01-26940. Notice of Initiation of Countervailing Duty Investigation: Sulfanilic Acid From Hungary

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Initiation of countervailing duty investigation.

SUMMARY:

The Department of Commerce is initiating a countervailing duty investigation to determine whether manufacturers, producers, or exporters of sulfanilic acid from Hungary receive countervailable subsidies.

EFFECTIVE DATE:

October 26, 2001.

FOR FURTHER INFORMATION CONTACT:

Melani Miller, AD/CVD Enforcement, Group I, Office 1, Import Administration, International Trade Administration, U.S. Department of Commerce, Room 3099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone [phone].

SUPPLEMENTARY INFORMATION:

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are references to the provisions effective January 1, 1995, the effective date of the amendments made to the Tariff Act of 1930 (“the Act”) by the Uruguay Round Agreements Act. In addition, unless otherwise indicated, all citations to the Department of Commerce's (“the Department”) regulations are references to the provisions codified at 19 CFR part 351 (April 2001).

The Petition

On September 28, 2001, the Department received a petition filed in proper form by Nation Ford Chemical Company (“the petitioner”). The Department received supplemental information to the petition on October 9 and 12, 2001.

In accordance with section 702(b)(1) of the Act, the petitioner alleges that manufacturers, producers, or exporters of sulfanilic acid, the subject merchandise, from Hungary receive countervailable subsidies within the meaning of section 701 of the Act, and that such imports are materially injuring, or threatening material injury to, an industry in the United States.

The Department finds that the petitioner filed this petition on behalf of the domestic industry because it is an interested party as defined in section 771(9)(C) of the Act and has demonstrated sufficient industry support. See Determination of Industry Support for the Petition section, below.

Scope of Investigation

Imports covered by this investigation are all grades of sulfanilic acid, which include technical (or crude) sulfanilic acid, refined (or purified) sulfanilic acid and sodium salt of sulfanilic acid.

Sulfanilic acid is a synthetic organic chemical produced from the direct sulfonation of aniline and sulfuric acid. Sulfanilic acid is used as a raw material in the production of optical brighteners, food colors, specialty dyes and concrete additives. The principal differences between the grades are the undesirable quantities of residual aniline and alkali insoluble materials present in the sulfanilic acid. All grades are available as dry, free flowing powders.

Technical sulfanilic acid, classifiable under the subheading 2921.42.22 of Harmonized Tariff Schedule (“HTS”), contains 96 percent minimum sulfanilic acid, 1.0 percent maximum aniline, and 1.0 percent maximum alkali insoluble materials. Refined sulfanilic acid, also classifiable under 2921.42.22 of the HTS, contains 98 percent minimum sulfanilic acid, 0.5 percent maximum aniline and 0.25 percent maximum alkali insoluble materials.

Sodium salt (sodium sulfanilate), classifiable under HTS subheading 2921.42.90, is a powder, granular or crystalline material which contains 75 percent minimum equivalent sulfanilic acid, 0.5 percent maximum aniline based on the equivalent sulfanilic acid content, and 0.25 percent maximum alkali insoluble materials based on the equivalent sulfanilic acid content.

Although the HTS subheadings are provided for convenience and customs purposes, the written description of the scope of this investigation is dispositive.

This scope is identical to the scope of the antidumping duty order on Sulfanilic Acid from the People's Republic of China. See Antidumping Duty Order: Sulfanilic Acid from the People's Republic of China, 57 FR 37524 (August 19, 1992) (as currently reflected in Sulfanilic Acid from the People's Republic of China; Preliminary Results and Preliminary Partial Rescission of Antidumping Duty Administrative Review, 66 FR 47003 (September 10, 2001)). Nevertheless, during our review of the petition, we discussed the scope with the petitioner to ensure that it accurately reflects the product for which the domestic industry is seeking relief. Moreover, as discussed in the preamble to the Department's regulations (see Antidumping Duties; Countervailing Duties; Final Rule, 62 FR 27296, 27323 (May 19, 1997)), we are setting aside a period for parties to raise issues regarding product coverage. The Department encourages all parties to submit such comments within 20 days of publication of this notice. Comments should be addressed to Import Administration's Central Records Unit (“CRU”) at Room 1870, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230. The period of scope consultations is intended to provide the Department with ample opportunity to consider all comments and consult with parties prior to the issuance of our preliminary determination.

