[Federal Register Volume 62, Number 204 (Wednesday, October 22, 1997)]
[Notices]
[Pages 55003-55014]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-27984]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-274-803]
Final Affirmative Countervailing Duty Determination: Steel Wire
Rod From Trinidad and Tobago
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 22, 1997.
FOR FURTHER INFORMATION CONTACT: Todd Hansen, Vincent Kane, or Sally
Hastings, Office of Antidumping/Countervailing Duty Enforcement, Group
I, Office 1, Import Administration, U.S. Department of Commerce, Room
1874, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230; telephone (202) 482-1276, 482-2815, or 482-3464, respectively.
Final Determination
The Department of Commerce (``the Department'') determines that
countervailable subsidies are being provided to Caribbean Ispat Limited
(``CIL''), a producer and exporter of steel wire rod from Trinidad and
Tobago. For information on the estimated countervailing duty rates,
please see the Suspension of Liquidation section of this notice.
Petitioners
The petition in this investigation was filed by Connecticut Steel
Corp., Co-Steel Raritan, GS Industries, Inc., Keystone Steel & Wire
Co., North Star Steel Texas, Inc. and Northwestern Steel and Wire (the
petitioners), six U.S. producers of wire rod.
Case History
Since our preliminary determination on July 28, 1997 (62 FR 41927,
August 4, 1997), the following events have occurred:
We conducted verification in Trinidad and Tobago of the
questionnaire responses of the Government of Trinidad and Tobago
(``GOTT'') and of CIL from August 18 through August 26, 1997.
Petitioners and respondents filed case and rebuttal briefs on September
12 and September 17, 1997, respectively. A public hearing was held on
September 19, 1997. On September 16, 1997, the GOTT and the U.S.
Government initialed a proposed suspension agreement, whereby the GOTT
agreed not to provide any new or additional export subsidies on the
subject merchandise and to restrict the volume of direct and indirect
exports of subject merchandise to the United States. On October 14,
1997, the U.S. Government and the GOTT signed a suspension agreement
(see, Notice of Suspension of Countervailing Duty Investigation: Steel
Wire Rod from Trinidad and Tobago which is being published concurrently
with this notice). Based on a request from petitioners on October 14,
1997, the Department and the International Trade Commission (``ITC'')
are continuing this investigation in accordance with section 704(g) of
the Act. As such, this final determination is being issued pursuant to
section 704(g) of the Act.
Scope of Investigation
The products covered by this investigation are certain hot-rolled
carbon steel and alloy steel products, in coils, of approximately round
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch),
inclusive, in solid cross-sectional diameter. Specifically excluded are
steel products possessing the above noted physical characteristics and
meeting the Harmonized Tariff Schedule of the United States (``HTSUS'')
definitions for (a) stainless steel; (b) tool steel; (c) high nickel
steel; (d) ball bearing steel; (e) free machining steel that contains
by
[[Page 55004]]
weight 0.03 percent or more of lead, 0.05 percent or more of bismuth,
0.08 percent or more of sulfur, more than 0.4 percent of phosphorus,
more than 0.05 percent of selenium, and/or more than 0.01 percent of
tellurium; or (f) concrete reinforcing bars and rods.
The following products are also excluded from the scope of this
investigation:
Coiled products 5.50 mm or less in true diameter with an average
partial decarburization per coil of no more than 70 microns in depth,
no inclusions greater than 20 microns, containing by weight the
following: carbon greater than or equal to 0.68 percent; aluminum less
than or equal to 0.005 percent; phosphorous plus sulfur less than or
equal to 0.040 percent; maximum combined copper, nickel and chromium
content of 0.13 percent; and nitrogen less than or equal to 0.006
percent. This product is commonly referred to as ``Tire Cord Wire
Rod.''
Coiled products 7.9 to 18 mm in diameter, with a partial
decarburization of 75 microns or less in depth and seams no more than
75 microns in depth; containing 0.48 to 0.73 percent carbon by weight.
This product is commonly referred to as ``Valve Spring Quality Wire
Rod.''
The products under investigation are currently classifiable under
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030,
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the
HTSUS subheadings are provided for convenience and customs purposes,
our written description of the scope of this investigation is
dispositive.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (the
``Act''). All references to the Department's regulations at 19 CFR
355.34 refer to the edition of the Department's regulations published
April 1, 1997.
Injury Test
Because Trinidad and Tobago is a ``Subsidies Agreement Country''
within the meaning of section 701(b) of the Act, the ITC is required to
determine whether imports of wire rod from Trinidad and Tobago
materially injure, or threaten material injury to, a U.S. industry. On
April 30, 1997, the ITC published its preliminary determination finding
that there is a reasonable indication that an industry in the United
States is being materially injured or threatened with material injury
by reason of imports from Trinidad and Tobago of the subject
merchandise (62 FR 23485).
Subsidies Valuation Information
Period of Investigation: The period for which we are measuring
subsidies (the ``POI'') is calendar year 1996.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service (``IRS'') on the
industry-specific average useful life of assets in determining the
allocation period for nonrecurring subsidies. See General Issues
Appendix appended to Final Countervailing Duty Determination; Certain
Steel Products from Austria, 58 FR 37217, 37226 (July 9, 1993)
(``General Issues Appendix''). However, in British Steel plc. v. United
States, 879 F. Supp. 1254 (CIT 1995) (``British Steel''), the U.S.
Court of International Trade (the ``Court'') ruled against this
methodology. In accordance with the Court's remand order, the
Department calculated a company-specific allocation period for
nonrecurring subsidies based on the average useful life (``AUL'') of
non-renewable physical assets. This remand determination was affirmed
by the Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT
1996).
In this investigation, the Department has followed the Court's
decision in British Steel. Therefore, for purposes of this
determination, the Department has calculated a company-specific AUL.
Based on information provided by respondents, the Department has
determined that the appropriate allocation period for CIL is 15 years.
Equityworthiness: In analyzing whether a company is equityworthy,
the Department considers whether that company could have attracted
investment capital from a reasonable, private investor in the year of
the government equity infusion based on information available at that
time. In this regard, the Department has consistently stated that a key
factor for a company in attracting investment capital is its ability to
generate a reasonable return on investment within a reasonable period
of time.
In making an equityworthiness determination, the Department
examines the following factors, among others:
1. Current and past indicators of a firm's financial condition
calculated from that firm's financial statements and accounts;
2. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals;
3. Rates of return on equity in the three years prior to the
government equity infusion;
4. Equity investment in the firm by private investors; and
5. Prospects in world markets for the product under consideration.
In start-up situations and major expansion programs, where past
experience is of little use in assessing future performance, we
recognize that the factors considered and the relative weight placed on
such factors may differ from those used in the analysis of an
established enterprise.
For a more detailed discussion of the Department's equityworthiness
criteria see the General Issues Appendix at 37244 and Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from France,
58 FR 37304 (July 9, 1993) (``Steel from France'').
In our preliminary determination, we determined that the Iron and
Steel Company of Trinidad and Tobago (``ISCOTT'') was unequityworthy
for the period 1986-1994. Additional information and documents gathered
at verification have given us cause to review our preliminary
determination. As discussed below, we determine that ISCOTT was
unequityworthy from June 13, 1984 to December 31, 1991. For a
discussion of this determination, see the section of this notice on
``Equity Infusions.''
Equity Methodology: In measuring the benefit from a government
equity infusion to an unequityworthy company, the Department compares
the price paid by the government for the equity to a market benchmark,
if such a benchmark exists. A market benchmark can be obtained, for
example, where the company's shares are publicly traded. (See, e.g.,
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Spain, 58 FR 37374, 37376 (July 9, 1993).)
In this investigation, where a market benchmark does not exist, the
Department is following the methodology described in the General Issues
Appendix at 37239. Under this methodology, equity infusions made into
an unequityworthy firm are treated as grants. Using the grant
methodology for equity infusions into an unequityworthy company is
based on the premise that an unequityworthiness finding by the
Department is tantamount to saying that the company could not have
attracted investment capital from a reasonable investor in the infusion
year based on the available information.
