90-a02

NOTICES

DEPARTMENT OF COMMERCE

[C-357-803]

Final Affirmative Countervailing Duty Determination and Countervailing Duty
Order; Leather From Argentina

Tuesday, October 2, 1990

AGENCY: Import Administration, International Trade Administration, Commerce.

ACTION: Notice.

SUMMARY: We determine that benefits which constitute bounties or grants within the
meaning of the countervailing duty law are being provided to manufacturers,
producers, or exporters in Argentina of leather as described in the "Scope of
Investigation" section of this notice. The estimated net bounty or grant rates are indicated
in the "Suspension of Liquidation" section of this notice.

We are directing the U.S. Customs Service to suspend liquidation on all entries of leather
from Argentina that are entered, or withdrawn from warehouse for consumption, on or
after the date of publication of this notice and to require a cash deposit on entries of there
products in the amounts equal to the estimated net bounty or grant.

EFFECTIVE DATE: October 2, 1990.

FOR FURTHER INFORMATION CONTACT:Kay Halpern or Roy A. Malmrose, Office of
Countervailing Investigations, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue,
NW, Washington DC 20230; telephone: (202) 377-0192 or 377-5414.

SUPPLEMENTARY INFORMATION:

Final Determination

Based on our investigation, we determine that there is reason to believe or suspect that
benefits which constitute bounties or grants within the meaning of section 3030 of the
Tariff Act of 1930, as amended (the Act), are being provided to manufacturers producers,
or exporters in Argentina of leather. We determine that the following programs confer
bounties or grants:
- Resolution 321: Embargo on Cattle Hide Exports
- Circular RF-153: Pre-Export Financing
- Discounts of Foreign Currency Accounts Receivable under Circular RF-21
- Tax Deduction under Decree 173
- Import Duty Reduction under Decree 964

Case History

Since the completion of our Preliminary Determination [Preliminary Affirmative
Countervailing Duty Determination: Leather from Argentina, 55 FR 28925 (July 16,
1990), (Preliminary Determination)], the following events have occurred.
On July 12 and 13, 1990, we held disclosure meetings on calculation methodology with
counsel for respondents and petitioners, respectively. On July 11, 12, and 18, 1990,
respondents submitted corrections to their responses regarding pre-export financing.
On July 26, 1990, petitioners requested a hearing and on July 31, 1990, respondents
requested permission to participate in the hearing.
We conducted verification in Buenos Aires, Argentina, from July 23 through

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August 3, 1990, of the questionnaire responses of the Government of Argentina (GOA),
Camara de la Industria Curtidora Argentina (CICA), Curtiembres Fonseca, S.A. (CF),
Federico Meiners Ltda., S.A. (Meiners), Compania Industrial del Cuero, S.A. (CIDEC),
Ultrahide, S.A. (Ultrahide), Antonio Esposito, S.A. (Esposito), Coplinco, S.A. (Coplinco),
Grunbaum, Rico y Daucourt, S.A.I.C.F. (Graubaum), Gibaut Hermanos, S.A. (Gibaut), and
Manuel Neira, S.A.I.C.F. (Neira).
On August 13 1990, respondents filed corrections of the minor discrepancies discovered
at verification. Case briefs were filed on September 4, 1990, by petitioners and
respondents; rebuttal briefs were filed by both parties on September 7, 1990. A public
hearing was held at the Department of Commerce on September 10, 1990.

Scope of Investigation

The product covered by this investigation is leather. The types of leather that are subject
to this investigation includes bovine (excluding upper and lining leather not exceeding 28
square feet, buffalo leather, and upholstery leather), sheep (excluding vegetable
pretanned sheep and lambskin leather), swine, reptile (excluding vegetable pretanned
and not fancy reptile leather), patent leather, calf and kip patent laminated, and metalized
leather. Leather is an animal skin that has been subjected to certain treatment to make it
serviceable and resistant to decomposition. It is used in the footwear, clothing, furniture
and other industries. The types of leather included within the scope of this investigation
are currently classified under HTS item numbers 4104.10.60, 4104.10.80, 4104.21.00,
4104.22.00, 4104.29.50, 4104.29.90, 4104.31.50, 4104.31.60, 4104.31.80,
4104.39.50, 4104.39.60, 4104.39.80, 4105.12.00, 4105.19.00, 4105.20.30,
4105.20.60, 4107.10.00, 4107.29.60, 4107.90.30, 4107.90.60, 4109.00.30,
4109.00.40, and 4109.00.70. The HTS item number(s) are provided for convenience and
Customs purposes. The Department's written description of the merchandise under
investigation remains dispositive.

