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OTTAWA, March 13, 2007

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

STATEMENT OF REASONS

Concerning the making of a final determination with respect to the dumping of

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

and the making of a final determination of subsidizing of

CERTAIN COPPER ROD
ORIGINATING IN OR EXPORTED FROM BRAZIL

DECISION

On February 26, 2007, pursuant to paragraph 41(1)(a) of the Special Import Measures Act, the President of the Canada Border Services Agency made a final determination of dumping with respect to certain copper rod originating in or exported from Brazil and the Russian Federation and made a final 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, 2006The complainant provided evidence to support its claim 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 NexansOn 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 (Subsidies Agreement), being part of Annex 1A to the World Trade Organization (WTO).

  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 injurious 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 inquiryOn October 30, 2006, the Tribunal determined that there is evidence that discloses a reasonable indication that the dumping and subsidizing of certain copper rod have caused injury to the Canadian industry.

  5. On November 28, 2006, pursuant to subsection 38(1) of the Special Import 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 For details regarding the basis of the preliminary determination, consult the Statement of Reasons issued on December 13, 2006, which is available on the CBSA Web site at http://www.cbsa-asfc.gc.ca/sima-lmsi/i-e/menu-eng.html.

  6. The CBSA continued its investigation and, on the basis of the results, the President is satisfied that certain copper rod originating in or exported from Brazil and Russia has been dumped and that the margins of dumping are not insignificantFurthermore, the President is also satisfied that certain copper rod originating in or exported from Brazil has been subsidized and that the amount of subsidy is not insignificantConsequently, on February 26, 2007, the President made a final determination of dumping and subsidizing pursuant to paragraph 41(1)(a) of SIMA.

  7. On November 29, 2006, the Tribunal initiated an inquiry into the question of injury to the Canadian industryThe Tribunal will issue its finding by March 28, 2007.

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, FranceIts Canadian headquarters are in Markham, Ontario, and it has a copper rod mill located on 460 Durocher Avenue, Montréal-Est, QuebecIn 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 vendorsAs 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 vendorsA Request for Information (RFI) was sent to all of those companies.

  2. The CBSA has since confirmed that one producer/exporter from Brazil was involved in exporting subject goods to Canada during the POI. This exporter was involved in the export of all subject goods from Brazil It was also confirmed that the majority of the goods originating from Brazil were sold to an importer in Canada through a vendor located in the U.SBoth the exporter and the vendor provided a response to the CBSA’s RFI.

  3. With respect to subject goods originating in Russia, while no producer or exporter in Russia provided a response to the CBSA’s RFI, the information on the record seems to indicate that the subject goods were produced by a total of three Russian manufacturersWith the exception of one transaction, all goods were sold to one importer in Canada by a vendor located in the U.S. and exported from Russia to CanadaOther vendors located in several countries were also involved in the same transactions. In the other transaction, the goods were exported to Canada from the U.SThe exporter located in the U.S. as well as the vendor located in that country provided responses to the CBSA’s RFI.

Importers

  1. When the investigation was initiated, the CBSA identified four known or possible importers of the subject goodsAn RFI was sent to all identified importers or possible importersDuring 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 companyA complete submission was received from one importer, Prysmian Canada.

  2. 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 reasons explained in the “Representations Concerning the Dumping Investigation” section below.

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 conductorsWire 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 49This requires the use of pure copper of a minimum of 99.9% copper contentThe 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 processThe raw material is copper cathode, sheets of 99.9% pure copper measuring about one square meter produced in an electrolytic processCopper 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 industryNexans also exports to the U.S. and other countriesNexans has a nominal production capacity of 260,000 tonnes per year 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 internallyThe 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 final stage of the investigation, the CBSA further refined the import data that was used for the purpose of the preliminary determination. The CBSA utilized its internal information systems, reviewed customs accounting documents and examined confidential information received during the investigation from exporters, vendors and importersAs a result, the volume of importations of like goods originating in the U.S. was revised upward.

  2. As was indicated at the time of the preliminary determination, certain goods that met the product definition at the time they were produced became damaged in transit to a point that they were no longer useable as copper rod for the intended customerAs a result, these goods were sold as copper scrap to the complainant to be melted in its furnace. After the preliminary determination, the CBSA continued to investigate this matter and determined that these goods were not subject goods.

  3. The following table presents the percentage share of copper rod import volumes into Canada as established by the CBSA:

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

    Imports into Canada Percentage of Total Import Volume
    Brazil 39.6%
    Russia 21.6%
    Total Imports from Subject Countries 61.2%
    United States 38.7%
    Other Countries 0.1%
    Total Imports from Non-Subject Countries 38.8%
    Total Imports 100.0%

DUMPING INVESTIGATION

  1. At the time of the initiation of the investigation, information was requested from known and possible exporters, vendors and importers concerning shipments of subject goods released into Canada during the POI.

  2. The purpose of this information is to determine normal values and export prices and ultimately to determine whether the subject goods have been dumped and, in respect of certain copper rod from Brazil, to determine amounts of subsidy, if any, and ultimately to determine whether the goods have been subsidized. Information related to potential actionable subsidies was also requested from the GB concerning any financial contributions made to exporters of subject goods of Brazilian origin imported into Canada during the POI.

  3. Normal values are generally based on the domestic selling prices of the goods in the country of export or on the total cost of the goods (cost of production, administrative, selling and all other costs) plus an amount for profit. The export price of goods sold to an importer in Canada is generally an amount equal to the lesser of the adjusted exporter's selling price and the adjusted importer's purchase price for the goods These prices are adjusted where necessary by deducting the costs, charges, expenses, duties and taxes resulting from the exportation of the goods as provided for in subparagraph 24(a)(i) to 24(a)(iii) of SIMAThe margin of dumping for each exporter is determined by subtracting the total export price from the total normal value of all of the goods shipped to Canada during the POI.

  4. Submissions were received from the exporter/producer in Brazil, from a U.S. exporter of goods originating in Russia, from a U.S. vendor involved in sales from both Brazil and Russia, from one importer in Canada as well as from the GBInformation pertaining to purchases of imported damaged copper rod originating in the named countries was obtained from the relevant parties throughout the course of the investigation.

