Anti-dumping and Countervailing Program

OTTAWA, September 14, 2006

4214-13/4218-22

DECISION

Pursuant to subsection 31(1) of the Special Import Measures Act, the President of the Canada Border Services Agency initiated an investigation on August 30, 2006, respecting the alleged injurious dumping of certain copper rod originating in or exported from Brazil and the Russian Federation and the alleged injurious subsidizing of certain copper rod originating in or exported from Brazil.

TABLE OF CONTENTS

SUMMARY
INTERESTED PARTIES
PRODUCT INFORMATION
CANADIAN INDUSTRY
CANADIAN MARKET
EVIDENCE OF DUMPING
EVIDENCE OF SUBSIDY
EVIDENCE OF INJURY
CONCLUSION
SCOPE OF THE INVESTIGATION
FUTURE ACTION
RETROACTIVE DUTY ON MASSIVE IMPORTATIONS
UNDERTAKINGS
PUBLICATION
INFORMATION
Appendix I - Description of Identified Programs and Incentives

SUMMARY

1. On July 10, 2006, the Canada Border Services Agency (CBSA) received a complaint from Nexans Canada Inc. (Nexans) of Montréal-East, Quebec, alleging the injurious dumping of certain copper rod originating in or exported from Brazil and the Russian Federation (Russia) and the injurious subsidizing of certain copper rod from Brazil.
   
   
2. The complainant provided facts and evidence that support its allegation that certain copper rod from Brazil and Russia has been dumped and that certain copper rod from Brazil has been subsidized. The submitted facts and evidence also disclose a reasonable indication that the alleged dumping and subsidization have caused injury or are threatening to cause injury to the Canadian industry producing like goods.
   
   
3. The CBSA informed Nexans on July 31, 2006, pursuant to subsection 32(1) of the Special Import Measures Act (SIMA), that the complaint was properly documented. On the same date, the CBSA notified the governments of Brazil and Russia that a properly documented complaint concerning the subject goods had been received.
   
   
4. The Government of Brazil was provided with the non-confidential version of the subsidy complaint and, on August 24 and 28, 2006, consultations were held with the Government of Brazil pursuant to Article 13.1 of the Agreement on Subsidies and Countervailing Measures. During these consultations, Brazil made oral representations with respect to its views on the evidence presented in the non-confidential version of the subsidy complaint.
   
   
5. On August 30, 2006, the President of the CBSA (President), pursuant to subsection 31(1) of SIMA, initiated:
   
   
   • a dumping investigation with respect to certain copper rod from Brazil and Russia; and
     
     
   • a subsidy investigation with respect to certain copper rod from Brazil.
     
     

INTERESTED PARTIES

Complainant

6. Nexans Canada Inc.
   460 Durocher Ave.
   Montréal-East, Quebec
   H1B 5H6

Exporters

7. The CBSA has identified from customs documentation one producer exporting subject goods from Brazil and two vendors located in other countries exporting subject goods originating in Brazil.
   
   
8. With regard to subject goods originating in Russia, the CBSA has identified from customs documentation: two vendors located in Russia; four vendors located in other countries; one producer exporting through one of the six vendors. As well, the CBSA has identified from research: two other producers who appear to be associated with two of the vendors; eight additional possible producers exporting to Canada through intermediary vendors.
   
   

Importers

9. The CBSA has identified from customs documentation four importers of the subject goods.

PRODUCT INFORMATION

Definition of Subject Goods

10. For purposes 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

11. This product is commonly referred to as "copper rod" but is also referred to as "copper wire" or "copper wire rod".
    
    
12. 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.
    
    
13. 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. For these reasons, the product definition includes copper rod from 6 mm to 11 mm.
    
    

Production Process

14. 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.
    
    
15. According to evidence included in the complaint, manufacturers of copper rod in Brazil and Russia use the same raw material and similar equipment and processes.

Like Goods

16. Subsection 2(1) of SIMA defines “like goods”, in relation to any other goods, as goods that are identical in all respects to the other goods, or in the absence of identical goods, goods for which the uses and other characteristics closely resemble those of the other goods.
    
    
17. The copper rod made by Nexans is in direct competition with, has the same use as and may be substituted for the copper rod imported from Brazil and Russia. The CBSA has concluded, for the purpose of initiating this investigation, that copper rod produced by the Canadian industry, of the same description as the subject goods, constitutes like goods to the subject goods.
    
    
18. For the like goods produced in Canada and for the allegedly dumped and subsidized goods, the CBSA is of the opinion that there are no separate classes of goods, considering their ultimate use and material characteristics.
    
    

Classification of Imports

19. 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

20. 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 situated in Montréal-East, Quebec. In addition, Nexans operates several wire and cable plants in Canada and in the United States.
    
    
21. 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 tonnes per year (tpy) and employs 114 people.
    
    
22. The Montréal-East copper rod mill was established as a hot-rolling mill in 1931 by Canada Wire, a subsidiary of Noranda Inc. at the time. In 1981, Canada Wire installed a continuous-casting line next to the existing facility in Montréal-East. In 1990, Alcatel acquired Canada Wire. Alcatel sold the majority of its participation in the wire and cable division to the Nexans Group and was named Nexans Canada in 2001.
    
    
23. According to Nexans, there is a second copper rod producer in Canada which produces a small quantity for internal use only and does not sell to outside customers.
    
    
24. Evidence provided by Nexans and additional research by the CBSA indicate that there are no other producers of like goods in Canada.
    
    

Standing

25. SIMA requires that the following conditions be met in order to initiate an investigation:
    
    
    • the complaint is supported by domestic producers whose production represents more than fifty per cent of the total production of like goods by those domestic producers who express either support for or opposition to the complaint; and
      
      
    • the production of the domestic producers who support the complaint represents twenty-five per cent or more of the total production of like goods by the domestic industry.
      
      
26. Based on an analysis of information provided in the complaint, as well as other information gathered by the CBSA, the CBSA is satisfied that the standing requirements of subsection 31(2) of SIMA have been met by Nexans.

CANADIAN MARKET

27. The complainant estimated apparent Canadian consumption by aggregating its domestic sales to customers, its internal sales of copper rod to associated companies for further manufacture (internal sales), the estimated internal sales of like goods by a second Canadian producer and the import volume obtained from Statistics Canada. Nexans also estimated the apparent Canadian market excluding internal sales, what it refers to as the "free market".
    