Creditworthiness: When the Department examines whether a
[[Page 55005]]
company is creditworthy, it is essentially attempting to determine if
the company in question could obtain commercial financing at commonly
available interest rates. If a company receives comparable long-term
financing from commercial sources, that company will normally be
considered creditworthy. In the absence of comparable commercial
borrowings, the Department examines the following factors, among
others, to determine whether a firm is creditworthy:
1. Current and past indicators of a firm's financial health
calculated from that firm's financial statements and accounts;
2. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow; and
3. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals.
In start-up situations and major expansion programs, where past
experience is of little use in assessing future performance, we
recognize that the factors considered and the relative weight placed on
such factors may differ from those used in the analysis of an
established enterprise. For a more detailed discussion of the
Department's creditworthiness criteria, see, e.g., Steel from France at
37304, and Final Affirmative Countervailing Duty Determination; Certain
Steel Products from the United Kingdom, 58 FR 37393, 37395 (July 9,
1993) (``Certain Steel from the U.K.'').
In our preliminary determination, we determined that ISCOTT was
uncreditworthy for the period 1986-1994. Additional information and
documents gathered at verification have given us cause to review our
preliminary determination. As discussed below, we determine that ISCOTT
was uncreditworthy during the period June 13, 1984 to December 31,
1994. ISCOTT did not show a profit for any year during this period and
continued to rely upon support from the GOTT to meet fixed payments.
The company's gross profit ratio was consistently negative in each of
the years in which it had sales. Additionally, the company's operating
profit (net income before depreciation, amortization, interest and
financing charges) was consistently negative. The firm continued to
show an operating loss in each year it was in production, and was never
able to cover its variable costs.
Regarding the period prior to June 13, 1984, and after December 31,
1994, we did not examine ISCOTT's creditworthiness because ISCOTT did
not receive any countervailable loans, equity infusions, or
nonrecurring grants during those periods.
Discount Rates: We have calculated the long-term uncreditworthy
discount rates for the period 1984 through 1994, to be used in
calculating the countervailable benefit from nonrecurring grants and
equity infusions, using the same methodology described in our
preliminary determination. Specifically, consistent with our practice
(described in Final Affirmative Countervailing Duty Determination:
Grain-Oriented Electrical Steel from Italy, 59 FR 18357, 18358 (April
18, 1994) (``GOES'')), we took the highest prime term loan rate
available in Trinidad and Tobago in each year as listed in the Central
Bank of Trinidad and Tobago: Handbook of Key Economic Statistics and
added to this a risk premium of 12% of the median prime lending rate.
Privatization Methodology: In the General Issues Appendix at 37259,
we applied a new methodology with respect to the treatment of subsidies
received prior to the sale of a company (privatization).
Under this methodology, we estimate the portion of the purchase
price attributable to prior subsidies. We compute this by first
dividing the privatized company's subsidies by the company's net worth
for each year during the period beginning with the earliest point at
which nonrecurring subsidies would be attributable to the POI (in this
case 1982 for CIL) and ending one year prior to the privatization. We
then take the simple average of the ratios. The simple average of these
ratios of subsidies to net worth serves as a reasonable surrogate for
the percent that subsidies constitute of the overall value of the
company. Next, we multiply the average ratio by the purchase price to
derive the portion of the purchase price attributable to repayment of
prior subsidies. Finally, we reduce the benefit streams of the prior
subsidies by the ratio of the repayment amount to the net present value
of all remaining benefits at the time of privatization.
In the current investigation, we are analyzing the privatization of
ISCOTT in 1994.
Based upon our analysis of the petition and responses to our
questionnaires, we determine the following:
I. Programs Determined To Be Countervailable
A. Export Allowance Under Act No. 14
Under the provisions of Act No. 14 of 1976, as codified in Section
8(1) of the Corporation Tax Act, companies in Trinidad and Tobago with
export sales may deduct an export allowance in calculating their
corporate income tax. The allowance is equal to the ratio of export
sales over total sales multiplied by net income. Export sales to
certain Caricom countries are not eligible for the export allowance and
are excluded from the amount of export sales for purposes of
calculating the export allowance.
A countervailable subsidy exists within the meaning of section
771(5) of the Act where there is a financial contribution from the
government which confers a benefit and is specific within the meaning
of section 771(5A) of the Act.
We have determined that the export allowance is a countervailable
subsidy within the meaning of section 771(5) of the Act. The export
allowance provides a financial contribution because in granting it the
GOTT forgoes revenue that it is otherwise due. The export allowance is
specific, under section 771(5A)(B), because its receipt is contingent
upon export performance.
We verified that CIL made a deduction for the export allowance on
its 1995 income tax return, which was filed during the POI. Because the
export allowance is claimed and realized on an annual basis in the
course of filing the corporate income tax return, we have determined
that the benefit from this program is recurring. To calculate the
countervailable subsidy from the export allowance, we divided CIL's tax
savings during the POI by the total value of its export sales which
were eligible for the export allowance during the POI. On this basis,
we determine the countervailable subsidy from this program to be 3.72
percent ad valorem.
B. Equity Infusions
In 1978, ISCOTT and the GOTT entered into a Completion and Cash
Deficiency Agreement (``CCDA'') with several private commercial banks
in order to obtain a part of the financing needed for construction of
ISCOTT's plant. Under the terms of the CCDA, the GOTT was obligated to
provide certain equity financing toward completion of construction of
ISCOTT's plant, to cover loan payments to the extent not paid by
ISCOTT, and to provide cash as necessary to enable ISCOTT to meet its
current liabilities.
[[Page 55006]]
In Carbon Steel Wire Rod from Trinidad and Tobago: Final
Affirmative Countervailing Duty Determination and Countervailing Duty
Order, 49 FR 480 (January 4, 1984) (``Wire Rod I''), the Department
determined that payments or advances made by the GOTT to ISCOTT during
its start-up years were not countervailable. In making this
determination, the Department took into consideration the fact that it
is not unusual for a large, capital intensive project to have losses
during the start-up years, the fact that several independent studies
forecast a favorable outcome for ISCOTT, and the fact that ISCOTT
enjoyed several important natural advantages. On these bases, advances
to ISCOTT through April of 1983, the end of the original POI, were
found to be not countervailable.
Given the Department's decision in Wire Rod I that the GOTT's
initial decision to invest in ISCOTT and its additional investments
through the first quarter of 1983 were consistent with commercial
considerations, the issue presented in this investigation is whether
and at what point the GOTT ceased to behave as a reasonable private
investor. During the period from 1983 to 1989, a period of continuing
losses, ISCOTT and the GOTT commissioned several studies to determine
the financially preferable course of action for the company. The
information contained in these studies is business proprietary, and is
discussed further in a memorandum dated October 14, 1997, from Team to
Richard W. Moreland, Acting Deputy Assistant Secretary for AD/CVD
Enforcement (``Equity Memorandum''), a public version of which is
available in the public file for this investigation located in the
Central Records Unit, Department of Commerce, HCHB Room B-099 (``Public
File''). Based on information contained in the studies and our review
of the results of ISCOTT's operations over the period under
consideration, we determine that the GOTT's investments made after June
13, 1984, were no longer consistent with the practice of a reasonable
private investor. ISCOTT continued to be unable to cover its variable
costs, yet the GOTT continued to provide funding to ISCOTT. Despite
ISCOTT's continued losses and no reason to believe that under the
conditions in place at that time there was any hope of improvement, the
GOTT did not make further investment contingent upon actions that would
have been required by a reasonable private investor.
In 1988, P.T. Ispat Indo (``Ispat''), a company affiliated with
CIL, came forward and expressed an interest in leasing the plant. On
April 8, 1989, the GOTT and Ispat reached agreement on a 10-year lease
agreement with an option for Ispat to purchase the assets after five
years. The first few years of the lease were marked by the GOTT
learning to assume the role of a lessor and the management of CIL
working to become familiar with the operations of ISCOTT and to develop
relations with the former ISCOTT employees. Our review of internal
documents, financial projections and historical financial data indicate
that after December 31, 1991, the operations of the ISCOTT plant under
CIL and ISCOTT's financial condition improved such that we determine
that investments in ISCOTT after this date were consistent with the
practice of a reasonable private investor. See, Equity Memorandum for
further discussion of the information used in making this
determination.