RESULTS OF THE DUMPING INVESTIGATION

Brazil

  1. All subject goods originating in Brazil were produced and exported by Caraíba. This company provided a complete response to the dumping RFIIn December 2006, the CBSA conducted an on-site verification at Caraíba’s premises.

a) Normal Values

  1. The normal values for Caraíba were determined on the basis of the information provided by the exporterCaraíba had sales of identical goods in its domestic marketFor all sales to Canada, the normal values were determined on the basis of the weighted average selling price of domestic sales of like goods, pursuant to section 15 of SIMA.

  2. A normal value adjustment was made pursuant to paragraph 5(d) of the Special Import Measures Regulations (SIMR) to take into account differences in the conditions of sale between the subject goods sold to Canada and like goods sold domesticallyDetails regarding this adjustment are found in the “Representations Concerning the Dumping Investigation” section belowNormal value adjustments were also made pursuant to sections 8 and 10 of SIMR to deduct the delivery costs as well as the taxes that were included in the selling prices, where appropriate.

b) Export Prices

  1. Export prices were determined pursuant to section 24 of SIMA on the basis of the lesser of the adjusted exporter’s selling price and the adjusted importer’s purchase price for the goodsThese prices were adjusted where necessary by deducting the costs, charges, expenses, duties, and taxes resulting from the exportation of the goods as provided for in subparagraph 24(a)(i) to 24(a)(iii) of SIMA.

c) Margin of Dumping

  1. The total normal value was compared with the total export price for all subject goods imported into Canada during the POI It was determined that the subject goods from Caraíba were dumped. The weighted average margin of dumping was 10.6%, expressed as a percentage of export priceWhen the normal value of subject goods sold to Canada exceeded the export price, the margins of dumping for those transactions ranged from 3.6% to 19.7%.

Russia

  1. None of the Russian producers/exporters provided a response to the CBSA’s RFI. 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 CanadaIn 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 exportThe U.S. exporter, Glencore Ltd. (Glencore), was initially requested to provide information as a vendor. That information was provided on a timely basisThe CBSA subsequently requested that Glencore provide supplementary information necessary to determine the normal value in the U.SThe information was requested by October 27, 2006This information was received on December 8, 2006, too late to be considered by the CBSA in determining normal values for GlencoreAs a result, the normal value for that transaction was determined by ministerial specification pursuant to section 29 of SIMA in the manner explained in the following section.

a) Normal Values

  1. The normal values for all goods originating in or exported from Russia were determined by ministerial specification pursuant to section 29 of SIMA 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 19.7%.

b) Export Prices

  1. The export prices of subject goods of Russian origin were based on the declared selling prices found on the customs entry documentation, pursuant to section 29 of SIMA.

c) Margin of Dumping

  1. On the basis of the above, it was determined that 100% of the subject goods originating in or exported from Russia were dumped by a margin of dumping of 19.7%, expressed as a percentage of export price.

    Summary of Final Results of Dumping Investigation

    Country Margin of Dumping as Percentage of Export Price Dumped Goods as Percentage of Country Imports Country Imports as Percentage of Total Imports Dumped Goods as Percentage of Total Imports
    Brazil 10.6% 100.0% 39.6% 39.6 %
    Russia 19.7% 100.0% 21.6% 21.6%


  2. In making a final determination of dumping in relation to goods imported from a country in the investigation, the President must be satisfied that the subject goods have been dumped and that the margin of dumping is not insignificant. Subsection 2(1) of SIMA defines ‘insignificant’ as being less than 2% of the export price of the goodsThe table above indicates that the margins of dumping are not insignificant.

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

Representations Concerning the Dumping Investigation

  1. Case arguments with respect to the dumping investigation were received from Nexans, Caraíba and PrysmianNexans also provided a reply submission in response to the case arguments received from other partiesIn the section below, listed by topic, are details of the case argumentsFollowing each argument is a response explaining the position of the CBSA.

1. Use Of A Methodology That Avoids Distortions Due to LME Variations For Copper Concentrates

  1. In its Case Arguments, Caraíba noted that the price of copper concentrates plays a crucial role in establishing copper rod selling prices and cost of productionFor the purpose of this argument, a brief background of the pricing convention of copper rod is providedThe price of copper rod consists of the following components: the price of refined copper, a commodity exchanged on the London Metal Exchange (LME), a “cathode premium” which includes the cost of transformation of refined copper into cathode form, and the “rod premium” which includes the cost of the transformation of copper cathode into rodThe cathode premium is a quoted benchmark price published by Codelco, Chile, and is sometimes included in the rod premium or sometimes as a separate item. Therefore the pricing of copper rod is the LME price plus a rod premium.

  2. Caraíba noted that the price of copper quoted on the LME increased consistently throughout the POI and consequently so did the price of copper rodIn light of the requirement to determine the normal values on the basis of the weighted average price of domestic sales in a period of 60 days, Caraíba argued that the CBSA must use a methodology that will avoid creating dumping artificially merely based on the variations of the LME copper price from month to month.

  3. Caraíba proposed two options to avoid such distortions. The first option was to select the 60-day period in a manner that would never include a period of time that is subsequent to the sale to Canada. For example, if a sale is made in March, the 60-day period could be February-March or January-February, but never March-April. Alternatively, Caraíba suggested that the domestic sales prices could be adjusted to account for LME copper price variations from one month to the next.  Caraíba submitted that any differences in the LME copper price upon which the domestic and export sales are based would amount to a difference in an essential condition of sale, and warrant an adjustment pursuant to paragraph 5(d) of SIMR.

  4. In its reply submission, Nexans objected to both of Caraíba’s proposed methodologiesWith respect to the first proposal, Nexans submitted that Caraíba’s methodology would unfairly distort the analysis in its favour, by comparing export sales during one period with domestic sales made during a different periodNexans submitted that the CBSA should compare export sales with domestic sales made in the same month, claiming that section 15 of SIMA indicates that “a period other than a period of sixty days” may be utilizedWith respect to Caraíba’s alternative methodology, Nexans argued that commodity price fluctuations were not a condition of sale and thus, that SIMR did not allow for the proposed adjustment Nexans also stated that it would be impossible to accurately reflect the daily and monthly fluctuations in the price of copper on international exchangesThus, Nexans claimed that Caraíba’s proposed adjustment would significantly distort the proper determination of normal values.

CBSA’s Response:

  1. First, the CBSA recognizes that, given the wide fluctuations in copper pricing during the POI, careful attention must be given to the methodology used to compare a sale to Canada with domestic sales.