Analysis of Programs

For purposes of this investigation, the period for which we are measuring bounties or
grants ("the review period") is calendar year 1989, which corresponds to the most
recently completed fiscal year of the majority of the respondent companies. The other
respondent companies each have different fiscal years which overlap this period. In
accordance with our practice in such situations, we have chosen the most recently
completed calendar year as our review period.
Based upon our analysis of the petition, the responses to our questionnaires, and
verification, we determine the following:

I. Programs Determined To Confer Bounties or Grants

We determine that bounties or grants are being provided to manufacturers, producers, or
exporters in Argentina of leather under the following programs:

A. Resolution 321: Embargo on Cattle Hide Exports

1. Background

Since 1972, the GOA has implemented two different types of restrictions on the export of
cattle hides: Export embargoes and export taxes. In 1972, the GOA implemented an
embargo on the export of cattle hides under Decree 2861. This embargo was lifted in 1979
and was replaced by an export tax under Resolution 909. In September 1985, the GOA
again instituted an embargo under Resolution 321.
The 1972 embargo was instituted to promote the development of a domestic leather
tanning industry. In 1979, the U.S. Tanners' Council filed a section 301 petition regarding
the Argentine embargo on cattle hides. Consequently, the GOA and the United States
reached an agreement in 1979 to eliminate the embargo. While Argentina reserved the
right to impose an export tax on hides, the tax was to be phased out completely over
three years. Although Argentina made the scheduled export tax reduction in 1979, it
implemented another measure which effectively negated part of the concession. This
measure instituted a minimum export price on cattle hides which was used instead of the
transaction price in determining the amount of tax to be charged on exports. Since the
minimum export price was generally higher than the transaction price, the effective tax
rate was at a rate higher than the reduced rate Argentina had agreed in 1979 would
apply. Moreover, in 1981, Argentina failed to implement the scheduled export tax
reduction called for in the agreement.
In October 1981, another section 301 petition was filed by the U.S. industry regarding
Argentina's breach of the 1979 agreement. Although the United States Trade
Representative (USTR) initiated a section 301 investigation, it was dropped shortly
thereafter with the consent of the U.S. industry. The USTR decided that the issue was
more appropriately pursued under section 125 of the Trade Act of 1974, which gave the
President the authority to terminate the 1979 U.S.-Argentina Agreement. In 1982, the
U.S. and Argentina exchanged diplomatic notes terminating the agreement.
The export tax on hides was increased in both 1982 and 1984. In 1985, the current
embargo on cattle hides was imposed. Resolution 321, which implemented the embargo,
states that "(i)t is necessary to negotiate measures to maintain the volume of supply of
raw materials adequate to the needs of the domestic market of the leather tanning and
manufacturing sector, facilitating a smooth flow of supplies while avoiding any undue
increase in prices."

2. Analysis of Current Embargo

The embargo applies only to cattle hides, which are sold primarily, if not exclusively, to
leather tanners. Thus, we determine that the embargo is limited to a specific industry and
is, therefore, countervailable to the extent that it has caused hide prices to be lower than
they would have been absent the embargo.
When the petition in this investigation was filed, we held petitioners to an extremely high
standard of proof, requiring them to substantiate their claim that the embargo had a
direct and discernible effect on hide prices in Argentina. In their petition, they provided
substantial source and secondary documentation, demonstrating the comparability of
Argentine, United Kingdom (U.K.), and U.S. hide quality; documenting U.S., U.K. and
Argentine hide prices over 30 years; and outlining their analysis of how the embargo is
linked directly with the price differential between Argentine hide prices on the one hand,
and U.S. and U.K. hide prices on the other. We initiated on the embargo because
petitioners provided evidence, based on two sets of reasonable benchmark prices for
comparable hides, which indicated that the embargo may have suppressed the price of
untanned hides in Argentina, thereby resulting in a benefit specific to Argentine leather
producers.
At the time of our Preliminary Determination, the information on the record concerning
the embargo was inconclusive. Although we had information which demonstrated that
hide prices in the six largest exporting nations, including the United States, were higher
than Argentine hide prices, respondents argued, and some data suggested, that other
factors may have contributed to the price effects, and that the embargo may have had
only a limited impact, if any, on prices. At verification, we gathered and verified

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data on Argentine hide prices, hide exports, cattle slaughter, inflation, and exchange
rates over a 28 year period from 1962 to 1989. We also collected from published sources
U.S. hide and leather price data, and Argentine leather price data, for the same period.
The historical comparison of the U.S. and Argentine hide price data for the period 1962 to
1989 shows a clear link between the imposition of the 1972 embargo and a divergence in
U.S. and Argentine hide prices. Average annual Argentine and U.S. hide prices are fairly
constant and at virtual parity from 1962 through 1972. After 1972 and until the embargo
was terminated in 1979, Argentine hide prices were consistently, and generally markedly,
lower than U.S. hide prices. From 1981 to 1984, during a period when the embargo was
not in effect, Argentine hide prices moved closer to, and at times exceeded, U.S. prices.
Finally, when the hide embargo was reimposed in 1985, average annual Argentine hide
prices again diverged and remained consistently below average annual U.S. prices. Thus,
there is a cognizable and discernible link between the Argentine hide embargo and the
average annual U.S.-Argentine hide price differentials.
Although hide prices in Argentina are certainly affected by other factors, such as
variations in quality, inflation, cattle slaughter, and leather prices, we have analyzed all of
these factors in an attempt to isolate cause and effect relationships between each of them
and the U.S.-Argentine hide price differentials. None of these factors can be conclusively
linked to the divergence in prices that occurred after the embargoes.
For example, respondents argue that the primary reason for the divergence in prices after
1972 was a deterioration in the quality of Argentine hides. According to respondents,
prior to the 1970s, Argentine cattle were raised under different conditions and the hides
were produced by large, sophisticated packers. It is extremely unlikely however, that
these changes can account for the abrupt divergence in prices which occurred in 1972.
Respondents also cite inflation as a possible cause for the divergence. In our calculations,
however, we converted all Argentine hide prices from the Argentine currency to U.S.
dollars, essentially negating the effects of Argentine inflation. Furthermore, all of the
factors listed above, to a greater or lesser degree, were at work both before and after the
embargoes were imposed.
The best measure we have of what prices would have been in the absence of the current
embargo is a benchmark based on U.S. hide prices. U.S. hide prices are the best
benchmark for two reasons. First, excerpts of published articles and studies submitted by
petitioners indicate that U.S. and Argentine hide quality is comparable. In addition, we
saw no evidence at either the Argentine or the U.S. tanneries we visited that the leather
produced from Argentine hides is significantly inferior to that produced from U.S. hides.
Second, the United States is the largest cattle hide producer among countries which freely
trade such hides. Thus, U.S. hide prices are indicative of world hide prices.
As detailed above, a comparison of Argentine and U.S. hide prices during periods in
which Argentina maintained an embargo on hides clearly demonstrates that Argentine
hide prices were consistently lower than U.S. hide prices. Therefore, we determine that
the Argentine cattle hide embargo is countervailable.

