[Federal Register Volume 61, Number 221 (Thursday, November 14, 1996)]
[Notices]
[Pages 58377-58383]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29089]
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DEPARTMENT OF COMMERCE
[C-412-811]
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From
the United Kingdom; Final Results of Countervailing Duty Administrative
Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of final results of countervailing duty administrative
review.
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SUMMARY: On May 6, 1996, the Department of Commerce (the Department)
published in the Federal Register its preliminary results of
administrative review of the countervailing duty order on certain hot-
rolled lead and bismuth carbon steel products from the United Kingdom
for the period January 1, 1994, through December 31, 1994 (61 FR
20238). The Department has now completed this administrative review in
accordance with Sec. 751(a) of the Tariff Act of 1930, as amended. For
information on the net subsidy for each reviewed company, and for all
non-reviewed companies, please see the Final Results of Review section
of this notice. We will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Final Results of Review
section of this notice.
EFFECTIVE DATE: November 14, 1996.
FOR FURTHER INFORMATION CONTACT:
Melanie Brown or Christopher Cassel, Office of CVD/AD Enforcement VI,
Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone (202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
Pursuant to Sec. 355.22(a) of the Department's Interim Regulations,
this review covers only those producers or exporters of the subject
merchandise for which a review was specifically requested. See
Antidumping and Countervailing Duties: Interim regulations; request for
comments, 60 FR 25130, 25139 (May 11, 1995) (Interim Regulations).
Accordingly, this review covers United Engineering Steels Limited (UES)
and British Steel plc (BS plc). BS plc stated that it did not produce
or export the subject merchandise during the period of review (POR).
Therefore, BS plc has not been assigned an individual company rate for
this administrative review. This review also covers the period January
1, 1994, through December 31, 1994, and fourteen programs.
Since the publication of the preliminary results on May 6, 1996 (61
FR 20238), the following events have occurred. We invited interested
parties to comment on the preliminary results. On June 5, 1996, case
briefs were submitted by UES, producer of the subject merchandise which
exported hot-rolled lead and bismuth carbon steel products to the
United States during the POR (respondent), the Government of the United
Kingdom (UK Government) and Inland Steel Bar Company (petitioner). On
June 12, 1996, rebuttal briefs were submitted by respondent and
petitioner. At the request of respondent, the Department held a public
hearing on June 28, 1996.
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 (URAA) effective January 1, 1995 (the
Act). References to the Countervailing Duties: Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989)
(Proposed Regulations), are provided solely for further explanation of
the Department's countervailing duty practice. Although the Department
has withdrawn the particular rulemaking proceeding pursuant to which
the Proposed Regulations were issued, the subject matter of these
regulations is being considered in connection with an ongoing
rulemaking proceeding which, among other things, is intended to conform
the Department's regulations to the URAA. See Advance Notice of
Proposed Rulemaking and Request for Public Comments, 60 FR 80 (January
3, 1995).
Scope of the Review
Imports covered by this review are hot-rolled bars and rods of non-
alloy or other alloy steel, whether or not descaled, containing by
weight 0.03 percent or more of lead or 0.05 percent or more of bismuth,
in coils or cut lengths, and in numerous shapes and sizes. Excluded
from the scope of this review are other alloy steels (as defined by the
Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72,
note 1(f)), except steels classified as other alloy steels by reason of
containing by weight 0.4 percent or more of lead or 0.1 percent or more
of bismuth, tellarium, or selenium. Also excluded are semi-finished
steels and flat-rolled products. Most of the products covered in this
review are provided for under subheadings
[[Page 58378]]
7213.20.00.00 and 7214.30.00.00 of the HTSUS. Small quantities of these
products may also enter the United States under the following HTSUS
subheadings: 7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90;
7214.40.00.10, 00.30, 00.50; 7214.50.00.10, 00.30, 00.50;
7214.60.00.10, 00.30, 00.50; and 7228.30.80. Although the HTSUS
subheadings are provided for convenience and for Customs purposes, our
written description of the scope of this proceeding is dispositive.
Analysis of Programs
I. Programs Conferring Subsidies
Allocation of Subsidies From British Steel Corporation to UES
UES is a joint venture company formed in 1986 by the government-
owned British Steel Corporation (BSC) and Guest, Keen & Nettlefolds
(GKN), a private company. In return for shares in UES, BSC contributed
a major portion of its Special Steels Business and GKN contributed its
Brymbo Steel Works and its forging business. BSC was subsequently
privatized in 1988 and now bears the name BS plc.