    
28. The CBSA reviewed actual import data from customs documentation. The CBSA has found that the complainant's estimates for Brazil and Russia were accurate but that imports from the United States were overstated. There were minimal quantities imported from other countries. Import volumes observed by the CBSA were obtained from confidential customs documents, the divulgation of which may compromise the confidentiality of the data involving certain parties. The table below presents the CBSA's estimated percentage market shares of copper rod in Canada:

    Estimated Canadian Market Shares of Copper Rod
    (excludes internal sales)

    	2003	2004	2005
    	% share	% share	% share
    Canadian “free market” sales (Nexans)	95%	77%	50%
    Brazil	0	15%	26%
    Russia	0	0	17%
    USA	5%	8%	7%
    Total Imports	5%	23%	50%
    Total Market	100%	100%	100%

EVIDENCE OF DUMPING

29. The complainant has alleged that certain copper rod from Brazil and Russia have been injuriously dumped into Canada. Dumping occurs when the export price of goods sold to an importer in Canada is below the normal value of the goods.
    
    
30. Normal value is generally based on the domestic selling price of like goods in the country of export or on the total cost of the goods plus a reasonable amount of profit. Export price is generally determined as being the lesser of the importer’s purchase price or the exporter’s selling price to Canada, less expenses resulting from the exportation of the goods.
    
    
31. The complainant’s allegations of dumping are based on a comparison of estimated normal values of the subject goods in each country of origin with the estimated export prices to Canada for goods released into Canada during specific time periods between September 2003 and March 2006.
    
    
32. The CBSA’s analysis of the alleged dumping is based on a comparison of the CBSA’s estimated normal values with the CBSA’s estimated export prices of each shipment of subject goods since January 1, 2003, and resultant estimated margins of dumping. For purposes of initiation, the CBSA relied on the estimated margins of dumping that occurred during the period of investigation (POI) spanning January 1, 2005, to June 30, 2006.
    
    

Pricing Conventions in the Copper Rod Industry

33. According to the complainant, copper rod pricing includes a number of components. Normally, the convention is to quote separately the price of refined copper, a commodity exchanged on the London Metal Exchange (LME) and the New York Commodity Exchange (COMEX), and the “rod premium” that covers transformation cost, profit margin and freight to customer. The “cathode premium”, also published by the LME and COMEX, covers the cost of transforming refined copper to cathode form, profit to the cathode producer and freight to the customer. The cathode premium may be included in the rod premium or shown as a separate item.
    
    
34. The cathode premium that is quoted on the LME is the price published by Codelco, Chile, the largest copper producer in the world. According to Nexans, Codelco sets the benchmark for cathode premium that is followed by most of the world’s cathode producers. However, the actual cost of the cathode may differ from one producer to another.
    
    
35. In summary, the following outlines the copper rod pricing structure:
    

    A)  Price of copper per LME or COMEX

    – Often based on the average for a specified month of shipment or other specified time frame

    plus:

    B)  Cathode Premium

    – The cost of transforming refined copper to cathode form, general and selling expenses including freight to customer, and profit to the cathode manufacturer

    plus:

    C)  Rod Premium

    – The cost of transforming copper cathode into rod form, general and selling expenses including freight to customer, and profit to the rod manufacturer
    

Estimated Normal Values

Brazil

36. The complainant estimated the normal values for Brazil using two methods, one based on evidence of domestic prices in Brazil and one based on the estimated cost of the subject goods plus an amount for profit. Nexans estimated normal values in September 2003 and at several other points in time in 2004, 2005 and 2006.
    
    
37. The CBSA considers the estimates based on the evidence of domestic prices as being the most reliable. The evidence of the domestic price structure in Brazil indicates that it consists of the average price of copper in a given month published by the LME in US dollars per metric tonne, plus a cathode premium of 3.75% of the LME copper price, plus a certain rod premium in US dollars per tonne delivered to the customer. Normal values were thus estimated, for every month since January 2004, using the published average monthly LME price for the month of shipment to Canada and a deduction for delivery cost based on the complainant's estimate of transportation costs in Brazil.
    
    

Russia

38. Nexans estimated the normal values for Russia based on the estimated cost of the subject goods plus an amount for profit. Nexans estimated normal values in September 2004 and at several other points in time in 2005 and 2006.
    
    
39. The CBSA considers the evidence of the domestic price structure in Brazil more reliable as a basis to estimate normal values in Russia, adjusted to reflect a cathode premium assumed to be lower in Russia than in Brazil. The evidence of the domestic price structure in Brazil indicates that it consists of the average copper price in a given month published by the LME in US dollars per tonne, plus a cathode premium of 3.75% of the LME copper price, plus a certain rod premium in US dollars per tonne delivered to the customer. The CBSA accepted the complainant’s assumption that Russian rod producers probably pay a cathode premium equivalent to the cathode premium published by Codelco, which is lower than the 3.75% of the LME copper price charged in Brazil according to evidence in the complaint. Research by the CBSA found that Codelco’s price seems to be used by another copper rod producer located in a third country in the setting of prices. For each month since January 2005, the CBSA estimated normal values for Russia using the normal values estimated for Brazil, adjusted downward with reference to the Codelco cathode premium published by the LME.
    
    

Estimated Export Prices

Brazil

40. Nexans estimated export prices since September 2003 with reference to the prices of Brazilian copper rod offered to its largest customer, as indicated to Nexans by this customer during negotiations. The prices included delivery, and Nexans deducted estimated costs of ocean transport, warehousing and trucking to the customer. Nexans noted that inland transportation costs from plant to ocean port of departure is likely included in the price but could not estimate an amount to deduct.
    
    
41. The CBSA estimated export prices with reference to the commercial invoices submitted by importers for Customs purposes for every shipment since January 2004.
    
    

Russia

42. The complainant estimated export prices with reference to observed prices for Russian copper rod in the US offered in the fall of 2004 for the 2005 contract year, and price offers of Russian copper rod for export to Canada in 2006. Prices were on a delivered basis and Nexans deducted estimated ocean freight, warehousing and trucking cost to its largest Canadian customer. Nexans noted that inland transportation costs from plant to ocean port of departure is likely included in the price but could not estimate an amount to deduct.
    
    
43. The CBSA estimated export prices with reference to the commercial invoices submitted by importers for Customs purposes for every shipment since January 2005.
    
    

Estimated Margins of Dumping

44. For purposes of analyzing alleged dumping, the CBSA compared estimated export prices with estimated normal values including the monthly average LME copper price prevailing on the month of shipment to Canada.
    