3. Calculation of Benefit

We calculated the benefit from the embargo as follows. First, we calculated the annual
average differential between the price of Argentine steer hides (novillos) and U.S.
butt-branded steer hide prices as a percentage of the Argentine hide price for the periods
the embargo was in effect (May 1972- October 1979, and September 1985-December
1989, the end of the review period). (It should be noted that both sets of prices are for
salted, non-fleshed, branded hides, and neither set includes brokerage fees.)
From this, we subtracted the average differential expressed as a percentage of the
Argentine hide price for the years prior to the first embargo (January 1962, the first
month for which we obtained data, through April 1972). We did so because we observed a
slight U.S.-Argentine hide price differential in the period 1962-1972. Consequently, we
are assuming that a portion of the price differential during the embargo periods is
attributable to normal market forces independent of the embargoes. To measure the
effect of these market forces we are using, as a surrogate, the price differential as a
percentage of the Argentine price observed in the 1962-1972 period, when there were
significant exports of cattle hides from Argentina.
Next, we multiplied the result by the value of each respondent's hide purchases during the
review period to obtain an absolute benefit amount for each company. We then allocated
each company's benefit over its total sales during the review period. Finally, we
weight-averaged the resulting benefits by each company's proportion of respondents'
exports to the United States during the review period, excluding those companies with
significantly different aggregate benefits. The estimated net bounty or grant is 14.17
percent ad valorem for all manufacturers, producers and exporters in Argentina of
leather except Ultrahide and Esposito, which have significantly different aggregate
benefits. The estimated net bounties or grants for Ultrahide and Esposito are 23.34
percent ad valorem, and 7.74 percent ad valorem, respectively.

B. Circular RF-153: Pre-Export Financing

Circular RF-153 allows exporters to receive pre-export financing from Central Bank funds
in the form of dollar-indexed loans. The program is administered by the Central Bank of
Argentina. The amount of the loan can equal up to 65 percent of the f.o.b. export value
if the merchandise to be exported is produced solely from domestically-produced inputs.
If the exporter uses imported materials, the level of financing is reduced according to the
imported content of the merchandise to be exported. Loans under this program are made
to individual corporate borrowers by commercial banks which, in turn, are reimbursed
by the Central Bank. Loans are extended to exporters of leather for a maximum period of
150 days.
The principal and interest payments under this program are indexed to the austral/dollar
exchange rate. The loans are given in australes but are tied to a fixed dollar amount based
on the exchange rate prevailing on the date of the loan. At the time of repayment, the
fixed dollar amount is reconverted to australes based on the exchange rate prevailing on
that date, and the borrower must repay the new austral amount. In addition, the
borrower must make quarterly interest payments in australes, in most cases applying an
eight percent annual interest rate to the fixed dollar amount. These interest payments are
converted to australes at the exchange rate prevailing at the end of each quarter.
Effective October 1, 1989, the eight percent interest rate was increased to ten percent.
Pre-export financing under Circular RF-153 was renamed under Circular A- 598, and
subsequently replaced by Central Bank Communication A-1205 on June 3, 1988.
Communication A-1205 set up a mechanism for Argentine commercial banks to source
export financing directly from international banks instead of through the Central Bank. At
verification, we found that the Central Bank rebates three percent (of the loan principal
times the number of days in the loan divided by 365) to the foreign banks providing the
funds. The

