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[C-201-406]

Fabricated Automotive Glass From Mexico; Final Results of Countervailing Duty

Administrative Review

Thursday, December 11, 1986

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AGENCY: International Trade Administration/Import Administration, Commerce.

ACTION: Notice of final results of countervailing duty administrative review.

SUMMARY: On July 14, 1986, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on fabricated automotive glass from Mexico. The review covers the period October 24, 1984 through December 31, 1985 and 22 programs.

We gave interested parties an opportunity to comment on the preliminary results. After considering all of the comments received, the Department has determined the total bounty or grant during the period of review to be 2.45 percent ad valorem for 1984 and 0.17 percent ad valorem for 1985, the latter a rate the Department considers to be de minimis.

EFFECTIVE DATE: December 11, 1986.

FOR FURTHER INFORMATION CONTACT: Christopher Beach or Paul McGarr, Office of Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On January 14, 1985, the Department of Commerce ("the Department") published in the Federal Register (50 FR 1906) a final determination and countervailing duty order on fabricated automotive glass from Mexico. On January 2, 1986, two Mexican exporters, Cristales Inastillables de Mexico, S.A. ("Crinamex"), and Vitro Flex, S.A., requested in accordance with s 355.10 of the Commerce Regulations an administrative review of the order. We published the initiation on February 10, 1986 (51 FR 5751) and the preliminary results on July 14, 1986 (51 FR 25380). We have now completed that administrative review in accordance with section 751 of the Tariff Act of 1930 ("the Tariff Act").

Scope of Review

Imports covered by the review are shipments of Mexican fabricated automotive glass, including tempered and laminated automotive glass. Such merchandise is currently classifiable under items 544.3100 and 544.4120 of the Tariff Schedules of the United States Annotated.

The review covers the period October 24, 1984 through December 31, 1985 and 22 programs: (1) FOMEX; (2) extra-CEDI; (3) Reembolso; (4) CEPROFI: (5) FICORCA II; (6) CEDI; (7) DIMEX; (8) FOGAIN; (9) FONEI; (10) import duty reductions and exemptions: (11) NDP preferential discounts; (12) Article 94 of the Banking Law; (13) export services offered by IMCE: (14) preferential state investment incentives; (15) state tax incentives; (16) FOMIN: (17) FIDEIN; (18) accelerated and immediate depreciation allowances; (19) Bancomext loans; (20) NAFINSA loans; (21) delay of payments on loans; and (22) delay of payments of fuel charges to PEMEX.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. At the request of the petitioner, PPG Industries, Inc., we held a public hearing on September 5, 1986.

Comment 1: Crinamex argues that the Department overstated the benefit from

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a FOMEX pre-export loan that the company obtained on September 12, 1984, by basing the benefit on the entire amount of the loan rather than on the portion of the loan attributable to exports to the United States.

Department's position: We disagree. We verified the amount of the loan attributable to exports to the United States and used that amount, which was greater than the figure given in the questionnaire response, to calculate the benefit.

Comment 2: Crinamex and Vitro Flex contend that the Department erroneously attributed to 1984 the benefit from FOMEX pre-export loans obtained in 1984 but repaid in 1985. Since the "cash-flow" effect is realized when the interest is paid, the benefit should be attributed to 1985 exports.

Department's position: We agree and have corrected our calculations. (See, Department's position on Comment 4).

Comment 3: Crinamex and Vitro Flex argue that the Department overstated the benefit from FOMEX export loans obtained in 1984 by using an incorrect value for exports to the United States during that period.

Department's position: We agree and have corrected our calculations. (See, Department's position on Comment 4).

Comment 4: PPG argues that the Department understated the benefit from FOMEX loans by not using effective interest rates as benchmarks. In its preliminary determination, the Department stated that it had found that compensating balances appeared to be a normal requirement for both commercial loans and non- commercial loans, but that it did not have sufficient information to measure effective interest rates. PPG argues that there is sufficient information on the record to measure effective interest rates and that the Department is required by law and its own policy to use effective interest rates if possible.