We have determined that the GOTT equity infusions into ISCOTT
during the period from June 13, 1984 through December 31, 1991
constitute countervailable subsidies in accordance with section 771(5)
of the Act. We determine that these equity infusions confer a benefit
under 771(5)(E)(i) of the Act because these investments were not
consistent with the usual investment practice of private investors.
Also, they are specific within the meaning of section 771(5A) because
they were limited to one company, ISCOTT.
To calculate the benefit, we followed the ``Equity Methodology''
described above. The benefit allocated to the POI was adjusted
according to the ``Privatization Methodology'' described above. The
adjusted amount was divided by CIL's total sales of all products during
the POI. On this basis, we calculated a countervailable subsidy rate of
11.12 percent ad valorem.
C. Benefits Associated With the 1994 Sale of ISCOTT's Assets to CIL
In December 1994, CIL, the company created by Ispat to lease and
operate the plant, exercised the purchase option in the plant lease and
purchased the assets of ISCOTT. After the sale of its assets, ISCOTT
was nothing but a shell company with liabilities exceeding its assets.
CIL, on the other hand, had purchased most of ISCOTT's assets without
being burdened by ISCOTT's liabilities.
The liabilities remaining with ISCOTT after the sale of productive
assets to CIL had to be repaid, assumed, or forgiven. In 1995, the
National Gas Company of Trinidad and Tobago Limited (``NGC''), which
was owned by the GOTT, and the National Energy Corporation of Trinidad
and Tobago Limited (``NEC''), a wholly owned subsidiary of NGC, wrote
off loans owed to them by ISCOTT totaling TT $77,225,775. Similarly,
Trinidad and Tobago National Oil Company Limited (``TRINTOC''), also
owned by the GOTT, wrote off debts owed by ISCOTT totaling TT
$10,492,830 as bad debt. While no specific government act eliminated
this debt, CIL (and consequently the subject merchandise) received a
benefit as a result of this debt being left behind in ISCOTT.
We have determined that this debt forgiveness constitutes a
countervailable subsidy in accordance with section 771(5) of the Act
because it represents a direct transfer of funds. Also, it is specific
within the meaning of section 771(5A) because it was limited to one
company.
In this case, to calculate the benefit during the POI, we used our
standard grant methodology and applied an uncreditworthy discount rate.
The debt outstanding after the December 1994 sale of assets to CIL
(adjusted as described below) was treated as grants received at the
time of the sale of the assets.
After the 1994 sale of assets, certain non-operating assets (e.g.,
cash and accounts receivable) remained with ISCOTT. These assets were
used to fund repayment of ISCOTT's remaining accounts payable. In order
to account for the fact that certain assets, including cash, were left
behind in ISCOTT, we have subtracted this amount from the liabilities
outstanding after the 1994 sale of assets.
The benefit allocated to the POI was adjusted according to the
``Privatization Methodology'' described above. The adjusted amount was
divided by CIL's total sales of all products during the POI. On this
basis, we determine the net subsidy to be 1.17 percent ad valorem.
D. Provision of Electricity
According to section 771(5)(E) of the Act, the adequacy of
remuneration with respect to a government's provision of a good or
service
* * * shall be determined in relation to prevailing market
conditions for the good or service being provided or the goods being
purchased in the country which is subject to the investigation or
review. Prevailing market conditions include price, quality,
availability, marketability, transportation, and other conditions of
purchase or sale.
Particular problems can arise in applying this standard when the
government is the sole supplier of the good or service in the country
or within the area where the respondent is located. In this situation,
there may be no alternative market prices available in the country
(e.g., private prices,
[[Page 55007]]
competitively-bid prices, import prices, or other types of market
reference prices). Hence, it becomes necessary to examine other options
for determining whether the good has been provided for less than
adequate remuneration. This consideration of other options in no way
indicates a departure from our preference for relying on market
conditions in the relevant country, specifically market prices, when
determining whether a good or service is being provided at a price
which reflects adequate remuneration.
With respect to electricity, some of the options may be to examine
whether the government has followed a consistent rate making policy,
whether it has covered its costs, whether it has earned a reasonable
rate of return in setting its rates, and/or whether it applied market
principles in determining its rates. Such an approach is warranted
where it is only the government that provides electricity within a
country or where electricity cannot be sold across service
jurisdictions within a country and there are divergent consumption and
generation patterns within the service jurisdictions.
The Trinidad and Tobago Electric Commission (``TTEC''), which is
wholly-owned by the GOTT, is the sole supplier of electric power in
Trinidad and Tobago. For billing purposes, TTEC classifies electricity
consumers into one of the following categories: residential,
commercial, industrial, and street lighting. Industrial users are
further classified into one of four categories depending on the voltage
at which they take power and the size of the load taken. CIL is the
sole user in the very large load category taking its power at 132 kV
for loads over 25,000 KVA. Other large industrial users take power at
33 kV, 66 kV or 132 kV at loads from 230 Volts up to 25,000 KVA.
TTEC's rates and tariffs for the sale of electricity are set by the
Public Utilities Commission (``PUC''), an independent authority. In
setting electricity rates, the PUC takes into account cost of service
studies done by TTEC. These studies are submitted to the PUC, where
they are reviewed by teams of economists, statisticians, and auditors.
Public hearings are held and views expressed orally and in writing.
After considering all of the views and studies submitted, the PUC
issues detailed orders with the new rates and explanations of how they
were calculated. In establishing these rates, the PUC is required by
section 32 of its regulations to ensure that the new rates will cover
costs and expenses and allow for a return.
The electricity rates in effect during the POI were based on cost
of service studies for 1987 and 1991. Based on these studies and staff
audit reports, the PUC in 1992 issued Order Number 80 with the new
electricity rates and a lengthy explanation of the bases for these
rates. The order allowed for a specified return to TTEC on its sales of
electricity. In 1993 and 1994, the first two years following the order,
TTEC was profitable for the first time in years. However, TTEC had
large losses in 1995 and losses in 1996 of about half the 1995 losses.
As noted above, TTEC is the only supplier in Trinidad and Tobago of
electricity. Consequently, there are no competitively-set, private
benchmark prices in Trinidad and Tobago to use in determining whether
TTEC is receiving adequate remuneration within the meaning of section
771(5)(E) of the Act. Lacking such benchmarks, the only bases we have
for determining what constitutes adequate remuneration are TTEC's costs
and revenues.
Despite PUC's mandate to set rates that will cover the costs of
providing electricity plus an adequate return, past history indicates
that this directive has seldom been met. In addition, evidence in the
cost of service studies, including the most recent cost of service
study prepared in 1997, indicates that TTEC did not receive adequate
remuneration on its sales of electricity to CIL. This evidence is
proprietary and is discussed in the October 14, 1997 proprietary
memorandum entitled Adequate Remuneration for Electricity.
Consequently, we determine that the GOTT is bestowing a benefit on CIL
through TTEC's provision of electricity. We further determine that this
benefit is specific because CIL is the only user in its customer
category and, hence, the only company paying fees and tariffs at that
rate.
Adequacy of remuneration is a new statutory provision which
replaced ``preferentiality'' as the standard for determining whether
the government's provision of a good or service constitutes a
countervailable subsidy. The Department has had no experience
administering section 771(5)(E) and Congress has provided no guidance
as to how the Department should interpret this provision. This case and
the other concurrent wire rod cases, mark the first instances in which
we are applying the new standard. We anticipate that our policy in this
area will continue to be refined as we address similar issues in the
future.
We calculated the benefit for electricity by comparing CIL's actual
electricity rate in 1996 with the rate that would have yielded an
adequate return to TTEC, as calculated in its 1996 cost of service
study. (We used the cost of service study to calculate the benefit as
there was no suitable market-based benchmarks for electricity in
Trinidad and Tobago.) We divided the total shortfall based on CIL's POI
electricity consumption by CIL's total sales of all products during the
POI. On this basis, we calculated a countervailable subsidy rate of
1.46 percent ad valorem.
