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Anti-dumping and Countervailing Program

OTTAWA, December 13, 2006

File No. 4214-13
File No. 4218-22

STATEMENT OF REASONS

concerning the making of a preliminary determination of dumping of

CERTAIN COPPER ROD
ORIGINATING IN OR EXPORTED FROM BRAZIL AND THE RUSSIAN FEDERATION

and the making of a preliminary determination of subsidizing of

CERTAIN COPPER ROD
ORIGINATING IN OR EXPORTED FROM BRAZIL

DECISION

On November 28, 2006, pursuant to subsection 38(1) of the Special Import Measures Act, the President of the Canada Border Services Agency made a preliminary determination of dumping with respect to certain copper rod originating in or exported from Brazil and the Russian Federation and made a preliminary determination of subsidizing with respect to certain copper rod originating in or exported from Brazil.

TABLE OF CONTENTS

SUMMARY OF EVENTS

  1. The investigation was initiated in response to a complaint filed with the Canada Border Services Agency (CBSA) by Nexans Canada Inc. (Nexans) of Montréal-Est, Quebec, on July 10, 2006. The complainant provided evidence that certain copper rod from Brazil and the Russian Federation (Russia) had been dumped, that certain copper rod from Brazil had been subsidized, and that the dumping and subsidizing had caused injury to Nexans. On July 31, 2006, the CBSA informed Nexans that the complaint was properly documented and notified the governments of Brazil and Russia that a properly documented complaint had been filed.

  2. On August 24 and 28, 2006, consultations were conducted between Canadian government officials and representatives of the Government of Brazil (GB) in accordance with Article 13.1 of the Agreement on Subsidies and Countervailing Measures, being part of Annex 1A to the World Trade Organization (WTO) Agreement (Subsidies Agreement).

  3. On August 30, 2006, the President of the CBSA (President) initiated an investigation into the alleged injurious dumping of certain copper rod from Brazil and Russia and an investigation into the alleged subsidizing of certain copper rod from Brazil.

  4. Upon receiving notice of the initiation of the investigation, the Canadian International Trade Tribunal (Tribunal) started its preliminary injury inquiry. On October 30, 2006, the Tribunal made a preliminary determination of injury to the Canadian industry caused by the dumping and subsidizing of certain copper rod.

  5. On November 28, 2006, as a result of the CBSA’s preliminary investigation and pursuant to subsection 38(1) of the Special Imports Measures Act (SIMA),the President made a preliminary determination of dumping with respect to certain copper rod originating in or exported from Brazil and Russia and a preliminary determination of subsidizing with respect to certain copper rod originating in or exported from Brazil.

PERIOD OF INVESTIGATION

  1. The investigation covered all subject goods released into Canada during the Period of Investigation (POI), that is, from January 1, 2005 to June 30, 2006.

INTERESTED PARTIES

Complainant

  1. The complainant, Nexans, is a wholly-owned subsidiary of Nexans Inc., a publicly-traded company based in Paris, France. Its Canadian headquarters are in Markham, Ontario, and the copper rod mill is located on 460 Durocher Avenue, Montréal-Est, Quebec. In addition, Nexans operates several wire and cable plants in Canada and in the United States (U.S.).

Exporters

  1. At the time of the initiation of the investigation, the CBSA had identified from customs documentation one producer exporting subject goods from Brazil and two vendors located in other countries exporting subject goods originating in Brazil. With regard to subject goods originating in Russia, the CBSA had identified, at the time of initiation, two vendors located in Russia, four vendors located in other countries, and one producer exporting through one of the six vendors. As well, the CBSA had identified from research two other producers who appeared to be associated with two of the vendors, and eight additional possible producers exporting to Canada through intermediary vendors.

  2. During the preliminary stage of the investigation, the CBSA confirmed that one exporter from Brazil was involved in producing and exporting subject goods to Canada during the POI. This exporter was involved in the export of all subject goods from Brazil.

  3. With respect to subject goods originating in Russia, preliminary results indicate that they were produced by a total of three Russian producers. Vendors located in several countries were involved in the export of subject goods originating in Russia. An exporter located in the U.S. was involved in one shipment of subject goods originating in Russia and exported from the U.S.

Importers

  1. When the investigation was initiated, the CBSA identified four known or possible importers of the subject goods. During the preliminary stage of the investigation, the CBSA confirmed that the subject goods were sold to three importers in Canada. The fourth importer was acquired by one of the other three during the POI and are both considered as the same company.

  2. The preliminary investigation also revealed that certain goods, originally manufactured as ASTM B 49 copper rod, were damaged in transit to a point that they were no longer useable as copper rod for the intended customer. These goods were instead sold as copper scrap to the complainant who melted it in its furnace, providing feed to its rod mill. While the CBSA is continuing to investigate this matter, there is a likelihood that these goods are not subject goods.

  3. There may be instances where the importer in Canada for SIMA purposes may be a different party than the importer of record. Based on information obtained surrounding certain transactions involving a non-resident importer, the consignee in Canada was considered to be the importer for SIMA purposes for the reason that the consignee was the originator of the import transactions.

PRODUCT DEFINITION

  1. For the purpose of this investigation, the subject goods are defined as:

    Copper rod with a diameter of at least 6 mm but not exceeding 11 mm, made to American Society for Testing and Materials (ASTM) designation B 49 or equivalent, originating in or exported from Brazil and the Russian Federation.

Additional Product Information

  1. This product is commonly referred to as “copper rod” but is also referred to as “copper wire” or “copper wire rod”.

  2. Copper rod is sold to wire and cable manufacturers for the fabrication of electrical conductors. Wire and cable manufacturers draw the copper rod to smaller diameters, apply insulation to the wire, and assemble the wires into cables. Final product applications include telephone wire, power cords, magnet wire, low, medium and high-voltage utility cables, building wire and virtually all copper-based electrical conductors.