In the preliminary results of this review, we followed the
methodology described in the Restructuring section of the General
Issues Appendix appended to the Final Affirmative Countervailing Duty
Determination: Certain Steel Products from Austria (58 FR 37217, 37268-
69) (General Issues Appendix or Certain Steel). Accordingly, we
allocated to UES a portion of the subsidies previously bestowed on BSC
under the following programs:
A. Equity Infusions
B. Regional Development Grant Program
C. National Loan Fund (NLF) Loan Cancellation
D. European Coal and Steel Community (ECSC) Article 54 Loans/Interest
Rebates
For a complete explanation of the methodology used to allocate
subsidies from BSC to UES, see Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products from the United Kingdom: Preliminary Results of
Administrative Review, 61 FR 20238, 20239-41 (May 6, 1996).
The Court of Appeals for the Federal Circuit (CAFC) has recently
issued a ruling supporting our determination that subsidies are not
necessarily extinguished as a result of the sale of an enterprise in an
arm's length transaction. Saarstahl, AG v. United States, 78 F.3d 1539
(Fed. Cir. 1996) (Saarstahl). Litigation, however, continues with
regard to certain aspects of our privatization methodology.
Our analysis of the comments submitted by the interested parties,
summarized below, has not led us to change our findings from the
preliminary results. Accordingly, the net subsidies for each program
remain unchanged from the preliminary results and are as follows: 1.49
percent ad valorem for equity infusions, 0.05 percent ad valorem for
regional development grants, 0.16 percent ad valorem for the NLF loan
cancellation, and less than 0.005 percent ad valorem for the ECSC
Article 54 loans/interest rebates.
II. Programs Determined To Be Not Used
In the preliminary results of this review, we found that respondent
did not apply for or receive benefits under the following programs
during the POR:
A. New Community Instrument Loans
B. ECSC Article 54 Loan Guarantees
C. NLF Loans
D. ECSC Conversion Loans
E. European Regional Development Fund Aid
F. Article 56 Rebates
G. Regional Selective Assistance
H. ECSC Article 56(b)(2) Redeployment Aid
I. BRITE/EuRAM II
J. Inner Urban Areas Act
We did not receive any comments on these programs from the
interested parties, and our review of the record has not led us to
change our findings.
Analysis of Comments
Comment 1: UES argues that the amendments made to the Tariff Act of
1930 by the URAA preclude the imposition of countervailing duties on
UES' 1994 imports on the basis of the findings contained in the
Department's original determination in this proceeding. According to
UES, Sec. 771(5)(B) and Sec. 771(5)(E) of the new law permit the
Department to impose countervailing duties only upon a proper and
justified finding that a ``benefit'' has been conferred upon a
``person''--commercial entity--and when the financial contribution
provides a benefit to the recipient. Therefore, to conclude under the
amended statute that financial contributions made to BSC by the UK
Government from 1977 to 1985 provide countervailable benefits to UES'
production of leaded bar in 1994, UES argues that the Department must
find that those financial contributions conferred a benefit upon UES.
UES claims that the Department has not made such a finding in its prior
determinations and that such a determination cannot be made on the
basis of the record evidence, because UES did not receive the financial
contributions, and UES acquired the assets of BSC's Special Steel
Division as a consequence of arm's-length negotiations. In short, UES
contends that the URAA requires the Department to show how UES
benefitted from the financial contributions received by BSC.
The Government of the United Kingdom presents a similar argument,
stating that the Agreement on Subsidies and Countervailing Measures
(SCM) precludes the Department from imposing countervailing duties on
UES because: (1) UES has never received a subsidy; and (2) the
Department has never shown that UES' production or exports of steel
benefited from subsidies given to British Steel Corporation. According
to the UK Government, Article 14 of the SCM requires Member states to
explain how benefits to the recipient will be calculated; Article 14
also requires that there be a specific finding of a benefit to the firm
whose product is countervailed. The UK Government contends that UES
never received any ``financial contributions,'' and the Department
never attempted to determine whether UES benefited from UK Government
subsidies to BSC. Under international law, the Department cannot simply
assume that benefits received by BSC accrued to UES. Rather, the UK
Government argues that the Department must find UES itself received a
benefit from BSC's financial injections before it can impose
countervailing duties. According to the UK Government, the Department
has never made such a finding.
Petitioner contends that the Department is required to impose a
countervailing duty upon merchandise produced by a productive unit that
has received a subsidy, even if that unit is sold to another owner.