    
45. It was estimated that the imports of subject goods from Brazil were dumped by a weighted average margin of dumping of 5.9% in 2004, 7.0% in 2005 and 6.0% during the POI.
    
    
46. It was estimated that the imports of subject goods from Russia were dumped by a weighted average margin of dumping of 4.1% in 2005 and 3.2% during the POI.
    
    

Negligibility and Insignificance of Dumping

47. Under subsection 35(1) and subsection 2(1) of SIMA, the President is required to terminate an investigation prior to a preliminary determination if the volume of dumped subject goods respecting any subject country is less than 3% of the total volume of goods that are released into Canada from all countries that are of the same description as the dumped goods, or if the average margin of dumping is less than 2% of the export price.
    
    
48. The CBSA used Customs documentation to establish actual import data for all countries for the period of investigation (POI), January 1, 2005, to June 30, 2006. On the basis of this information, the estimated volumes of dumped goods as percentages of the volume of total imports are as follows:
    
    

    Estimated Volume of Dumped Goods as a Percentage of Total Import
    January 1, 2005 to June 30, 2006

    Country	% of Total Imports	Estimated Dumped Goods as % of Country Total	Estimated Dumped Goods as % of Total Imports
    Brazil	46.8%	98.1%	45.9%
    Russia	32.7%	83.8%	27.4%
    Total Brazil and Russia	79.5%	92.2%	73.3%
    USA	20.3%
    Other Imports	0.2%
    Total Imports	100.00%

    
    
    
49. On the basis of the foregoing, the volume of dumped goods from each of the named countries is estimated to be greater than the negligibility threshold of 3% established in subsection 2(1) of SIMA.
    
    
50. The estimated margin of dumping during the POI is 6.0% for Brazil and 3.2% for Russia, each higher than the 2% insignificance threshold stipulated in subsection 2(1) of SIMA.
    
    
51. Copper rod pricing is comprised of the internationally set price of copper and copper cathode, to which the copper rod producer adds a rod premium. For the copper rod producer, competition occurs at the level of the premium only. Given that this element is small in proportion to the full price of the copper rod (i.e. because of the high price of copper), a large difference in the premium price results in a small difference in the total price of the copper rod. In conclusion, even though the estimated margins of dumping may appear low, the CBSA is satisfied that the margins warrant an investigation.
    
    

EVIDENCE OF SUBSIDY

52. 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 World Trade Organization (WTO) Agreement, that confers a benefit.
    
    
53. Pursuant to subsection 2(1.6) of SIMA, a financial contribution exists 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 any thing referred to in any of paragraphs (a) to (c) above 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.
       
       
54. 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". Any subsidy which is contingent, in whole or in part, on export performance or on the use of goods that are produced or that originate in the country of export is considered to be a prohibited subsidy and is, therefore, automatically considered to be a specific subsidy.
    
    
55. Notwithstanding that a subsidy is not specific in law, a subsidy may also be considered specific in fact, 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.
       
       
56. 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.
    
    
57. 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 (GB). In support of its allegations, Nexans has provided a number of documents including the exporter’s public financial statements, extracts taken from GB websites detailing programs designed to stimulate exports or investment in certain regions, the GB’s subsidy notification to the WTO¹, excerpts of the WTO’s Trade Policy Review of Brazil² and a Brazilian subsidy investigation report published by the United-States government³.
    
    

List of Alleged Subsidies

58. 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:
    
    
    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.
        
        
59. Appendix I provides further description of the foregoing programs.
    
    

Conclusion

60. There is sufficient reason to believe that the foregoing programs may constitute actionable subsidies provided by the GB and that the exporter benefits from these programs. In the case of programs where an enterprise’s eligibility or degree of benefit is contingent upon export performance, these may constitute export subsidies that are deemed as specific under SIMA. For those programs where incentives are provided to enterprises operating in specified areas such as the Northeast Region of Brazil, the CBSA considers that these may constitute actionable subsidies for the reason that eligibility is limited to enterprises operating in such regions.
    
    
61. As well, the CBSA is satisfied that there is a likelihood that the exporter may receive benefits under programs other than the foregoing programs in the form of preferential loan, duty or tax programs that are not generally granted to all companies in Brazil. The CBSA will investigate all loans and any form of grant, duty or tax relief received by the exporter in order to determine their nature and whether they constitute specific subsidies in law or in fact. The CBSA will also give consideration, where necessary, to the selection of the most appropriate commercial benchmarks by which to determine if there has been a benefit conferred to the recipient and the resulting amount of subsidy, if any, attributable to the subsidy program under consideration.
    
    
62. In investigating these programs, the CBSA will request information from the GB and from the exporter to determine whether these programs confer countervailable benefits on the subject goods. The CBSA will also request information from possible vendors and importers in respect of any financing received under programs of the GB.
    
    

Estimated percentage subsidy

63. The complainant has estimated subsidies to the exporter amounting to at least 14% of the export price of the subject goods in 2003, 8% in 2004 and 5% in 2005, excluding certain programs that the complainant could not evaluate.
    
    
64. The CBSA accepts the complainant’s estimates. The CBSA further considers that all alleged programs continue to be available in 2006 and therefore estimates subsidy at a minimum of 5% throughout the POI. As well, the CBSA considers that the alleged subsidies have benefited 100% of the imported subject goods originating in Brazil.
    
    

Negligibility and Insignificance - Subsidy

65. Under section 35 of SIMA, if, at any time before the President makes a preliminary determination, the President is satisfied that the amount of subsidy on the goods of a country is insignificant or the actual and potential volume of subsidized goods of a country is negligible, the President must terminate the investigation with respect to that country. Under subsection 2(1) of SIMA, an amount of subsidy of less than 1% of the value of the goods is considered insignificant and a volume of subsidized goods of less than 3% of total imports is considered negligible, the same threshold for the volume of dumped goods.
    
    
66. However, according to section 41.2 of SIMA, the President is required to take into account paragraph 10 of Article 27 of the WTO Subsidies Agreement when conducting a subsidy investigation. This provision stipulates that a countervailing duty investigation involving a developing country should be terminated as soon as the authorities determine that the overall level of subsidies granted upon the product in question does not exceed 2% of its value calculated on a per unit basis or the volume of subsidized imports represents less than 4% of the total imports of the like product in the importing Member.
    