  3. Nexans produces copper rod to standard North American technical specifications issued by the ASTM in designation B 49. This requires the use of pure copper of a minimum of 99.9% copper content. The most common size of the copper rod used by the wire and cable industry and produced by Nexans is 8 mm in diameter (5/16”). However, copper rod could be easily produced to a slightly smaller or larger diameter, and end-users would need only minimal adjustment to their equipment to draw copper wire from copper rod measuring from 6 mm to 11 mm.

Production Process

  1. Nexans provided information on its production process. The raw material is copper cathode, sheets of 99.9% pure copper measuring about one square meter produced in an electrolytic process. Copper cathode is charged to a melting furnace; molten copper is fed into a casting machine where a solid bar is formed and cooled; the bar exits the caster and is directed to a rolling mill; the mill
    hot-rolls the bar in a series of reductions to an 8 mm round diameter; the rod travels through a cooling pipe and a surface conditioning process; the rod is then bent in loops to form a coil which is cut at the desired length or weight; the coil is then wrapped on a pallet. The typical unit size is a coil of 10,000 pounds or 4.5 metric tonnes.

Classification of Imports

  1. The subject copper rod is properly classified in Section XV of the Customs Tariff under the following ten-digit classification numbers of the Harmonized System:

    7408.11.11.00 copper wire; of refined copper; of which the maximum cross-sectional dimension exceeds 6 mm; not exceeding 9.5 mm; not coated or covered.
    7408.11.20.10 copper wire; of refined copper; exceeding 9.5 mm but not exceeding 12.7 mm; not coated or covered.


CANADIAN INDUSTRY

  1. Nexans is the only known domestic producer supplying copper rod to the Canadian wire and cable industry. Nexans also exports to the United States and other countries. Nexans has a nominal production capacity of 260,000 tonne per year (tpy) and employs 114 people.

  2. In its complaint, Nexans stated that there was a second copper rod producer in Canada that produced a small quantity for internal use only and does not sell to outside customers. This company, Southwire Canada, of Stoufville, Ontario, confirmed that all copper rod produced is consumed internally. The CBSA did not find evidence that there are other producers of like goods in Canada.

  3. Prior to the initiation of this investigation, the CBSA was satisfied that the standing requirements of subsection 31(2) of SIMA had been met. There has been no change in the structure of the Canadian industry since then.

IMPORTS INTO CANADA

  1. During the preliminary phase of the investigation, the CBSA further refined its estimates of the volume of imports from all sources. For this purpose, the CBSA utilized its Customs Commercial System (CCS), reviewed customs accounting documents and examined information received during the investigation from importers, exporters and vendors.

  2. The CBSA has revised estimates of importations of subject goods from Brazil and Russia and like goods from other countries, based on information gathered during the preliminary phase of the investigation. Import values and volumes from Brazil and Russia were obtained from confidential information received from importers and exporters, and may not be divulged. The following table presents the CBSA’s estimated percentage import shares of copper rod into Canada:

    Imports of Certain Copper Rod (January 1, 2005 to June 30, 2006)

    Imports into Canada % of Total Imports
    Brazil 52.4%
    Russia 29.3%
    United States 18.2 %
    Other Countries 0.1%
    Total Imports 100%


INVESTIGATION PROCESS

  1. At the time of the initiation of the investigation, a Request for Information on dumping (dumping RFI) was sent to all parties that were identified as known or possible producers, exporters or vendors of subject goods originating in Brazil and Russia. A Request for Information relating to alleged subsidies (subsidy RFI) was sent to Caraíba Metais S/A (Caraíba), the producer and exporter of subject goods from Brazil. A subsidy RFI was also sent to the Government of Brazil (GB) via the Embassy of Brazil in Ottawa, Ontario, Canada. All parties located outside Brazil that were known to have participated in the export to Canada of subject goods originating in Brazil were sent a short subsidy RFI. All RFIs included instructions indicating that exporters who were not also manufacturers were to forward the RFIs to the manufacturers of the goods. Information concerning imports of the subject goods was also requested from importers.

  2. Responses were received from Caraíba, the GB, a vendor located in the U.S., an exporter located in the U.S., and one importer.

  3. It is noted that the CBSA granted Caraíba a one-week extension of the deadline to respond to the RFIs. Caraíba was provided an extension because of the difficulties involved with the company’s migration of its accounting system to a new platform, while having to provide responses to both a dumping and a subsidy RFI.

  4. The GB provided a response by the due date and outstanding English translations on an agreed-upon extension one week later.

DUMPING INVESTIGATION

  1. At the initiation of the investigation, the CBSA estimated that the weighted average margin of dumping of the subject goods originating in Brazil was equal to 6% and that the weighted average margin of dumping of the subject goods originating in Russia was 3.2%, when expressed as a percentage of export prices. These estimates were based on information provided by the complainant.

  2. Normal values are generally based on the domestic selling price of the goods in the country of export, or on the full cost of the goods including administrative, selling and all other costs plus a reasonable amount for profits. The export price of imported goods is generally the lesser of the importer’s purchase price or the exporter’s selling price, less all charges and expenses resulting from the exportation of the goods. When the export price is less than the normal value, the difference is the margin of dumping.

  3. For the purpose of a preliminary determination, normal values and export prices are usually estimated, to the extent possible, based on information contained in responses to RFIs from exporters, vendors and importers.

  4. A response was received from Caraíba, the exporter of subject goods from Brazil. None of the Russian producers and/or exporters provided a response to the RFI. Timely responses were received from Glencore Ltd. (Glencore), of Stamford, Connecticut, U.S., and from Mitsubishi International Corporation, New York City, New York, U.S., who were requested to provide a response as vendors of subject goods.

  5. Prysmian Power Cables & Systems Canada, Ltd., and Prysmian Power Cables & Systems USA, LLC, provided a joint response to the importer RFI on a timely basis. Southwire Canada also provided information in response to the importer RFI, although the information provided was limited. On November 2, 2006, Nexans was requested to provide information with respect to the importation and use of damaged copper rod. The requested information was provided on November 9, 2006.

