.
DOC Position: We agree. Respondents are able to predict accurately the value of the bond at
the time of the sale. In fact, the redraw rod producers book the value of the bonds on the
date of the invoice even though CBV has not actually issued the bond to the company.
Therefore, we have followed our methodology in New Zealand Nails in this determination.
Comment 8: Respondents argue that any benefit under the export bond program should be
reduced to reflect the discounted amount exporters of redraw rod normally received after
selling their right to receive the bond.
Petitioner contends that the value of export bonds should not be reduced to reflect the
discounted amount exporters receive after discounting. Petitioner argues that companies
discount the bonds due to administrative delays by the GOV in processing bond
applications and that the Department in the past has not taken into account, in calculating
subsidies, reductions in benefits due to administrative delays.
DOC Position: We have consistently disallowed as an offset under section 771(6) of the Act,
reductions in benefits due to administrative delays. [See Final Affirmative Countervailing
Duty Determination: Certain Welded Carbon Steel Pipe and Tube Products from Turkey (51
FR 1268, January 10, 1986)].
Comment 9: Petitioner argues that the producers of redraw rod receive a certain discount
under the export price formula applicable to primary aluminum purchases and that there is
no commercial justification for this discount. Furthermore, petitioner contends that, if the
domestic price does not have an equivalent discount and there is nothing inherent in the
domestic price calculation to make up for the lack of such a discount, the discount in the
export price formula constitutes an export subsidy.
Moreover, petitioner contends that the current domestic price ceiling on primary
aluminum may not always be so far below the LME price as to negate the preference
enjoyed by exporters over domestic consumers by reason of the discount available in the
export price formula. In addition, petitioner maintains that, given the respondents' history
of misleading the Department concerning the domestic pricing of aluminum, the existence
of the ceiling price should not be assumed. Consequently, petitioner submits that the
Department should use the best information available and assume that the discount under
the export price formula is not available under the domestic price. Finally, petitioner
asserts that the final net export and domestic prices for primary aluminum were not
verified because verification could not be performed at the aluminum suppliers.
Respondents argue that, because the bases of the export price and domestic price are
different, the fact that a discount is included in the export price calculation and not the
domestic price calculation is unimportant. The only relevant consideration, according to
the respondents, is the final prices paid for primary aluminum under both pricing
structures.
Respondents also contend that the domestic and export prices paid by the redraw rod
producers were verified at the companies and that verification at the aluminum suppliers
was not necessary. Finally, respondents maintain that the Department is neither required,
nor permitted, to speculate as to what may happen in the future concerning aluminum input
pricing in Venezuela.
DOC Position: We were able to sufficiently verify at the three respondent companies that the
export price charged was generally higher than the domestic price during 1986, our review
period. (When it was not, we determined the difference to be countervailable.) This is true
even with the inclusion of certain discounts in the export price formula. We note
petitioner's concerns with respect to the often untimely and inaccurate information
submitted by respondents regarding the aluminum input pricing issue. If a
countervailing duty order is issued as a result of this investigation, we will reexamine
the entire aluminum input pricing issue in any administrative review that may be
requested.
Comment 10: Petitioner contends that the cost of export credit insurance, which is required
to receive FINEXPO financing, should not be considered an offset to the benefit under the
program. As support for its argument, petitioner points out that in consideration of credit
insurance premium payments, a firm not only becomes eligible for FINEXPO financing, but
also receives something of value, namely credit insurance.
Respondents contend that the cost of the credit insurance should be considered an offset.
They argue that the purchase of insurance has no real practical purpose other than to
qualify for FINEXPO financing, since the payment obligations used as collateral for the
financing were backed by irrevocable letters of credit.
DOC Position: We determine that the payment of the export credit insurance premiums is
not an offset under section 771(6) of the Act. Payment of credit insurance premiums is not
analogous in this case to "an application fee, deposit or similar payment." In consideration
for the payments cited as offsets in the statute, a company only becomes eligible for receipt
of the government benefit. In the instant case, in consideration for the purchase of export
credit insurance, a company not only becomes eligible for a government benefit but also
receives something of additional value, limited though it may be.
Comment 11: Respondents argue that FINEXPO short-term loans provide a mechanism for
the financing of dollar-denominated export receivables within Venezuela. Thus,
respondents assert, for all practical purposes the loans are the functional equivalent of
dollar-denominated loans. Therefore,
*24773
according to respondents, the appropriate
benchmark is the average United States prime rate charged by banks on short-term
business loans. However, respondents continue, if the Department were to use a Venezuelan
benchmark, the benefit under the program would be negligible. Respondents argue that the
benefit should be calculated by: (1) using as a benchmark the interest rate charged by the
commercial bank on the portion of the financing provided from such bank's own resources;
(2) deducting the cost of insurance as an offset; and (3) allocating the benefit over redraw
rod sales to the United States.
Moreover, respondents contend that the loans under the FINEXPO program are relatively
unique because of the use of high quality collateral and the added security of an insurance
policy guaranteeing payment. Consequently, respondents argue that the standard national
average interest rates are clearly inapplicable as benchmarks.
