[Federal Register Volume 63, Number 221 (Tuesday, November 17, 1998)]
[Notices]
[Pages 63876-63884]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-30736]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-427-815]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Stainless Steel Sheet and Strip in
Coils from France
AGENCY: Import Administration, International Trade Administration,
Department of Commerce
EFFECTIVE DATE: November 17, 1998.
FOR FURTHER INFORMATION CONTACT: Rosa Jeong, Marian Wells or Annika
O'Hara, Office of Antidumping/Countervailing Duty Enforcement, Group I,
Import Administration, U.S. Department of Commerce, Room 3099, 14th
Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone
(202) 482-3853, 482-6309, or 482-3798, respectively.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers or exporters of stainless steel sheet and strip in coils from
France. 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 the Allegheny
Ludlum Corporation, Armco Inc., Washington Steel Division of Bethlehem
Steel Corporation, United Steel Workers of America, AFL-CIO/CLC, Butler
Armco Independent Union, and Zanesville Armco Independent Organization,
Inc. (collectively referred to hereinafter as the ``petitioners'').
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigations: Stainless Steel Sheet and Strip in Coils from France,
Italy, and the Republic of Korea, 63 FR 37539 (July 13, 1998)
(Initiation Notice)), the following events have occurred:
On July 14, 1998, we issued countervailing duty questionnaires to
the Government of France (GOF), the European Commission (EC), and the
producers/exporters of the subject merchandise. On August 6, 1998, we
postponed the preliminary determination of this investigation until
November 9, 1998 (see Notice of Postponement of Preliminary
Determination for Countervailing Duty Investigations: Stainless Steel
Sheet and Strip in Coils from France, Italy and the Republic of Korea,
63 FR 43140 (August 12, 1998)).
On September 14, 1998, we received responses from the GOF, the EC,
and Usinor (whose Ugine Division is the sole producer of the subject
merchandise that exported to the United States during the period of
investigation). On October 2, 1998, we issued supplemental
questionnaires to the GOF, the EC, and Usinor. We received responses to
the supplemental questionnaires from the EC on October 13, 1998 and
from Usinor and the GOF on October 21, 1998.
On August 19, 1998, the petitioners requested that the Department
investigate three programs which the Department did not include in its
initiation. After a review of the petitioners' submissions, we
determined that they did not allege the elements necessary for
imposition of a countervailing duty with respect to these programs.
Accordingly, we declined to include the three programs in our
investigation. See Memorandum to Richard W. Moreland, Deputy Assistant
Secretary for AD/CVD Enforcement, ``Petitioners'' Supplemental
Allegations,'' dated October 27, 1998, on file in the Central Records
Unit of the Department of Commerce.
Scope of Investigation
For purposes of these investigations, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with or without other elements. The
subject sheet and strip is a flat-rolled product in coils that is
greater than 9.5 mm in width and less than 4.75 mm in thickness, and
that is annealed or otherwise heat treated and pickled or otherwise
descaled. The subject sheet and strip may also be further processed
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that
it maintains the specific dimensions of sheet and strip following such
processing.
The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (HTSUS) at subheadings:
7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,
7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,
7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,
7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,
7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,
7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,
7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,
7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,
7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,
7220.20.60.10, 7220.20.60.15,
[[Page 63877]]
7220.20.60.60, 7220.20.60.80, 7220.20.70.05, 7220.20.70.10,
7220.20.70.15, 7220.20.70.60, 7220.20.70.80, 7220.20.80.00,
7220.20.90.30, 7220.20.90.60, 7220.90.00.10, 7220.90.00.15,
7220.90.00.60, and 7220.90.00.80. Although the HTSUS subheadings are
provided for convenience and Customs purposes, the written description
of the merchandise under investigation is dispositive.
Excluded from the scope of this petition are the following: (1)
sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled, (2) sheet and strip that is cut to
length, (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled
sections, rectangular in shape, of a width of not more than 9.5 mm, and
a thickness of not more than 6.35 mm), and (5) razor blade steel. Razor
blade steel is a flat rolled product of stainless steel, not further
worked than cold-rolled (cold-reduced), in coils, of a width of not
more than 23 mm and a thickness of 0.266 mm or less, containing, by
weight, 12.5 to 14.5 percent chromium, and certified at the time of
entry to be used in the manufacture of razor blades. See Chapter 72 of
the HTSUS, ``Additional U.S. Note'' 1(d).