PRELIMINARY RESULTS OF THE DUMPING INVESTIGATION

Brazil

  1. A substantially complete response to the dumping RFI was received from Caraíba, the exporter of the subject goods from Brazil, on October 20, 2006.

  2. The margins of dumping for Caraíba were estimated on the basis of unverified information provided by the exporter. The CBSA did not verify this submission on-site prior to the preliminary determination, as it was considered to be an adequate basis for estimating the margins of dumping for this decision. The CBSA is conducting on-site verification in order to assess whether the exporter’s selling and costing information is reliable for purposes of the final decision.

  3. Caraíba had sales of identical goods in its domestic market. For all sales to Canada, the normal values were estimated on the basis of the weighted average selling price of domestic sales of like goods to unassociated customers, a methodology that is based on section 15 of the SIMA. The actual selling prices reported by Caraíba were used for estimating normal values. The prices were adjusted downward by subtracting amounts of transportation costs and taxes and duties, as reported by the exporter, to account for differences in the terms and conditions of sale between the subject goods sold to Canada and the like goods sold in Brazil.

  4. The export price of imported goods is generally determined in accordance with section 24 of SIMA as being an amount equal to the lesser of the exporter’s sales price for the goods and the price at which the importer has purchased or agreed to purchase the goods, adjusted by deducting therefrom all costs, charges, and expenses, duties and taxes resulting from the exportation of the goods. For purposes of the preliminary determination, export prices were estimated on the basis of the exporter’s selling price, in order to arrive at an ex-mill selling price.

  5. On the basis of the CBSA's preliminary analysis, it is estimated that 94.8% of the subject goods from Brazil were dumped by an estimated weighted average margin of dumping of 5.8%, expressed as a percentage of the export price. It is noted that the effect of non-dumped goods was allowed to fully offset the effect of the dumped goods in calculating the estimated weighted average of dumping. The estimated margins of dumping ranged from 1.4% to 18.4%.

Russia

  1. None of the Russian producers/exporters provided a response to the RFI. Accordingly, the normal values for all goods originating in Russia were estimated on the basis of an advance over the export price equal to the highest estimated margin of dumping found for a cooperating exporter (i.e. Caraíba). The highest estimated margin of dumping is equal to 18.4%. Export prices were estimated on the basis of the best information available, that is the importer’s purchase price or, if the information was not available, based on the declared value for duty. As a result, it is estimated that 100% of the volume of subject goods exported to Canada from Russia was dumped by an estimated weighted average margin of dumping of 18.4%, expressed as a percentage of the export price.

  2. It is noted that in the case of one transaction involving subject goods originating in Russia, the goods were first exported to the U.S. and subsequently re-exported to Canada.  In such instances where subject goods originating in a named country are exported to Canada from a third country, a normal value must be determined for both the country of origin and the country of export.  The U.S. exporter was initially requested to provide information as a vendor.  The CBSA subsequently requested the U.S. exporter to provide supplementary information necessary to determine normal value in the U.S.  The U.S. exporter did not provide the requested supplementary information.  Accordingly, the normal value for the U.S. exporter was also estimated on the basis of an advance over the export price equal to the highest margin of dumping found for a cooperating exporter (i.e. Caraíba).  The highest margin of dumping is equal to 18.4%.

    Summary of Preliminary Results of Dumping Investigation

    Country Estimated Margin of Dumping as Percentage of Export Price Estimated Dumped Goods as Percentage of Country Imports Country Imports as Percentage of Total Imports Estimated Dumped Goods as Percentage of Total Imports
    Brazil 5.8% 94.8% 52.4% 49.7%
    Russia 18.4% 100.0% 29.3% 29.3%


  3. Under subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if he is satisfied that the margin of dumping of the goods of a country is insignificant or that the volume of dumped goods of a country is negligible. Pursuant to subsection 2(1) of SIMA, a margin of dumping of less than 2% is defined as insignificant, whereas a volume of dumped goods from a country forming less than 3% of total imports is considered negligible.

  4. As shown in the table above, the estimated weighted average margins of dumping of subject goods from both Brazil and Russia are above 2% and are, therefore, not insignificant. As well, the volume of dumped goods from both Brazil and Russia is, in each case, above 3%, and is, therefore, not negligible.

SUBSIDY INVESTIGATION

  1. In accordance with SIMA, a subsidy exists if there is a financial contribution by a government of a country other than Canada that confers a benefit on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of goods. A subsidy also exists in respect of any form of income or price support within the meaning of Article XVI of the General Agreement on Tariffs and Trade, 1994, being part of Annex 1A to the WTO Agreement, that confers a benefit.

  2. Pursuant to subsection 2(1.6) of SIMA, there is a financial contribution by a government of a country other than Canada where:

    1. practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;

    2. amounts that would otherwise be owing and due to the government are exempted or deducted or amounts that are owing and due to the government are forgiven or not collected;

    3. the government provides goods or services, other than general governmental infrastructure, or purchases goods; or

    4. the government permits or directs a non-governmental body to do anything referred to in any of paragraphs (a) to (c) where the right or obligation to do the thing is normally vested in the government and the manner in which the non-governmental body does the thing does not differ in a meaningful way from the manner in which the government would do it.

  3. If a subsidy is found to exist, it may be subject to countervailing measures if it is specific. A subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidy. An “enterprise” is defined under SIMA as also including a group of enterprises, an industry and a group of industries. A “prohibited subsidy” includes an export subsidy which is contingent, in whole or in part, on export performance or a subsidy or portion of a subsidy that is contingent, in whole or in part, on the use of goods that are produced or that originate in the country of export.

  4. Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific having regard as to whether:

    1. there is exclusive use of the subsidy by a limited number of enterprises;

    2. there is predominant use of the subsidy by a particular enterprise;

    3. disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and

    4. the manner in which discretion is exercised by the granting authority indicates that the subsidy is not generally available.