Department's position: We agree. We now believe that we have sufficient information to measure benefits using effective interest rates. The Banco de Mexico ("the Bank") publishes in its Indicadores Economicos ("I.E.") both nominal and effective interest rates. Using data received from a sample of Mexican banks, the Bank bases the nominal I.E. rates on the Costo Porcentual Promedio ("CCP"), the average cost of funds to those banks, plus a spread that reflects a risk premium.

The effective I.E. interest rates are based on data received from a sample of companies representing a cross-section of the economy. These effective rates include finance charges, e.g., commissions, fees for opening a line of credit, fees for credit renewal, prepayment of interest, compensating balances, etc., and may also include compounding of interest, since many of the loans included in the Bank's sample have short (2-3 month) terms. Both the nominal and effective I.E. interest rates are weighted averages of the rates reported to the Bank by the banks and companies in the respective samples.

To determine the effective interest rate benchmark for 1984 peso loans, we used the I.E. effective rates published each month and calculated an average annual effective rate. In 1985, the Bank stopped publishing the I.E. rates. Therefore, we calculated the average spread between the CPP rate and the I.E. effective interest rates for the period 1982 through 1984, the only period for which we have I.E. rates. Our effective interest rate benchmark for 1985 was the sum of this average spread and the average CPP rates for 1985. For the FOMEX pre-export loans, we found no evidence of finance charges of any kind. Since interest on these loans is paid at the end of the term, we consider the nominal preferential rate to be the same as the effective preferential interest rate.

To determine the effective interest rate benchmark for 1985 dollar loans, we used the quarterly weighted-average effective interest rates published in the Federal Reserve Bulletin. These weighted-average effective interest rates are based on data, for fixed rate loans under one million dollars, received from a survey of gross loan extensions made by various banks during one week of each quarter. The effective rates include the various terms of the loans in addition to the interest rate. On FOMEX export (dollar) loans, the interest is prepaid. Since we have no evidence of any charges on these loans other than interest, we calculated the effective interest rate by using the nominal rate and taking into account the cost of prepayment of interest. For 1984 dollar loans, there was no comparable data on effective interest rates in the Federal Reserve Bulletin. As a result, we lack sufficient information to measure an effective interest rate benchmark and are using a nominal interest rate benchmark and comparing it to a nominal preferential interest rate.

By using effective interest rates to the extent possible and making the adjustments noted in Comments 2 and 3, we now find the benefit from FOMEX loans to be 2.45 percent ad valorem for 1984 and 0.17 percent ad valorem for 1985.

Comment 5: PPG argues that the Department was in error in its determination concerning the existence of the extra-CEDI program (CEDI's provided to export consortia). PPG contends that the extra-CEDI program still exists and that during the period of review, the Mexican government continued to grant extra- CEDI's to such export consortia. Further, PPG claims that the Mexican automotive glass industry benefits from both CEDI's and extra-CEDI's by means of a pass-through from Vitro, S.A., the parent company of Crinamex and Vitro Flex, and from Fomento de Comercio Exterior ("FCE"), an export consortium.

Department's position: Regardless of the existence of a program called "extra- CEDI" or the continued availability of CEDI's to export consortia, we verified that Vitro, S.A., as a holding company and the parent company of the two exporting companies, did not receive CEDI's during the period of review. We also verified that FCE, which is a subsidiary of Vitro, S.A., and which is involved strictly with promotional activities, had no direct connection with exports of automotive glass to the United States.

Comment 6: PPG argues that the Department failed to address the countervailability of benefits received through the FICORCA I program despite the submission of significant supplemental information showing that benefits under FICORCA I are not "generally available." PPG states that: (1) The Mexican government pre-selected beneficiaries; (2) four major prerequisites to participation in FICORCA I serve to limit the availability of the program; and (3) the de facto general availability test is not met in this case, where, out of 1,200 companies that participate in FICORCA I, 23 companies account for 63 percent of total coverage. In addition, PPG contends that the de jure and de facto general availability test requirements have been modified, superseding the Department's earlier determination that this program is not countervailable. The new requirements should be taken into account along with the above information to determine that FICORCA I is not generally available.