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rebate, which can be passed on to exporters, is meant to compensate
the foreign banks for their increased exposure, or risk, in obtaining the funds.
This new, externally-sourced financing coexisted with the Central Bank-sourced financing
until January 1, 1990. After that date, Central Bank lines of credit were "temporarily
suspended" under Communication A-1595, and pre-export financing by commercial
banks was conducted only with foreign bank funds.
We verified that the following companies received RF-153 loans on which interest was
paid during the review period: CF, Meiners, CIDEC, Ultrahide, Esposito, Grunbaum, and
Gibaut. Because only exporters are eligible for these loans, we determine that they are
countervailable to the extent that they are provided at preferential rates.
As the benchmark for short-term (less than one-year) loans, it is our practice to use the
average interest rate for an alternative source of short-term financing in the country in
question. In determining this benchmark, we normally rely upon the predominant source
of short-term financing. In the absence of a single, predominant source of such financing,
we may use a benchmark composed of the interest rates for two or more sources of
short-term financing, weighted, whenever possible, according to the value of financing
from each source. (See our Preliminary Determination for a discussion of the benchmark
used in previous Argentine cases.)
We verified that, during the review period, the predominant source of commercial,
bank-related (as opposed to credit from supliers) financing in Argentina is
dollar-indexed financing. Neither the Central Bank nor any other Argentine government
agency maintains statistics on the interest rates charged on commercial dollar-indexed
financing. However, we verified that most of the respondent companies received
pre-export financing under Communication 727, later renamed Copex 1680 financing.
Copex 1680 establishes the current maximum terms for pre-export financing with foreign
funds. The terms are as follows: 110 days for traditional exports (grain, oilseed, and other
agricultural products), and 290 days for non-traditional exports (manufactured, or
"industrial," products, which include leather). With the exception of these terms, the
Central Bank does not regulate this type of pre-export financing. We verified that interest
rates for both traditional and non-traditional exports are freely negotiated, and that rates
for non-traditional exports are generally a few percentage points higher than rates for
traditional exports, due to the increased risk involved. We also verified that the new
external lines opened up under Communication A-1205 are meant to augment the
existing externally-sourced financing under Copex 1680. As discussed above,
Communication A-1205 financing is accompanied by a rebate of three percent of the loan
principal, adjusted for the term of the loan, from the Central Bank to the commercial
bank. No such rebates accompany Copex 1680 financing.
Therefore, we have decided to use as a benchmark the interest rate on dollar-indexed
loans for non-traditional exports offered by commercial banks in Argentina under
Copex 1680. In this way, we are comparing dollar-indexed financing to dollar-indexed
financing. The use of a dollar-indexed benchmark is consistent with our past practice, in
that it is the predominant alternative source of short-term financing available in
Argentina. Thus, we determine that it is appropriate to use a dollar-indexed benchmark
when examining the degree to which Circular RF-153 loans provide a benefit to Argentine
exporters.
Comparing the benchmark rate to the rates charged on RF-153 loans during the review
period, we find that the RF-153 loans are preferential and, therefore, confer a bounty or
grant on exports of leather.
To calculate the benefit from RF-153 loans on which interest was paid during the review
period, we followed the short-term loan methodology which has been applied
consistently in our past determinations and which is described in more detail in the
Subsidies Appendix attached to the notice of Cold-Rolled Carbon Steel Flat-Rolled
Products From Argentina: Final Affirmative Countervailing Duty Determination and
Countervailing Duty Order, 49 FR 18006, April 26, 1984; see also, Alhambra Foundry
v. United States, 626 F. Supp. 402 (CIT, 1985). Accordingly, we compared the amount of
interest actually paid during the review period to the amount that would have been paid
at the benchmark rate.
Because we verified that individual RF-153 loans can cover several export shipments to
different destinations, we allocated each company's interest savings over the value of its
total export sales during the review period. We then weight-averaged the resulting
benefits by each company's proportion of respondents' exports to the United States
during the review period, excluding those companies with significantly different
aggregate benefits. The estimated net bounty or grant is 0.66 percent ad valorem for all
manufacturers, producers and exporters in Argentina of leather except Ultrahide and
Esposito, which have significantly different aggregate benefits. The estimated net bounties
or grants for Ultrahide and Esposito are 0.82 percent ad valorem, and 0.25 percent ad
valorem, respectively.
As noted in our Preliminary Determination, it is the Department's policy to take into
account program-wide changes which (1) occur after the review period but before our
preliminary determination and (2) can be measured. (A "program- wide" change is defined
as a change which is (1) not limited to an individual firm or firms and (2) effectuated by an
official act.) However, because we verified that the externally-sourced pre-export
financing under Communication A-1205, which replaced the Central Bank-sourced
financing, is accompanied by a rebate which may affect the interest actually paid by
exporters, the net effect of this change is indeterminate at this time. Accordingly, we are
not adjusting the duty deposit rate for the suspension of Central Bank-sourced pre- export
financing.

C. Discounts of Foreign Currency Accounts Receivable Under Circular RF- 21

Administered by the Central Bank, this program provides financing for up to 80 percent
of the f.o.b. value of export shipments. Financing under this program allows exporters to
provide financing to their foreign purchasers. Operations are documented through bills of
exchange in U.S. dollars, which are discounted in the same currency by local banks.
Circular RF-21 loans can be given for a maximum term of one year, with equal
repayments of principal at periods not exceeding six months. Interest is paid on June 30
and December 31 (or at the maturity of the loan). In order to obtain export financing
under this program, the exporter must show documented evidence of an export
transaction to be completed within 30 days.
All discounts were based on Central Bank-sourced funds until the promulgation of
Communication A-1205 in June 1988. Communication A-1205, which replaced RF- 21,
preserved the treatment exporters received under RF-21 but allowed commercial banks
to source funds directly from international banks as well as from the Central Bank. At
verification we found that discounts from international banks are accompanied by
rebates from the Central Bank to the bank providing the discounts (similar to the rebates
accompanying the externally-sourced pre-export financing opened up under
Communication 1205, discussed under Section I.B., above). We verified that these
rebates reduced the interest paid