  5. For purposes of a subsidy investigation, the CBSA refers to a subsidy that has been found to be specific as an “actionable subsidy” meaning that it is subject to countervailing measures if the imported goods under investigation have benefited from the subsidy.

  6. The complainant, Nexans, has alleged that the producer and exporter of subject goods originating in Brazil (the exporter) benefits from actionable subsidies provided by the Government of Brazil. In reviewing the information provided by the complainant and obtained by the CBSA through its own research, the CBSA has developed the following list of programs and incentives that may be providing actionable subsidies to the Brazilian exporter of copper rod:

    List of Alleged Subsidies under Investigation

    1. “Adiantamentos sobre Contratos de Câmbio” (ACC), advances of exchange contracts at preferential interest rates in respect of exports;
    2. Preferential pre-shipment and post-shipment loan programs of the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the Brazilian Development Bank, in respect of exports;
    3. Preferential loans including working capital loans by the BNDES for certain eligible projects;
    4. The “Fundo de Investimento do Nordeste” (FINOR) financial assistance program in support of the development of the Northeast Region;
    5. The “Fundo Constitucionais de Financiamento do Nordeste” (FNE) financial assistance program in support of the development of the Northeast Region;
    6. The “Financiadora de Estudos e Projetos” (FINEP) program of grants and loans in support of research;
    7. Income tax exemption under the “Superintendência para o Desenvolvimento do Nordeste” (SUDENE) program and successor “Agência de Desenvolvimento do Nordeste” (ADENE) program providing assistance to the Northeast Region by means of tax breaks;
    8. Exemption of export revenues from payment into the Social Security Financing Contribution (COFINS) program and into the Profit Participation Program (PIS);
    9. Suspension of demandability of paying PIS and COFINS levies;
    10. Excessive credit of COFINS and PIS levies in respect of inputs used to produce goods that are exported;
    11. Exemption of payment of the Social Contribution on Income (CSSL);
    12. Suspension of payment of the Provisional Contribution on Financial Transactions (CPMF);
    13. Other preferential loan, duty or tax benefits to exporters, certain industrial sectors or companies located in the Northeast Region of Brazil, including incentives granted by the state in which the exporter is located.

  7. Details regarding these alleged subsidies were provided in the Statement of Reasons issued for the initiation of this investigation. This document is available through the CBSA Web site at the following address: http://www.cbsa-asfc.gc.ca/sima-lmsi/i-e/menu-eng.html

  8. The CBSA forwarded a subsidy RFI to the exporter of subject goods in Brazil as well as to the GB. A short subsidy RFI was sent to possible vendors and importers of subject goods originating in Brazil. Information was requested in order to establish whether there had been financial contributions made by any level of government and, if so, to establish if a benefit has been conferred on persons engaged in the production, manufacture, growth, processing, purchase, distribution, transportation, sale, export or import of the subject goods; and whether any resulting subsidy was specific in nature.

  9. For purposes of this investigation, "Government of Brazil" refers to all levels of government, including federal, state, regional, city, legislative, administrative or judicial levels, and any person, agency, state-owned enterprise or institution acting for, on behalf of or under authority of any law passed by the GB.

PRELIMINARY RESULTS OF THE SUBSIDY INVESTIGATION

  1. Responses to the subsidy RFIs were provided by the producer of the subject goods originating in or exported from Brazil, Caraíba Metais S/A (Caraíba), the Government of Brazil (GB), a vendor and an importer. The information contained in the responses was considered for purposes of making a preliminary determination. None of the information has been verified on-site as verification visits were scheduled to take place following the preliminary determination.

Estimated Amount of Subsidy

  1. The review of the responses enabled the evaluation of two of the investigated possible subsidies for an estimated amount of subsidy totalling 3.5% of the export price of the copper rod exported to Canada. For the other investigated possible subsidies, several do not exist or have not been used by the exporter, according to the responses. The entire area of allegedly preferential loans requires more clarification and is not included in the preliminary estimate. Appendix 1 contains the preliminary findings relating to all of the investigated possible subsidies. Hereunder is a summary of how subsidy on the subject goods was estimated for purposes of the preliminary determination:.

Income Tax Exemption

  1. The exporter is exempt from paying income tax under a program for companies located in the Northeast Region of Brazil, where the exporter is located. The tax exemption is specific to this region and is therefore actionable. The financial contribution by the GB is the foregone tax revenue. The tax saving to the exporter, and hence the amount of subsidy, is estimated at 1.8% of the export price of the copper rod exported to Canada. This tax incentive for the Northeast was notified by the GB to the WTO as a specific subsidy1.

Exemption of export revenue from payment of social welfare charge

  1. [55] In Brazil, companies must pay two social welfare charges, the Social Security Financing Contribution (COFINS) program and the Profit Participation Program (PIS). COFINS resources finance health and social assistance activities and PIS resources finance the unemployment insurance and minimum wage programs. The calculation base is domestic revenue less costs such as materials, depreciation and financial expenses. Export revenue is exempt. If COFINS/PIS are determined to constitute a direct tax (e.g. an income tax) or a social welfare charge, then the entire amount of the exemption constitutes a subsidy; alternatively, if COFINS/PIS are determined to constitute an internal tax (i.e. an indirect tax levied on goods), the export subsidy would be any amount of exemption in excess of that amount levied on domestic sales. The GB's position is that COFINS and PIS are a form of value-added tax, and exemption of export revenue is not actionable. The CBSA's preliminary position is that this is a form of income tax exemption, which is actionable. It is specific to exports and the GB's financial contribution is the foregone COFINS and PIS revenue. This subsidy is preliminarily determined to be an export subsidy and is estimated at 1.4% of export price for COFINS and 0.3% for PIS.