  2. Regarding the selection of the 60-day period, the CBSA is not of the opinion that Caraíba’s first proposal would result in the proper determination of normal values for sales to CanadaGiven that LME copper prices increased steadily over the POI, Caraíba’s proposal could result in understated normal values by basing normal values on domestic sales that occurred before the sale to Canada.

  3. Nexans suggested that section 15 of SIMA allows for the determination of the weighted average domestic prices based on sales made in a period of 30 days. While SIMA does indicate that “a period other than a period of sixty days” may be utilized, this alternative period must be a period of at least 60 daysAccordingly, the CBSA used periods of 60-days determined in an objective manner, and dealt with the LME fluctuations in a separate mannerIn order to establish periods of 60-days, the CBSA divided the 18-month POI into nine consecutive 60-day periodsSales to Canada were compared with domestic sales made in the 60-day period in which the sale to Canada occurred.

  4. In order to deal with the effect that the LME copper price fluctuations have on the price of copper rod, the CBSA made an adjustment to reflect differences in conditions of sale pursuant to paragraph 5(d) of SIMR, although not in the manner suggested by CaraíbaThe CBSA considers that the quotation period used to determine the LME copper price element of the selling price of copper rod is a condition of saleWhen sales of copper rod to Canada are based on a given quotation period, and the domestic sales used to determine normal values are based on a different quotation period, a difference in the conditions of sales is considered to exist This difference warrants an adjustment to the domestic selling prices.

  5. The methodology used by the CBSA to adjust the domestic selling prices to account for this difference in the conditions of sales is as followsFor a given sale to Canada for which a normal value is to be determined, the LME copper-pricing component of the copper rod is established on the quotation period used to set up the full and final priceFor every domestic sale made in the same 60- day period, an adjustment was made either upward or downward to eliminate the effect of the variations of copper price resulting from the use of different quotation periods, thus focusing the comparison on the rod premium.

2. Use of Domestic Sales in the Largest Quantities to Determine Normal Values

  1. In its Case Arguments, Caraíba stated that SIMA directs the CBSA to determine normal values based on sales made in comparative quantities. Accordingly Caraíba argued that the CBSA should calculate normal values based on domestic sales that involve the greatest number of coils, removing those below a certain thresholdAlternatively, Caraíba suggests an adjustment to the selling prices pursuant to section 4 of SIMR, to take into account a pricing policy that is dependant on quantities sold, where no specific quantity discount can be determined.

  2. In its reply submission, Nexans argued that all domestic sales should be included for the purposes of determining normal values, without regard to quantitiesNexans submitted that since Caraíba indicated that it offered no discounts or rebate, then Caraíba’s pricing policy was not dependant on quantities sold and thus, a quantitative adjustment pursuant to SIMR was not warranted.

CBSA’s Response:

  1. As directed by section 15 of SIMA, the CBSA determined the normal values on the basis of sales made in the same or substantially the same quantities as the sale of goods to the importerThe CBSA categorized domestic customers into three categories on the basis of the volume of like goods purchased during the POI The importers in Canada were also categorized on the basis of volume, and the normal values for their purchases were determined on the basis of the selling prices of the domestic sales to customers within the corresponding category. As a result, there was no need for a quantitative adjustment pursuant to section 4 of SIMR.

3. Treatment of Financial Income

  1. Caraíba submitted that the CBSA should include interest earned on short-term investments as well as foreign exchange gains in the calculation of Caraíba’s financial expenseNexans on the other hand submitted that interest income and exchange rate gains are independent of its costs of production and sale and should not be taken into account for purposes of determining normal values.

CBSA’s Response:

  1. In its calculation of the costs of production and sale of the goods, the CBSA did allow the interest earned on short-term investments to offset interest expenses, and foreign exchange gains to offset foreign exchange losses, to the extent that the offset was not greater than the corresponding expense or loss.

4. Selling, General and Administrative Expenses (SG&A)

  1. With respect to the calculation of the cost of sales of like goods, Caraíba submitted that the CBSA should not use the total selling expenses reported in the Income Statement, but only include in SG&A expenses that relate to domestic sales of like goodsNexans submitted that the allocation of selling expenses to the cost of sales in a given market should reflect the selling activities undertaken by Caraíba in that market.

CBSA’s Response:

  1. Caraíba had allocated commercial expenses between the various products and markets on the basis of ratios determined based on the sales revenues generated by each product group and in each market in the previous fiscal periodThe allocation was done on a monthly basisCaraíba allocated different amounts to the cost of the export sales and the cost of domestic sales, without substantiating the reason for a different allocation. The CBSA re-allocated commercial expenses in the same manner as the general and administrative expenses were allocated, that is, on the basis of the cost of goods sold.

5. Difference in Credit Terms

  1. Caraíba submitted that the CBSA should calculate an adjustment to account for the difference in credit terms between domestic and export sales, pursuant to paragraph 5(d) of SIMR.

  2. Nexans stated that any difference in credit terms was minimal and referred to the CBSA’s policy that an adjustment under paragraph 5(d) of SIMR will generally be made only in instances where, after examining the differential between the credit terms available in the exporter's domestic market and those available on sales to Canada, it is determined that there is more than a 30 day difference in the credit terms available in each market.

CBSA’s Response:

  1. Paragraph 5(d) of SIMR takes into account the difference in timing of the exporter's receipt of money paid by the importer in Canada and by the exporter's domestic customersThe value of the money owing is generally determined by establishing the interest rate prevailing at the time monies were owing to the exporterThe difference in the value of the two payment periods is quantified on this basis and this quantified difference is the adjustment to the price of the like goods This adjustment could be either an addition to or a deduction from the price of the like goods depending on which party has the longer payment period (i.e., the importer in Canada or the exporter's domestic customers).

  2. The CBSA calculated the weighted average number of days between the date of sale and the date of payment in both markets and determined that the difference was not significantIn addition, the CBSA also considered other factors, namely the impact of the date of sale methodology on the determination of the average number of collection daysThe CBSA concluded that there was no difference in credit terms and that no adjustment was warranted.

6. Inclusion of Caraíba’s Domestic Sales of Oxyfree copper rod

  1. Nexans submitted that Caraíba’s domestic sales of a type of copper rod known as Oxyfree were like goods because it is completely substitutable for and interchangeable with other copper rod. As such, Nexans argued that the sales of Oxyfree rod must be included with other like goods for purposes of determining the like goods.