The Department has determined that certain specialty stainless
steel products are also excluded from the scope of these
investigations. These excluded products are described below: Flapper
valve steel is defined as stainless steel strip in coils with a
chemical composition similar to that of AISI 420F grade steel and
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur
of 0.020 percent or less. The product is manufactured by means of
vacuum arc remelting, with inclusion controls for sulphide of no more
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper
valve steel has a tensile strength of 185 kgf/mm\2\, plus or minus 10,
yield strength of 150 kgf/mm\2\, plus or minus 8, and hardness (Hv) of
540, plus or minus 30.
Also excluded is suspension foil, a specialty steel product used,
e.g., in the manufacture of suspension assemblies for computer disk
drives. Suspension foil is described as 302/304 grade or 202 grade
stainless steel of a thickness between 14 and 127 m, with a
thickness tolerance of plus-or-minus 2.01 m, and surface
glossiness of 200 to 700 percent Gs. Suspension foil must be supplied
in coil widths of not more than 407 mm, and with a mass of 225 kg or
less. Roll marks may only be visible on one side, with no scratches of
measurable depth, and must exhibit residual stresses of 2 mm maximum
deflection, and flatness of 1.6 mm over 685 mm length.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of these investigations. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10
percent cobalt, with the remainder of iron, in widths of 1.016 to 228.6
mm, and a thickness between 0.0127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available, e.g., under the trade name
``Arnokrome III.'' 1
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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
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Electrical resistance alloy steel is also not included in the scope
of these investigations. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (ASTM) specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available, e.g., under
the trade name ``Gilphy 36.'' 2
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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Finally, certain stainless steel strip in coils used in the
production of textile cutting tools (e.g., carpet knives) is also
excluded. This steel is similar to ASTM grade 440F, but containing
higher levels of molybdenum. This steel contains, by weight, carbon of
between 1.0 and 1.1 percent, sulphur of 0.020 percent or less, and
includes between 0.20 and 0.30 percent copper and cobalt. This steel is
sold under, e.g., the proprietary name GIN4Mo.3
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\3\ ``Gin4Mo'' is the proprietary grade of Hitachi Metals
America, Ltd.
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All interested parties are advised that additional issues
pertaining to the scope of these investigations are still pending.
Furthermore, the exclusions outlined above are subject to further
revision and refinement. The Department plans on notifying interested
parties of its determinations on all scope issues in sufficient time
for parties to comment before the final determination.
The Applicable Statute
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).
In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations as codified at
19 CFR Part 351 (1998).
Injury Test
Because France is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from France materially injure, or threaten material
injury to, a U.S. industry. On August 9, 1998, 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 France of the
subject merchandise (see Certain Stainless Steel Sheet and Strip From
France, Germany, Italy, Japan, the Republic of Korea, Mexico, Taiwan,
and the United Kingdom, 63 FR 41864 (August 9, 1998)).
Alignment with Final Antidumping Duty Determination
On July 22, 1998, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation.
See Initiation of Antidumping Investigations: Stainless Steel Sheet and
Strip in Coils From France, Germany, Italy, Japan, Mexico, South Korea,
Taiwan, and the United Kingdom, 63 FR 37521 (July 13, 1998). Therefore,
in accordance with section 705(a)(1) of the Act, we are aligning the
final determination in this investigation with the final determinations
in the antidumping investigations of stainless steel sheet and strip in
coils.
Period of Investigation
The period for which we are measuring subsidies (the POI) is
calendar year 1997.
[[Page 63878]]
Company History
The GOF identified the Ugine Division of Usinor as the only
producer of the subject merchandise that exported to the United States
during the POI.
In the early 1980s, Ugine (then called Ugine Aciers) was one of
several producers of stainless steel in France. In 1982, the French
steel company Sacilor acquired a controlling interest in Ugine. In the
following year, Sacilor bought a majority of the shares in another
stainless steel producer, Forges de Gueugnon, which was merged with one
part of Ugine and renamed Ugine-Gueugnon. During the same time, Usinor
was a separate steel company with one division called Usinor Chatillon
producing stainless steel. In 1987, the GOF placed Usinor and Sacilor
in a holding company named Usinor Sacilor. At the same time, Ugine-
Gueugnon and Usinor Chatillon were combined into one company called
Ugine Aciers de Chatillon et Gueugnon (Ugine ACG).
In 1991, Ugine ACG merged with Sacilor and became Ugine s.a., a
subsidiary of the Usinor Sacilor holding company. In 1994, Ugine s.a.
was partially privatized when Usinor Sacilor sold approximately 40
percent of its equity in the company to the general public. However, in
1995, Usinor Sacilor bought back the shares in Ugine s.a. and obtained
a near 100 percent control of the company. In late 1995, Ugine s.a. was
converted into a division of Usinor Sacilor and became ``the Ugine
Division,'' producing stainless steel and alloys. Finally, in 1997,
Usinor Sacilor was renamed Usinor.