Consultations

Pursuant to section 702(b)(4)(A)(ii) of the Act, the Department invited representatives of the Government of Hungary (“GOH”) for consultations with respect to the petition filed in this proceeding. The Department held consultations with the GOH on October 9, 2001. The points raised in the consultations are described in the Memorandum to the File, “CVD Consultations with Officials from the Government of Hungary,” dated October 9, 2001, which is on file in the Department's CRU, Room B-099 of the main Department of Commerce building.

Determination of Industry Support for the Petition

Section 702(b)(1) of the Act requires that a petition be filed on behalf of the domestic industry. Section 702(c)(4)(A) of the Act provides that a petition meets this requirement if the domestic producers or workers who support the petition account for: (1) At least 25 percent of the total production of the domestic like product; and (2) more than 50 percent of the production of the domestic like product produced by that portion of the industry expressing support for, or opposition to, the petition.

Section 771(4)(A) of the Act defines the “industry” as the producers of a domestic like product. Thus, to determine whether the petition has the requisite industry support, the Act directs the Department to look to producers and workers who account for production of the domestic like product. The International Trade Commission (“ITC”), which is responsible for determining whether “the domestic industry” has been injured, must also determine what constitutes a domestic like product in order to define the industry. While both the Department and the ITC must apply the same statutory definition regarding the domestic like product (section 771(10) of the Act), they do so for different purposes and pursuant to separate and distinct authority. In addition, the Department's determination is subject to limitations of time and information. Although this may result in different definitions of the domestic like product, such differences do not render the decision of either agency contrary to the law. See Algoma Steel Corp. Ltd., v. United States, 688 F. Supp. 639, 642-44 (CIT 1988); High Information Content Flat Panel Displays and Display Glass Therefore from Japan: Final Determination; Rescission of Investigation and Partial Dismissal of Petition, 56 FR 32376, 32380-81 (July 16, 1991).

Section 771(10) of the Act defines the domestic like product as “a product that is like, or in the absence of like, most similar in characteristics and uses with, the article subject to an investigation under this title.” Thus, the reference point from which the domestic like product analysis begins is “the article subject to an investigation,” i.e., the class or kind of merchandise to be investigated, which normally will be the scope as defined in the petition.

The domestic like product referred to in the petition is the single domestic like product defined in the Scope of Investigation section above. The Department has no basis on the record to find this definition of the domestic like product to be inaccurate. The Department, therefore, has adopted this domestic like product definition.

The Department has determined that the petition contains adequate evidence of industry support; therefore, polling is unnecessary. See Industry Support section from the October 18, 2001 Initiation Checklist, which is on file in the Department's CRU. Information on the record demonstrates that the producer who supports the petition accounts for more than 50 percent of the production of the domestic like product. Additionally, no interested party pursuant to section 771(b)(A), (C), (D), (E) or (F) of the Act has expressed opposition on the record to the petition. Accordingly, the Department determines that this petition is filed on behalf of the domestic industry within the meaning of section 702(b)(1) of the Act.

Injury Test

Because Hungary is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, section 701(a)(2) applies to this investigation. Accordingly, the ITC must determine whether imports of the subject merchandise from Hungary materially injure, or threaten material injury to, a U.S. industry.