    
67. SIMA does not define or provide any guidance regarding the determination of a “developing country” for purposes of Article 27.10 of the Subsidies Agreement. As an administrative alternative, the CBSA relies on the Development Assistance Committee List of Recipients of Official Development Assistance (DAC List of Aid Recipients) maintained by the Organization for Economic Co-operation and Development (as at January 1, 2003, online: http://www.oecd.org/dataoecd/35/9/248852.pdf). As Brazil is included under Part I of this listing, the CBSA will extend developing country status to Brazil for purposes of this investigation. Therefore, the investigation will be terminated if the amount of subsidy does not exceed 2% or if the volume of subsidized goods represents less than 4% of total imports of like goods.
    
    
68. The CBSA used Customs documentation to establish actual import data for all countries for the POI. On the basis of this information, the volumes of subsidized goods as a percentage of the volume of total imports is as follows:
    
    

    Estimated Volume of Subsidized Goods as a Percentage of Total Imports
    January 1, 2005 to June 30, 2006

    Country	% of Total Imports	Estimated Subsidized Goods as % of Country Total	Estimated Subsidized Goods as % of Total Imports
    Brazil	46.8%	100.0%	46.8%
    Russia	32.7%
    USA	20.3%
    Other Imports	0.2%
    Total Imports	100.00%

    
    
    
69. The import volume in the POI is estimated to be greater than the threshold of 4% and is therefore not considered negligible. The subsidies are estimated to represent at least 5% of export price in the POI, a percentage greater than the threshold of 2% and, therefore, not considered insignificant.
    
    

EVIDENCE OF INJURY

70. The complainant has alleged that the subject goods have been and are being dumped and subsidized, and that the dumping and subsidizing have caused injury and are threatening to cause injury to the production of like goods in Canada.
    
    
71. SIMA refers to material injury caused to the production in Canada of like goods. The CBSA has accepted that the copper rod produced by Nexans are like goods to those imported from Brazil and Russia. It is noted that Nexans produced at or near capacity from 2002 to 2005. In analyzing injury, the CBSA has noted that the Canadian International Trade Tribunal (Tribunal) concentrates on the production of like goods for domestic sale in Canada⁴. Therefore, the CBSA’s analysis included information on Nexans’ internal sales, export sales and domestic sales, with a focus on the impact of the allegedly dumped and subsidized goods on Nexans’ production of like goods for open “free-market” sales in Canada.
    
    
72. In support of its allegations, Nexans has provided evidence of price erosion, lost sales, loss of market share and reduced profitability. Nexans also provided evidence regarding the threat of injury.
    
    

Volume of Subject Goods

73. Imports of copper rod from Brazil emerged on the Canadian market from a nil volume in 2003 to 52% of total imports in 2005. Russian copper rod emerged a year after Brazilian copper rod appeared on the market, taking over 33% of imports in 2005 while nil in 2003 and in 2004. In two short years, the cumulative imports from Brazil and Russia went from zero to 85% of total imports in 2005.
    
    

Price Erosion

74. The first instance of price pressure from copper rod from one of the named countries was the request from Nexans' largest customer to match a price from a new competitor from Brazil for the 2004 contract year. Nexans agreed to lower its copper rod premium, a significant decrease from the previous year. The rod premium is over and above the international price of copper as explained earlier. This price reduction was a direct result of the price of the Brazilian product offered in the Canadian market.
    
    
75. For the 2005 contract year, the same customer indicated that Nexans had to match prices originating in both Brazil and Russia. Nexan’s offer was significantly lower than the domestic price range at that time. The customer did not accept Nexans’ offer and gave all its business to Brazilian and Russian suppliers.
    
    
76. For the 2006 contract year, Nexans had to again match prices of copper rod originating in both Brazil and Russia. Nexan’s offer, accepted by the customer, was significantly lower than the domestic price range at that time.
    
    

Lost Sales

77. For the 2004 contract year, Nexans had to agree to a reduced volume with its largest customer, a significant reduction compared with previous years. This volume correlates closely with the emergence of Brazilian imports that year as estimated by the CBSA.
    
    
78. Nexans officials met again with this customer to negotiate for the 2005 contract year. The customer did not accept Nexans’ reduced price and did not order any tonnage. This customer represented a significant share of Nexans’ domestic sales in 2002 and 2003. Domestic sales volume declined significantly from 2004 to 2005. The lost volume correlates closely with the volume of Brazilian and Russian imports that year as estimated by the CBSA.
    
    
79. For the 2006 contract year, the customer agreed to purchase from Nexans only a small volume, representing a significant drop to this customer relative to the period before the presence of Brazilian and Russian copper rod in Canada. Nexans asserted in its complaint that it learned that another customer was testing Russian copper rod and was considering it. The CBSA reviewed entries and found small volumes of importations of subject goods from Brazil and Russia where the importer or consignee was other than Nexans’ formerly largest customer or not identified. The volume of imports from Brazil and Russia estimated by the CBSA for the first half of 2006 is consistent with the lost sales.
    
    

Loss of Market Share

80. Nexans’ market share declined from 95% in 2003 to 77% in 2004 and 50% in 2005. Brazilian copper rod’s share of the total apparent Canadian market increased from zero to 15% in 2004 and 26% in 2005. The share of Russian copper rod increased from zero in 2004 to 17% in 2005. Cumulatively, Brazilian and Russian copper rod took 43% of the market in 2005. It is noted that the US’s share of the Canadian market increased from 5% in 2003 to 8% in 2004, then down to 7% in 2005. The CBSA noted that, in the first half of 2006, Nexans regained part of its market share, having regained a part of its past business with the customer which had been previously lost to imports of subject goods. It appears that this regain of market share was possible at the expense of profitability. Despite a regain of market share in 2006, the decline in market share since 2003 remains significant.
    
    

Reduced Profitability

81. The complaint shows declining profits on domestic sales from 2.6% before the appearance of Brazilian and Russian copper rod down to 0.9% in 2005.  Data for 2006 shows this downward trend of profitability continuing into 2006.  Nexans was able to increase exports to offset the loss of volume in Canada.  The loss of domestic profitability has caused a drag on the company’s overall profitability.  The CBSA accepts that loss of profits are significant and are attributed to the decline of domestic sales caused almost exclusively by the switch to subject goods by Nexans’ largest customer.
    