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by the respondent company which received
externally-sourced discounts. Unlike the Central Bank-sourced pre-export financing,
Central Bank-sourced discounts were not completely disallowed after January 1, 1990.
We verified that two respondents, CIDEC and Meiners, received RF-21 discounts on which
interest was paid during the review period. Because only exporters are eligible for these
discounts, we determine that they are countervailable to the extent that they are
provided at preferential rates.
We used as our benchmark the same rate described above in reference to RF-153
financing. Because RF-21 discounts are tied to individual shipments, we allocated each
company's interest savings over the value of its exports to the United States during the
review period. We then weight-averaged the resulting benefits by each company's
proportion of respondents' exports to the United States during the review period,
excluding those companies with significantly different aggregate benefits. The estimated
net bounty or grant is 0.13 percent ad valorem for all manufacturers, producers and
exporters in Argentina of leather except Ultrahide and Esposito, which have
significantly different aggregate benefits. The estimated net bounty or grant for both
Ultrahide and Esposito is zero.

D. Tax Deduction Under Decree 173/85

Decree 173 provides a deduction from taxable income equal to ten percent of export
earnings. It is administered by the General Director of Taxation.
Because only exporters are eligible to claim this deduction, we determine that it is
countervailable. We verified that all the respondent companies claimed this deduction on
their tax returns filed during the review period.
In order to calculate the benefit under this program, we allocated each company's tax
savings over the value of its total export sales during the review period. We then
weight-averaged the resulting benefits by each company's proportion of respondents'
exports to the United States during the review period, excluding those companies with
significantly different aggregate benefits. The estimated net bounty or grant is 0.01
percent ad valorem for all manufacturers, producers and exporters in Argentina of
leather except Ultrahide and Esposito, which have significantly different aggregate
benefits. The estimated net bounties or grants for Ultrahide and Esposito are zero and
0.03 percent ad valorem, respectively.
We verified that companies continue to claim this benefit, even though the government
suspended the deduction under Decree 553/89 of May 2, 1989. In addition, we verified
that tax losses, which are partially attributable to the Decree 173 deduction, can be
carried forward for five years, and that these losses are adjusted for inflation.
Accordingly, we are not adjusting the duty deposit rate to reflect the suspension of this
program.

E. Import Duty Reduction under Decree 964

At verification we found that CF received a reduction of duties payable on a machine
imported during the review period. The reduction was granted through Resolution 1156
of May 3, 1989, which authorized CF to import the machine at the reduced rate of duty
within seven days. The Resolution states that the duty reduction is only for imports of
items not manufactured in Argentina.
The Resolution refers to Decree 964 of 1988, which, in turn, refers to Law 21,608 of 1977.
The Law, which was passed by Congress, regulates industrial promotion policies. The
Decree, executed by the President, describes the general benefits available and the
eligibility criteria for these benefits. The Resolution, promulgated by the Ministry of
Industry and Commerce, grants a specific, one-time benefit to CF.
Decree 964 states that it is meant to "augment industrial competitiveness and increase the
level of exportation." We requested and received no evidence at either the government or
at CF to indicate that the import duty reduction received by the company was not
contingent upon export performance. Having received no information on Decree 964 or
CF's usage of this program prior to verification, we are assuming, based on the best
information available, that the benefit provided to CF under this Decree was contingent
upon export performance, and is, therefore, countervailable.
For purposes of calculating the benefit, we are treating the import duty reduction as a
grant. Because CF received the reduction during the review period, and the difference
between the duty paid by CF and the duty the company would have paid absent the
reduction is less than 0.50 percent of the value of its total exports during the review
period, we allocated the full amount of this difference to the review period. We used total
exports for the 0.50 percent test because the reduction was contingent upon export
performance.
We allocated each company's benefit from this program (i.e., the import duty savings for
CF, and zero benefits for the other companies) over the value of its total export sales
during the review period. We then weight-averaged the resulting benefits by each
company's proportion of respondents' exports to the United States during the review
period, excluding those companies with significantly different aggregate benefits. The
estimated net bounty or grant is less than 0.005 percent ad valorem for all
manufacturers, producers and exporters in Argentina of leather except Ultrahide and
Esposito, which have significantly different aggregate benefits. The estimate net bounty or
grant for both Ultrahide and Esposito is zero.

II. Programs Determined Not To Be Used

We determine, based on verified information, that manufacturers, producers, or
exporters in Argentina of leather did not apply for, claim or receive benefits during the
review period for exports of leather to the United States under the following programs:
A. Export Payments Under Decree 176: Programa Especial de Exportaciones (PEEX)
B. Post-Export Financing: OPRAC 1-9
C. Reembolso
D. Financing Investments for Exports (FIDEX)
E. Corrientes Regional Tax Incentives
F. Industrial Parks
G. Low-Cost Loans for Projects Outside Buenos Aires
H. Exemption from Stamp Tax Under Decree 186/76
I. Government Trade Promotion Programs
J. Incentives for Export from Southern Ports
For a complete description of these programs, see the Preliminary Determination.