Allegations and Evidence of Material Injury and Causation

The petition alleges that the U.S. industry producing the domestic like product is being materially injured, or is threatened with material injury, by reason of the imports of the subject merchandise. The petitioner contends that the industry's injured condition is evident in the declining trends in employment, domestic prices, production, and net sales volume and value. The allegations of injury and causation are supported by relevant evidence including U.S. Customs import data, lost sales, and pricing information. We have assessed the allegations and supporting evidence regarding material injury and causation, and have determined that these allegations are properly supported by accurate and adequate evidence, and meet the statutory requirements for initiation (see Initiation Checklist).

Allegations of Subsidies

Section 702(b) of the Act requires the Department to initiate a countervailing duty proceeding whenever an interested party files a petition on behalf of an industry, that (1) alleges the elements necessary for an imposition of a duty under section 701(a), and (2) is accompanied by information reasonably available to the petitioner supporting the allegations.

Initiation of Countervailing Duty Investigation

The Department has examined the countervailing duty petition on sulfanilic acid from Hungary and found that it complies with the requirements of section 702(b) of the Act. Therefore, in accordance with section 702(b) of the Act, we are initiating a countervailing duty investigation to determine whether manufacturers, producers, or exporters of sulfanilic acid from Hungary receive countervailable subsidies.

A. Change in Ownership

The petitioner alleges that, in November 1997, Nitrokemia, a government-owned entity, was split into two parts: Nitrokemia 2000, which received certain of the former Nitrokemia's assets including the sulfanilic acid production facilities, and Nitrokemia Rt., which received the remainder of the former Nitrokemia's assets and the former Nitrokemia's environmental liabilities. According to its web site, Nitrokemia 2000 continued to be a fully-owned subsidiary of the former Nitrokemia (now Nitrokemia Rt.) until May 1998, at which point it became an independent stock company owned by the State Privatization Company. Subsequently, in November 2000, Nitrokemia 2000 was privatized.

The petitioner alleges that the current Nitrokemia 2000 is the same “person” as it was prior to its privatization. Thus, consistent with the Department's recent Final Results of Redetermination Pursuant to Court Remand in Acciai Speciali Terni S.p.A. v. United States., et al., (Ct. No. 99-06-00364) (December 19, 2000), the past countervailable subsidies received by pre-privatized Nitrokemia 2000 would continue to be countervailable after the change in ownership. We will examine this issue in the course of the investigation to determine whether any non-recurring subsidies provided to Nitrokemia 2000 prior to its privatization should be attributed to Nitrokemia 2000 in our period of investigation.

B. Creditworthiness

The petitioner alleges that the former Nitrokemia, Nitrokemia Rt., and Nitrokemia 2000 were uncreditworthy from 1997 through 2000. To support its allegation, the petitioner states that the financial statements for all three companies show that they have all been unprofitable since 1997, and that these companies could not possibly borrow money without government guarantees. The petitioner further claims that no company with such substantial environmental liabilities (see Programs section, below, as well as the Initiation Checklist) would be able to successfully borrow funds from any commercial institution. As additional support, the petitioner provided a current Dun and Bradstreet report for Nitrokemia 2000, as well as a financial analysis derived from Nitrokemia 2000's financial statement for 2000.

With respect to the petitioner's uncreditworthiness allegations for 1999 and 2000, as noted below in the Programs section, we are not initiating an investigation of any alleged subsidies bestowed in those years. Thus, we are not initiating a creditworthiness investigation for 1999 and 2000. If, however, in the course of this investigation we discover that any non-recurring subsidies, loans, or loan guarantees were bestowed during 1999 and 2000, we will consider any new uncreditworthiness allegations made at that time.

With respect to 1997 and 1998, which is the time period during which the former Nitrokemia was split and the contingent environmental liabilities were assigned to Nitrokemia Rt. (see Programs section, below, as well as the Initiation Checklist), the petitioner must establish a reasonable basis to believe or suspect that a company was uncreditworthy in each of these years in order for the Department to investigate the company's creditworthiness. Pursuant to section 351.505(a)(4)(i) of the Department's regulations, the Department will generally consider a firm to be uncreditworthy if, based on information available at the time of the government-provided loan, the firm could not have obtained long-term loans from conventional commercial sources.