Petitioner asserts that the most appropriate benchmark in calculating a benfit under the
short-term FINEXPO financing program is the national average commercial interest rate for
short-term financing in Venezuela. Petitioner cites the Subsidies Appendix in support of
its position. Petitioner also disagrees with respondents' contention that the Department
should calculate company-specific countervailing duty rates for FINEXPP financing.
Petitioner maintains that a "significant differential" under section 706(a)(2)(A) of the Act
does not exist among the companies.
DOC Position: In accordance with past practice [See the Final Affirmative Countervailing
Duty Determination: Certain Steel Wire Nails from Thailand (52 FR36987, October 2,
1987)], we have used the national average shrot-term interest rate as our benchmark in
calculating the benefit under the FINEXPP program. Using a U.S. benchmark is
inappropriate because the loan is not denominated in dollars. Finally, although the
collateral for these loans may be of high quality, the high inflation rate in Venezuela and
the government- controlled interest rates would tend to encourage banks to charge the
highest interest rates possible, regardless of the quality of the collateral.
Comment 12: Petitioner contends that the redraw rod producers received a tax credit under
Decree 1775 in 1987 and that the duty deposit rate should reflect the receipt of the credit.
Respondents argue that the benefits under Decree 1775 are available to a wide range of
industrial sectors and, therefore, do not confer a countervailable benefit..
DOC Position: We disagree with petitioner that the tax credits received outside the review
period should be reflected in the duty deposit rate. Any benefits that may have accrued
from this program in 1987 would be captured in any administrative review that may be
requested, if the program is found to confer a subsidy. Furthermore, in accordance with
past practice, under our lag methodology, tax benefits claimed in 1987 would be allocated
over 1988 sales, for which data are unavailable.
Comment 13: Petitioner argues that, if SURAL paid a lower rate of slaes tax than other
companies during the review period, the difference should be treated as a countervailable
subsidy.
Respondents contends that the sales taxes were paid at the full rate under the law.
DOC Position: We verified that SURAL paid the same rate of sales tax in 1986 as other
industries within the same municipality. We also verified that SURAL paid its municipal
sales taxes at the rate decreed by law. Therefore, there is no countervailable subsidy.
Comment 14: Respondents assert that the following programs should be found not to exist:
MOF loans and loan guarantees, and sales tax exemptions.
DOC Position: We verified that a program of MOF-provided loans to public sector companies
does exist. We also verified that public sector companies are eligible to contract for loans
with private financial institutions with the full guarantee of the loan provided by the GOV.
We cannot determine that the provision of a sales tax exemption does not exist. While it is
not a program as such, we cannot dismiss it entirely because a sales tax exemption was
arranged by a Venezuelan steel company in 1984. [See Preliminary Affirmative
Countervailing Duty Determinations: Certain Carbon Steel Products from Venezuela
(50 FR 11227, March 20, 1985)]. We have determined, however, that the producers of
redraw rod did not receive any exemptions from sales taxes during the review period.
Verification
Except where noted, we verified the information used in making our final determination in
accordance with section 776(a) of the Act. We used standard verification procedures
including meeting with government and company officials, examination of relevant
accounting records and original source documents of the respondents. Our verification
results are outlined in the public versions of the verification reports which are on file in the
Central Records Unit (Room B-099) of the Main Commerce Building.
Suspension of Liquidation
In accordance with our preliminary affirmative countervailing duty determination
published on October 14, 1987, we directed the U.S. Customs Service to suspend liquidation
on the products under investigation and to require that a cash deposit or bond be posted
equal to the estimated bonding rate. The final countervailing duty determination was
extended to coincide with the final antidumping duty determination on the same product
from Venezuela, pursuant to section 606 of the Trade and Tariff Act of 1984 (section
705(a)(1) of the Act). Under Article 5, paragraph 3 of the Agreement on Interpretation and
Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade
(the Subsidies Code), provisional measures cannot be imposed for more than 120 days
without final affirmative determinations of subsidization and injury. Therefore, on February
9, 1988, we instructed the U.S. Customs Service to discontinue the suspension of liquidation
on the subject merchandise entered on or after February 12, 1988, but to continue the
suspension of liquidation of all entries, or withdrawals from warehouse, for consumption of
the subject merchandise entered between October 14, 1987, and February 11, 1988. We will
reinstate suspension of liquidation under section 703(d) of the Act, if the ITC issues a final
affirmative injury determination, and will require a cash deposit on all entries of the subject
merchandise in an amount equal to 38.40 percent ad valorem.
ITC Notification
In accordance with section 705(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 administrative protective order,
without the written consent of the Assistant Secretary for Import Administration.
If the ITC determines that material
*24774
injury, or the threat of material injury, does not
exist, this proceeding will be terminated, and all estimated duties deposited or securities
posted as a result of the suspension of liquidation will be refunded or cancelled. If, however,
the ITC determines that such injury does exist, we will issue a countervailing duty order
directing Customs officers to assess countervailing duties on all entries of redraw rod
from Venezuela entered, or withdrawn from warehouse, for consumption, as described in
the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act [19 U.S.C. 1671d(d)].
Jan W. Mares,
Assistant Secretary for Import Administration.
June 22, 1988.
[FR Doc. 88-14773 Filed 6-29-88; 8:45 am]
BILLING CODE 3510-DS-M