The GOF was the majority owner of both Usinor and Sacilor until the
mid-1980s. In 1986, the GOF emerged as the sole owner of both companies
after a capital restructuring. In 1987, the GOF created the Usinor
Sacilor holding company which continued to be wholly owned by the GOF
until 1991 when Credit Lyonnais, a government-owned bank, bought 20
percent of the equity in the company.
In July 1995, the first partial privatization of Usinor Sacilor,
combined with a capital increase, took place. The shares were sold
through a public offering of shares which consisted of a French public
offering, an international public offering, and an employee offering.
In accordance with the French privatization law, a certain portion of
the shares were also sold to a group of so-called ``stable
shareholders,'' some of which were government-owned banks and other
entities. After this privatization, the stable shareholders held
approximately 15 percent of Usinor's total shares, 10 percent of which
were held by government-owned or controlled entities. The GOF continued
to own 9.8 percent of the shares directly. A second offering of shares
to employees took place in June 1996.
In early 1997, the GOF transferred (without remuneration) a small
part of its stake in Usinor to individual French shareholders and
company employees who had held on to their shares for 18 months
following the July 1995 privatization. In October 1997, the GOF sold
most of its remaining shares on the market, leaving it with
approximately one percent of the shares. These shares were to be given
away for free in August 1998.
Change in Ownership
In the General Issues Appendix (GIA), attached to the Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Austria, 58 FR 37217, 37226 (July 9, 1993), we applied a new
methodology with respect to the treatment of subsidies received prior
to the sale of the company (privatization) or the spinning-off of a
productive unit.
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 (i.e., in
this case, 1984 for Usinor) 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. For further discussion of our privatization
methodology, see, e.g., Preliminary Affirmative Countervailing Duty
Determination and Alignment of Final Countervailing Duty Determination:
Stainless Steel Plate in Coils From Italy, 63 FR 47246 (September 4,
1998).
With respect to spin-offs, consistent with the Department's
position regarding privatization, we analyze the spin-off of productive
units to assess what portion of the sale price of the productive units
can be attributable to the repayment of prior subsidies. To perform
this calculation, we first determine the amount of the seller's
subsidies that the spun-off productive unit could potentially take with
it. To calculate this amount, we divide the value of the assets of the
spun-off unit by the value of the assets of the company selling the
unit. We then apply this ratio to the net present value of the seller's
remaining subsidies. We next estimate the portion of the purchase price
going towards repayment of prior subsidies in accordance with the
privatization methodology outlined above.
In the current investigation, we are analyzing: (1) the
privatization of Ugine in 1994 and the subsequent buy-back of Ugine's
shares by Usinor (1995); (2) the 1994 sale of Centrale Siderurgique de
Richemont (CSR); and (3) the privatization of Usinor in 1995, 1996 and
1997.
Subsidies Valuation Information
Benchmarks for Loans and Discount Rates
To calculate the countervailable benefit from loans and non-
recurring grants in 1997, we used Usinor's company-specific cost of
long-term, fixed rate loans as reported by Usinor. For other years, we
used the rates for average yields on long-term private sector bonds in
France as published by the OECD. For years in which Usinor was
determined to be uncreditworthy, we added a risk premium to the
benchmark interest rate in accordance with the methodology consistent
with our practice in Final Affirmative Countervailing Duty
Determination: Certain Steel Products from France, 58 FR 37304 (July 9,
1993) (Certain Steel from France).
Allocation Period
In the past, the Department has relied upon information from the
U.S. Internal Revenue Service (IRS) for the industry-specific average
useful life of assets in determining the allocation period for non-
recurring subsidies. See the GIA. In British Steel plc v. United
States, 879 F. Supp. 1254 (CIT 1995) (British Steel I), the U.S. Court
of International Trade (the Court) held that the IRS information did
not necessarily reflect a reasonable period based on the actual
commercial and competitive benefit of the subsidies to the recipients.
In accordance with the Court's remand order, the Department calculated
a company-specific allocation period for non-recurring subsidies for
Usinor Sacilor based on the average useful life (AUL) of its non-
[[Page 63879]]
renewable physical assets as 14 years. This remand determination was
affirmed by the Court in British Steel plc v. United States, 929 F.
Supp. 426 (CIT June 6, 1996) (British Steel II).
As discussed below, the current investigation includes untied, non-
recurring subsidies that were found to be countervailable in Certain
Steel from France--i.e., PACS, FIS, and Shareholders' Advances. Because
we have already assigned a company-specific allocation period of 14
years to those previously investigated subsidies, we preliminarily
determine that it is more appropriate to continue to allocating those
subsidies over 14 years.