CBSA’s Response:

  1. Section 2 of SIMA defines like goods as follows:

    "like goods", in relation to any other goods, means

    (a) goods that are identical in all respects to the other goods, or

    (b) in the absence of any goods described in paragraph (a), goods the uses and other characteristics of which closely resemble those of the other goods;

  2. Oxyfree rod is produced under different conditions than copper rod sold to Canada and is therefore not considered to be “identical in all respects” to the subject goods shipped to Canada. Accordingly, sales of Oxyfree rod were not considered in the determination of normal values.

7. Freight Expenses

  1. Nexans submitted that the use of average freight costs for domestic sales, as reported by Caraíba, distorts the true amount of freight costs and hence the proper normal value of copper rod.

CBSA’s Response:

  1. The CBSA is of the opinion that it would not be appropriate to apply the same average delivery cost to domestic customers in Brazil given the size of Brazil and the differences in actual delivery costs for different parts of the countryAccordingly, the freight deductions were revised to reflect the average cost incurred by Caraíba in delivering the like goods to destinations within a number of common transportation zones in Brazil.

8. Determination of the Importer in Canada

  1. Prysmian submitted that for purposes of the final determination, it should not be treated as the importer in Canada with respect to certain importationsPrysmian’s argument relates to the importations where it was not the importer of recordIn support of its argument, Prysmian referred to the Tribunal’s Importer Ruling under Section 90 of SIMA regarding Bicycles in Request No. MP‑2003-001 [2004]Prysmian noted several questions that the Tribunal paid particular attention to in order to identify the “importer in Canada”, including who handles the importation, who assumes the risk inherent in being the importer and who has control over the country of origin of the goods, among others.

  2. Nexans made similar arguments with respect to its purchase of certain damaged coils during the POI. Nexans argued that it was not the importer of the goodsNexans argued that from its perspective, it made a domestic purchase of scrap copper and that it did not negotiate terms and conditions for the purchase of copper rod to be shipped from any foreign source and that it was not the entity that caused the product to be shipped to CanadaNexans also submitted that for purposes of future sales of similar goods under similar circumstances, to the extent that such goods are subject to anti-dumping and countervailing duty, that there would be no basis to characterize Nexans as the importer for SIMA purposes.

CBSA’s Response:

  1. With respect to the damaged goods purchased by Nexans, the CBSA did not consider the goods as subject goods for purposes of the investigationThe CBSA considered the extent of the damage to the goods and how they were used - Nexans melted the goods in its furnace, providing feed to its rod mill - and on that basis considered the transaction as a purchase of copper scrap.

  2. Regarding the determination of the importer in Canada, the CBSA considers Prysmian Canada to be the importer for the purposes of SIMA. In subsection 2(1) of SIMA, the importer is defined as the person who is in reality the importer of the goods in questionIn order not to disclose confidential information, specific information concerning the roles of each of the parties involved in the transactions cannot be revealed.

  3. However, in making this determination, the CBSA considered the substance rather than the form of the transactionsThe CBSA considered which of the parties was the originator of the import transaction, the conditions involved in the transaction, the journey of the goods from their origin, the party to whom the goods were ultimately destined, and the final use of the goods within Canada.

  4. After this consideration, the CBSA is satisfied that Prysmian Canada is the importer for the purposes of SIMA.

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 goodsA 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:

    • a) practices of the government involve the direct transfer of funds or liabilities or the contingent transfer of funds or liabilities;

    • b) 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;

    • c) the government provides goods or services, other than general governmental infrastructure, or purchases goods; or

    • d) 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 specificA subsidy is considered to be specific when it is limited, in law, to a particular enterprise or is a prohibited subsidyAn “enterprise” is defined under SIMA as also including a group of enterprises, an industry and a group of industriesA “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:

    • a) there is exclusive use of the subsidy by a limited number of enterprises;

    • b) there is predominant use of the subsidy by a particular enterprise;

    • c) disproportionately large amounts of the subsidy are granted to a limited number of enterprises; and

    • d) 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 BrazilIn reviewing the information provided by the complainant and obtained by the CBSA through its own research, the CBSA had 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 investigationThis 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 Request for Information regarding alleged subsidies (subsidy RFI) to the exporter of subject goods in Brazil as well as to the GBA subsidy RFI was sent to possible vendors and importers of subject goods originating in BrazilInformation 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.

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), the vendor Mitsubishi International Corporation, New York, New York, U.S. (MIC), and the importer Prysmian Power Cables and Systems Canada, St-Jean-sur-Richelieu, Quebec (Prysmian).

  2. MIC acted as vendor and non-resident importer Prysmian was the consignee and is considered the importer for SIMA purposes.

  3. CBSA officers conducted on-site verifications in December 2006 at the premises of Caraíba in Dias D'Ávila, Bahia, Brazil, and at offices of the GB in Brasilia, Brazil.

Amount of Subsidy

  1. Based on the information received in the course of this investigation, the CBSA has found two actionable subsidies that conferred benefits to Caraíba on the subject goods totalling 250 Brazilian reals per metric tonne, which represented 2.5% of the export price of the goods.

  2. In respect of other allegations of subsidy by the complainant, the CBSA found them either not to constitute subsidies on the subject goods during the POI or not used by CaraíbaThe findings regarding the two actionable subsidies are summarized in the next sectionThe Appendix to this Statement of Reasons contains more details regarding these subsidies as well as the findings with respect to the other investigated allegations of subsidy.

Actionable Subsidies

Income Tax Exemption under the SUDENE/ADENE Program

  1. Caraíba received an exemption from paying income tax from the Superintendência para o Desenvolvimento do Nordeste (SUDENE), the Northeast Region Development AuthoritySUDENE has since been replaced by the Agência de Desenvolvimento do Nordeste (ADENE), the Northeast Region Development Agency, which also administers benefits granted by SUDENE The SUDENE/ADENE programs provide tax breaks to companies located in the Northeast Region of Brazil, where Caraíba is locatedThe tax exemption is specific to this region and is therefore actionableThe financial contribution by the GB is the foregone tax revenueThe benefit to Caraíba is the amount of income tax that is exempted.