II. Programs Determined to Be Not Countervailable
A. Import Duty Concessions under Section 56 of the Customs Act
Section 56 of the Customs Act of 1983 provides for full or partial
relief from import duties on certain machinery, equipment, and raw
materials used in an approved industry. The approved industries that
may benefit from this relief are listed in the Third Schedule to
Section 56. In all, 76 industries are eligible to qualify for relief
under Section 56.
Companies in these industries that are seeking import duty
concessions apply by letter to the Tourism and Industries Development
Company, which reviews the application and forwards it with a
recommendation to the Ministry of Trade and Industry. If the Ministry
of Trade and Industry approves the application, the applicant receives
a Duty Relief License, which specifies the particular items for which
import duty concessions have been authorized. CIL received import duty
exemptions under Section 56 of the Customs Act during the POI.
In its June 30, 1997, supplemental response, the GOTT provided a
breakdown by industry of the number of licenses issued during the first
six months of the POI. During the POI, the Ministry of Trade and
Industry issued a large number of licenses to a wide cross-section of
industries. Some of the licenses were new issuances and others were
renewals of licenses previously issued. The breakdown of licenses by
industry indicated that the recipients of the exemption were not
limited to a specific industry or group of industries. The breakdown
also indicated that the steel industry was not a predominant user of
the subsidy nor did it receive a disproportionate share of benefits
under this program. For these reasons, we determine that import duty
concessions under Section 56 of the Customs Act are not limited to a
specific industry or group of industries and, hence, are not
countervailable.
[[Page 55008]]
B. Point Lisas Industrial Estate Lease
As noted above in the Provision of Electricity section of this
notice, particular problems can arise in applying the standard for
adequate remuneration when the government is the sole supplier of the
good or service in the country or within the area where the respondent
is located. With respect to the leasing of land, some of the options to
consider in determining whether the good has been provided for less
than adequate remuneration may be to examine whether the government has
covered its costs, whether it has earned a reasonable rate of return,
and/or whether it applied market principles in determining its prices.
In the instant case, we have found no alternative market reference
prices to use in determining whether the government has provided
(leased) the land for less than adequate remuneration. As such, we have
examined whether the government's price was determined according to the
same market factors that a private lessor would use in setting lease
rates for a tenant.
The Point Lisas Industrial Port Development Company (``PLIPDECO'')
owns and operates Point Lisas Industrial Estate. Prior to 1994,
PLIPDECO was 98 percent government-owned. Since then, PLIPDECO's issued
share capital has been held 43 percent by the government, eight percent
by Caroni Limited, a wholly-owned government entity, and 49 percent by
2,500 individual and corporate shareholders whose shares are publicly
traded on the Trinidad and Tobago Stock Exchange. We were unable to
find any privately-owned industrial estates in Trinidad and Tobago to
provide competitively-set, private, benchmark rates to determine the
adequacy of PLIPDECO's lease rates.
ISCOTT, the predecessor company to CIL, entered into a 30-year
lease contract for a site at Point Lisas in 1983, retroactive to 1978.
The 1983 lease rate was revised in 1988. In 1989, the site was
subleased to CIL at the revised rental fee. In 1994, ISCOTT and
PLIPDECO signed a novation of the lease whereby ISCOTT's name was
replaced on the lease by CIL's. During the POI, CIL paid the 1988
revised rental fee for the site.
Under section 771(5) of the Act, in order for a subsidy to be
countervailable it must, inter alia, confer a benefit. In the case of
goods or services, a benefit is normally conferred if the goods or
services are provided for less than adequate remuneration. The adequacy
of remuneration is determined in relation to prevailing market
conditions for the good or service provided in the country of
exportation.
In establishing lease rates for sites in the industrial estate,
PLIPDECO uses a standard schedule of lease rates as a starting point
for negotiating with prospective tenants. The standard lease rates
reflect PLIPDECO's evaluation of the market value of land in the
estate. Individual rates are negotiated based on a variety of factors,
such as the size of the lot, the type of lease, the type of business,
the attractiveness of the tenant, and the date on which the lease
contract was signed. Because rates are negotiated individually with
each tenant, the rate paid by CIL (and other tenants) is specific.
The site leased by ISCOTT in 1983 and now occupied by CIL is the
largest site in the Point Lisas Industrial Estate with an overall area
that is considerably more than double the size of the next largest
site. After CIL's site and the next largest, the size of the remaining
sites drops significantly. At verification, we examined leases of other
sites in the estate and found only one site with a 30-year lease that
was signed contemporaneously with CIL's lease. The remaining leases
examined had terms of 99 years, or 30-year leases that were signed much
later than CIL's. The method of calculating the lease rate on a 99-year
lease is fundamentally different from the calculation on a 30-year
lease, because tenants with 99-year leases effectively purchased the
land at the start of the lease, making only token annual lease payments
thereafter.
Tenants with 30-year leases make substantial annual lease payments
throughout the lease but no large initial payment. Therefore, we
decided not to compare a 99-year lease rate to CIL's 30-year lease
rate. Eliminating the 99-year leases left only one lease with a site
that was somewhat comparable in size to CIL's site. CIL's lease fee per
square meter was in line with the lease fee for the next most
comparable site.
Aside from the lease contract on the next most comparable site, we
have no other readily available benchmark or guideline to determine
whether the lease rate paid by CIL provides adequate remuneration to
PLIPDECO. The standard lease cannot serve as an appropriate benchmark
because it is used as the starting point for negotiations. All of the
leases examined at verification had rates below the standard rate.
Aside from the next largest site, the leases for other sites in the
estate were also found to be unsuitable. The disparity in both the
sizes of these leases and the years in which they were signed when
compared with CIL's site and lease rendered their use inappropriate.
Further, we found no privately owned industrial estates in Trinidad and
Tobago. Therefore, in addition to a direct comparison of CIL's lease
rate with that of the next most similar site, we also considered other
factors in determining whether PLIPDECO received adequate remuneration.
PLIPDECO considered ISCOTT to be the anchor tenant in the estate
because it was the first company to locate in the estate, and because
of its size and its role as the first steel producer in Trinidad and
Tobago. Further, ISCOTT's annual lease payments provided a considerable
cash flow to PLIPDECO, especially in the early years of the estate when
PLIPDECO was in need of funds for continued development. In addition,
ISCOTT was expected to draw other companies into the estate. As we
found at verification, PLIPDECO's expectations that ISCOTT would draw
other companies into the estate were, in fact, realized. Although a
precise dollar value cannot be placed on these factors, PLIPDECO took
them into consideration when establishing ISCOTT's lease rate. That
PLIPDECO took these factors into consideration is an indication that
its negotiations were intended to assure adequate remuneration on its
lease to CIL.
During the years for which we have information, 1992 through 1995,
PLIPDECO has been consistently profitable. In addition, PLIPDECO's
successful public stock offering of 49 percent of its shares in 1994
demonstrates that investors viewed the company as a good investment.
All of these facts support our determination that PLIPDECO is a
company that has succeeded in achieving adequate remuneration in its
dealings with CIL and with other tenants in the estate. Therefore, we
determine that CIL's lease rates have provided adequate remuneration
for its site in the Point Lisas Industrial Estate.
C. Provision of Natural Gas
As noted above in the Provision of Electricity section of this
notice, particular problems can arise in applying the standard for
adequate remuneration when the government is the sole supplier of the
good or service in the country or within the area where the respondent
is located. With respect to the provision of natural gas, some of the
options may be to examine whether the government has covered its costs,
whether it has earned a reasonable rate of return, and/or whether it
applied market principles in determining its prices. In the instant
case, we have found no alternative market reference
[[Page 55009]]
prices to use in determining whether the government has provided
natural gas for less than adequate remuneration. As such, we have
examined whether the government earned a reasonable rate of return and
whether the government applied market principles in determining its
prices.
NGC is the sole supplier of natural gas to industrial and
commercial users in Trinidad and Tobago. NGC provides gas pursuant to
individual contracts with each of its customers. Natural gas prices to
small consumers are fixed prices with an annual escalator. Prices to
large consumers are negotiated individually based on annual volume,
contract duration, payment terms, use made of the gas, any take or pay
requirement in the contract, NGC's liability for damages, and whether
new pipeline is required. Prices must be approved by NGC's Board of
Directors. Although NGC is 100 percent government-owned, the GOTT
indicates that none of the current members of the board is a government
official nor do any government laws or regulations regulate the pricing
of natural gas.