    

Magnitude of Margin of Dumping and of Percentage Subsidy

82. The complainant made the point that competition occurs at the copper rod premium level, the effective export price in this industry. Nexans stated that its estimated margins of dumping and percentage subsidy are significant for the reason that over 95% of the cost of copper rod is the cost of global raw material copper price levels. Nexans concludes that the alleged dumping and subsidizing enables exporters to sell to Canada below cost. The CBSA considers that, given the proportion of input copper prices published by commodity exchanges to copper rod delivered prices, the estimated margin of dumping and amount of subsidy are significant.
    
    

Threat of Injury

83. The complainant has also alleged threat of injury by imports of subject goods.
    
    
84. The CBSA has considered the following factors based on information in the complaint as indicators of the likelihood of threat of injury to Nexans by imports of subject goods from Brazil: the rate of increase of imports of subject goods from Brazil; evidence of a corporate strategy by the exporter to increase exports; the exporter’s capacity to produce subject goods is several times larger than the estimated Canadian market; the exporter’s production capacity is being expanded.
    
    
85. The CBSA has considered the following factors based on information in the complaint as indicators of the likelihood of threat of injury to Nexans by imports of subject goods from Russia: the rate of increase of imports of subject goods from Russia; the imposition of a 10% export tax on copper cathode by the Russian government which acts as an incentive to produce and export value-added products such as copper rod; the combined capacity to produce subject goods in Russia by possible producers identified by the complainant is several times larger than the estimated Canadian market; the production capacity by possible producers of subject goods identified by the complainant is being expanded; the recent removal of preferential tariff treatment by the United States government and the Council of the European Union in respect of Russian copper rod imported into their respective territories, which may cause Russian exporters to pursue other markets such as Canada where subject goods are duty-free.
    
    

Factors Not Related to Dumping and Subsidizing

86. In this industry, prices are normally quoted in US dollars, including exporters to Canada. The increase in the value of the Canadian dollar relative to the US dollar during the POI would lead to a decline in the price of imports as expressed in Canadian dollars. However, the estimated normal values and export prices were first calculated in US dollars which show substantial margins in US dollars, and the alleged margins in Canadian dollars are also significant. The alleged percentage subsidy is not affected by the exchange rate. The CBSA accepts that the US exchange rate may have played a role in decreasing prices expressed in Canadian dollars but that the estimated margin of dumping and the estimated percentage subsidy were the major contributors to low prices from Brazil and Russia and consequential material injury to Nexans.
    
    

CONCLUSION

87. Based on an analysis of the information provided in the complaint, as well as other available information, the CBSA is of the opinion that there is evidence that the subject goods from Brazil and Russia have been dumped and that the subject goods from Brazil have also been subsidized. Further, the CBSA is of the opinion that there is evidence that discloses a reasonable indication that the dumping and subsidizing have caused or are threatening to cause material injury to the Canadian industry of like goods.
    
    
88. As such, an investigation was initiated on August 30, 2006, under subsection 31(1) of SIMA, into the dumping of 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 Russia, and into the subsidizing of the same goods originating in or exported from Brazil.
    
    

SCOPE OF THE INVESTIGATION

89. The CBSA will conduct an investigation to determine whether the subject goods have been dumped and/or subsidized.
    
    
90. All parties have been clearly advised of the CBSA’s information requirements and the time frames for providing their responses.
    
    
91. Information related to export sales has been requested from potential exporters and potential importers concerning their shipments of subject goods released into Canada during the POI of January 1, 2005, to June 30, 2006. This information will be used to estimate normal values and export prices and ultimately to determine whether the subject goods have been dumped and, in respect of certain copper rod originating in Brazil, to estimate amounts of subsidy, if any, and ultimately to determine whether the goods have been subsidized.
    
    
92. Information related to potential actionable subsidies has been requested of the GB concerning financial contributions made to exporters of subject goods of Brazilian origin imported into Canada during the POI. This information will be used to estimate amounts of subsidy, if any, and ultimately to determine whether the goods have been subsidized.
    
    

FUTURE ACTION

93. The Tribunal will conduct a preliminary inquiry to determine whether the evidence discloses a reasonable indication that the alleged dumping and subsidizing of the goods has caused or is threatening to cause injury to the Canadian industry. The Tribunal must make its decision within 60 days after the date of the initiation of the investigation. If the Tribunal concludes that the evidence does not disclose a reasonable indication of injury to the Canadian industry, the investigation will be terminated.
    
    
94. If the Tribunal finds that the evidence discloses a reasonable indication of injury to the Canadian industry and the ongoing CBSA investigation reveals that the goods have been dumped and/or subsidized, the CBSA will make a preliminary determination of dumping and/or subsidizing within 90 days after the date of the initiation of the investigation, by November 28, 2006. Where circumstances warrant, this period may be extended to 135 days from the date of the initiation of the investigation.
    
    
95. If, in respect of any of the named countries, the CBSA’s investigation reveals that imports of the subject goods have not been dumped or, in the case of Brazil, have not been subsidized, that the margin of dumping or amount of subsidy is insignificant or that the actual and potential volume of dumped or subsidized goods is negligible, the investigation will be terminated with respect to such country.
    
    
96. Imports of subject goods released by Customs on and after the date of a preliminary determination of dumping and/or subsidizing may be subject to provisional duty in an amount not greater than the estimated margin of dumping or the estimated amount of subsidy on the imported goods.
    
    
97. Should the CBSA make a preliminary determination of dumping and/or subsidizing, the investigation will be continued for the purpose of making a final determination within 90 days after the date of the preliminary determination.
    
    
98. If a final determination of dumping and/or subsidizing is made, the Tribunal will continue its inquiry and hold public hearings into the question of material injury to the Canadian industry. The Tribunal is required to make a finding with respect to the goods to which the final determination of dumping and/or subsidizing applies, not later than 120 days after the CBSA’s preliminary determination.
    
    
99. In the event of an injury finding by the Tribunal, imports of subject goods released by Customs after that date will be subject to anti-dumping duty equal to the applicable margin of dumping and countervailing duty equal to the amount of any actionable subsidy on the imported goods. Should both anti-dumping and countervailing duties be applicable to subject goods, the amount of any anti-dumping duty may be reduced by the amount that is attributable to an export subsidy.
    
    

RETROACTIVE DUTY ON MASSIVE IMPORTATIONS

100. When the Tribunal conducts an inquiry concerning 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 an investigation constitute massive importations over a relatively short period of time and have caused injury to the Canadian industry.
     
     
101. Should the Tribunal issue such a finding, anti-dumping and countervailing duties may be imposed retroactively on subject goods imported into Canada and released by Customs during the period of 90 days preceding the day of the CBSA making a preliminary determination of dumping and/or subsidizing.
     