In the concurrent investigations of stainless steel sheet and strip
from Italy and Korea, we invited parties to comment on whether an
alternative approach may be more appropriate. One option identified is
to determine an individual AUL for each year in which a non-recurring
subsidy is provided to a company, rather than to determine a company-
specific AUL for non-recurring subsidies that could change with each
investigation and result in different allocation periods for the same
subsidy. We also welcome any additional comments on this issue not
raised above.
This investigation includes no other non-recurring subsidies that
have been preliminarily determined to be countervailable. Accordingly,
we have not calculated a new company-specific allocation period for
subsidies not previously investigated. If it becomes necessary for the
purposes of the final determination, we will calculate a new company-
specific allocation period for Usinor based on information provided in
the current proceeding.
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I. Programs Preliminarily Determined To Be Countervailable GOF
Programs
A. Loans with Special Characteristics (PACS)
A plan was agreed upon in 1978 to help the principal steel
companies, Usinor, Sacilor, Chatillon-Neuves-Maisons, and their
subsidiaries, restructure their massive debt. This plan entailed the
creation of a steel amortization fund, called the Caisse
d'Amortissement pour l'Acier (CAPA), for the purpose of ensuring
repayment of funds borrowed by these companies prior to June 1, 1978.
In accordance with the restructuring plan of 1978, bonds previously
issued on behalf of the steel companies and pre-1978 loans from Credit
National and Fonds de Developpement Economique et Social (FDES) were
converted into ``loans with special characteristics,'' or PACS. As a
result of this process, the steel companies were no longer liable for
the loans and bonds, but did take on PACS obligations.
In 1978, Usinor and Sacilor converted 21.1 billion French francs
(FF) of debt into PACS. From 1980 to 1981, Usinor and Sacilor issued
FF8.1 billion of new PACS. PACS in the amount of FF13.8 billion, FF12.6
billion and FF2.8 billion were converted into common stock in 1981,
1986 and 1991, respectively.
In Certain Steel from France and Final Affirmative Countervailing
Duty Determinations: Certain Hot Rolled Lead and Bismuth Carbon Steel
Products from France, 58 FR 6221 (January 27, 1993) (Lead and Bismuth),
the Department determined that the conversion of PACS to common stock
in 1981 and 1986 constituted equity infusions on terms inconsistent
with commercial considerations because Usinor Sacilor was found to be
unequityworthy during those years. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
a reconsideration of our earlier finding. Therefore, we continue to
find that these equity infusions constitute countervailable subsidies
within the meaning of section 771(5) of the Act. Using the allocation
period of 14 years, the 1986 conversion of PACS continues to yield a
countervailable benefit during our POI.
Consistent with our practice in Certain Steel from France, we have
treated the 1986 equity infusion as a non-recurring grant received in
the year PACS were converted to common stock. Because Usinor was
uncreditworthy in the year of receipt, we used discount rates that
include a risk premium to allocate the benefits over time.
Additionally, we followed the methodology described in the ``Change in
Ownership'' section above to determine the amount of each equity
infusion appropriately allocated to Usinor after its privatization. We
divided this amount by Usinor's total sales during the POI.
Accordingly, we preliminarily determine the countervailable subsidy to
be 0.63 percent ad valorem.
B. Shareholders' advances
The GOF provided Usinor and Sacilor grants in the form of
shareholders' advances during the period 1982 to 1986. The purpose of
these advances was to finance the revenue shortfall needs of Usinor and
Sacilor while the GOF planned for the next major restructuring of the
French steel industry. These shareholders' advances carried no interest
and there was no precondition for receipt of these funds. These
advances were converted to common stock in 1986.
In Certain Steel from France and Lead and Bismuth, the Department
determined that the shareholders' advances constituted countervailable
grants because no shares were received for them. No new information or
evidence of changed circumstances has been submitted in this proceeding
to warrant a reconsideration of our earlier finding. Therefore, we
continue to find that these grants constitute countervailable subsidies
within the meaning of section 771(5) of the Act. Using the allocation
period of 14 years, subsidies dating back to 1984 continue to provide
countervailable benefits during the POI of this case.
Consistent with our practice in Certain Steel from France, we have
treated these advances as non-recurring grants. Because Usinor was
uncreditworthy in the years of receipt, we used a discount rate that
includes a risk premium to allocate the benefits over time.
Additionally, we followed the methodology described in the ``Change in
Ownership'' section above to determine the amount of each grant
appropriately allocated to Usinor after its privatization. We divided
this amount by Usinor's total sales during the POI. Accordingly, we
preliminarily determine the countervailable subsidy to be 0.50 percent
ad valorem.