In this instance, the only evidence provided by the petitioner relating to these years was the companies' financial statements which showed losses. While a loss in a particular year may provide some information about a company's financial position, the Department looks not only to present indicators but also to past indicators of financial health (see section 351.505(a)(4)(i)(B) of the Department's regulations) and to present and past indicators of the firm's ability to meet its costs and fixed financial obligations (see section 351.505(a)(4)(i)(C) of the Department's regulations). In both the petition and the petitioner's response to the Department's supplemental petition question with respect to the uncreditworthiness allegations, the petitioner did not provide financial ratios to support its creditworthiness argument for 1997 and 1998. Moreover, although the petitioner provided the financial statement for old Nitrokemia for 1997 from which 1997 financial ratios could be derived, the petitioner did not provide any information or financial statements that could be used to derive financial ratios for any of the preceding years. Thus, because the petitioner did not provide sufficient relevant evidence to support a reasonable basis to believe or suspect that these companies were uncreditworthy in 1997 and 1998, we are also not initiating a creditworthiness investigation for these years.

C. Programs

We are including in our investigation the following program alleged in the petition to have provided a countervailable subsidy to producers and exporters of the subject merchandise in Hungary:

Forgiveness of Environmental Liabilities

We are not including in our investigation at this time the following programs alleged to benefit producers and exporters of the subject merchandise in Hungary:

1. Forgiveness of Short-Term Liabilities. The petitioner alleges that, because the combined short-term liabilities listed on the 1998 financial statements from Nitrokemia Rt. and Nitrokemia 2000 are significantly smaller than the short-term liabilities listed on the former Nitrokemia's 1997 financial statements, the GOH forgave some of the former Nitrokemia's short-term liabilities when the company was split.

The petitioner has not provided sufficient evidence that any short-term debts were actually forgiven by the GOH. Although the combined short-term debts were less than the short-term debts from the former Nitrokemia's financial statements, the petitioner has provided no evidence that the short-term debt was not simply paid off or converted to long-term debt. Thus, lacking sufficient evidence of a financial contribution or a benefit from the GOH at this time, we are not including this program in our investigation.

2. Provision of Natural Gas for Less Than Adequate Remuneration. The petitioner alleges that the GOH subsidizes the price of natural gas to the Hungarian industry because natural gas prices in Hungary are significantly lower than they are in the rest of the world. Without this alleged subsidy, the petitioner states that the cost of natural gas for Nitrokemia 2000's sulfanilic acid production would be one percent higher.

The petitioner has provided no evidence to support its claim that the GOH provided natural gas for less than adequate remuneration to a specific enterprise or industry in Hungary. The petitioner admits that it was not able to locate any information that this alleged provision of low-priced natural gas was not generally available in Hungary. Thus, because no information was provided in support of the specificity claim, at this time we are not including this program in our investigation.

Distribution of Copies of the Petition

In accordance with section 702(b)(4)(A)(i) of the Act, a copy of the public version of the petition has been provided to the GOH. We will attempt to provide a copy of the public version of the petition to each exporter named in the petition, as provided for under section 351.203(c)(2) of the Department's regulations.

ITC Notification

We have notified the ITC of our initiation, as required by section 702(d) of the Act.

Preliminary Determination by the ITC

The ITC will determine no later than November 13, 2001, whether there is a reasonable indication that imports of sulfanilic acid from Hungary are causing material injury, or threatening to cause material injury to, a U.S. industry. A negative ITC determination will result in the investigation being terminated; otherwise, the investigation will proceed according to statutory and regulatory time limits.

This notice is issued and published pursuant to section 777(i) of the Act.

Dated: October 18, 2001.

Faryar Shirzad,

Assistant Secretary for Import Administration.