    Summary of Preliminary Results of Subsidy Investigation

    Subsidy Estimated Amount of Subsidy as a Percentage of Export Price Estimated Subsidized Goods as a Percentage of Country Imports Country Imports as a Percentage of Total Imports Estimated Subsidized Goods as a Percentage of Total Imports
    Exemption of Income Tax 1.8%      
    Exemption of COFINS on Exports (Export Subsidy) 1.4%      
    Exemption of PIS on Exports (Export Subsidy) 0.3%      
    Total 3.5% 100.0% 52.4% 52.4%


  2. Under subsection 35(1) of SIMA, the President is required to terminate an investigation prior to the preliminary determination if the amount of subsidy on the goods of a country is insignificant or if the volume of subsidized goods of a country is negligible. Section 41.2 of SIMA further requires the President to take into account the provisions of Article 27 of the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) when conducting subsidy investigations. These provisions stipulate that any investigation involving a developing country must be terminated as soon as it is determined that the total amount of subsidy for a developing country does not exceed 2% of the value of the goods, or that the volume of the subsidized imports represents less than 4% of the total imports of subject goods. For developed countries, less than 1% of the value of the goods is considered insignificant, whereas a volume of subsidized goods forming less than 3% of total imports is considered negligible.

  3. The CBSA normally makes reference to Part I of the DAC List of Aid Recipients, maintained by the Organization for Economic Co-operation and Development2, to determine eligibility for the differential amounts for developing countries in subsidy investigations. According to this list, Brazil is eligible for the higher insignificance and negligibility thresholds. The preceding table illustrates that the estimated amount of subsidy respecting Brazil is not insignificant, nor is the volume of subsidized goods negligible.

DECISION

  1. Based on the preliminary results of the investigation, the President, on November 28, 2006, made a preliminary determination of dumping respecting certain copper rod originating in or exported from Brazil and Russia and made a preliminary determination of subsidizing respecting certain copper rod originating in or exported from Brazil, pursuant to subsection 38(1) of SIMA. In light of the preliminary determination of injury made by the Tribunal, the President also considered that the imposition of provisional duties is necessary to prevent any injury from dumped and subsidized imports.

PROVISIONAL DUTY

  1. Pursuant to subsection 8(1) of SIMA, provisional duty will be applied to dumped and subsidized subject goods that are released during the provisional period commencing on the day the preliminary determination is made, and ending on the earlier of the day on which the President causes the investigation to be terminated pursuant to subsection 41(1) or the day on which the Tribunal makes an order or finding.

  2. Provisional countervailing duty is based on the estimated amount of subsidy and is expressed as a percentage of export price. Provisional anti-dumping duty is normally based on the estimated margin of dumping, also expressed as a percentage of the export price of the goods. However, where both anti-dumping duty and countervailing duty apply on the same goods, the estimated amount of export subsidy will be deducted from the estimated margin of dumping to calculate the provisional anti-dumping duty applicable. Appendix 2 shows the estimated margins of dumping, amount of subsidy, amount of export subsidy and provisional duty applicable on subject goods released from Customs on or after November 28, 2006.

  3. Provisional duty is payable by the importer in Canada and applies until the day the Tribunal makes a finding on the question of injury or if the investigation is terminated by the CBSA.

  4. Importers are required to pay provisional duty in cash or by certified cheque. Alternatively, they may post security equal to the amount payable. Importers should contact their regional customs office if they require further information on the payment of provisional duty or the posting of security. If the importers of such goods do not indicate the required SIMA code or do not correctly describe the goods in the customs documents, an administrative monetary penalty could be imposed. The imported goods are subject to the Customs Act. As a result, failure to pay duties within the specified time will result in the application of the provisions of the Customs Act regarding interest.

FUTURE ACTION

The Canada Border Services Agency

  1. The CBSA will continue its dumping and subsidy investigation and will make a final decision by February 26, 2007.

  2. If the President is satisfied that the goods were dumped and/or subsidized, and that the margin of dumping or amount of subsidy is not insignificant, a final determination will be made. Otherwise, the President will terminate the investigation and any provisional duty paid, or security posted, will be returned to importers.

The Canadian International Trade Tribunal

  1. The Tribunal has begun its full inquiry into the question of injury to the Canadian industry. The Tribunal is expected to issue its final decision by March 28, 2007.

  2. If the Tribunal finds that the dumping or subsidizing has not caused injury or is not threatening to cause injury, the proceedings will be terminated and all provisional duties collected, or security posted, will be returned. If the Tribunal makes an affirmative decision, anti-dumping duty and/or countervailing duty will be imposed on imports of the subject goods.

  3. For purposes of the preliminary determination of dumping or subsidizing, the President has responsibility for determining whether the actual and potential volume of dumped or subsidized goods is negligible. After a preliminary determination of dumping or subsidizing, the Tribunal assumes this responsibility. In accordance with subsection 42(4.1) of SIMA, the Tribunal is required to terminate its inquiry in respect of any goods if the Tribunal determines that the volume of dumped or subsidized goods from a country is negligible.

RETROACTIVE DUTY ON MASSIVE IMPORTATIONS

  1. Under certain circumstances, anti-dumping and countervailing duties can be imposed retroactively on subject goods imported into Canada. When the Tribunal conducts its inquiry on material injury to the Canadian industry, it may consider if dumped and/or subsidized goods that were imported close to or after the initiation of the investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry. Should the Tribunal issue a finding that there were recent massive importations of dumped and/or subsidized goods that caused injury, imports of subject goods released by the CBSA in the 90 days preceding the day of the preliminary determination could be subject to anti-dumping and/or countervailing duty.

  2. In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the President has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy. In such a case, the amount of countervailing duty applied on a retroactive basis will equal the amount of subsidy on the goods that is a prohibited subsidy. An export subsidy is a prohibited subsidy according to subsection 2(1) of SIMA..

UNDERTAKINGS

  1. After a preliminary determination of dumping, exporters may submit a written undertaking to revise selling prices to Canada so that the margin of dumping or the injury caused by the dumping is eliminated. Similarly, after a preliminary determination of subsidizing, the government of a country may give a written undertaking to eliminate the subsidy on the goods, or to eliminate the injurious effect of the subsidy by limiting the amount of the subsidy or the quantity of goods exported to Canada. Exporters, with the consent of their government, may also undertake to revise their selling prices so that the injurious effect of the subsidy is eliminated.