C. Steel Intervention Fund (FIS)
The 1981 Corrected Finance Law granted Usinor and Sacilor the
authority to issue convertible bonds. In 1983, the Fonds d'Intervention
Siderurgique (FIS), or steel intervention fund, was created to
implement that authority. In 1983, 1984, and 1985, Usinor and Sacilor
issued convertible bonds to the FIS, which in turn, with the GOF's
guarantee, floated the bonds to the public and to institutional
investors. These bonds were converted to common stock in 1986 and 1988.
In Certain Steel from France and Lead and Bismuth, the Department
determined that the conversion of FIS bonds to common stock in 1986 and
1988 constituted equity infusions on terms inconsistent with commercial
considerations because Usinor Sacilor was found to be unequityworthy
during those years. No new information or evidence of changed
circumstances has been submitted in this proceeding to warrant a
reconsideration of our earlier finding. Therefore, we continue to find
[[Page 63880]]
that these equity infusions constitute countervailable subsidies within
the meaning of section 771(5) of the Act. Using the allocation period
of 14 years, the 1986 and 1988 conversions of FIS bonds yield a benefit
during our POI.
We have treated the 1986 and 1988 equity infusions as non-recurring
grants given in the years the FIS bonds were converted to common stock.
Because Usinor was uncreditworthy in the years of receipt, we used
discount rates that include a risk premium to allocate the benefits
over time. Additionally, we followed the methodology described in the
``Change in Ownership'' section above to determine the amount of each
equity infusion appropriately allocated to Usinor after its
privatization. Dividing this amount by Usinor's total sales during the
POI, we preliminarily determine the countervailable subsidy to be 1.60
percent ad valorem.
D. Investment/Operating subsidies
During the period 1991 to 1997, Usinor received investment and
operating subsidies through a variety of government programs. The
subsidies were provided by the following sources: 1) the European Coal
and Steel Community (ECSC) for research and development; 2) health
insurance offices for investments to reduce work-related illnesses and
accidents, 3) water agencies for projects in the public interest, such
as water protection, pollution control and water rehabilitation. The
subsidies are classified as investment, equipment or operating
subsidies depending on how the funds are used.
Pursuant to section 771(5)(D)(i) of the Act, we preliminarily
determine that these grants provide a financial contribution in the
form of a direct transfer of funds from the ECSC and the GOF to Usinor,
providing benefit in the amount of the grants.
With the exception of ECSC grants, the GOF claims that these grants
are not countervailable because they are not specific. Citing to the
extreme burden of providing all pertinent details of each subsidy,
however, the GOF has not provided any information to demonstrate that
any of these grants are not specific. Therefore, as facts available, we
preliminarily determine that these subsidies are specific under section
771(5A)(D) of the Act.
Because the investment/operating subsidies received during the
period 1991-1997 are less than 0.5 percent of Usinor's sales during the
respective years of receipt, we have expensed these grants in the years
of receipt. To calculate the ad valorem rate of the subsidy, we divided
the 1997 benefit by Usinor's total sales during the POI. Accordingly,
we determine the countervailable subsidy to be 0.11 percent ad valorem.
E. Myosotis project
Since 1988, Usinor has been developing an innovative continuous
thin-strip casting process called ``Myosotis,'' in a joint venture with
the German steelmaker Thyssen. The Myosotis project is intended to
eliminate the separate hot-rolling stage of Usinor's steelmaking
process by transforming liquid metal directly into a coil between two
to five millimeters' thick.
To assist this project, the GOF, through the Ministry of Industry
and Regional Planning and L'Agence pour la Maitrise de L'Energie
(AFME), entered into three agreements with Usinor Sacilor (in 1989) and
Ugine (in 1991 and 1995). The first agreement, dated December 27, 1989,
covered a three-year period and established schedules for the initial
and subsequent payments to Usinor. These payments were contingent upon
the submission of progress reports including a statement of investment
outlays. The final payment was contingent upon the submission of a
final program report and a statement of total expenses. The three
installments were paid in 1989, 1991, and 1993. The 1991 Agreement
between Ugine and the AFME covered the cost of some equipment for the
project. This agreement resulted in two disbursements to Ugine from the
AFME in 1991 and 1992. The 1995 agreement with Ugine provided interest-
free reimbursable advances for the final two-year stage of the project,
with the goal of casting molten steel from ladles to produce thin
strips. The first reimbursable advance was made in 1997. Repayment of
one-third of the reimbursable advance is due July 31, 1999. The
remaining two-thirds are due for repayment on July 31, 2001.
We preliminarily determine that the assistance under this program
constitutes a countervailable subsidy within the meaning of section
771(5) of the Act. They provide financial contributions in the form of
a direct transfer of funds from the GOF to Usinor. Pursuant to section
771(5A)(D) of the Act, the reimbursable advance provides a benefit in
the difference between the amount of the benchmark interest due and the
zero interest paid by Usinor.