The price paid by CIL for natural gas during the POI was
established in a January 1, 1989 contract between ISCOTT and NGC that
ISCOTT assigned to CIL on April 28, 1989. Average price data submitted
by the GOTT for large industrial users of natural gas indicate that the
price paid by CIL during the POI was in line with the average price
paid by large industrial users overall.
At verification, NGC officials explained that the company operates
on a strictly commercial basis, purchasing natural gas at the lowest
prices it can negotiate and selling and distributing the gas at prices
that assure the company's profitability. The years for which we have
information on NGC's profitability, 1992 to 1995, demonstrate that the
company has been consistently profitable.
Clearly, in its contract negotiations and its overall operations,
NGC has demonstrated that it realizes an adequate return on its sales
and distribution of natural gas to CIL and its other customers. For
this reason, we have determined that the prices paid by CIL, which are
in line with those paid by other large consumers, provide adequate
remuneration to NGC for the natural gas supplied to CIL. Therefore, we
have determined that NGC's provision of natural gas to CIL is not a
countervailable subsidy under section 771(5) of the Act.
IV. Programs Determined To Be Not Used
A. Export Promotion Allowance
B. Corporate Tax Exemption
V. Program Determined Not To Exist
A. Loan Guarantee From the Trinidad and Tobago Electricity Commission
By 1988, ISCOTT had accumulated TT $19,086,000 in unpaid
electricity bills owed to TTEC. To manage this debt, TTEC obtained a
loan from the Royal Bank of Trinidad and Tobago which enabled TTEC to
more readily carry the receivable due from ISCOTT. By 1991, ISCOTT
extinguished its debt to TTEC.
At no time during this period did TTEC provide a guarantee to
ISCOTT which enabled ISCOTT to secure a loan to settle the outstanding
balance on its account. The financing obtained by TTEC from the Royal
Bank benefitted TTEC rather than ISCOTT because it allowed TTEC to have
immediate use of funds that otherwise would not have been available to
it. On this basis, we determine that TTEC did not provide a loan
guarantee to ISCOTT for purposes of securing a loan to settle the
outstanding balance owed to TTEC. Therefore, we determine that this
program did not exist.
Interested Party Comments
Comment 1: Treatment of shareholder advances: Petitioners claim
that GOTT advances to ISCOTT should be treated as grants rather than as
equity. In petitioners' view, these advances had none of the
characteristics of debt or equity, such as provisions for repayment,
dividends, or any additional claim on funds in the event of
liquidation. Petitioners cite to Certain Hot Rolled Lead and Bismuth
Carbon Steel Products from France, 58 FR 6221 (January 27, 1993)
(``Leaded Bar from France''), where the Department treated shareholder
advances as grants because no shares were distributed when the advances
were made, despite the fact that shares were issued at a later date.
Petitioners point out that the GOTT received no shares at the time of
its advances to ISCOTT.
Respondents claim that the advances should be treated as equity.
Respondents note that ISCOTT's annual reports consistently state that
it was the practice for advances to be capitalized as equity, and that
in fact, ISCOTT issued shares for nearly all advances through 1987. In
addition, according to respondents, the CCDA states that pending the
issuance of any shares, any payment from the GOTT shall constitute
paid-up share capital. Respondents further note that Wire Rod I, the
Department characterized GOTT funding as equity contributions.
Respondents cite to Certain Steel from the U.K. at 37395, where the
Department stated that despite the fact that the U.K. government did
not receive any additional ownership, such as stock or additional
rights, in return for the capital provided to BSC under Section 18(1)
since it already owned 100 percent of the company, such advances to BSC
were treated as equity.
Department's Position: We agree with respondents and have continued
to treat advances from the GOTT as equity at the time of receipt. In
Certain Steel from the U.K., as in this case, requests for funding from
the government were examined on a case-by-case basis. This treatment is
consistent with our treatment of advances in Wire Rod I and our
preliminary determination in this proceeding. Further, similar to
Certain Steel from the U.K., ISCOTT issued additional shares to the
GOTT on several occasions to reduce the balance of the shareholder
advances, whereas in Leaded Bar from France there was no understanding
that shareholder advances were to be converted to equity, and
conversion occurred only as part of a government-sponsored debt
restructuring.
Comment 2: Equityworthiness: Petitioners claim that if the
Department treats the stockholder advances as equity, ISCOTT's
financial statements and information gathered at verification
demonstrate that ISCOTT was unequityworthy after March 1983, and the
Department should view the provision of equity as inconsistent with the
practice of a reasonable private investor. Petitioners note that ISCOTT
had losses in every year from 1982 through 1994. Petitioners argue that
ISCOTT's inability to cover its variable costs while operating the
steel plant demonstrates that the company should have been shut down.
Petitioners urge the Department to follow its practice of placing
greater reliance on past indicators rather than on flawed studies
projecting dubious future expectations, which respondents have pointed
to as evidence of ISCOTT's equityworthiness. Petitioners cite to the
1983 Report of the Committee Appointed by Cabinet to Consider the
Future of ISCOTT (``Committee Report''), where under any of the options
considered, ISCOTT was projected to show a loss, as further evidence
that ISCOTT was unequityworthy.
Respondents claim that the financial ratios in this case must be
interpreted in the context of a start-up enterprise.
[[Page 55010]]
Respondents contend that a venture capitalist would recognize that a
start-up enterprise will incur losses for several years. Second,
respondents point out that while the Committee Report cited by
petitioners predicted an overall loss over the next five years, the
trend was decidedly positive, with increasing profits projected for the
last two years included in the study, 1986 and 1987.
Department's Position: We agree with petitioners, in part. At some
point, a reasonable private investor would have come to question
ISCOTT's continued inability to achieve forecasted operating results,
and would have made future funding contingent on timely, fundamental
changes in the company's operations, shutting down the plant, or
privatizing ISCOTT. As discussed above in the Equity Infusions section
of this notice, we are including advances from the GOTT to ISCOTT
during the period June 13, 1984 through December 31, 1991, in our
calculation of CIL's countervailable subsidy rate.
Comment 3: Loan guarantees under the CCDA: Respondents claim that
the GOTT's principal and interest payments on ISCOTT's behalf made
pursuant to loan guarantees under the CCDA are not countervailable. In
the 1984 final, the Department found that the GOTT's loan guarantees
under the CCDA were on terms consistent with commercial considerations.
Therefore, payments which the GOTT made on these loans pursuant to the
guarantees should also be considered consistent with commercial
considerations. In Carbon Steel Wire Rod from Saudi Arabia, 51 FR 4206
(February 3, 1986), the Department determined that funding in 1983 made
pursuant to a prior agreement, which was on terms consistent with
commercial considerations, was not countervailable, even though funds
provided pursuant to a new investment decision in 1983 were
countervailable because the company was no longer equityworthy.
Similarly, in Final Affirmative Countervailing Duty Determination:
Certain Corrosion resistant Carbon Steel Flat Products from New
Zealand, 58 FR 37366, 37368 (July 9, 1993), the Department confirmed
that a government's payment of loans under a guarantee agreement is not
countervailable if the underlying guarantee was commercially
reasonable.
Respondents also seek to clarify that even if the GOTT had
liquidated ISCOTT, the GOTT could not have avoided its payment
obligations. As of 1983, all funding under the loans covered by the
CCDA had been drawn down, and were subject to guarantees by the GOTT.
Petitioners argue that when the Department determined in 1984 that
the GOTT's decision to enter into the CCDA was rational, it was not at
that time determining that any and all future payments under the CCDA
would necessarily be consistent with the private investor standard.
Petitioners contend that if the GOTT had acted as a reasonable private
investor, it would have shut ISCOTT down and stopped the financial
hemorrhaging. Instead, petitioners argue, both ISCOTT and the GOTT were
too preoccupied with non-commercial considerations to consider the
reasonable course of action.