Comments

Comment 1

Respondents argue that petitioners lack standing and do not represent the domestic
industry. They cite Suramerica de Aleaciones Laminadas, C.A. v. U.S., Slip. Op. 90-79 at
32 (CIT Aug. 22, 1990), in which the Court of International Trade held that the
Department cannot presume industry support for a petition, especially when it receives
notice of industry opposition.
Petitioners argue that they do have standing in this investigation and that the above cited
case does not apply because the opponents' position in this investigation derives from
their status as importers. According to petitioners, the Court in Suramerica pointed out
that Suramerica case differs from another recent case, Comeau Seafoods Ltd. v. U.S., 724
F. Supp. 1407 (CIT 1989), in which those opposing the petition were importers of the
subject merchandise. Petitioners quote and excerpt from the Suramerica decision, which
states that

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the Court accepted the Department's argument in Comeau that the
opposition's position is due to their status as importers.

DOC Position

The Department does not agree with the holding of Suramerica. We continue to maintain
that petitioners have standing. The reasons for this decision were discussed in our
Preliminary Determination.

Comment 2

Respondents argue that the Department's Preliminary Determination was incorrect in that
any benefit from the cattle hide embargo is not limited to a specific industry or group of
industries and that this determination is inconsistent with Department precedent in
Non-Rubber Footwear from Argentina: Final Results of Administrative Review of
Countervailing Duty Order (49 FR 45138, March 16, 1984) and Leather Wearing
Apparel from Argentina: Final Results of Administrative Review of Countervailing
Duty Order (50 FR 45139, October 30, 1985).
Petitioners argue that the Department was correct in its preliminary determination in
finding that the cattle hide embargo is limited. Petitioners state that, in contrast to the
cases cited by respondents, the subject of the present case is leather and not finished
leather goods, such as footwear and wearing apparel. In the earlier cases, the Department
did not find measures affecting hides to be limited to leather footwear or apparel
producers, because leather is also used in a wide variety of other industries. With regard
to the present case, petitioners assert that an embargo on hides is limited to leather
tanners because tanners are the only users of hides. They further assert that the
Department is not reversing its decisions in the earlier cases because it has never before
addressed the issue of whether the hide embargo benefits leather tanners.

DOC Position

We agree with petitioners. The embargo applies only to cattle hides, and cattle hides are
used exclusively by the tanning industry in the production of leather.

Comment 3

Petitioners assert that the Department does not need to establish how hide prices were
determined because the benchmark provides the "control" and is, therefore, a measure of
all the macroeconomic factors that make up the actual price. Through a series of detailed
charts and calculations petitioners contend that the other factors raised by respondents
throughout this investigation, such as Argentina's "cheap beef policy", hyperinflation,
currency devaluation, fluctuations in slaughter, and hide quality, have not caused the
price differential between U.S. and Argentine hides. While recognizing that these factors
may have some impact on price fluctuations, petitioners argue that because hide prices
began to diverge in 1972 (as illustrated in a historical chart attached to their brief), it is
the embargo, and not these other factors, which caused the price differential.
Specifically, with respect to hide quality, petitioners point out that prior to 1972, when
Argentine and U.S. hide prices were virtually identical, the hides were basically the same
as they are now. Furthermore, they state that hide quality is a very subjective issue, and
that each country has its own problems when it comes to the quality of the raw materials.
For example, U.S. hides have larger brands than Argentine hides, and because many are
fattened on feedlots, U.S. hides have both barbed wire scratches from their time spent in
pastures, and stains from the feedlots. Both Argentine and U.S. hides have the same
exposure to tick and bug bites. Petitioners cite several sources, including an excerpt from
an independent multi-client study done by Landell Mills Commodities Studies, Inc. in
August 1989, "Leather to the year 2000" (attached as appendix 3 to petitioners' case
brief), which states that U.S. hides and Argentine hides are ranked equally behind those of
northern Europe. Finally, petitioners contend that while each country has a variety of
quality problems, the leather that is produced from both countries is comparable.
Respondents argue that the overwhelming impact of factors such as hyperinflation,
massive currency devaluations, cattle slaughter, hide quality, and government policies
concerning export taxes on leather, import duties, and exchange rate policies make it
impossible for the Department to isolate and quantify the effect of the embargo, or use
normal economic assumptions. They further argue that petitioners have taken an overly
simplistic approach to the analysis of these factors and have in fact erred in several
calculations. Specifically, respondents contend that the exchange rates used by
petitioners in the graphs comparing U.S. and Argentine hide prices over time are
incorrect because exporters are compelled to exchange their foreign currency at a mix of
exchange rates and not only at the financial exchange rate used by petitioners.
Furthermore, respondents argue that the inferior quality of the hides in Argentina
accounts for much of the price differential. They claim that deteriorating slaughterhouse
practices in the early 1970s led to hides scarred by knife holes and being delivered
untrimmed. Also, they content that Argentine hides have more frequent barbed wire and
brush scratches from extended range feeding of cattle as compared with U.S. hides, and
that the quality of the leather produced in Argentina is therefore inferior.