With respect to specificity, the GOF has claimed that this program
is available to all industrial sectors in France. However, the GOF has
not supported its claim with documentation demonstrating that the
program was used by other industries. Accordingly, we preliminarily
determine that this program is specific within the meaning of section
771(5A)(D) of the Act because the grants and the advance were provided
exclusively to Usinor (and Thyssen).
We preliminarily determine the subsidies provided between 1989 and
1993 to be non-recurring grants based on the analysis set forth in the
Allocation section of the GIA. Because the amounts received during
these years were less than 0.5 percent of Usinor or Ugine's sales
during their respective year of receipt, we expensed these grants in
the years of receipt.
With respect to the reimbursable advance received in 1997, we are
treating this advance as a long-term interest-free loan. Pursuant to
the Department's general practice regarding fixed-rate, long-term
loans, we have assumed that a payment on a comparable commercial loan
taken out at the same time would not be due until 1998. Because there
would be no effect on Usinor's cash flow during the POI (i.e, no
payment would have been made on a benchmark loan during the POI), we
preliminarily determine that there is no benefit attributable to the
POI. See GIA at 37228-29.
Accordingly, we preliminarily determine the countervailable subsidy
rate for this program to be 0.00 percent ad valorem.
The GOF and Usinor have claimed that this program constitutes a
noncountervailable (i.e., ``green-light'') research subsidy pursuant to
section 771(5B)(B) of the Act. The GOF and Usinor note that in November
1996, the EC approved the Myosotis assistance under Article 2 of the
State Aids Code, which permits certain research and development
assistance provided it does not exceed 25 percent of the total cost of
the project. The GOF and Usinor argue that the Department likewise
should find this program not countervailable because the project meets
the requirements for ``green-light'' treatment as established under
section 771(5B)(B) of the Act.
We have not addressed this claim because the subsidy rate of 0.00
percent as calculated above for this program, even treated as
countervailable, has no impact on the net countervailable subsidy rate
of this investigation.
F. Related party grants
Usinor's financial statements identify ``grants from related
parties'' in the years 1992-1995. Information provided by Usinor
demonstrates that these grants do not constitute a separate program
[[Page 63881]]
from the Myosotis program and investment/operating subsidies discussed
above. Specifically, a yearly breakdown of these grants shows that the
amount of each grant corresponds to the amounts provided under the
Myosotis program or investment/operating subsidies. Therefore, we have
determined that this program will not be investigated as a separate
program. See ``Myosotis'' and ``Investment/Operating Subsidies''
sections of this notice.
G. Ugine 1991 Grant
Ugine's 1991 financial statements indicate that Ugine received FF
26,318 thousand in subsidies and also note that FF 16,295 thousand of
``share'' in subsidies were posted to income. Information provided by
Usinor indicates that these amounts reflect the funds received under
the Myosotis project as well as investment and operating subsidies.
Specifically, a breakdown of these grants shows that the amount of each
grant corresponds to the amounts provided under the Myosotis program or
investment/operating subsidies. Because Myosotis and investment/
operating subsidies are being investigated separately in this
proceeding, we have determined that this program will not be
investigated as a separate program. See ``Myosotis'' and ``Investment/
Operating Subsidies'' sections of this notice.
EC Programs
European Social Fund. The European Social Fund (ESF), one of the
Structural Funds operated by the EC, was established in 1957 to improve
workers' employment opportunities and raise their living standards. The
main purpose of the Fund is to render the employment of workers easier
and to increase their geographical and occupational mobility within the
European Union. It provides support for vocational training,
employment, and self-employment.
The member states are responsible for identifying and implementing
the individual projects that are selected to receive ESF financing. The
member states must also contribute to the financing of the projects. In
general, the maximum benefit provided by the ESF is 50 percent of the
project's total cost for projects geared toward Objectives 2, 3, 4, and
5b (see below). For Objective 1 projects, the ESF contributes a maximum
of 75 percent of the project's total cost.
Like the other EC Structural Funds, the ESF contributes to the
attainment of the five different objectives identified in the EC's
framework regulations for Structural Funds: Objective 1 is to promote
development and structural adjustment in underdeveloped regions,
Objective 2 addresses areas in industrial decline, Objective 3 relates
to combating long-term unemployment and creating jobs for young people
and people excluded from the labor market, Objective 4 focuses on the
adaptation of workers to industrial changes and changes in production
systems, and Objective 5 pertains to rural development. Recently, the
EC added a sixth objective under which assistance is provided to
sparsely populated areas in northern Europe.