     
102. In respect of importations of subsidized goods that have caused injury, however, this provision is only applicable where the CBSA has determined that the whole or any part of the subsidy on the goods is a prohibited subsidy, as explained in the previous section “Evidence of Subsidy”. In such a case, the amount of countervailing duty applied on a retroactive basis will be equal to the amount of subsidy on the goods that is a prohibited subsidy.
     
     

UNDERTAKINGS

103. After a preliminary determination of dumping by the CBSA, an exporter 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. An acceptable undertaking must account for all or substantially all of the exports to Canada of the dumped goods.
     
     
104. Similarly, after a preliminary determination of subsidizing by the CBSA, a foreign government may submit a written undertaking to eliminate the subsidy on the goods exported or to eliminate the injurious effect of the subsidy, by limiting the amount of the subsidy or the quantity of goods exported to Canada. Alternatively, exporters with the written consent of their government may undertake to revise their selling prices so that the amount of the subsidy or the injurious effect of the subsidy is eliminated.
     
     
105. Interested parties may provide comments regarding the acceptability of undertakings within nine days of the receipt of an undertaking by the CBSA. The CBSA will maintain a list of parties who wish to be notified should an undertaking proposal be received. Those who are interested in being notified should provide their name, telephone and fax numbers, mailing address and e-mail address, if available, to one of the officers identified in the “Information” section of this document.
     
     
106. If an undertaking were to be accepted, the investigation and the collection of provisional duty would be suspended. Notwithstanding the acceptance of an undertaking, an exporter may request that the CBSA’s investigation be completed and that the Tribunal complete its injury inquiry.
     
     

PUBLICATION

107. Notice of the initiation of this investigation is being published in the Canada Gazette pursuant to subparagraph 34(1)(a)(ii) of SIMA.
     
     

INFORMATION

108. Interested parties are invited to file written submissions presenting facts, arguments and evidence that they feel are relevant to the alleged dumping and/or subsidizing. Written submissions should be forwarded to the attention of one of the officers identified below.
     
     
109. To be given consideration in this initial phase of the investigation, all information should be received by the CBSA by October 10, 2006.
     
     
110. Any information submitted to the CBSA by interested parties concerning the investigation is deemed to be public information unless clearly marked “confidential”. Where the submission by an interested party is confidential, a non-confidential version of the submission must be provided at the same time. This non-confidential version will be made available to other interested parties upon request.
     
     
111. Confidential information submitted to the CBSA will be disclosed on written request to independent counsel for parties to these proceedings, subject to conditions to protect the confidentiality of the information. Confidential information may also be released to the Tribunal, any court in Canada or a WTO dispute settlement panel. Additional information respecting the CBSA’s policy on the disclosure of information under SIMA may be obtained by contacting one of the officers identified below or by visiting the CBSA’s Web site at the address below.
     
     
112. The investigation schedule and a listing of exhibits and information will be available at http://www.cbsa-asfc.gc.ca/sima-lmsi/i-e/menu-eng.html. The exhibit listing will be updated as new exhibits and information is made available.
     
     
113. This Statement of Reasons has been provided to persons directly interested in these proceedings. It is also posted on the CBSA’s SIMA Web site at the address below. For further information, please contact the following officers:
     
     

     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
     E-mail	simaregistry-depotlmsi@cbsa-asfc.gc.ca
     Fax	613-948-4844
     Web site	http://www.cbsa-asfc.gc.ca/sima

Darwin Satherstrom
Acting Director General
Trade Programs Directorate

Appendix I - Description of Identified Programs and Incentives

Evidence provided by the complainant suggests that the government of Brazil may have provided support to manufacturers of subject goods in the following manner. For purposes of this investigation, "Government of Brazil" (GB) refers to all levels of government, i.e. federal, state or municipal or any person, agency or institution operating under the authority of any of these governments.

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

   There is information in GB publications that ACC is a type of special export financing by which the GB enables banks to finance exports prior to shipment at international interest rates. The complainant has characterized this program as a type of working capital loan program. The complainant has compared the ACC interest rates paid by the exporter as reported in the exporter’s public financial statements with the domestic working capital interest rates published by the Banco Central do Brasil, the Central Bank of Brazil, and arrived at a subsidy estimated at 3.93% of export price in 2003, 4.11% in 2004 and 1.71% in 2005.

   The complainant has also alleged that the exporter deposits the funds received from allegedly preferential loans such ACCs and earns interest at rates significantly higher than the rates paid on the loans, interest that it would not otherwise earn. According to Nexans, the exporter obtains low interest working capital loans six months before export shipment, but working capital loans for copper rod are only normally required two months ahead of shipment or one month ahead of production. The evidence suggests that permitting the recipient to invest the funds and earn interest until such time as the working capital is required is an integral component of the program.

   The CBSA acknowledges that the available evidence is not definitive regarding the role of the GB in respect of ACCs and, as such, the program will be investigated to ascertain the operation of this program and whether the GB is directly or indirectly involved in the provision of these loans.

   In general, the provision of loans by a government constitutes a financial contribution under paragraph 2(1.6) 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).

   The alleged ACC subsidies may be specific as the available information suggests that these loans are available only to exporters. 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) of SIMA.

   In respect of the allegation regarding the investment of ACC loan funds and the interest earned on such investments constituting an amount of subsidy, the CBSA will examine this allegation in more detail during the course of the investigation.

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

   The BNDES is a federal public company that is associated with the Brazilian Ministry of Development, Industry and Foreign Trade. There is information in GB publications that the BNDES provides loans to exporters to help their competitiveness. These loans may be provided directly or through banks accredited by the BNDES. Two of the banks listed by the BNDES are banks that provide financing to the exporter, possibly including the “pre-payment of exports” reported in the exporter’s financial statements. The complainant has compared the “pre-payment of exports” interest rates paid by the exporter with the domestic working capital interest rates published by the Central Bank of Brazil and arrived at a subsidy estimated at 0.18% of export price in 2003, 0.20% in 2004 and 0.52% in 2005.

   The CBSA considers that the evidence sufficiently shows a likelihood that the exporter’s loans in “pre-payment of exports” are preferential loans provided by the GB, either directly by the BNDES or through accredited banks. The provision of loans by a government constitutes a financial contribution under paragraph 2(1.6) 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.

   This alleged subsidy may be specific as the available information suggests that these loans are available only to exporters. 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) of SIMA.