Petitioner argues that requiring a demonstration that the financial
contributions provided to BSC have conferred a benefit on UES'
production would require an ``effects test,'' which is contrary to
countervailing duty law. According to petitioner, UES' argument relies
on a change in statutory wording that does not alter the substantive
methodology for determining subsidies. Instead, petitioner argues that
the legislative history and Congressional intent indicate that the URAA
codifies existing Department practice.
Petitioner also argues that the UK Government misinterprets the
World Trade Organization (WTO) Agreement's benefit-to-recipient
language and ignores the SCM Agreement language implicitly sanctioning
countervailing duties following a privatization. The UK
[[Page 58379]]
Government's argument that, because UES was not a ``recipient'' of the
subsidies, UES' merchandise cannot be subject to countervailing duties,
ignores the fact that UES' production continues to benefit from
subsidies it received through British Steel when that production was
part of British Steel.
Department Position: We disagree with UES. In accordance with the
provisions of the URAA (Sec. 771(5)(B) and Sec. 771(5)(E) of the Act),
the Department has found that UES continues to benefit from subsidies
received by BSC. We have examined the facts of this case in light of
the above cited provisions and find that the methodology we follow is
in accordance with the URAA.
As we explained in the investigation, for the types of subsidies
received by BSC, the Department's long-standing practice has been to
allocate the benefit to all production of the recipient. We
specifically stated that ``[t]he subsidies provided to a company
presumably are utilized to finance operations and investments in the
entire company, including productive units that are subsequently sold
or spun-off into joint ventures.'' Final Affirmative Countervailing
Duty Determination: Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom, 58 FR 6237, 6240 (January 27, 1993)
(Lead Bar Final). Therefore, when BSC sold its Special Steels Business,
that productive unit took a portion of the benefits with it. Id.
In the subsequent remand determination, the Department affirmed its
determination that a portion of the subsidies passed through to UES.
However, consistent with the General Issues Appendix methodology, the
Department no longer assumed that the entire amount of subsidies
allocated to the productive unit followed it when sold. Rather, the
Department determined that a portion of the sales price paid for the
productive unit was attributable to prior subsidies. To the extent that
the sales price reflected prior subsidies, the Department determined
that a share of the subsidies that would have traveled with the
productive unit is rightfully allocated to the seller of the productive
unit, BSC. See Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom: Remand Determination (October 12,
1993) (Lead Bar Remand Determination).
The URAA is not inconsistent with and does not overturn the
Department's General Issues Appendix methodology or its findings in the
Lead Bar Remand Determination. The language of Sec. 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. The provision 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 provision clearly leaves the Department with the discretion to
determine the impact of a change in ownership on the countervailability
of past subsidies. The Statement of Administrative Action (SAA)
specifically 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 * * *'' H.R. Doc. No. 316, 103d Cong., 2d
Sess. 928(1994).
The sections of the law cited by UES (i.e., Sec. 771(5) (B) and
Sec. 771(5) (E)) and the articles of the SCM cited by the UK Government
(Articles 1 and 14) relate to the Department's determination of
countervailability of financial assistance. With regard to UES' and the
UK Government's respective arguments that these sections of the URAA
and the Articles of the SCM require that the Department show how UES
benefitted from the financial contributions received by BSC, we
maintain that we have met the requirements of the URAA and the SCM. As
explained above, at the time BSC received the nonrecurring subsidies,
the Special Steels Business was part of the company. For the types of
subsidies received by BSC, the Department's long-standing practice has
been to allocate the benefit to all domestic production of the
recipient (inclusive of all divisions and any subsidiary companies
consolidate with the recipient). Thus, the Special Steels Business, as
part of BSC, received a portion of those subsidies. All nonrecurring
subsidies are allocated over time because they confer a benefit on
merchandise in years beyond the year of receipt. Thus, when UES was
formed, a portion of the pre-1986 subsidies provided to BSC continued
to benefit the production of UES. Even if this change in ownership
occurred at arm's length, nothing in the URAA precludes us from finding
that past subsidies pass through.
Further, Sec. 771(5)(C) of the Act, as amended by the URAA, states
that ``[t]he determination of whether a subsidy exists shall be made
without regard to * * * whether the subsidy is provided directly or
indirectly on the manufacture, production, or export of merchandise.''
Section 771(5)(C) continues by stating that the Department ``* * * is
not required to consider the effect of the subsidy in determining
whether a subsidy exists. * * *'' As discussed above, because the
Special Steels Business was part of BSC at the time BSC received
subsidies, the Special Steels Business received a portion of those
subsidies. See Lead Bar Final, 58 FR at 6240. This finding is
consistent with Sec. 771(5)(C) of the Act. Accordingly, contrary to
respondents' arguments, a reexamination of the facts of this case in
light of the URAA amendments does not undermine the findings made or
the methodology applied in the General Issues Appendix and the Lead Bar
Remand Determination.