  2. Acceptable undertakings must account for all or substantially all of the exports to Canada of the dumped and subsidized goods. In the event that an undertaking is accepted, the required payment of provisional duty on the goods would be suspended.

  3. In view of the time needed for consideration of undertakings, written undertaking proposals should be made as early as possible, and no later than 60 days after the preliminary determination of dumping and subsidizing. Further details regarding undertakings can be found in the CBSA’s Memorandum D14-1-9, available online at: http://www.cbsa-asfc.gc.ca/publications/dm-md/d14/d14-1-9-eng.html.

  4. The legislation allows interested parties to make representations concerning any undertaking proposals. The CBSA will maintain a list of interested parties and will notify them should an undertaking proposal be received. Persons wishing to be notified must provide their name, address, telephone, fax or email address to one of the officers listed below. Interested parties may also consult the CBSA Web site noted below for information on undertakings offered in this investigation. A notice will be posted on the CBSA Web site when an undertaking proposal is received. Interested parties have nine days from the date the undertaking offer is received to make representations.

PUBLICATION

  1. A notice of this preliminary determination of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 38(3)(a) of SIMA.

INFORMATION

  1. This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the CBSA Web site at the address below. For further information, please contact Denis Chénier or Vincent Gaudreau as follows:

    Mail:
    SIMA Registry and Disclosure Unit
    Anti-dumping and Countervailing Program
    Trade Programs Directorate
    Canada Border Services Agency
    100 Metcalfe Street, 11th Floor
    Ottawa, Ontario K1A 0L8
    Canada

    Telephone:
    Denis Chénier 613-954-7394
    Vincent Gaudreau 613-954-7262

    Fax:
    613-948-4844

    E-mail:
    simaregistry-depotlmsi@cbsa-asfc.gc.ca

    Web site:
    www.cbsa-asfc.gc.ca/sima

Darwin Satherstrom
Acting Director General
Trade Programs Directorate

1. New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures to the World Trade Organization, WTO document G/SCM/N/123/BRA dated October 20, 2005
2. Development Assistance Committee List of Recipients of Official Development Assistance (DAC List of Aid Recipients), Organization for Economic Co-operation and Development, as at January 1, 2003, online: http://www.oecd.org/dataoecd/35/9/248852.pdf

APPENDIX 1 SUMMARY OF PRELIMINARY FINDINGS REGARDING ALLEGED SUBSIDIES UNDER INVESTIGATION

  1. “Adiantamentos sobre Contratos de Câmbio” (ACC), advances of exchange contracts at preferential interest rates in respect of exports

    General Information:

    Information about “Adiantamentos sobre Contratos de Câmbio” (ACC), or advances on foreign exchange contracts, was provided by Caraíba Metais S/A (Caraíba), the producer of copper rod who exported to Canada during the Period of Investigation (POI), January 1, 2005, to June 30, 2006. ACCs were listed among loans in effect during the POI.

    According to the Government of Brazil (GB)'s Exporter's Guide, updated September 2005: ACCs are a type of financing allowing exporters to obtain financial resources at international interest rates plus a risk premium; lower interest rates entail lower production costs and thus enhance competitiveness, in addition to possible gains from domestic investment.

    Legal Basis:

    ACCs are governed by Brazil's International Capital and Foreign Exchange Market Regulation, Title 1 Foreign Exchange Market, Chapter 3 Foreign Exchange Contract, Section 3 Advancements on Foreign Exchange Contract. The latest version was issued on March 9, 2005, under Circular 3,280. According to this regulation, an ACC is an advance on account of the price, in domestic currency, of the foreign currency bought for future delivery.

    Eligibility Criteria:

    According to the GB, all exporters may apply for an ACC anytime at commercial banks based on export forward exchange contracts.

    Determination of Subsidy:

    In general, the provision of loans by a government constitutes a financial contribution under paragraph 2(1.6)(a) of the Special Import Measures Act (SIMA). As well, the provision of loans by a non-governmental body that has been permitted or directed by the government to provide loans may also constitute a financial contribution under paragraph 2(1.6)(d) of SIMA. A benefit is conferred to a recipient when a loan is provided at an interest rate that is less than that which the recipient could receive on a non-guaranteed domestic commercial loan, as calculated under sections 28 and 29 of the Special Import Measures Regulations (SIMR).

    According to the GB, ACCs are transactions available from commercial banks authorized to operate in the Brazilian foreign market, funded by private credit lines provided by foreign banks, without any public funding. The role of the GB will be further examined in order to establish whether ACCs involve a financial contribution by the GB, in particular to determine whether commercial banks in Brazil are required under Brazilian law to provide these loans in a manner so described in paragraph 2(1.6)(d) of SIMA. If the CBSA determines that a financial contribution exists, it will then give consideration to the selection of the most appropriate commercial benchmarks by which to determine whether a benefit was conferred to the exporter.

    In the determination of any possible benefit conferred by the financial contribution, the CBSA will continue to examine alleged interest income attributable to ACC funds that are invested by the recipient until such time as the working capital is required.

    Determination of Specificity:

    If ACCs are found to constitute a subsidy, the CBSA will then determine whether the subsidy is specific. The provision of ACC loans appears to be restricted to exporters or in respect of export sales. In this regard, under SIMA, a subsidy that is contingent in whole or in part on export performance constitutes an export subsidy that is deemed specific under paragraph 2(7.2)(b) of SIMA.



  2. Preferential pre-shipment and post-shipment loan programs of the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the Brazilian Development Bank, in respect of exports

    Caraíba has stated in reply to the CBSA's RFI that the company did not receive such loans. The GB has stated in reply to the CBSA's RFI that no copper rod exporter has received such loans. The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  3. Preferential loans including working capital loans by the BNDES for certain eligible projects

    Caraíba has provided information about certain loans from the BNDES. The CBSA will be further investigating these loans for purposes of the final phase of the investigation.