Department's position: We did not include the FICORCA I program in this review because we found it not countervailable in the final determination on float glass from Mexico (49 FR 23097, June 4, 1984). We have reviewed the new information presented by PPG and continue to uphold our determination that the FICORCA I program is not provided to a specific enterprise or industry, or group of enterprises or industries, and that the program is not countervailable. (See,

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preliminary results of countervailing duty administrative review on unprocessed float glass from Mexico (51 FR 37319, October 21, 1986).)

Comment 7: PPG argues that the Department's verification during the current review was inadequate because it failed to address whether Vitro, S.A., the parent company of both Crinamex and Vitro Flex, received countervailable benefits. These benefits may have directly or indirectly benefited the manufacture, production or export of automotive glass.

Department's position: We disagree. We verified Vitro, S.A.'s federal income tax statements for both 1984 and 1985 and found that it did not receive benefits under any of the various federal tax incentive programs (e.g., CEDI, CEPROFI). We further verified that Crinamex and Vitro Flex received no cash transfers from Vitro, S.A., or FCE and that all cash transfers from Crinamex and Vitro Flex to Vitro, S.A., or FCE were for various services provided.

Comment 8: PPG contends that the Department failed to use the proper time periods for measuring countervailable benefits. The Mexican automotive glass producers have allegedly discontinued receiving benefits as of February 7, 1985. The Department should therefore revise the time periods analyzed as follows: November 1, 1984 through February 7, 1985 (the date of renunciation of benefits), and February 7, 1985 to December 31, 1985. PPG argues that this method would correct the current distorted measure of the level of subsidization. PPG cites Ceramic Tile from Mexico (49 FR 9919 (1984)), and Offshore Platform Jackets and Piles from Korea (51 FR 11799 (1986)), among other cases, where the Department has used time periods that were not based on a calendar or fiscal year.

Department's position: We disagree. We have traditionally separated the period of review according to calendar year, or fiscal year where necessary, in order to facilitate the collection of information. We believe that this standard provides consistency and predictability to both the petitioners and respondents, whereas PPG's choice of periods is arbitrary.

In certain cases, we have made exceptions to this rule due to unusual circumstances but have clearly stated in each case that such action does not represent a change in Department policy. In Offshore Platform Jackets and Piles from Korea, we lacked a period representative of the total subsidy bestowed on all exports of the merchandise. We could only tie specific benefits from specific subsidy programs to each platform exported over a two- year period. In Ceramic Tile from Mexico, we started the review period on February 23, 1982 because that was the date of the preliminary determination, and we lack authority to assess duties prior to that date.

As another example, in Sugar Content of Certain Articles from Australia (50 FR 27330 (1985)), we calculated two separate subsidy rates within the calendar year review period in response to a program-wide change in an export sugar rebate program. We found it necessary to set two separate rates because the rebate category covering the merchandise under review changed in the middle of the review period.

At the outset of this review, we clearly identified the time period for the review in our questionnaire. Furthermore, the calendar year coincides with the fiscal year of the two companies involved. Adjusting the period of review as the petitioners suggest, with no compelling reason, would set a precedent by which either party could arbitrarily manipulate the time period set for a review in order best to serve its own interests. One could spread a given benefit over a long enough period of time to obtain a de minimis rate. Likewise, one could take a given benefit and sufficiently limit the time period to obtain an excessive rate. Such a precedent would severely undermine the Department's policy, particularly the de minimis standard.

Comment 9: Crinamex and Vitro Flex contend that, with the implementation of the "Understanding Between the United States and Mexico Regarding Subsidies and Countervailing Duties" ("the Understanding") on April 23, 1985, the United States no longer has the authority to impose countervailing duties on duty-free articles from Mexico (including fabricated automotive glass) covered by existing orders absent an affirmative injury determination by the International Trade Commission ("ITC"). The Understanding creates an international obligation for the United States to grant the injury test prior to the imposition of countervailing duties on any Mexican products that are duty- free. The Department should refer the case to the ITC for an injury determination or revoke the countervailing duty order. In two instances involving duty-free products covered by section 303 countervailing duty orders, Certain Fasteners from India (47 FR 44129, October 6, 1982) and Carbon Steel Wire Rod from Trinidad and Tobago (50 FR 19561, May 9, 1985), the Department has refused or preliminarily refused to impose duties. The circumstances in those cases are very similar to those of fabricated automotive glass from Mexico and should serve as precedents.