Department's Position: We disagree with respondents that the GOTT
was inexorably committed to make continued payments on ISCOTT's behalf
as a result of the loan guarantees contained in the CCDA. Had the
GOTT's actions been consistent with those of a reasonable private
investor, as a controlling shareholder in ISCOTT, the GOTT would have
sought to minimize losses. Shutting down the plant would have been less
expensive than continuing to operate the plant in such a manner that no
projection was ever achieved and variable costs were never covered by
revenues. The GOTT constructed the ISCOTT plant because it had studies
indicating the plant was a viable investment. When CIL leased the
ISCOTT plant, it demonstrated that ISCOTT was viable. The GOTT could
have pursued less costly alternatives than continued funding of
ISCOTT's operations with no requirement that timely and demonstrable
actions, including consideration of shutting down the plant, be taken
to reduce or eliminate the amount needed to fulfill all of its
obligations under the CCDA.
Comment 4: Countervailability of cash deficiency payments under the
CCDA: Respondents claim that the CCDA imposed a further legal
obligation on the GOTT that was distinct from its commitment to meet
ISCOTT's CCDA debt service obligations. Specifically, the CCDA required
the GOTT to provide funds to ISCOTT to cover any other cash deficiency,
such as an operating loss. Respondents argue that both external and
internal studies demonstrate that GOTT's decisions to cover these cash
deficiencies were consistent with those of a reasonable private
investor.
Petitioners reply that the Department's prior determination that
the GOTT's decision to enter into the CCDA was rational has no bearing
on whether or not subsequent decisions to fund money-losing operations
was rational. Petitioners contend that the rationality of guarantee
payments must be evaluated anew each time, and that the GOTT should
have realized that shutting down the ISCOTT plant would have been the
least cost available alternative.
Department's Position: We agree with petitioners that our 1984
decision regarding the CCDA did not give the GOTT license to provide
continued funding to ISCOTT immune from potential countervailability
under U.S. law. A reasonable private investor acting on a guarantee
would pursue the least-cost alternative, and would ensure that the
amount of funding under such a guarantee is truly necessary. We are not
persuaded that the GOTT's actions were consistent with those of a
reasonable private investor, as discussed above in the Equity Infusions
section of this notice.
Comment 5: Post-lease funding of ISCOTT: Respondents claim that
after ISCOTT's assets were leased to CIL in May 1989, any funds
provided to ISCOTT by the GOTT did not provide a subsidy to CIL's 1996
production. Respondents note that CIL has always been a separate and
distinct company, with no ownership interest in, or other affiliation
with, ISCOTT. Therefore, according to respondents, there is no basis
for attribution of ISCOTT's subsidies to CIL. Respondents note that as
discussed in Final Affirmative Countervailing Duty Determination;
Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the
United Kingdom, 58 FR 6237 (January 27, 1993) (``Leaded Bar from the
U.K.''), the Department did not attribute any subsidies received by BSC
after it had spun off its Special Steels Division into a joint venture,
United Engineering Steels Limited (``UES''). In that case the
Department did not attribute any subsidies received by BSC after the
spin off to the joint venture, stating that there was ``no evidence of
any mechanisms for passing through subsidies from British Steel plc to
UES (e.g., cash infusions) after the formation of the joint venture.
Therefore we determine that any benefits received by BSC after the
formation of the joint venture do not pass through to UES.''
Respondents contend that, similarly, in this case there is no evidence
that subsidies received by ISCOTT after CIL took control of the steel-
making facilities continued to benefit CIL.
Respondents further contend that any past subsidies found to have
been received by ISCOTT cannot be found to have conferred a benefit on
CIL's production of wire rod in 1996, as required by section 771(5)(E)
of the Act. Respondent's argue that CIL never received any of the
advances provided to ISCOTT, and note that CIL remained
[[Page 55011]]
a completely separate company from ISCOTT after purchasing ISCOTT's
plant in an arm's length transaction. Respondents argue that the
Department did not articulate how CIL received a benefit from financial
contributions to ISCOTT, as required by the Subsidies and
Countervailing Measures Agreement.
Petitioners claim that the Department has consistently found that
past subsidies are not extinguished by an arm's length sale of a
company that had received the subsidies. Petitioners cite to Certain
Hot-Rolled Lead and Bismuth Carbon Steel Products From the United
Kingdom; Final Results of Countervailing Duty Administrative Review, 61
FR 58377, (November 14, 1996) (``Leaded Bar from the U.K. Review''),
where the Department found that a portion of the subsidies traveled
with BSC's Special Steel Business assets when, in 1986, the government-
owned BSC exchanged its Special Steels Business for shares in UES.
Petitioners note that In Final Affirmative Countervailing Duty
Determination: Certain Pasta from Italy, 61 FR 30288, (June 14, 1996)
(``Pasta from Italy''), the Department made a similar finding.
Petitioners contend that in these cases, the Department views subsidy
payments to a company as a benefit to the entire company and all of its
productive assets, and, for this reason, the sale of the company or a
part of it does not extinguish the prior subsidies. Section 771(5)(F)
of the Act makes it very clear that the Department has the discretion
to find prior subsidies countervailable despite an arm's length sale of
company or assets.
Department's Position: We disagree with respondents, and have
allocated a portion of the nonrecurring subsidies received by ISCOTT
prior to the sale of the steel plant to CIL. In Leaded Bar from the
U.K., the Department found that subsidies received by BSC after the
spin-off did not pass through to UES. We note that in this case the
sale of ISCOTT's assets to CIL occurred after the lease period,
providing a mechanism for pass-through of subsidies received by ISCOTT
to CIL. Consistent with the Department's past practice in Pasta from
Italy and several pre-URAA cases, we determine that a portion of the
subsidies received by ISCOTT, including subsidies received during the
lease period, traveled with the assets sold to CIL.
Comment 6: Repayment of subsidies upon sale of assets: Petitioners
claim that the sale of ISCOTT's assets at a fair value did not offset
the distortion caused by the GOTT's original bestowal of subsidies.
Moreover, according to petitioners, the countervailing duty statute
establishes a presumption that a change in ownership of the productive
assets of a foreign enterprise does not render past countervailable
subsidies non-countervailable. Petitioners contend that once subsidies
are allocated to a productive unit, they should travel with that unit
upon sale or privatization. Therefore, petitioners argue that the
Department should not recognize a partial repayment of the subsidy
benefit stream at the time ISCOTT assets were sold.
Department's position: We disagree with petitioners and have
continued to allocate a portion of the sales price of ISCOTT's assets
to the previously bestowed subsidies. This is consistent with the URAA
and the Department's past practice (see, e.g., Leaded Bar from the U.K.
Review). Section 771(5)(F) of the Act reads:
Change in Ownership.--A change in ownership of all or part of a
foreign enterprise or the productive assets of a foreign enterprise
does not by itself require a determination by the administering
authority that a past countervailable subsidy received by the
enterprise no longer continues to be countervailable, even if the
change in ownership is accomplished through an arm's length
transaction.
The language of section 771(5)(F) of the Act purposely leaves
discretion to the Department with regard to the impact of a change in
ownership on the countervailability of past subsidies. Rather than
mandating that a subsidy automatically transfer with a productive unit
that is sold, as petitioners argue, the language in the statute clearly
gives the Department flexibility in this area. Specifically, the
Department is left with the discretion to determine, on a case-by-case
basis, the impact of a change in ownership on the countervailability of
past subsidies. Moreover, the SAA states that ``Commerce retain[s] the
discretion to determine whether, and to what extent, the privatization
of a government-owned firm eliminates any previously conferred
countervailable subsidies* * *'' SAA at 928.
In this case, we have determined that when ISCOTT's assets were
sold, a portion of the sales price reflected past subsidies. To account
for that, we treated a portion of the sales price as repaying those
past subsidies to the GOTT.
Comment 7: Calculation of amount of subsidies remaining with the
seller of a productive unit: Respondents argue that the Department's
methodology for calculating the amount of subsidies that pass through
in a change of ownership transaction is inconsistent with the rest of
the Department's practice with regard to nonrecurring subsidies because
the Department does not provide for any amortization when calculating
the percentage of the purchase price that is attributable to past
subsidies. Respondents claim that if the Department continues to
conclude that subsidies may survive privatization, it must revise its
methodology for calculating the percentage of the purchase price that
is attributed to previously bestowed subsidies to take into account the
fact that subsidies received prior to privatization must be amortized
from the time of receipt until the time of privatization. Respondents
propose that the Department determine the amount of the purchase price
attributable to previously bestowed subsidies as the ratio of the
amount of subsidies remaining in the company to the company's net worth
at the time of privatization.