  4. The “Fundo de Investimento do Nordeste” (FINOR) financial assistance program in support of the development of the Northeast Region

    Caraíba has stated that the company did not receive any financial assistance from FINOR. The GB has stated that no copper rod exporter has participated in the FINOR program. The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  5. The “Fundo Constitucionais de Financiamento do Nordeste” (FNE) financial assistance program in support of the development of the Northeast Region

    Caraíba has stated that the company did not receive any funds from the FNE. The GB has stated that Caraíba has not participated in the FNE program. The CBSA will be verifying these responses for purposes of the final phase of the investigation..

  6. The “Financiadora de Estudos e Projetos” (FINEP) program of grants and loans in support of researchs

    Caraíba has stated that it has contributed funds to a FINEP project as a co-sponsor. The GB stated that Caraíba did not receive FINEP funds but that both FINEP and Caraíba provided funds towards research projects. The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  7. Income tax exemption under the “Superintendência para o Desenvolvimento do Nordeste” (SUDENE) program and successor “Agência de Desenvolvimento do Nordeste” (ADENE) program providing assistance to the Northeast Region by means of tax breaks

    General Information:

    The “Superintendência para o Desenvolvimento do Nordeste” (SUDENE) program, which expired in August 2001, provided assistance to the economically disadvantaged Northeast Region of Brazil by means of tax breaks. Contractual obligations under SUDENE are being upheld by the development agency “Agência de Desenvolvimento do Nordeste” (ADENE). Caraíba received a ten-year exemption from income tax, from 2001 to 2010, under a directive from the SUDENE authority.

    Legal Basis:

    The authority granting the tax exemption to Caraíba is Directive 0058/2001 issued on October 30, 2001, by the Federal Public Service, National Integration Office, pursuant to article 37 of law Nr. 5.508 of October 11, 1968, and Resolution Nr. 6.596 of February 29, 1972, by SUDENE's Board of Directors.

    SUDENE, the Northeast Region Development Authority, was established by Law 3692 dated December 15, 1959. Provisional Measure 2157-5 of August 2001 extinguished SUDENE. Obligations under SUDENE are being upheld by ADENE under the responsibility of the Ministry of National Integration pursuant to Law 9532/97. The jurisdiction of SUDENE/ADENE encompasses specified federal states of the Northeast Region including the State of Bahia, where Caraíba is located.

    Eligibility Criteria:

    Beneficiary companies must be categorized in production sectors regarded as carrying a priority under the terms of Decree 4213/2002 and be located within the area of authority of former SUDENE which includes the State of Bahia.

    Determination of Subsidy:

    The ADENE (former SUDENE) program is identified as a specific subsidy in the GB's New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures to the World Trade Organization (WTO), WTO document G/SCM/N/123/BRA dated October 20, 2005.

    Tax revenue that is exempted is considered a financial contribution under paragraph 2(1.6)(b) of SIMA. In such a case, the benefit conferred to the recipient is equal to the amount of the exemption in the amount of tax payable by the recipient. Pursuant to subsection 27(2) of the SIMR, any amount otherwise owing and due to a government that is exempted is treated as a grant under section 27 of the SIMR.

    Determination of Specificity:

    This subsidy is a specific subsidy under paragraph 2(7.2)(a) of SIMA for the reason that it is limited to enterprises located in the Northeast Region of Brazil.

    Calculation of estimated subsidy:

    The amount of subsidy attributed to the subject goods exported by Caraíba was estimated by applying the amount of tax saving in 2005 expressed as a percentage of total taxable income in 2005, and the estimated percentage tax saving based on interim financial statements for January to June 2006, and applying the weighted average tax saving in the POI to the export price of the goods. The amount of subsidy expressed as a percentage of export price was 1.8%.

  8. Exemption of export revenues from payment into the Social Security Financing Contribution (COFINS) program and into the Profit Participation Program (PIS)

    General Information:

    Generally, COFINS contributions are assessed at 7.6% of a company's domestic revenues less 7.6% of the cost of inputs and other expenses incurred to earn domestic revenues. Export revenue is exempt. COFINS revenues are spent on activities directly related to health, social security and social welfare.

    Generally, PIS contributions are assessed at 1.65% of a company's domestic revenues less 1.65% of the cost of inputs and other expenses incurred to earn domestic revenues. Export revenue is exempt. PIS revenues fund the unemployment insurance and minimum wage programs.

    Legal Basis:

    Brazil's Law 10.637/2002 and Law 10.833/2003 instituted PIS and COFINS contributions, respectively. Revisions were made under Law 10.865/2004, Law 11.051/2004 and Law 11.196/2005.

    Eligibility Criteria:

    The exemption of export revenue is an integral part of the PIS and COFINS laws and reporting systems.

    Determination of Subsidy:

    It is the position of the GB that PIS and COFINS are non-cumulative indirect taxes, and that the WTO Agreement on Subsidies and Countervailing Measures (Subsidies Agreement) allows the exemption of payment of such taxes on exports, provided it is not in excess of those which have accrued. The CBSA has preliminarily determined that PIS and COFINS are income taxes based on net revenues, and that the exemption of the payment of PIS and COFINS contributions in respect of exports constitutes an export subsidy.

    The CBSA is continuing to investigate this alleged subsidy. If COFINS/PIS are determined to constitute a direct tax (e.g. an income tax) or a social welfare charge, then the entire amount of the exemption will be determined to constitute a subsidy. Alternatively, if COFINS/PIS is determined to constitute an internal tax (i.e. an indirect tax levied on goods), the export subsidy would be any amount of exemption or remission that is in excess of that amount levied on domestic sales.

    In either case, the exemption of companies from paying direct taxes or social welfare charges or the excessive relief of indirect taxes on exported goods, would constitute a financial contribution under paragraph 2(1.6) of SIMA. In such cases, the benefit conferred to the recipient is equal to the amount of exemption or excess relief in the amount of tax payable by the recipient.