Suspension of Payment of CSLL Contributions

  1. Caraíba has not been paying the Contribuição Social Sobre o Lucro Liquido (CSLL), or the Social Contribution on Net Profit Caraíba sued the GB alleging that the CSLL legislation is unconstitutional and received a favourable court order allowing the company to suspend payment of CSLL until resolution of the matterThe suspension is specific to Caraíba and is therefore actionableThe financial contribution by the GB is the amount of CSLL contributions not collected from CaraíbaThe benefit to Caraíba is the amount of CSLL that is not paid.

  2. The total amount of the benefits conferred to Caraíba from these two actionable subsidies and attributed to the subject goods represented 250 Brazilian reals per metric tonne, or 2.5% of export price With respect to each of these actionable subsidies, the amounts of the benefits and resultant amounts of subsidy may not be divulged as their publication would compromise confidential information received from Caraíba.

  3. The CBSA notes that a potential subsidy which was included in the preliminary determination of subsidizing, exemption of export revenue from PIS and COFINS contributions, was found not to constitute a subsidyDetails on this finding are in the Appendix to this Statement of Reasons.

  4. In making a final determination of subsidizing under subsection 41(1) of SIMA, the President must be satisfied that the subject goods have been subsidized and that the amount of subsidy on the goods of a country is not insignificantAccording to subsection 2(1) of SIMA, an amount of subsidy that is less than 1% of the export price of the goods is considered insignificant.

  5. However, section 41.2 of SIMA directs the President to take into account the provisions of Article 27 of the Subsidies Agreement when conducting subsidy investigations, and these provisions stipulate that any investigation involving a developing country must be terminated as soon as the President determines that the total amount of subsidy for a developing country does not exceed 2% of the export price of the goods.

  6. The CBSA normally makes reference to Part I of the DAC List of Aid Recipients, maintained by the Organization for Economic Co-operation and Development i, to determine eligibility for the differential amounts for developing countries in subsidy investigationsAs Brazil is a developing country according to this list, the 2% threshold for insignificance would applyThe amount of subsidy determined in respect of the subject goods from Brazil represented 2.5% of export price and is therefore not insignificant.

  7. For purposes of a preliminary determination of subsidizing, the President has responsibility for determining whether the actual or potential volume of subsidized goods is negligibleAfter a preliminary determination of subsidizing, the Tribunal assumes this responsibilityIn 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 subsidized goods from a country is negligible.

REPRESENTATIONS CONCERNING THE SUBSIDY INVESTIGATION

  1. Case arguments were received from the GB, Caraíba and NexansA reply submission was received from Nexans.

  2. The GB noted that it did not have access to the full documentation pertinent to the investigation, and that its case arguments were therefore based only on public documents made available by the CBSA, in particular the Statement of Reasons covering the preliminary determination The CBSA notes that the GB had the opportunity to secure legal counsel for review of confidential information and obtain advice from counsel to prepare case arguments.

  3. Representations concerning the specific allegations of subsidy that were investigated are summarized in the Appendix to this Statement of Reasons.

DECISION

  1. On the basis of the results of the investigation, the President is satisfied that certain copper rod originating in or exported from Brazil and Russia has been dumped and that the margins of dumping are not insignificantConsequently, on February 26, 2007, the President made a final determination of dumping pursuant to paragraph 41(1)(a) of SIMA.

  2. Similarly, the President is satisfied that certain copper rod originating in or exported from Brazil has been subsidized and that the amount of subsidy is not insignificantAs a result, on February 26, 2007, the President made a final determination of subsidizing pursuant to paragraph 41(1)(a) of SIMA.

FUTURE ACTION

  1. The provisional period began on November 28, 2006, and will end on the date the Tribunal issues its findingThe Tribunal is expected to issue its decision by March 28, 2007Subject goods imported during the provisional period will continue to be assessed provisional duty as determined at the time of the preliminary determination For further details on the application of provisional duty, refer to the Statement of Reasons issued for the preliminary determination, which is available on the CBSA Web site at http://www.cbsa-asfc.gc.ca/sima-lmsi/menu-eng.html.

  2. If the Tribunal finds that the dumped and/or subsidized goods have not caused injury and do not threaten to cause injury, all proceedings relating to this investigation will be terminatedIn this situation, all provisional duty paid or security posted by importers 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. If the Tribunal finds that the dumped and/or subsidized goods have caused injury, the anti‑dumping and/or countervailing duty payable on subject goods released into Canada during the provisional period will be finalized, pursuant to section 55 of SIMAImports released into Canada after the date of the Tribunal’s finding will be subject to anti-dumping duty equal to the margin of dumping and/or countervailing duty equal to the amount of subsidyIn that event, the importer in Canada shall pay all such dutyIf 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 (AMP) could be imposedThe provisions of the Customs Act apply with respect to the payment, collection or refund of any duty collected under SIMAAs a result, failure to pay duty within the prescribed time will result in the application of interest.

  4. Specific normal values and the amount of subsidy for the subject goods have been provided to the co-operating exporter Should the Tribunal make an injury finding, these normal values and amount of subsidy will come into effect the day after the date of the injury finding. Anti-dumping duty will apply based on the amount by which the normal value exceeds the export price of the subject goods.

  5. Exporters that did not respond to the CBSA’s dumping RFI, or provided an incomplete response, will have normal values established by advancing the export price by the highest margin of dumping found from the co-operating exporter, in this case 19.7%, based on a ministerial specification pursuant to section 29 of SIMA.

  6. In the event of importations of subject goods originating in Brazil and exported by companies other than Caraíba, countervailing duty of 250 Brazilian reals per metric tonne will apply, based on a ministerial specification under subsection 30.4(2) of SIMA.

RETROACTIVE DUTY ON MASSIVE IMPORTATIONS

  1. Under certain circumstances, anti-dumping and countervailing duties can be imposed retroactively on subject goods imported into CanadaWhen 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 industryShould 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 subsidyIn this case, the amount of subsidy does not include any amount of prohibited subsidy.

PUBLICATION

  1. A notice of this final determination of dumping and subsidizing will be published in the Canada Gazette pursuant to paragraph 41(3)(a) of SIMA.