Comment 2: UES argues that the rationale underlying the
Department's final determination, that subsidies always inhere in and
travel with productive units to their new home, is at odds with
Sec. 771(5)(F) and the SAA. UES contends that the ``Change in
Ownership'' provision and the SAA require the Department to determine
that effect of privatization transactions on previously conferred
subsidies on a case-by-case basis after careful consideration of the
facts of each case. Therefore, in this administrative review, UES
argues that the Department must reconsider, in light of the new law,
whether it may countervail UES' production for subsidies provided to
BSC.
Petitioner states that the Department should reject UES' argument
that the amended statute's ``Change in Ownership'' clause ``neither
requires nor suggests that a portion of subsidies received by a state-
owned company be attributed to the purchaser.'' The clear intent of
Congress and the statute is that an arm's length sale of assets or
privatization alone could not extinguish subsidies.
Department Position: As explained above, Sec. 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.
The provision states that a change in ownership, even if accomplished
through an arm's length transaction, does not require a determination
that a past countervailable subsidy to an enterprise or the productive
assets of an enterprise is no longer countervailable. Moreover, as
stated in the SAA, the Department is left with the discretion to
determine, on a case-by-case basis, the impact of such an event on the
countervailability of
[[Page 58380]]
past subsidies. See, e.g., Final Affirmative Countervailing Duty
Determination: Certain Pasta from Italy, 61 FR 30288, 30290 and 30298
(Pasta Final Determination).
In this case, we have examined the facts and have determined that
for the types of subsidies received by BSC, it was appropriate to
allocate the benefit to all of BSC's production. Thus, the Special
Steels Business, as part of BSC, received a portion of those subsidies.
See Lead Bar Final, 58 FR at 6240. When the subsidized productive unit
was sold and UES was created, we found that, although it was an arm's
length transaction, the subsidies that benefitted the Special Steels
Business before it was sold, were not extinguished by the sale.
However, we also determined that a portion of the sales price reflected
past subsidies. Thus, to the extent that a portion of the sales price
reflected past subsidies, we allocated a share of the subsidies that
would have traveled with the productive unit, the Special Steels
Business, to the seller of the productive unit, BSC. As stated above,
the URAA and the SAA specifically grant the Department discretion when
evaluating the impact of a change in ownership of an enterprise or the
productive assets of an enterprise on the countervailability of past
subsidies. The Special Steels Business, a productive unit of BSC at the
time the subsidies were bestowed, clearly meets the productive asset
definition of the Act. Accordingly, the application of the General
Issues Appendix methodology in this case is not inconsistent with the
new law.
Comment 3: Petitioner contends that privatization per se does not
allow the Department to reevaluate a subsidy provided to a company.
According to petitioner, the countervailing duty must be calculated
with respect to the production, manufacture of export of subject
merchandise. An extraneous development like the sale of a productive
unit (i.e., a change in the ownership of a company or a part thereof)
merely causes a transfer of the subsidy with the sold unit. It does not
extinguish the subsidy because the production, manufacture or export of
merchandise continues to enjoy a benefit conferred by the government.
However, petitioner claims that in attempting to determine whether the
subsidy is partially ``repaid,'' the Department conducts the type of
evaluation of the subsidy that is prohibited under the countervailing
duty statute.
Petitioner argues further that the Department has never found in
this case that the market distortion caused by the uneconomic
allocation of capital has been remedied, and has thus based its
application of the repayment methodology solely on the sale of the
productive unit. By allowing for this ``phantom repayment'' of
subsidies, petitioner contends that the Department is countervailing
less than the amount required by the statute.
UES claims that petitioner's arguments are predicated on the
ability of a productive unit to receive subsidies. According to UES,
Sec. 771(5)(B) of the Act now makes it clear that such benefits can
only be received by ``persons'' (i.e., commercial entities) which do
not include productive units. Moreover, UES argues that petitioner errs
in stating that the Department cannot consider extraneous events such
as a change in ownership. Rather, the ``Change in Ownership'' provision
of Sec. 771(5)(F) of the Act commands the Department to consider the
impact of such events on a case-by-case basis, according to UES.
Department's Position: The language of Sec. 771(5)(F) of the Act
purposely leaves discretion to the Department with regard to the impact
of a change in ownership on the countervailabilty of past subsidies.