Petitioners claim the ratio calculated under the Department's
current methodology, commonly referred to as ``gamma,'' is intended to
measure the share of the purchase price attributable to past subsidies,
not the value of past subsidies at the time of privatization.
Petitioners argue that the methodology proposed by respondents will
yield anomalous results. Petitioners claim that the sale of a thinly-
capitalized, heavily-subsidized company would result in 100 percent of
the purchase price being allocated to previously bestowed subsidies,
while all of the assets of the company benefitted from the past
subsidies. According to petitioners, a similarly situated company with
equity financing instead of debt would have a small amount of the
purchase price allocated to previously bestowed subsidies using
respondents' proposed methodology.
Department's position: In accordance with our past practice and
policy, we have continued to calculate the portion of the purchase
price attributable to past subsidies using historical subsidy and net
worth data (see, e.g., General Issues Appendix at 37263). Because this
methodology relies on several years' data, as opposed to data from just
a single year, it offers a more reliable representation of the
contribution that subsidies have made to the net worth of the
productive unit being sold. We take into account the amortization of
previously bestowed subsidies in our pass-through calculation as we
apply gamma to the amount of the remaining, unamortized countervailable
subsidy benefits to calculate the amount that remains with the seller.
Comment 8: Benefits associated with the 1994 sale of ISCOTT's
assets to CIL: Respondents claim that the write-off of
[[Page 55012]]
ISCOTT's debts after the sale of the plant to CIL is not a
countervailable subsidy to CIL. Typically, companies acquiring the
assets of other companies do not also acquire the debt of these
companies. In contrast, when companies acquire the stock of other
companies, they would normally be expected to assume the debt of the
acquired company. Respondents argue that the Department incorrectly
relied on GOES as precedent, because the circumstances in that case
were very different from the circumstances in the case of ISCOTT.
Respondents note that in GOES, the Government of Italy liquidated
Finsider and its main operating companies in 1988 and assembled the
group's most productive assets into a new operating company, ILVA
S.p.A. Respondents argue that the movement of assets and liabilities
between two government-owned companies, as was the case in GOES, is
very different from the arm's length nature of the sale of ISCOTT's
assets to CIL. Respondents claim that the purchase price paid in an
arm's length transaction, such as the sale of ISCOTT's assets to CIL,
reflects the fact that the purchaser is not also assuming the
liabilities of the seller.
Petitioners claim that the Department has precedent for its
decision to countervail loans to ISCOTT, which were not transferred to
CIL when CIL purchased ISCOTT's assets. Petitioners note that in Final
Affirmative Countervailing Duty Determination; Certain Steel Products
from Austria, 58 FR 37217, 37221 (July 9, 1993), the Department found
that losses incurred by a government-owned steelmaker, which were not
transferred to new companies upon their purchase of the steelmaker's
assets, conferred a subsidy to the new companies. Department's
Position: We have continued to treat the amount of ISCOTT's remaining
liabilities in excess of the amount of remaining assets after the sale
of ISCOTT's assets to CIL as a subsidy to ISCOTT at the time of the
sale. In Leaded Bar from the U.K., we explained why we allocate
subsidies to productive units, stating:
In the end, a ``bubble'' of subsidies would remain with a
virtually empty corporate shell which would not be affected by any
countervailing duties because it did not produce or export the
countervailed merchandise to the United States.
Here, the ``empty corporate shell'' was ISCOTT, with no productive
operations, no source of future earnings, and debts exceeding its
assets. Under such circumstances, it was inevitable that ISCOTT would
be unable to pay the balance owing on the notes payable, and, in fact,
the notes were forgiven by the lenders in 1995. When a government funds
an entity through loans which are later forgiven, the Department
includes in its calculation of the countervailing duty rate for that
entity an amount for debt forgiveness. In this situation, we determine
that the debt forgiveness, which for all intents and purposes occurred
at the time of the sale of ISCOTT's assets, is a countervailable
subsidy.
While the purchase price may have been lower if CIL had assumed the
responsibility for the notes payable in the purchase transaction, the
result would be that less of any pre-existing subsidies would be
repaid.
Comment 9: Calculation of net present value of unamortized
subsidies: Petitioners claim that the Department appears to have
improperly discounted the 1994 subsidy amount in calculating the net
present value of subsidies to which the gamma calculation is applied.
Respondents claim that because the Department begins allocating
subsidies in the year of receipt, the net present value amount for the
1994 subsidies should reflect one year of amortization.
Department's Position: We agree with petitioners that our
preliminary calculation of the net present value of previously bestowed
subsidies was not consistent with the Department's past practice in
this regard, and we have corrected this error in our final
calculations.
Comment 10: Amortization of nonrecurring subsidies: Respondents
claim that in amortizing advances to ISCOTT, the Department began
amortizing in the year after the year of receipt, without allocating
any amount to the year of receipt.
Department's Position: We agree with respondents and have corrected
our calculations.
Comment 11: Adequacy of remuneration for electricity: Respondents
claim that CIL does not benefit from the provision of electricity for
less than adequate remuneration because Section 32 of the PUC's
regulations requires the Commission to set rates that will cover costs
and earn a reasonable profit. In 1992, when setting the electricity
rates in effect during the POI, the PUC set rates for each customer
class based on cost of service studies for 1987 and 1991. These rates
were calculated to cover costs and expenses plus yield a reasonable
return. In addition, they were published rates that applied to all
customers within each of the rate classes.
Further, respondents argue that the electricity rates set by the
PUC in 1992 provided adequate remuneration because the PUC made upward
adjustments to the rates that had been proposed by TTEC. For example,
the PUC adopted a flat rate structure rather than the declining block
structure. As high volume users, CIL and other large industrial users
paid more under the flat rate structure than they would have under the
declining block structure. The declining block structure would have
allowed for a rate reduction as usage increased over the billing
period.
Petitioners claim that TTEC did not receive adequate remuneration
during the POI, nor did it receive an adequate return in two of the
four preceding years, despite the assertions by PUC and TTEC officials
that the utility is expected to cover costs and expenses and show a
return. Further, TTEC intends to file a cost of service study based on
1996 operating costs and request a rate increase. Petitioners argue
that this demonstrates that TTEC's current revenues are not adequate to
cover costs. Petitioners urge the Department to calculate CIL's benefit
from its electricity rates as a recurring grant valued as the
difference between CIL's payment at the current rate and the amount it
would pay if it were in the next largest rate class on which a profit
was realized.
Department's Position: We agree with petitioners that CIL's rate
did not provide adequate remuneration. Although the PUC's regulations
may require it to set rates that cover costs plus a return, history
demonstrates that the PUC has seldom achieved this. The rates in place
in the year preceding the POI and during the POI resulted in losses for
TTEC. Although a different rate structure such as declining block rates
might have led to other results, particularly for CIL, we have no basis
to depart from the structure that was actually adopted by the PUC.
We disagree, however, with the calculation methodology proposed by
petitioners. Instead, we have relied upon the most recent cost of
service study by TTEC which establishes a rate for CIL that will cover
the cost of supplying electricity to CIL plus a reasonable return. This
provides a better measure of adequate remuneration for a very large
customer like CIL than applying the rate for smaller customers, as
proposed by petitioners.
Comment 12: Adequacy of remuneration for lease: Petitioners claim
that CIL's lease rate is less than the standard lease rate. In Wire Rod
I (at 482), the Department found this lease rate to result in a subsidy
of 2.246 percent. Further, the record in this investigation has
information on only
[[Page 55013]]
four other leases. This limited information does not allow for a
meaningful comparison with the lease rate paid by CIL. Even these four
leases, however, suggest that CIL's lease does not provide adequate
remuneration. For these reasons, CIL's lease rate should be found
countervailable.