   The complainant’s allegation of interest earned on preferential loan funds that are invested, outlined previously, will also be investigated in respect of this program.

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

   There is information in GB publications that the BNDES maintains a number of schemes that facilitate access to credit including working capital associated with a fixed investment under certain conditions. These loans may be provided directly or through banks accredited by the BNDES. One of the banks listed by the BNDES is a bank that provides financing to the exporter, possibly including “working capital” reported in the exporter’s financial statements. The complainant has compared the “working capital” interest rates paid by the exporter with the domestic working capital interest rates published by the Central Bank of Brazil and arrived at a subsidy estimated at 0.63% of export price in 2004.

   The CBSA considers that the evidence sufficiently shows a likelihood that the exporter’s “working capital” loans are preferential loans provided by the GB, either directly by the BNDES or through an accredited bank. The provision of loans by a government constitutes a financial contribution under paragraph 2(1.6) 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.

   This alleged subsidy may be specific as the available information suggests that these loans are available only for eligible projects. Under SIMA, a subsidy that is limited in law or in fact to certain enterprises constitutes a subsidy under SIMA.

   The complainant’s allegation of interest earned on preferential loan funds that are invested, outlined previously, will also be investigated in respect of this program.

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

   The GB has identified the FINOR program as a subsidy in its Notification of subsidies to the World Trade Organization (WTO) dated October 20, 2005. Under FINOR, approved projects fostering the development of the Northeast Region receive financial assistance from this investment fund in the form of loans convertible into stock. The complainant has alleged that there might be a connection between this program and the exporter’s loans, in particular “working capital” shown on the exporter’s financial statements. The exporter is located in one of the states comprising the Northeast Region for purposes of FINOR and other subsidies as defined in the Notification to the WTO.

   The complainant has compared the “working capital” interest rates paid by the exporter with the domestic working capital interest rates published by the Central Bank of Brazil and arrived at a subsidy estimated at 0.63% of export price in 2004.

   The CBSA considers that the evidence sufficiently shows a likelihood that the exporter’s “working capital” loans and other financing are preferential loans provided by the GB under the FINOR program. The provision of loans by a government constitutes a financial contribution under paragraph 2(1.6) 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.

   This alleged subsidy would be a specific subsidy for the reason that it is limited to enterprises located in the Northeast Region of Brazil.

   The complainant’s allegation of interest earned on preferential loan funds that are invested, outlined previously, will also be investigated in respect of this program.

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

   The GB has identified the FNE program as a subsidy in its Notification of subsidies to the WTO. Under FNE, enterprises carrying out activities in the Northeast Region may receive financial assistance from this fund in the form of loans backed by a “Constitutional Fund”. The complainant has alleged that there might be a connection between this program and the exporter’s loans, in particular “working capital” shown on the exporter’s financial statements. The exporter is located in one of the states comprising the Northeast Region for purposes of FNE and other subsidies as defined in the Notification to the WTO.

   The complainant has compared the “working capital” interest rates paid by the exporter with the domestic working capital interest rates published by the Central Bank of Brazil and arrived at a subsidy estimated at 0.63% of export price in 2004.

   The CBSA considers that the evidence sufficiently shows a likelihood that the exporter’s “working capital” loans and other financing are preferential loans provided by the GB under the FNE program. The provision of loans by a government constitutes a financial contribution under paragraph 2(1.6) 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.

   This alleged subsidy would be a specific subsidy for the reason that it is limited to enterprises located in the Northeast Region of Brazil.

   The complainant’s allegation of interest earned on preferential loan funds that are invested, outlined previously, will also be investigated in respect of this program.

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

   There is information in a GB publication that FINEP is a program of grants and loans to companies involved in certain approved research projects. FINEP is run by the Brazilian Innovation Agency, which is subordinated to the Ministry of Science and Technology. The complainant has noted that the exporter reports financial assistance under this program in its financial statements.

   Neither the complainant nor the CBSA could estimate the benefit to the exporter under this program. However, the CBSA will investigate this program in order to determine the nature of the assistance provided to the exporter and whether it is a specific subsidy in law or in fact.

   The provision of grants and loans by a government constitutes a financial contribution under paragraph 2(1.6) of SIMA. In the case of loans, 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.

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

   The GB has identified the SUDENE/ADENE program as a subsidy in its Notification of subsidies to the WTO. This is a program of income tax exemptions and reductions to provide assistance to enterprises in the Northeast Region. The Northeast Region includes the federal state where the exporter is located. The complainant has noted the amount of income tax exempted under this program in the exporter’s financial statements, and calculated the tax saving as a benefit of 0.78% of export price in 2003, 1.74% in 2004 and 1.41% in 2005.

   Tax revenue that is exempted or reduced is considered a financial contribution under paragraph 2(1.6) of SIMA. In such a case, the benefit conferred to the recipient is equal to the amount of the reduction or exemption in the amount of tax payable by the recipient. This alleged subsidy would be a specific subsidy for the reason that it is limited to enterprises located in the Northeast Region of Brazil.

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

   There is information that: COFINS and PIS are social contributions which all companies are required to pay; prior to February 1, 2004, COFINS was 3% and PIS 0.65% of gross domestic income; as of February 1, 2004, COFINS is 7.6% and PIS 1.65% of gross domestic income less inputs (i.e. of value-added); export sales are exempt from payment of COFINS/PIS.

   The complainant has estimated this alleged export subsidy at 3.65% of export price, the total COFINS/PIS exemption in effect prior to February 1, 2004. For the period subsequent to February 1, 2004, the complainant has estimated the subsidy using the total of the new rates, 9.25%, applied to its estimate of the exporter’s value-added. Value-added was Nexans’ estimate of the exporter’s cost to transform refined copper to copper cathode and copper cathode to copper rod. Subsidy was thus estimated at 3.65% for 2003, 1.30% for 2004 and 1.05% for 2005.

   The treatment of the alleged subsidy and the determination of the amount of subsidy, if any, will depend on the type of taxes that are imposed under COFINS/PIS.

   There is information that COFINS resources finance health and social assistance activities and that PIS resources finance the unemployment insurance and minimum wage programs.

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

9. Suspension of demandability of paying PIS and COFINS levies

   There is information in the public financial statements of the exporter that “the company obtained a preliminary order suspending the demandability of paying PIS and COFINS”. As export revenues are apparently exempt from COFINS/PIS, this further exemption would seem to apply to domestic revenues.