Rather than mandating that a subsidy automatically transfer with a
productive unit that is sold, as petitioner argues, 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 * * *'' H.R. Doc No.
316, 103d Cong., 2d Sess. 928 (1994).
In this case, we have determined that when the Special Steels
Business, as a subsidized productive unit, was sold, a portion of the
sales price reflected past subsidies. Therefore, to account for the
portion of the sales price that reflected past subsidies, a share of
the subsidies that would have traveled with the productive unit was
rightfully allocated to the seller of the productive unit.
With respect to UES' rebuttal on this issue, the Department notes
that the same arguments were made in UES' case brief. Accordingly, the
Department addresses each of UES' arguments in our responses to
Comments 1 and 2, above. Similarly, the Department addresses
petitioner's argument on market distortion in our response to Comment
7, below.
Comment 4: Petitioner argues that the URAA does not allow the
application of the subsidy repayment methodology in this case.
Petitioner further argues that the Department's application of this
methodology contradicts the legislative intent that the examination of
a change in ownership be fact-based and allow for the possibility that
no repayment occurred. According to petitioner, by assuming, in
virtually all change in ownership cases, that there is some amount of
repayment, the Department has essentially imposed a methodology that
does not allow for the possibility that no repayment occurred.
Petitioner argues that this approach ignores the SAA's instructions
that the Department exercise its discretion through its ``consideration
of the facts of each case'' in determining whether and to what extent
privatization eliminates previously bestowed subsidies. Petitioner
further contends that the Department's repayment analysis in the
original investigation and subsequent review never interpreted the
record to contain evidence of any signs of repayment and makes no
allowance for the possibility that no repayment occurred. Rather, the
Department assumed that a universal ``one size fits all'' approach
would fit any privatization.
UES argues that the Department's credit methodology is not
inconsistent with the URAA since the URAA clearly provides the
Department with the discretion to determine both whether, and to what
extent, privatization affects the countervailability of past subsidies.
Just because the Department has applied the methodology in this case
does not mean that the Department would apply it in all cases,
according to UES.
Department's Position: We disagree with petitioner on this issue.
The URAA purposely leaves discretion to the Department. It provides the
Department with the flexibility to determine both whether, and to what
extent, a change in ownership affects the countervailability of past
subsidies. See, e.g., Sec. 771(5)(F) of the Act and Pasta Final
Determination, 61 FR at 30298.
As explained in our response to Comments 1 and 3, we have examined
the facts of this case and find that, because the Special Steels
Business was subsidized, a portion of the price paid for that
productive unit reflects past subsidies. Therefore, consistent with the
General Issues Appendix methodology, the Department has determined that
a portion of the subsidies that would have traveled with the Special
Steels Business was rightfully allocated to BSC. The requirements of
the new law are not inconsistent with and do not
[[Page 58381]]
overturn this approach. Moreover, there is no information on the record
of this proceeding that would warrant a reconsideration of this
finding.
Comment 5: Petitioner contends that the application of the
repayment methodology is inconsistent with the Department's
``subsequent events'' rule which ``does not permit the amount of the
subsidy, including the allocated subsidy stream, to be reevaluated
based upon subsequent events in the marketplace.'' General Issues
Appendix, 58 FR at 37263. Petitioner argues that the Department has
contended during prior proceedings that the repayment methodology
merely allocates subsidies between the seller and the buyer, and that
this is different than a reevaluation of the subsidy. According to
petitioner, this elevates semantics over substance. Since the change in
ownership is subsequent to the receipt of the subsidy, petitioner
argues that the Department must explain why the change should reduce
the countervailable duty on the productive unit's merchandise.
Petitioner further argues that it does not understand the logic of
allocating a subsidy that benefits one productive unit's merchandise to
multiple companies.
UES argues that the URAA amendments make clear that there is no
``subsequent events rule'' that precludes the Department from
considering the effects of privatization and changes in ownership of
productive units. UES points out that petitioner fails to refer to the
effect of section 771(5)(F) of the Act on the purported ``subsequent
events'' rule.
Department's Position: Section 771(5)(F) of the Act, as amended by
the URAA, and the SAA specifically grant the Department discretion to
determine whether, and to what extent, a change in ownership affects
the countervailability of past subsidies. The Department is thus acting
within the mandates of the countervailing duty law when it determines
that a change in ownership can result in a certain apportionment of
prior subsidies between the seller and the buyer.