Contrary to the Department's stated belief that the Understanding creates an international obligation requiring the United States to grant an injury test only prospectively, the Understanding does require the injury test for pre- existing orders. The Department's distinction between "investigations in progress" (as used in Article 5 of the Understanding) and existing orders renders Article 5 of the Understanding superfluous in light of section 102(a) of the Trade Agreements Act of 1979, since section 102(a) specifically provides for the application of an injury test for cases that have not yet resulted in the issuance of countervailing duty orders.

Finally, in the final results of administrative review on certain iron- metal construction castings from Mexico (51 FR 9698, March 20, 1986) ("the castings final"), the Department distinguished between the "international obligation" stemming from the Understanding with Mexico and that existing with India and Trinidad and Tobago. The Department stated that India and Trinidad and Tobago were already signatories to the GATT when the product covered by an order became duty-free.

According to the Department, the reverse is true in this case, where duty-free status already existed at the time of the order but no "international obligation" of the United States existed. However, Crinamex and Vitro Flex point out that since the castings final was published, Mexico has become a member of the GATT, effective August 24, 1986. This now creates an "international obligation" of the United States to grant Mexico the injury test in section 303 cases on duty-free goods.

However, PPG states that Mexico's accession to the GATT does not provide retroactive application of the injury test for outstanding orders on duty-free merchandise. Mexico's accession to the GATT did not occur prior to issuance of an order in this case or during the current review period. PPG contends that accession to the GATT does not provide retroactive benefits. There is no language in Article VI of the GATT or in the U.S. countervailing duty law that supports a retroactive application of the injury test for outstanding orders on duty-free mechandise. Nor is there supportive language for revocation of outstanding countervailing duty orders for countries that were not signatories to the GATT at the time of issuance of the countervailing duty order. Further, revocation in this instance would be

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contrary to the intent of Congress and would grant Mexico greater rights than countries that have long since been signatories to the GATT.

Department's position: As explained in the castings final, we believe that we lack the authority to revoke this countervailing duty order on the basis of the Understanding. We confirmed with the principal U.S. negotiators that the intent of Article 5 was to exclude from the application of the Understanding, and hence the application of "country under the Agreement" status, orders existing before April 23, 1985.

We are currently considering the issue of whether Mexico's accession to the GATT impinges on our authority to impose countervailing duties on duty-free products from Mexico. Since Mexico's accession became effective on August 24, 1986, our decision will not affect entries covered by this review, which runs through December 31, 1985.

Final Results of Review

After reviewing all of the comments received, we determine the total bounty or grant to be 2.45 percent ad valorem for 1984, and 0.17 percent ad valorem for 1985. The Department considers any rate less than 0.50 percent ad valorem to be de minimis.

The Department will instruct the Customs Service to assess countervailing duties of 2.45 percent of the f.o.b. invoice price on any shipments of this merchandise entered, or withdrawn from warehouse, for consumption on or after October 24, 1984, and exported on or before December 31, 1984. The Department will also instruct the Customs Serice not to assess countervailing duties for shipments of this merchandise exported on or after January 1, 1985 and on or before December 31, 1985.

Further, the Department will instruct the Customs Service to waive cash deposits of estimated countervailing duties, as provided by section 751(a)(1) of the Tariff Act, on all shipments of the merchandise entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice. This deposit waiver shall remain in effect until publication of the final results of the next administrative review.

This administrative review and notice are in accordance with seciton 751(a)(1 of the Tariff Act (19 U.S.C. 1675(a)(1)) and s 355.10 of the Commerce Regulations (19 CFR 355.10).

December 4, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary, Import Administration.