   The amounts of unpaid COFINS/PIS by reason of this order could not be estimated. The CBSA will investigate this allegation to precisely determine the nature and effect of this suspension.

   Revenue that is exempted is considered a financial contribution under paragraph 2(1.6) 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. As it appears that it is “the company” that was granted this additional exemption, the CBSA views it likely that such is not generally available and constitutes a specific subsidy.

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

    The exporter’s financial statements show that there were certain amounts of “assumed credits from the Tax on Industrialized Products - IPI (Brazilian Excise Tax) on the acquisition of raw material taxed at zero rate or not taxed”. There is information that exporters may receive an IPI Tax credit equal to 5.37% of the value of inputs used to produce exported goods in compensation for COFINS/PIS paid on inputs.

    The CBSA is satisfied that there is a likelihood that the “assumed credits” as described in the exporter’s financial statements may be attributable in whole or in part to COFINS/PIS, that the exporter avails itself of the 5.37% credit and that the credit is excessive. This alleged subsidy is based on previous investigations by the United States Government that found that the assumed COFINS/PIS credits, deducted from IPI taxes due, were excessive.

    The complainant has calculated this alleged subsidy to be 5.48% of export price. This was arrived at by applying the 5.37% credit on estimated raw material costs and expressing the result as a percentage of estimated export price. It is noted that the complainant’s estimated cost is higher than the estimated export price.

    The CBSA notes that this estimate covers information concerning COFINS/PIS prior to February 1, 2004. The complainant could not estimate an amount of excessive credit under the new COFINS/PIS systems. The investigation will cover COFINS/PIS credits that the exporter may have been granted by the GB in respect of inputs to produce subject goods exported during the period of investigation.

    Excessive relief of taxes on inputs contingent on the export of goods constitutes a financial contribution under paragraph 2(1.6) of SIMA. A subsidy that is contingent on export performance constitutes an export subsidy that is deemed specific under paragraph 2(7.2) of SIMA.

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

    There is information that: the Contribuição social sobre o lucro (CSSL or CSL) is 9% of net profit and that the exporter received an exemption from paying CSSL; the GB, at the national and state level, provides incentives to exporters and to companies located in the Northeast Region in the form of tax relief.

    The CBSA is satisfied that there is a likelihood that this exemption has been granted under a program that is not generally granted to all companies in Brazil.

    The amount of unpaid CSSL by reason of this exemption was calculated at 9% of the net profits reported by the exporter. The exempted amounts resulted in an estimated subsidy of 0.56% of export price in 2004 and 0.21% in 2005.

    The exemption of revenues constitutes a financial contribution under paragraph 2(1.6) of SIMA. This alleged subsidy would be a specific subsidy for the reason that it is export-contingent, limited to enterprises located in the Northeast Region of Brazil or otherwise not generally available. The exempted amounts would fall under subsection 27.1(2) of the SIMR that stipulates that any amount owing and due to a government that is exempted shall be treated as a grant.

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

    There is information that: CPMF is assessed on financial transactions at the rate of 0.38%; the exporter received an “order suspending the payment of CPMF”; the GB, at the national and state level, provides incentives to exporters and to companies located in the Northeast Region in the form of tax relief.

    The CBSA is satisfied that there is a likelihood that this exemption has been granted under a program that is not generally granted to all companies in Brazil.

    The amount of unpaid CPMF by reason of this suspension order was calculated as the difference between the accrued amount reported in the exporter’s financial statements one year and the accrued amount reported for the previous year. The amounts were expressed as a percentage of total sales, resulting in an estimated subsidy of 0.31% of export price in 2004 and 0.36% in 2005.

    The exemption of revenues constitutes a financial contribution under paragraph 2(1.6) of SIMA. This alleged subsidy would be a specific subsidy for the reason that it is export-contingent, limited to enterprises located in the Northeast Region of Brazil or otherwise not generally available. The exempted amounts would fall under subsection 27.1(2) of the SIMR that stipulates that any amount owing and due to a government that is exempted shall be treated as a grant.

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

    There is information that the GB, at the national and state level, provides incentives to exporters, certain industrial sectors and to companies located in the Northeast Region in the form of preferential loans as well as duty and tax relief including: preferential loans in pre-payment of exports under Brazil’s Export Exchange Regulations; suspension of COFINS/PIS payable by exporters on capital goods and imported machinery; preferential capital goods depreciation for income tax purposes for companies in the Northeast; BNDES, FINAME and ADENE support for mining enterprises; export credit and buyer’s credit under BNDES-EXIM and PROEX programs; incentives available from the state in which the exporter is located including ICMS state tax reductions for the metallurgy sector.

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1. WTO, New and Full Notification Pursuant to Article XVI:1 of the GATT 1994 and Article 25 of the Agreement on Subsidies and Countervailing Measures, Brazil, Doc. G/SCM/N/123/BRA (20 October 2005).

2. WTO, Trade Policy Review, Brazil, Doc. WT/TPR/S/140 (1 November 2004).

3. United States Department of Commerce, Import Administration, Electronic Subsidies Enforcement Library, Brazil, General, http://ia.ata.doc.gov/esel/brazil/02-830a.html, Issues and Decision Memorandum for the Final Determination in the Countervailing Duty Investigation of Carbon and Certain Alloy Steel Wire Rod from Brazil, August 23, 2002.

4. Canadian International Trade Tribunal:

- NQ-92-009, certain cold-rolled sheet from Germany, France, Italy, the UK and US, Statement of Reasons August 13, 1993, page 20:

“Consistent with previous decisions, the Tribunal determined that both internally transferred goods for further manufacture (furtherance) and goods sold in the Canadian market must be considered part of the domestic production for purposes of its injury inquiry. In determining if dumping caused material injury, however, the Tribunal focused principally on those indicators relating to sales in the domestic market. They include trends and levels of imports and market shares, prices and financial performance.”

- NQ-99-003, certain contrast media from the US, Statement of Reasons May 16, 2000, page 19:

“In the Tribunal’s view, the effects of the domestic industry’s export performance, albeit favourable, does not negate the material injury caused directly by the dumping of the subject goods through price erosion and lost sales in the domestic market.”

- NQ-2004-006, certain laminate flooring from Austria, Belgium, China, France, Germany and Poland, Statement of Reasons, June 30, 2005, paragraph 87:

“In this case, as will be discussed later in this statement of reasons, the Tribunal determined that Uniboard’s injury in the domestic market, which was caused by the dumping and subsidizing of the subject goods, was material, even while it enjoyed some success in the export market.”