The repayment or apportionment of subsidies is based on the concept
that prior subsidies may not continue to benefit merchandise produced
by the privatized company because a portion of the price paid for the
privatized company reflects payment for subsidies that were
attributable to the entity prior to privatization. With respect to the
sale or spin-off of a productive unit (such as UES), we have found that
the allocation of subsidies to the sold entity is consistent with the
statute's intent of capturing subsidies benefitting the manufacture,
production or exportation of merchandise. We also have determined that
a portion of the sales price of the productive unit reflects payment
for subsidies that were attributable to the entity as a whole prior to
privatization. See General Issues Appendix, 58 FR at 37269.
With respect to petitioner's argument regarding allocation of a
subsidy benefitting one productive unit to multiple companies, we have
determined, as explained above, that for the types of subsidies
received by BSC, it was appropriate to allocate the benefit to all of
BSC's domestic production. Accordingly, the Special Steels Business, as
part of BSC, received a portion of those subsidies. Once the Special
Steels Business was sold to create UES, the subsidies were apportioned
between BSC and UES because we determined that a portion of the sales
price reflected past subsidies. See Lead Bar Final, 58 FR at 6240.
Based on this, we allocated to BSC a share of the subsidies that would
have otherwise traveled with the Special Steels Business. This
approach, as explained above, is consistent with the URAA.
Comment 6: Petitioner argues that even if one accepts the concept
of repayment, the Department's application of the methodology in this
particular case has no factual basis. According to petitioner, the
General Issues Appendix concludes that repayment occurs in the sales
price. Yet, the Department found in the investigation that both the
non-subsidized GKN and the subsidized BSC contributed the same value of
assets for each share of UES they received. Thus, according to
petitioner, a portion of the price paid to BSC could not possibly
represent a repayment of subsidies.
Petitioner also contests the Department's justification of the
repayment methodology as being in the interest of ``fairness and
compromise.'' According to petitioner, in shaping the countervailing
duty law, Congress expressed no interest in compromising but rather was
intent on identifying, offsetting and deterring subsidies, goals that
have been embraced by the courts and the Department. Accordingly,
petitioner notes that the Department's repayment methodology is
inconsistent with the countervailing duty law.
UES argues that petitioner misunderstands the Department's credit
methodology as applied in this case. Petitioner continues to
mischaracterize the methodology as an actual repayment of subsidies,
when, according to UES, the methodology is simply apportioning
subsidies between the seller and purchaser of a productive unit. UES
points out that the Department's investigation remand determination
made clear that when the methodology is used to allocate subsidies
between the seller and the buyer, it is meant to reveal the fact that a
portion of the purchase price reflects the past subsidies received by
the seller. Lead Bar Remand Determination at 5-6. UES further argues
that the goal of the countervailing duty law is not to deter the
provision of subsidies but rather to offset the economic effects these
subsidies may have on imports that injure U.S. industries.
Department's Position: Petitioner appears to imply that repayment
of subsidies is in addition to the agreed-upon value of the assets. The
Department has never stated nor implied that. Instead, the Department's
General Issues Appendix methodology is intended to: (1) Determine the
portion of the sales price of the productive unit which reflects prior
subsidies bestowed on the seller of the productive unit; and (2) based
on this amount, allocate the subsidies between the seller and the
buyer. As the Department explained in its remand determination,
``[w]hen a productive unit is sold by a company which continues to
operate (such as BSC), the potentially allocable subsidies which could
have traveled with the productive unit, but did not because they were
accounted for as part of the purchase price, simply stay with the
selling company.'' Lead Bar Remand Determination at 5.
Petitioner's claim that the Department's General Issues Appendix
methodology is inconsistent with the countervailing duty law is also
erroneous. On the contrary, the application of this methodology is well
within the Department's discretion. The countervailing duty law
instructs Commerce to identify, measure and allocate subsidies. The law
is intended to provide remedial relief in the form of countervailing
duties. See e.g., Chaparral Steel Co. v. United States, 901 F.2d 1097,
1103-1104 (Fed. Cir. 1990). As we explained in the General Issues
Appendix, the Department interprets the law as allowing for the
repayment or reallocation of prior subsidies. See e.g., Final
Affirmative Countervailing Duty Determination: Pure and Allow Magnesium
From Canada, 57 FR 30946 (July 13, 1992) and General Issues Appendix,
58 FR at 37264. In the context of privatization and company
restructuring, the Department found that a portion of the sales price
can go toward the repayment of prior subsidies. General Issues
Appendix, 58 FR at 37264 and 37269.