Ugine s.a. received an ESF grant for worker readaptation training
in 1995. In the same year, the company also received an approximately
equivalent amount from the GOF as cofinancing for the project. In 1997,
the Ugine Division of Usinor received an ESF grant for training workers
in a new production process at its cold-rolling mill in Isbergues. No
GOF cofinancing of this project was received during the POI.
The Department considers worker assistance programs to provide a
countervailable benefit to a company when the company is relieved of a
contractual or legal obligation it would otherwise have incurred. See
Final Affirmative Countervailing Duty Determination: Certain Pasta From
Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Usinor
has stated that the ESF grants did not relieve the company of any
contractual or legal obligations. The GOF has not provided any
information as to whether the grants relieved the company of any such
obligations and we have no information about the exact purpose or use
of the 1995 grant. However, as discussed further below, its small size
resulted in the grant being expensed in the year of receipt. We have,
therefore, decided not to seek further information about the exact
purpose of this grant or whether it relieved Ugine of any legal or
contractual obligations.
The 1997 grant was provided to train Ugine's workers in a new
production process. Since companies normally incur the costs of
training to enhance the job-related skills of their employees, we
preliminarily determine that the 1997 ESF grant relieved Ugine of an
obligation it would have otherwise incurred.
We preliminarily determine that the 1997 ESF grant is
countervailable within the meaning of section 771(5) of the Act. The
grant is a financial contribution as described in section 771(5)(D)(i)
of the Act which provides a benefit to the recipient in the amount of
the grant.
Consistent with prior cases, we have examined the specificity of
the funding. Because the EC has not provided any information about the
distribution of ESF grants, we are assuming for purposes of this
preliminary determination, as facts available under section 776(b) of
the Act, that the funds provided by the EC are specific.
The Department normally considers the benefits from worker training
programs to be recurring. See GIA at 37255. However, consistent with
the Department's past practice and our understanding that ESF grants
relate to specific, individual projects which require separate
government approval, we are treating the benefit as a non-recurring
grant. See Stainless Steel Wire Rod from Italy, 63 FR 40474, 40488
(July 29, 1998) and Pasta from Italy at 30295. As stated above, the
value of the 1995 ESF grant and the accompanying GOF contributions were
less than 0.5 percent of Ugine's total sales in that year. Similarly,
the 1997 ESF grant was less than 0.5 percent of Ugine's 1997 sales.
Therefore, that grant was expensed in the year of receipt. Dividing the
amount of the ESF grant by the Ugine Division's 1997 total sales, we
preliminarily determine the countervailable subsidy to be 0.00 percent
ad valorem for this program.
II. Programs Preliminarily Determined Not To Be Countervailable GOF
Programs
A. Purchase of power plant
In 1994, Usinor sold the shares of Centrale Siderurgique de
Richemont (CSR) to Electricite de France (EDF), a government-owned
entity. CSR was set up to convert gas generated by steel plants in the
Lorraine region into electricity for sale to l'Union Siderurgique de
L'Energie (USE). USE, in turn, sold the electricity to steel producers
in the region. At the time of the transaction, both CSR and USE were
owned by Usinor and Usinor factories purchased their electricity from
USE.
In addition to the physical assets of CSR (i.e., land, buildings,
plant and equipment), the 1994 transaction also provided EDF the
exclusive right to supply electricity to USE for a 15-year period.
Prior to the transaction, Usinor and EDF conducted independent
valuations of the transaction based on detailed projections of future
costs and revenues associated with the operation of CSR and sales of
electricity to USE. The projected revenues were calculated using
detailed estimates of yearly outputs, consumption and rates. Similarly,
projected costs were based on estimated costs for purchasing gas,
[[Page 63882]]
operating expenses, as well as costs for developing an electric power
system. After negotiations, Usinor and EDF agreed on a purchase price
of FF 1 billion, which represented a compromise between the independent
valuations of the transaction by Usinor and EDF.
We examined whether Usinor received more than a reasonable market
price from the EDF in this transaction. We preliminarily determine that
although FF 1 billion represented a large gain over the book value of
CSR's physical assets, the purchase price was based on a reasonable
valuation of the future sales of electricity by EDF to Usinor. The
valuation is supported by reasonable estimates of projected costs and
revenues. There is no evidence to indicate that the transaction was
anything other than an arm's length transaction for full market value.
Accordingly, we preliminarily determine that this program does not
constitute a countervailable subsidy within the meaning of section
771(5) of the Act.
B. Related party loans
Usinor's 1992 and 1993 financial statements identify ``interest
free loans to related parties'' in the amounts of FF 622 million in
1993 and FF 455 million in 1992. According to Usinor, these loans
consist of interest-free advances by Usinor and other Usinor Group
entities to non-consolidated entities within the Usinor Group.