INFORMATION

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

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

    Telephone:
    Vincent Gaudreau 613-954-7262
    Ben Walker 613-952-8665

    Fax:
    SIMA Registry 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

i. 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

FINDINGS OF THE INVESTIGATION INTO THE ALLEGED SUBSIDIZING OF CERTAIN COPPER ROD ORIGINATING IN OR EXPORTED FROM BRAZIL AND DETERMINATION OF ACTIONABLE SUBSIDIES

.

The Period of Investigation (POI) covered subject goods released into Canada from January 1, 2005, to June 30, 2006.

Actionable Subsidies

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 breaksContractual 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, Government of Brazil (GB), pursuant to article 37 of law Nr. 5.508 of October 11, 1968, and Resolution No. 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, 1959Provisional Measure 2157-5 of August 2001 extinguished SUDENEObligations under SUDENE are being upheld by ADENE, the Northeast Region Development Agency, under the responsibility of the Ministry of National Integration pursuant to Law 9532/97The jurisdiction of SUDENE/ADENE encompasses specified federal states of the Northeast Region including the State of Bahia, where the exporter of subject goods, Caraíba Metais S.A. (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:

Tax revenue that is exempted is considered a financial contribution under paragraph 2(1.6)(b) of the Special Import Measures Act (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 recipientPursuant to subsection 27.1(2) of the Special Import Measures Regulations (SIMR), any amount 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 It is further noted that 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.

Calculation of Amount of Subsidy:

The amount of subsidy attributed to the subject goods exported by Caraíba was determined by first adding the amount of tax exemption declared by Caraíba in its 2005 tax declaration with the amount of tax exemption calculated by Caraíba for the six months ended June 30, 2006The total amount of income tax saving during the POI is the benefit to Caraíba.

To allocate this benefit to the subject goods, the CBSA expressed the total amount of income tax saving during the POI as a percentage of total net income in the POIThis percentage was then applied to the total of the exporter's net sale prices of the subject goods in the POINet income and net sale prices of subject goods are net of taxes and delivery costs This method of allocation was used for the reason that Caraíba sells goods other than copper rod such as copper cathode, copper wire and by-products such as sulphuric acid.

Representations:

Caraíba requested that the CBSA revise the amount of exemption for the period January 1 to June 30, 2006, calculated for purposes of the preliminary determination, in line with the amount according to information and documentation provided to the CBSA during verificationNexans submitted that certain provisions and credits in this regard not be accepted by the CBSA for the reason that they are not explained or justified in Caraíba's case argumentThe CBSA has accepted the mentioned provisions and credits on the basis of verified information.

Suspension of payment of the Social Contribution on Net Profit (CSLL)

General Information:

The Contribuição Social Sobre o Lucro Liquido (CSLL), or Social Contribution on Net Profit, is also referred to as the Contribuição Social Sobre o Lucro (CSSL), Social Contribution on IncomeThis contribution was introduced in 1988 for application starting in the 1989 tax yearCaraíba sued the GB in 1989 on constitutional grounds, arguing that the CSLL law violates the Brazilian constitution, and received a favourable court decisionThe GB has questioned this court decision, and the case is still under judicial review in Brazilian Federal CourtsThe court decision gave Caraíba the right to suspend payment of CSLL, which Caraíba has not paid since 1989

Legal Basis:

CSLL was established according to Law No. 7.689 of December 15, 1988The current rate is 9% of net profits, as provided for in article 37 of Law No. 10.637 of December 30, 2002.

Eligibility Criteria:

In cases where there is a court decision suspending demandability for tax payment, Brazil's Federal Tax Authority, in order to avoid lapsing of the legal action, may constitute a tax credit by issuing a tax assessment notice to the taxpayer and suspend the charge, under article 173 of the National Tax Code, established under Law 5.172 of October 25, 1966.

Determination of Subsidy:

Tax revenue that is not collected is considered a financial contribution under paragraph 2(1.6)(b) of SIMAIn such a case, the benefit conferred to the recipient is equal to the amount of the tax payable by the recipient that is not collectedPursuant to subsection 27.1(2) of the SIMR, any amount otherwise owing and due to a government that is not collected 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 taxpayers who have received court decisions suspending demandability for tax payment Caraíba is such a taxpayer, as stipulated in the CSLL tax assessment notices it has received from the GB The GB continues to collect CSLL from other taxpayers and to disburse CSLL revenues along with other social tax revenues to finance social security.

Calculation of Amount of Subsidy:

The benefit to Caraíba is the amount of CSLL that is not paidThe company's public financial statements state that it has not been accruing for any amounts of CSLL after the base year 1992; also, the independent auditors state that CSLL has not been paid since the fiscal year 1989The last CSLL tax assessment notice covered the tax years 2001 to 2004 Caraíba's 2005 tax declaration reports the CSLL calculation base and nil amounts of CSLLThe benefit to Caraíba of CSLL suspension in 2005 was calculated at 9% of the net profit before CSLL reported on the company's 2005 tax declarationThe benefit to Caraíba of CSLL suspension for the six months ended June 30, 2006, was calculated at 9% of the net profit reported on the company's interim financial statement as at June 30, 2006The total amount of unpaid CSLL in the POI was expressed as a percentage of total net income in the POIThe CBSA allocated this benefit to all goods sold by Caraíba including the subject goods exported to Canada by applying this percentage to prices net of taxes and delivery costs

Representations:

Both Caraíba and the GB argued that the suspension is the result of a court orderNexans argued that the question whether the suspension is the result of a GB program or a court order is irrelevant, that the question is whether a subsidy existsThe CBSA has found the suspension to constitute an actionable subsidy.

Alleged subsidies that were investigated but found not to constitute subsidies on the subject goods during the Period of Investigation

Exemption of export revenues from payment into the Social Security Financing Contribution (COFINS) program and into the Social Integration Program (PIS)

Law No. 10.637 of December 30, 2002, established Programas de Integração Social (PIS), or Social Integration Program. Law No. 10.833 of December 29, 2003, established Contribuição para o Financiamento da Seguridade Social (COFINS), or the Social Security Financing Contribution.

Brazilian legal entities determine their taxes owing using a debit/credit system. PIS/COFINS liabilities are generated by an entity’s billings. Any individual subject sale results in a PIS tax owing of 1.65% of the invoice total, and a COFINS tax owing of 7.6% of the invoice total.