[[Page 58382]]
The General Issues Appendix is not inconsistent with the URAA with
regard to this issue. As explained above, section 771(5)(F) of the
amended statute leaves discretion to the Department to determine the
impact of a change in ownership on the countervailability of past
subsidies. This clearly was Congress' intent when it stated that
``[t]he Commerce Department should continue to have the discretion to
determine whether, and to what extent (if any), actions such as the
`privatization' of a government-owned company actually serve to
eliminate such subsidies.'' S. Rep. No. 412, 103d Cong., 2d Sess. 92
(1994) (emphasis added). Accordingly, we determined in this case that
because the Special Steel Business was a subsidized productive unit, a
portion of the price paid for the productive unit represented a
reallocation of subsidies from the buyer to the seller.
Comment 7: Petitioner contends that the fair market privatization
of a government-owned company (or division) does not in any way result
in the repayment of prior subsidies because the sale does not offset
the distortion caused by the government when the subsidies were
bestowed. Rather, petitioner argues, the countervailing duty law and
``basic economic principles'' mandate that the Department continue to
countervail these subsidies, because the exported merchandise continues
to benefit from the subsidies in the same manner as before the sale.
Petitioner further contends that because of their ``remedial'' nature,
countervailing duties are clearly designed to offset to some degree the
market distortion caused by subsidization. The only way new owners can
undo the distortion of prior subsidies is to extract the benefit from
the privatized production process and return that benefit to the
government. A sale at fair market value does not accomplish this.
UES argues that application of the credit methodology in this case
is consistent with the current countervailing duty law. UES further
argues that there are no ``basic economic principles'' that dictate
that the Department must countervail the purchaser of a productive unit
because of subsidies received by the seller. They point out that
petitioner does not provide support for its argument on this issue.
Department's Position: The countervailing duty law does not require
us to correct the market distortions which may have occurred due to the
provision of subsidies, but instead instructs us to provide remedial
relief in the form of countervailing duties. As the Department stated
in the General Issues Appendix:
The countervailing duty law is designed to provide remedial
relief as a result of subsidies; it is not intended to recreate the
ax ante conditions that existed prior to the bestowal of such
subsidies. Indeed, the remedy provided by law, additional duties,
does nothing to eliminate excess capacity caused by the
subsidization.
General Issues Appendix, 58 FR at 37264. Furthermore, an analysis
of the provisions of the URAA does not lead us to a different
conclusion.
Comment 8: Petitioner argues that several ``real-world''
developments support its argument that a change in ownership does not
reduce or eliminate the benefit of prior subsidies. For repayment of a
subsidy to occur, petitioner argues that there must be an actual
disgorgement of the subsidy. Petitioner points to three developments
that it claims support this view.
First, petitioner contends that in several recent European Union
(EU) state aid repayment cases, the EU has recognized that subsidy
repayment can only occur if the economic benefit of the aid is
annulled. According to petitioner, such annulment can only occur if
both principal and interest is repaid. Another example cited by
petitioner is the privatization of Irish Steel. According to
petitioner, an EU state aid package for Irish Steel was approved in
order to pave the way for the company's privatization. Petitioner
alleges that BS plc has objected to the provision of this aid because
if Irish Steel receives the aid, BS plc believes its plant in
Staffordshire will be threatened, even after the privatization of Irish
Steel. Finally, petitioner cites the Organization for Economic
Cooperation and Development (OECD) shipbuilding agreement. Petitioner
claims that the OECD's Agreement Respecting Normal Competitive
Conditions in the Shipbuilding and Repair Industry states that if an
objectionable subsidy is provided, the signatory must modify or
eliminate the practice and, if possible, collect a charge equal to the
subsidy amount plus interest.
UES takes issues with the examples cited by petitioner. They argue
that the examples cited do not bear any relevance to the issues of this
case. Moreover, they argue that the examples cited by petitioner have
nothing to do with the principles or methodologies applied in the U.S.
countervailing duty regime.
Department's Position: The Department of Commerce conducts its
practices according to the mandates of the countervailing duty law, the
intent of Congress in drafting that law, and our obligations under the
WTO Agreement. Policies of other governments or organizations with
respect to the so-called repayment issue are outside the context of a
countervailing duty proceeding and are irrelevant to the Department's
application of the U.S. countervailing duty law. Moreover, they
constitute an inappropriate frame of reference for the Department's
analysis of the issues in this case.
Comment 9: Petitioner argues that BS plc's March 1995 acquisition
of GKN's shares in UES should be taken into account in setting the cash
deposit rate. According to petitioner, the Department should establish
a countervailing duty deposit rate for BS plc to reflect that it is a
producer of the subject merchandise. Petitioner suggests that the
Department either rely on information in the record or announce that
the deposit rate applied to UES applies equally to BS plc.