Respondents maintain that the rate CIL pays for its 105.7 hectares
provides adequate remuneration to PLIPDECO. At verification, the
Department attempted to find a suitable benchmark for CIL's lease and
found only two companies with 30-year leases on sites of 10 hectares or
more. Other companies with sites of 10 hectares or more had 99-year
leases. These 99-year leases are structured much differently and cannot
be compared to a 30-year lease. Of the two sites with 30-year leases,
the first was the second largest site in the estate, and the lease for
the property was signed at about the same time as CIL's. The second was
a small site with a lease signed years after CIL's lease. Comparing the
most comparable lease to CIL's reveals that CIL was paying a higher
rate.
Department's Position: PLIPDECO officials informed us at
verification that the standard lease rate is used as a starting point
for negotiation and indicated that only very small sites would pay this
rate. The lease rates of the four leases examined during verification
were all less than the standard rate. Therefore, we concluded that the
standard rate was not used as the lease rate in all cases and was not
an appropriate benchmark for CIL's lease rate.
Moreover, neither the GOTT nor PLIPDECO limited the verification
team's access to leases during verification. The team selected the
leases to be reviewed on the basis of their similarity to CIL's lease.
First, the team selected leases with sites of 10 hectares or more. Of
these, only two had leases with the same 30-year term as CIL's. The
others were 99-year leases. The team then selected two leases with
sites of less than 10 hectares to review the lease terms on these
smaller sites. Because CIL's site was 105.7 hectares, the team did not
make further selections from the leases with sites under 10 hectares.
Although we did find that the 1983 lease conferred a subsidy in
Wire Rod I, we note that CIL's lease rate increased significantly in
1988. In addition, the Department used the standard lease rate as its
benchmark in Wire Rod I. However, as discussed above, our review in
this proceeding showed that several leases had rates below the standard
rate. Therefore, we have concluded that the standard rate is not an
appropriate benchmark.
Comment 13: Export allowance program: Respondents argue that in
computing the subsidy attributable to the export allowance program
(``EAP'') for the POI, the Department should use CIL's income tax
return for fiscal year 1996 rather than CIL's 1995 income tax return.
In respondents' view, this would be consistent with the Department's
established cash flow methodology as described in the Countervailing
Duties: Notice of Proposed Rulemaking and Request for Public Comments,
54 FR 23366, 23384 (May 31, 1989) (``1989 Proposed Regulations'') at
section 355.48(a). Under that policy, the Department will ordinarily
deem a countervailable benefit to be received at the time that there is
a cash flow effect on the firm receiving the benefit. Respondents
assert that CIL experienced the cash flow effect of the EAP throughout
1996, when CIL paid its quarterly installments of the Business Levy.
Respondents also argue that use of the 1995 tax return distorts the
countervailable subsidy by attributing to CIL the export allowance
benefit earned in 1995, when both exports and total sales were greater
than in 1996. Respondents contend that the Department's regulations
give it the discretion to use the 1996 tax return and that the
Department should use that discretion to avoid this distortion.
Petitioners agree with the Department's approach used in the
preliminary determination and urge the Department to continue using the
benefits reported in the 1995 tax return which was filed during the POI
in calculating the amount of benefit received by CIL. Petitioners state
that this approach is consistent with the Department's prior
determinations and policy as well as section 351.508(2)(b) of the
Proposed Countervailing Duty Regulations, 62 FR 8818, 8880 (February
26, 1997) (``1997 Proposed Regulations''). Petitioners also cite
section 355.48(b)(4) of the 1989 Proposed Regulations, which states
that in the case of a direct tax benefit a firm can normally calculate
the amount of the benefit when the firm files its tax return.
Petitioners argue that CIL realized the benefit on October 29, 1996,
the date when it filed its 1995 tax return, and that CIL did not
realize benefits on its 1996 exports until it filed its 1996 tax return
on August 25, 1997, after the POI. Petitioners dismiss respondents'
arguments about cash flow methodology and estimated tax payment as
meritless. Petitioners assert that CIL only claimed benefits from the
export allowance when it filed its corporate tax return. Moreover,
petitioners state that the filing of the formal income tax return is
the earliest date upon which the Department can determine whether the
EAP had been used.
Department's Position: We agree with petitioners that CIL received
the benefit of the tax savings attributable to the EAP when it filed
its corporate tax return. Consequently, we have continued to value this
benefit based on the tax return filed during the POI.
In Trinidad and Tobago, a company pays either the corporation tax
or Business Levy, whichever is higher. The corporation tax is
calculated on the company's profits, and the Business Levy is
calculated as a straight percentage of gross sales or receipts.
The Department's long-established practice in treating income tax
benefits has been to recognize the benefit of income tax programs at
the time the income tax return is actually filed, usually in the year
following the tax year for which the benefit is claimed (see, e.g.,
Final Affirmative Countervailing Duty Determination: Iron Ore Pellets
from Brazil, 51 FR 21961, 21967 (June 17, 1986)). It is at that time
that the recipient normally realizes a difference in cash flow between
the income tax paid with the benefit of the program and the tax that
would have been paid absent the program. Even when companies make
estimated quarterly income tax payments during the tax year, the
Department has delayed recognition of the benefit until the tax return
is filed and the amount of the benefit is definitively established.
In this case, CIL acknowledges that the 1996 EAP was not claimed
until it filed its 1996 tax return in 1997. Nevertheless, CIL claims
that because of the export allowance, it does not pay the corporate
income tax. Instead, because it must pay the higher of the Business
Levy or the corporate income tax, CIL typically pays the Business Levy.
Moreover, because CIL makes quarterly deposits of its estimated
Business Levy, the company claims the cash flow effect of the EAP
occurs when these quarterly deposits are made.
Although we agree that CIL has typically paid the Business Levy
rather than the corporate income tax as a result of the EAP, we do not
agree that this should lead us to countervail the benefits arising from
the EAP as if they were connected with the Business Levy.
First, CIL will only be certain that it will pay the Business Levy
when the income tax is computed and the export allowance is claimed.
Second, the amount of the benefit is not calculable prior to the filing
of the corporate tax
[[Page 55014]]
return. An income tax benefit can potentially have numerous cash flow
effects. The Department's practice is to single out the cash flow
effect most directly associated with the tax benefit; in this case, the
actual savings which arise when the taxes are due.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government and
company officials, and examination of relevant accounting records and
original source documents. Our verification results are outlined in
detail in the public versions of the verification reports, which in the
Public File for this investigation.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an ad valorem subsidy rate of 17.47 percent for CIL, the one
company under investigation. We are also applying CIL's rate to any
companies not investigated or any new companies exporting the subject
merchandise.
We have concluded a suspension agreement with the GOTT which
eliminates the injurious effects of imports from Trinidad and Tobago
(see, Notice of Suspension of Investigation: Steel Wire Rod from
Trinidad and Tobago being published concurrently with this notice). As
indicated in the notice announcing the suspension agreement, pursuant
to section 704(h)(3) of the Act, we are directing the U.S. Customs
Service to continue suspension of liquidation. This suspension will
terminate 20 days after publication of the suspension agreement or, if
a review is requested pursuant to section 704(h)(1) of the Act, at the
completion of that review. Pursuant to section 704(f)(2)(B) of the Act,
however, we are not applying the final determination rate to entries of
subject merchandise from Trinidad and Tobago; rather, we have adjusted
the rate to zero to reflect the effect of the agreement.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Acting Deputy Assistant Secretary for AD/CVD Enforcement, Import
Administration.
If the ITC's injury determination is negative, the suspension
agreement will have no force or effect, this investigation will be
terminated, and the Department will instruct the U.S. Customs Service
to refund or cancel all securities posted (see, section 704(f)(3)(A) of
the Act). If the ITC's injury determination is affirmative, the
Department will not issue a countervailing duty order as long as the
suspension agreement remains in force, and the Department will instruct
the U.S. Customs Service to refund or cancel all securities posted
(see, section 704(f)(3)(B) of the Act). This notice is issued pursuant
to section 704(g) of the Act.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 705(d) of the
Act.
Dated: October 14, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27984 Filed 10-21-97; 8:45 am]
BILLING CODE 3510-DS-P