PIS/COFINS credits are generated by an entity’s purchases of production inputs incorporated into goods up for resale. The same rates of 1.65% for PIS and 7.6% for COFINS apply to the net amount paid by the reporting legal entity for its production inputs. Eligible expenses for PIS/COFINS credits include raw materials, supplies, utilities and certain professional services but exclude any labor costs, employee salaries and related payroll expenses. This exclusion is important to the consideration of PIS/COFINS as indirect value-added taxes. It ensures the purchasing entity in any given transaction only pays taxes on the value-added it is buying from the seller. All other inputs included in the product pass through the transaction tax-neutral.

While PIS/COFINS amounts do not appear as separate charges on official invoices, these taxes are, in theory, built into sales prices. The GB has indeed chosen to “harmonize” both PIS and COFINS into the prices of goods. Their absence on the face of invoices does not impact their nature. An entity that does not incorporate them into its selling prices would be obligated to deduct PIS/COFINS amounts from its profit margins. For accounting purposes, PIS/COFINS are balance sheet accounts. Their collection and payment does not impact the profit and loss statement. Unlike income tax, PIS/COFINS accounting occurs outside of an entity’s revenue reporting.

Furthermore, for the purposes of Laws 10.637 and 10.833, export revenue is exempt from PIS/COFINS contributions. This approach is consistent with PIS/COFINS being “destination-based” value-added taxes rather than “origin-based”, a concept more frequent in general income taxes. As for imports, PIS/COFINS are levied by Brazilian customs officials upon their entry into the country. This is the only occurrence where these taxes are separately applied and invoiced.

At the time of the preliminary determination of subsidizing, the CBSA took the preliminary position that PIS and COFINS were direct taxes, and that the exemption of export revenue from the collection of PIS and COFINS contributions constituted an export subsidy.

CBSA’s subsequent review of the legislation with GB officials and of Caraíba's PIS/COFINS accounting records, as summarized above, has established that PIS and COFINS are more appropriately characterized as indirect taxes as they function as a form of value-added tax.

In accordance with SIMA, a subsidy does not include exemption of indirect taxes for the sole reason that the goods are being exportedAs a result, the CBSA does not consider the exemption of export revenue from the application of PIS and COFINS a subsidy in respect of the subject goods exported by Caraíba during the POI.

Representations:

Both Caraíba and the GB argued that PIS and COFINS are indirect taxes, not income taxes. Nexans argued that, to the extent export revenues are exempt from income taxes, the exemption constitutes a subsidyThe CBSA has found that PIS and COFINS are more properly characterized as indirect taxes as they relate to their exemption from the export revenue of subject goods in the POI.

Drawback

The CBSA has investigated as a possible subsidy the complainant's allegation of excessive credits or refunds where import duties or certain indirect taxes may be refunded to Caraíba by way of drawback or credit mechanisms in relation to exportsCaraíba and the GB provided information on Caraíba's use of drawback on inputs used to produce subject goods exported to CanadaThe CBSA verified Caraíba's use of drawback and reviewed the GB's administration of its drawback programAlthough drawback is not a subsidy, drawback that is excessive or is inadequately administered by the government may constitute an export subsidy.

Caraíba imports copper concentrates to produce copper rod and other products such as copper cathodes and copper wireCertain quantities of copper concentrates were imported under the GB's drawback program to produce copper products that were exported, including subject goods exported to CanadaFor these importations, Caraíba did not pay PIS, COFINS or the state tax Imposto sobre Operação de Mercadoria e sobre Serviços de Transporte Interestadual e Intermunicipal e de Comunicação (ICMS), or Tax on the Circulation of Goods, Interstate and Intercity Transportation and Communication ServicesCaraíba did not pay under both the suspension modality and the exemption modality available from the drawback programThese modalities do not provide either credits or refunds

PIS, COFINS and ICMS are managed at Caraíba in tax accounts that record amounts paid as credits and amounts collected as debits, with net debits paid to the federal and state tax authoritiesAmounts not paid under drawback are not recorded as creditsThe accounting occurs outside of the company's operational costs and revenuesThe CBSA found no evidence of any excessive drawback that might confer any benefit to Caraíba with any effect on the export prices of the subject goods exported to Canada.

Representations:

Caraíba argued that there is no excessive drawback for the reason that suspended taxes relate only to inputs used to produce goods that are exportedThe GB argued that its drawback procedures ensure no excess drawback as they include verification of inputs consumed in the production of goods that are exported as well as the re-taxing of inputs imported under drawback and used to produce goods or by-products sold on the domestic market Nexans submitted that drawback appears excessive as the GB's rules seem to allow drawback of taxes other than indirect taxesThe CBSA verified that drawback was not excessive in relation to the subject goods.

Suspension of payment of the state tax Imposto sobre Operação de Mercadoria e sobre Serviços de Transporte Interestadual e Intermunicipal e de Comunicação (ICMS), or Tax on the Circulation of Goods, Interstate and Intercity Transportation and Communication Services

The CBSA investigated as potential subsidies incentives that Caraíba may receive from the State of BahiaThe GB reported that Caraíba has some sort of ICMS deferral The CBSA found that Caraíba imports some quantities of copper concentrates under drawback with suspension of ICMSWhen Caraíba does not import copper concentrates under drawback, payment of ICMS is suspended under Bahia state regulation RICMS-BA article 343 section XXXIThe effect is that Caraíba does not claim credits for these importations when reporting ICMS credits and debits to the state government The accounting occurs outside of the company's operational costs and revenuesThe CBSA found no evidence that this suspension might confer any benefit to Caraíba with any effect on the export prices of the subject goods exported to Canada.

Adiantamentos sobre Contratos de Câmbio (ACC), or advances of exchange contracts

The CBSA has investigated as a potential subsidy alleged preferential export financing in the form of ACCs received by Caraíba at interest rates lower than interest rates prevailing in Brazil, and a further alleged subsidy received from the opportunity to earn interest income from portions of ACC funds that may be investedThe CBSA reviewed Caraíba's receipt and use of ACC funds, and reviewed with officials of the GB and officials of the Central Bank of Brazil the regulations governing ACCs.

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 ContractAn ACC is an advance, in domestic currency, of foreign currency bought for future delivery.

The CBSA has found that exporters may obtain such advances based on the sale to banks of forward exchange contracts linked to expected proceeds from export sales in foreign currencyHowever, ACCs are not restricted to exportersBrazilian and foreign financial institutions are free to negotiate ACCs with any seller of an exchange contractInterest rates are freely negotiatedThe banks providing ACCs have access to capital at international interest rates and may re-lend to companies such as Caraíba at international rates, plus a risk premium, which may be lower than Brazilian domestic rates.