DOC Position

While the Department recognizes that the factors mentioned by respondents may cause
fluctuations in prices, we find, based on a long-term analysis of hide prices since 1962,
that the embargo is the primary reason for the divergence between U.S. and Argentine
hide prices. We recreated graphs similar to those submitted by petitioners, which
illustrate the 1972 price divergence, using all the exchange rate information available to
the Department, including information independently obtained by the Department. (We
note that certain exchange rate information, although requested during verification, was
not provided by respondents and could not otherwise be obtained by the Department.)
We found that no matter which exchange rates were used, the outcome remained the
same: Prices diverged at the time of the embargoes.
With respect to hide quality, the arguments presented by both parties indicate that hide
quality is a subjective issue that could not have caused the initial 1972 price divergence.
After touring tanneries in both the United States and Argentina, and analyzing the
information on the record, we find that, while hides in Argentina do have imperfections
like those identified by respondents, similar or other problems can be found in U.S. hides.
Moreover, published studies submitted by petitioners indicate that U.S. and Argentine
hides are equally beset with imperfections, and are both similarly ranged as being inferior
to northern European hides. In sum, we find that neither exchange rates, hide quality, nor
any of the other factors cited by respondents, can be conclusively linked to the
divergence in the hide prices after 1972.

Comment 4

Petitioners argue that the test of whether a subsidy exists in this case is

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not
whether the embargo caused prices to decrease, but whether prices would have been
higher if the embargo did not exist. Petitioners further contend that a comparison of
prices before and after 1985 is inappropriate because the export tax system also
substantially limited the export of hides. Instead, a long-term analysis of pricing trends
should be used.
Respondents contend that the embargo had no effect on hide prices and that there is no
evidence on the record which shows that the embargo caused an actual reduction in the
price of hides.

DOC Position

We believe that the most important indicator as to whether the embargoes confer a
benefit is not whether hide prices fell following the imposition of the embargoes, but
whether the embargoes caused prices in Argentina to be lower than they would have
been absent the embargoes. At verification, we collected data on hide prices and
exchange rates going back to 1962. We believe that a long-term analysis of these data is
necessary to determine whether the embargoes caused hide prices to fall below U.S.
prices and, therefore, bestow a benefit upon Argentine tanners.

Comment 5

Petitioners assert that the following methodology should be used in the Department's
cattle hide embargo calculations. First, the Department should establish the price
differential between Argentine hide prices and world hide prices. Next, the Department
should multiply the price differential as a percentage of the Argentine hide price by the
hide cost as a percentage of the total cost of manufacturing leather. Using the individual
company cost of production figures, the Department should then calculate a subsidy rate
for each company.

DOC Position

We describe how we calculated the estimated net bounty or grant due to the embargo in
section I.A., above. We used total sales because the embargo provides benefits to all
tanners, regardless of whether they produce only leather or a combination of leather and
leather products. Moreover, we verified that all respondents sell only leather and leather
products, with leather products representing only a very small percentage of their sales.
It is the Department's standard practice to calculate the net bounty or grant as a
percentage of the appropriate sales amount rather than as a percentage of the cost of
manufacturing. This methodology more accurately represents the benefit attributable to
the products under investigation which are entering the United States.

Comment 6

Petitioners argue that the Department should not use a dollar-indexed benchmark in its
calculations of RF-153 and FR-21 financing. Instead, they maintain that the Department
should use the short-term austral rate available to domestic companies to finance
domestic shipments. Petitioners also contend that if the Department were to continue to
use a dollar-indexed benchmark, the Department should include all risk factors in this
benchmark.
Respondents argue that the Department should continue to use a dollar- indexed
benchmark because none of the exporters used austral financing in 1989, and, moreover,
there was very little austral financing in the Argentine economy, given the excessively
high interest rates associated with such financing. Respondents also assert that the
interest rates used by the Department in its Preliminary Determination already contain
risk factors because they are freely-negotiated rates.

DOC Position

We agree with respondents. We verified that dollar-indexed financing was the
predominant form of commercial financing in Argentina during the review period.
Furthermore, because the Copex 1680 rates which we used as our benchmark already
include risk factors, are freely negotiated, and do not involve rebates, it is not necessary
to add additional risk factors. (See, section I.B. of this notice.)

Comment 7

Petitioners argue that, because Communication 1595 only "temporarily suspended" the
RF-153 program, the Department should not consider this a program-wide change, and
should not adjust the cash deposit rate.
Respondents argue that the information obtained by the Department during verification
established the fact that Communication A-1595 effectively terminated pre-export
financing from Central Bank sources. The word "suspended" was used due to political
difficulties in Argentina associated with the use of the word "terminated". They further
contend that there are no procedures in place for the revival of this program and,
moreover, there are no funds available for such credit.

DOC Position

We did not adjust our cash deposit rate to reflect the suspension of Central Bank-sourced
pre-export financing because the externally-sourced financing which replaced it is
accompanied by interest rate rebates, which may affect the interest paid by exporters.
(See, section I.B. of this notice).

Comment 8

Respondents argue that the methodology the Department used in calculating benefits
under Circulars RF-153 and FR-21 overstates the 1989 benefit in two ways. First, the
Department should not include in its calculations interest payments made in 1988 and
1990. Second, respondents assert that there is no reason to convert the benefit back into
australes for the subsidy calculation, but that if the Department does convert back to
australes, the australes should be converted into dollars at the actual exchange rate
prevailing when the interest was paid. They assert that the rate of 2,400 australes per
dollar used by the Department in its Preliminary Determination overstates the benefit
because the official market closing rate for December 28, 1989 was 1,790 australes per
dollar.

DOC Position

We agree, and have adjusted our calculations accordingly.