    Determination of Specificity:

    A subsidy that is contingent on export performance constitutes an export subsidy that is deemed specific under subsection 2(7.2) of SIMA.

    Calculation of Estimated Subsidy:

    The amount of export subsidy to Caraíba as a percentage of export price was estimated as the amount of PIS and COFINS contributions paid during the POI expressed as a percentage of domestic sales. The amount of estimated export subsidy in respect of both PIS and COFINS totalled 1.7% of export price.

  9. Suspension of demandability of paying PIS and COFINS levies

    Caraíba explained that, in 1999, it had sued the GB regarding the PIS and COFINS calculation base, received a decision from a court allowing Caraíba to suspend payment, but still paid according to a different calculation base. Caraíba further explained that the laws governing PIS and COFINS were changed in 2004 and that it paid PIS and COFINS contributions according to these laws during the POI.

    The GB explained that the suspension of demandability of paying PIS and COFINS with regard to Caraíba is not a GB program but resulted from a provisional judicial order, which is still under discussion in the courts. The GB provided a copy of Caraíba's 1999 petition claiming that the laws changing the PIS and COFINS calculation base are unconstitutional. The GB also explained how, in cases where there is a court decision suspending demandability for payment, companies must report to the federal tax authority the value of the suspension.

    The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  10. Excessive refund or credit of PIS and COFINS levies in respect of inputs used to produce goods that are exported

    Caraíba stated that the system of assumed credits, applied to the Tax on Industrialized Products (IPI) in compensation for PIS and COFINS on inputs used to produce goods for export, was not in effect during the POI and that Caraíba did not claim any such credits during the POI.

    The GB explained the previous system as well as the new system which came into effect in 2004, prior to the POI. The GB explained that, under the new system, a presumed IPI credit as refund for PIS and COFINS payments is no longer applicable.

    The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  11. Exemption of payment of the Social Contribution on Income (CSSL)

    Caraíba explained that: it is not the GB that granted it an exemption; rather, Caraíba won a decision from a federal court that the CSSL law was unconstitutional, including a court order exempting Caraíba from paying CSSL; in another constitutional challenge, not involving Caraíba, the Supreme Court held that the CSSL law was constitutional; the GB started a court action to rescind the earlier court decision exempting Caraíba from paying CSSL.

    The GB explained that the suspension of demandability of paying CSSL with regard to Caraíba is not a GB program but resulted from a provisional judicial order, which is still under discussion in the courts. The GB also explained how, in cases where there is a court decision suspending demandability for payment, companies must report to the federal tax authority the value of the suspension.

    The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  12. Suspension of payment of the Provisional Contribution on Financial Transactions (CPMF)

    Caraíba explained that it received a court order in 1999 allowing Caraíba to suspend payment of CPMF, which order was rescinded in 2001. Caraíba stated that it paid CPMF during the POI.

    The GB explained that the suspension of demandability of paying CPMF with regard to Caraíba is not a GB program but resulted from a provisional judicial order, which is still under discussion in the courts. The GB also explained how, in cases where there is a court decision suspending demandability for payment, companies must report to the federal tax authority the value of the suspension.

    The CBSA will be verifying these responses for purposes of the final phase of the investigation.

  13. Other preferential loan, duty or tax benefits to exporters, certain industrial sectors or companies located in the Northeast Region of Brazil, including incentives granted by the state in which the exporter is located

    Caraíba listed among loans "Pre-payment of exports". The GB provided a reference to the pertinent "International Capital and Foreign Exchange Market Regulation, Title 1 Foreign Exchange Market, Chapter 11 Export, Section 4 Advance Receipt". These loans will be investigated in a manner similar to that described in respect of ACCs.

    Both Caraíba and the GB replied that Caraíba obtains drawback on inputs used to produce subject goods exported to Canada. The CBSA will be verifying Caraíba's use of drawback and the GB's administration of its drawback program. Although drawback is not a subsidy, drawback that is excessive or is inadequately administered by the government may constitute an export subsidy.

    Caraíba stated that it did not receive any other benefits as alleged. The GB also stated that Caraiba did not receive any other benefits as alleged, except perhaps a possible state tax deferral on inputs imported to produce goods destined for domestic consumption. The CBSA will be verifying these responses for purposes of the final phase of the investigation.

APPENDIX 2 SUMMARY OF ESTIMATED AMOUNT OF SUBSIDY, ESTIMATED AMOUNT OF EXPORT SUBSIDY, ESTIMATED MARGINS OF DUMPING AND PROVISIONAL DUTY APPLICABLE


CERTAIN COPPER ROD

Country Estimated Margin of Dumping * Provisional Anti-dumping Duty * Estimated Amount of Subsidy * and Provisional Countervailing Duty Total Provisional Duty Applicable *
Brazil        
Caraíba Metais S/A 5.8% 4.1% 3.5% 7.6%
All other exporters 18.4% 16.7% 3.5% 20.2%
Russian Federation        
All exporters 18.4% 18.4% not applicable 18.4%

* As a percentage of the export price

Note:

Provisional anti-dumping for Brazil is not equal to the estimated margin of dumping for the following reason:

Where both anti-dumping and countervailing duty apply to the same goods, anti-dumping duty is reduced by any amount of export subsidy applicable, which was estimated at 1.7% in this case. Therefore, provisional anti-dumping duty of 4.1% (5.8% - 1.7%) will be levied for exports from Caraíba Metais and of 16.7% (18.4% - 1.7%) for goods from any other exporter of subject goods from Brazil.

Therefore, total provisional duty payable for goods from Caraíba Metais will be 7.6% (3.5% provisional countervailing duty plus 4.1% provisional anti-dumping duty) while the total provisional duty payable for goods from any other exporter of subject goods from Brazil will be 20.2% (3.5% provisional countervailing duty plus 16.7% provisional anti-dumping duty).

Date Modified: 2006-12-13

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