In respect of this particular investigation, the CBSA has found that ACCs are loans from banks which involve no public funds The banks do not constitute a “government” for purposes of SIMA nor did the CBSA find any evidence of direction from the GB to the banks to provide these loansAlthough one of the banks that provided ACCs to Caraíba may be owned partly or completely by the GB, the CBSA has no evidence that this bank constitutes a “government” for purposes of SIMAIn the absence of any financial contribution by the GB during the POI in respect of the ACCs received by Caraíba, the CBSA found that ACCs did not constitute a subsidy on the subject goods during the POI.

As the CBSA found that ACCs did not constitute a subsidy on the subject goods during the POI, the further alleged subsidy derived from interest income on invested ACC funds was not pursued.

"Pre-payment of Exports"

The CBSA has investigated as a potential subsidy export financing in the form of "Pre-payment of Exports" (PPEs) received by Caraíba at interest rates lower than interest rates prevailing in BrazilThe CBSA reviewed Caraíba's receipt and use of PPE funds, and reviewed with officials of the GB and officials of the Central Bank of Brazil the regulations governing PPEs.

PPEs are governed by Brazil's International Capital and Foreign Exchange Market Regulation, Title 1 Foreign Exchange Market, Chapter 11 Export, Section 4 Advance ReceiptA PPE is an advance, in foreign currency, of foreign currency bought for future delivery based on forward exchange contracts linked to expected proceeds from export sales in foreign currency.

Brazilian and foreign financial institutions are free to negotiate PPEs with any exporterInterest rates are freely negotiatedThe banks providing PPEs have access to capital at international interest rates and may re-lend to companies such as Caraíba at international rates, plus a risk premium, which may be lower than Brazilian domestic rates.

In respect of this particular investigation, the CBSA has found that PPEs are loans from banks which involve no public funds The banks do not constitute a “government” for purposes of SIMA nor did the CBSA find any evidence of direction from the GB to the banks to provide these loansAlthough one of the banks that provided PPEs to Caraíba may be owned partly or completely by the GB, the CBSA has no evidence that this bank constitutes a “government” for purposes of SIMAIn the absence of any financial contribution by the GB during the POI in respect of PPEs received by Caraíba, the CBSA found that PPEs did not constitute a subsidy on the subject goods during the POI.

Alleged subsidies that were investigated but found not to have been used by the exporter

With regard to the following findings, the CBSA has not made any further determinations as to whether the investigated allegations constitute actionable subsidies.

Suspension of demandability of paying PIS and COFINS contributions

The CBSA investigated as a possible subsidy Caraíba's obtention of a court order suspending the demandability of paying PIS and COFINS contributions, as reported in the company's financial statementsThe CBSA verified that Caraíba paid PIS and COFINS contributions during the POI according to the PIS and COFINS legislation and that the suspension of payment of these contributions reported in Caraíba's financial reports relates to a prior period.

Excessive refund or credit of PIS and COFINS levies in respect of inputs used to produce goods that are exported granted in the form of assumed credits applied to the Imposto sobre Produtos Industrializados (IPI), or Tax on Industrialized Products

The CBSA investigated the allegation by the complainant of a subsidy stemming from the GB's program of assumed IPI credits in compensation for PIS and COFINS contributions paid on inputs used to produce goods that are exported

This program was revoked with regard to PIS on December 30, 2002, with the implementation of Law 10.637 which changed PIS from a cumulative system to a non-cumulative systemIt was similarly revoked with regard to COFINS on December 29, 2003, with the implementation of Law 10.833 which changed COFINS from a cumulative system to a non-cumulative systemThe CBSA verified that Caraíba did not use this program during the POI.

Representations:

Caraíba argued that this system of credits was abolished and was not used during the POIThe GB argued that this system was revoked with the implementation prior to the POI of new PIS and COFINS systemsNexans argued that this system was found to constitute countervailable subsidies in a previous subsidy investigation conducted by the United States GovernmentThe CBSA found that this system no longer exists and was not used by Caraíba during the POI.

Suspension of payment of the Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza de Valores e de Creditos (CPMF), or Provisional Contribution on Financial Transactions

The CBSA investigated as a possible subsidy Caraíba's obtention of a court order suspending the demandability of paying CPMF, as reported in the company's financial statements. The CBSA verified that Caraíba paid CPMF during the POI according to the CPMF legislation and that the suspension of payment of CPMF reported in Caraíba's financial reports relates to a prior period.

Suspension of PIS and COFINS contributions by exporters on capital goods and imported machinery

The CBSA investigated as a possible subsidy the suspension of PIS and COFINS contributions by exporters on capital goods and imported machinery, as announced by the GB in a press release included in the complaintThe CBSA found that this program was not used by Caraíba during the POI.

Preferential capital goods depreciation for income tax purposes for companies located in the Northeast of Brazil

The CBSA investigated as a possible subsidy preferential capital goods depreciation for income tax purposes for companies located in the Northeast of Brazil, as announced by the GB in a press release included in the complaintThe CBSA found that this program was not used by Caraíba during the POI.

Grants and loans in support of research under the Financiadora de Estudos e Projetos (FINEP) program

The CBSA investigated as a potential subsidy financial assistance under the FINEP program mentioned in Caraíba's financial statementsFurther to information received from the GB and Caraíba in this regard, the CBSA verified that Caraíba did not receive any assistance under this programRather, Caraíba provided funds as a co-sponsor, along with the FINEP organization, to Bahia State Federal University to finance two research projects related to environmentally sustainable technologies.

Loan programs of the Banco Nacional de Desenvolvimento Econômico e Social (BNDES), the Brazilian Development Bank

The CBSA investigated as potential subsidies allegedly preferential loans available from the BNDES including pre-shipment loans, post-shipment loans and BNDES-EXIM PROEX loans (export credit and buyer's credit)The CBSA found that Caraíba has received no such loans from the BNDESThe CBSA found no evidence of Canadian importers having received BNDES-EXIM PROEX loans.

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

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 stockThe CBSA found that Caraíba received no funds from FINOR.

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

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 CBSA found that Caraíba received no funds from FNE.

Date Modified: 2007-03-13

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