Department's Position: We disagree with petitioner. The argument
presented by petitioner has already been considered and rejected by the
Department in the Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom: Final Results of Administrative
Review, 60 FR 54841, 54843 (October 26, 1995) (1992-93 Lead Bar Final
Results). In that proceeding, the Department determined that the
regulations provide for establishing a different cash deposit rate from
the assessment rate only when a change is program-wide and measurable.
``Program-wide change'' is defined by Sec. 355.50(b) of the Proposed
Regulations as a change ``[n]ot limited to an individual firm or
firms'' and ``[e]ffectuated by an official act, such as the enactment
of a statute, regulation, or decree, or contained in the schedule of
existing statute, regulation or decree.'' The Department found in the
1992-93 Lead Bar Final Results that BS plc's acquisition of GKN's
shares in UES is limited to an individual firm or firms, namely BS plc,
UES and GKN. Further, in Final Affirmative Countervailing Duty
Determination: Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products From Brazil, 58 FR 6213, 6220 (January 27, 1995), the
Department stated: ``[w]e do not consider that privatization, in and of
itself constitutes a program-wide change, or that a privatization
program is the type of program contemplated for consideration under * *
* the Proposed Regulations.'' BS plc's acquisition of GKN's shares does
not constitute a program-wide change. See 1992-93 Lead Bar Final
Results, 60 FR at 54843.
In this proceeding, petitioner has not submitted any new evidence
or
[[Page 58383]]
arguments which would warrant reconsideration of this issue.
Accordingly we continue to reject petitioner's position for the same
reasons stated in the above-cited 1992-93 Lead Bar Final Results.
Because this is not a program-wide change, the issue will be dealt with
in the administrative review of the period in which the acquisition
occurred.
Final Results of Review
In accordance with Sec. 355.22(c)(4)(ii) of the Department's
Interim Regulations, we calculated an individual subsidy rate for each
producer/exporter subject to this administrative review. For the period
January 1, 1994 through December 31, 1994, we determine the net subsidy
for United Engineering Steels to be 1.69 percent ad valorem.
We will instruct the U.S. Customs Service (Customs) to assess
countervailing duties as indicted above. The Department will also
instruct Customs to collect cash deposits of estimated countervailing
duties in the percentages detailed above of the f.o.b. invoice price on
all shipments of the subject merchandise from reviewed companies
entered, or withdrawn from warehouse, for consumption on or after the
date of publication of the final results of this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in those in antidumping cases,
except as provided for in Sec. 777A(e)(2)(B) of the Act. The requested
review will normally cover only those companies specifically named. See
Sec. 355.22(a) of the Interim Regulations. Pursuant to 19 CFR
Sec. 355.22(g), for all companies for which a review was not requested,
duties must be assessed at the cash deposit rate, and cash deposits
must continue to be collected, at the rate previously ordered. As such,
the countervailing duty cash deposit rate applicable to a company can
no longer change, except pursuant to a request for a review of that
company. See Federal-Mogul Corporation and the Torrington Company v.
United States, 822 F. Supp. 782 (CIT 1993) and Floral Trade Council v.
United States, 822 F Supp. 766 (CIT 1993) (Interpreting 19 CFR
Sec. 353.22(e), the antidumping regulation on automatic assessment,
which is identical to 19 CFR) 355.22(g)). Therefore, the cash deposit
rates for all companies except those covered by this review will be
unchanged by the results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order are those established in the most recently completed
administrative proceeding. See Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products from the United Kingdom: Final Results of
Administrative Review, 60 FR 54841 (October 26, 1995). These rates
shall apply to all non-reviewed companies until a review of a company
assigned these rates is requested. In addition, for the period January
1, 1994 through December 31, 1994, the assessment rates applicable to
all non-reviewed companies covered by this order are the cash deposit
rates in effect at the time of entry.
This notice serves as a reminder to parties subject to
administrative protective order (APO) of their responsibility
concerning the disposition of proprietary information disclosed under
APO in accordance with 19 CFR 355.34(d). Timely written notification of
return/destruction of APO materials or conversion to judicial
protective order is hereby requested. Failure to comply with the
regulations and the terms of an APO is a sanctionable violation.
This administrative review and notice are in accordance with
Sec. 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).
Dated: November 4, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-29089 Filed 11-13-96; 8:45 am]
BILLING CODE 3510-DS-M