Comment 9

Petitioners contend that the Department should countervail the Argentine government's
rebate of value-added taxes (VAT) for exporters. They further argue that, although the
government is not currently returning VAT payments to exporters, the companies are
accuring this benefit and list the amount due them on their financial statements as a tax
receivable.
Respondents assert that the principle that indirect taxes (such as VAT) can be rebated
upon export without conferring a subsidy is widely accepted among nations. They state
that the Department has continually followed this rule, and that this practice was
approved by the Supreme Court of the United States (See, Zenith Radio Corporation v.
U.S., 437 U.S. 443, 450-1, 1978).

DOC Position

We agree with respondents that VAT taxes may be rebated upon export without
conferring a subsidy. Section (g) of the Illustrative List of Export Subsidies in the
Subsidies Code states that the following is a subsidy: "the

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exemption or remission
in respect of the production and distribution of exported products, of indirect taxes in
excess of those levied in respect of the production and distribution of like products when
sold for domestic consumption" (emphasis added). We found no evidence during this
investigation that VAT taxes were being excessively rebated by the Argentine
government.

Comment 10

Petitioners argue that the Department should include any benefits under Decree 173 in its
calculation of the cash deposit rate because companies can continue to receive benefits
under this program due to the fact that the deduction can be carried forward for five
years.
Respondents argue that, while it might be possible that a small portion of a company's tax
loss carry-forward could be attributed to the Decree 173 deduction, any benefits received
would be insignificant. Furthermore, they state that since Decree 173 was eliminated on
May 2, 1989, no further benefits can be accrued.

DOC Position

Since tax losses, which are partially attributable to the Degree 173 deduction, can be
carried forward for five years, and these losses are adjusted for inflation, exporters may
continue to receive residual benefits under this program even though it was suspended.
Therefore, the Department has not adjusted the cash deposit rate to take into account the
suspension of the program. (See, Section I.D. of this notice.)

Comment 11

Petitioners contend that any benefit CF received pursuant to the Industrial Promotion
Law under Resolution 1156 is limited to exporters, and that the Department should
therefore include this benefit in this subsidy calculations.
Respondents argue that benefits under the Industrial Promotion Laws are not restricted
to exporters and cannot be analyzed as export subsidies. They further contend that the
Department has in the past analyzed the Industrial Promotion Laws as domestic
programs, and that the Department verified that Resolution 1156 was not limited to a
specific industry.

DOC Position

Decree 964, under which Resolution 1156 was promulgated, specifically states that it is
meant to "increase the level of exportation." There is no other evidence on the record to
indicate that the benefit received by CF was not contingent upon its export performance.
Furthermore, when the Department previously found programs under the Industrial
Promotion Law to be not limited to a specific industry or group of industries (see, Final
Countervailing Duty Determination: Cold-Rolled Carbon Steel Flat-Rolled Products
from Argentina, 49 FR 18006, April 26, 1984), Decree 964 of 1988 was not in effect. We
have therefore determined this benefit to be an export subsidy for purposes of this
determination. (See, section I.E. of this notice.)

Comment 12

Petitioners assert that if duty drawback payments received by respondents are excessive,
the Department should include the excess drawback portion as a countervailable benefit.
Respondents argue that there is no evidence on the record which indicates the Argentine
drawback system grants excessive rebates of important duties or that it rebates duties on
non-physically incorporated inputs. Furthermore, respondents assert that the Argentine
drawback system satisfies the Department's three-part test: (1) It operates for the purpose
of rebating import charges; (2) the government established a reasonable system to
ascertain the level of drawback based on the import duties paid for the chemicals used to
produce each type of leather exported; and (3) the government periodically re-examines
and adjusts the drawback rate to reflect changes in import duties. Therefore, there is no
reason for the Department to consider duty drawbacks a countervailable benefit.

DOC Position

We established that the Argentine duty drawback system does satisfy the Department's
three-part test with respect to exports of leather products. Furthermore, we found no
evidence that respondents received excessive drawbacks. Therefore, we do not consider
the drawbacks received by respondents to bestow a counteravailable benefit.

Verification

In accordance with section 776(b) of the Act, we verified the information used in making
our final determination. We followed standard verification procedures, including meeting
with government and company officials, inspecting internal documents and ledgers,
tracing information in the responses to source documents, accounting ledgers and
financial statements, and collecting additional information that we deemed necessary for
making our final determination. Our verification results are outlined in the public
versions of the verification reports, which are on file in the Central Records Unit (B-099)
of the Main Commerce Building.

Suspension of Liquidation

In accordance with section 776 of the Act, we are directing the U.S. Customs Service to
suspend liquidation on all entries of leather from Argentina which are entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this
notice in the Federal Register and to require cash deposits on all entries of the subject
merchandise in the amounts indicated below:

------------------------------------------------------------------------
Manufacturer/producer/exporter Estimated net bounty or grant (percent)
------------------------------------------------------------------------
Ultrahide ......................................................... 24.16
Esposito ........................................................... 8.02
All others ........................................................ 14.97
------------------------------------------------------------------------

This suspension will remain in effect until further notice.
This determination and order are published pursuant to section 705(d) of the Act (19
U.S.C. 1671d(d)).
Dated: September 24, 1990.

Marjorie A. Chorlins,

Acting Assistant Secretary for Import Administration.

[FR Doc. 90-23195 Filed 10-1-90; 8:45 a.m.]

BILLING CODE 3510-DS-M