Information provided by Usinor indicates that the funds for these loans
were provided out of Usinor's self-generated cash flow. Because there
is no financial contribution as defined under section 771(5)(D) of the
Act, we preliminarily determine that these loans do not constitute a
countervailable subsidy.
C. Work/training contracts
Employers who hire young people (16-25 years of age) through
various government-administered work/training or apprenticeship
contracts may receive grants and an exemption from social security
contributions. The contracts also impose training requirements for
those employees and establish minimum compensation set in proportion to
the SMIC (the indexed minimum wage) according to the age of the young
person and the duration of the contract. This program is administered
by Delegation Generale a l'Emploi et a la Formation Professionnelle of
Ministere de l'Emploi et de la Solidarite at the national level, and
locally by Directions Departementales du Travail, de l'Emploi et de la
Formation Professionnelle (DDTEFP) (Departmental Labor, Employment and
Professional Training Head Offices). The purpose of this program is to
encourage the permanent employment of young people.
Usinor has entered into two types of such contracts: (1)
apprenticeship contracts and (2) contracts of specific duration
(including qualification agreements and adaptation agreements). Any
employer can hire an apprentice and enter into an apprenticeship
contract providing training for the apprentice. Qualification and
adaptation agreements require approval by the DDTEFP. Approval is
dependent upon (1) adoption of an agreement with an educational
institution or training entity; and (2) the company's approval of a
standard agreement adopted by the GOF and an occupational organization.
Usinor received lump-sum payments and exemptions from social security
contributions as a result of these contracts.
We analyzed whether the benefits provided under this program are
specific ``in law or fact'' within the meaning of section 771(5A) of
the Act. We preliminarily determine that the program is not de jure
specific because the receipt of the benefits, in law, is not contingent
on export performance or on the use of domestically sourced goods over
imported goods; nor are the benefits limited to an enterprise, industry
or region.
Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de
facto specific if one or more of the following factors exists: (1) the
number of enterprises, industries or groups thereof, which use a
subsidy is limited; (2) there is predominant use of a subsidy by an
enterprise, industry, or group; (3) there is disproportionate use of a
subsidy by an enterprise, industry, or group; or (4) the manner in
which the authority providing a subsidy has exercised discretion
indicates that an enterprise or industry is favored over others. As
explained in the Statement of Administrative Action (SAA) (H.R. Doc.
No. 316, Vol. I, 103d Cong., 2d Session (1994) at 931), the fourth
criterion normally serves to support the analysis of other de facto
specificity criteria.
Assistance under this program was distributed to a wide variety of
industries in the majority of the regions of France. Therefore, the
program is not limited based on the number of users. The evidence also
indicates that the steel industry did not receive a predominant or a
disproportionate share of the total funding. Given our findings that
the number of users is large and that there is no predominant or
disproportionate use of the program by the steel industry, we do not
reach the issue of whether administrators of the program exercised
discretion in awarding benefits. Accordingly, we preliminarily
determine that this program is not specific and has not conferred
countervailable subsidies within the meaning of section 771(5) of the
Act.
D. Electric arc furnaces
In 1996, the GOF agreed to provide assistance in the form of
reimbursable advances to benefit Usinor's research and development
efforts to improve and increase the efficiency of the melting process--
the first stage in steel production. The first disbursement of funds
occurred on July 17, 1998.
The Department deems benefits to have been received at the time
that there is an effect on the recipient's cash flow. See GIA at 37228-
29. Because Usinor did not receive any payments until 1998, there is no
benefit during the POI of this investigation. On this basis, we
preliminarily determine that this program did not provide any
countervailable benefits within the meaning of section 771(5) of the
Act.
III. Programs Preliminarily Determined To Be Not Used
Based on the information provided in the responses, we determine
that Usinor did not apply for or receive benefits under the following
programs during the POI:
GOF Programs
A. Export Financing under Natexis Banque Programs
B. DATAR Regional Development Grants (PATs)
C. DATAR 50 Percent Taxing Scheme
D. DATAR Tax Exemption for Industrial Expansion
E. DATAR Tax Credit for Companies Located in Special Investment Zone
F. DATAR Tax Credits for Research
G. GOF Guarantees
H. Long-Term Loans from CFDI
EC Programs
A. Resider II Program
B. Youthstart
C. ECSC Article 54 Loans
D. ECSC Article 56(2)(b) Redeployment/Readaptation Aid
E. Grants from the European Regional Development Fund (ERDF)
IV. Programs Preliminarily Determined Not To Exist
Forgiveness of shareholders' loans
Usinor's 1994 and 1995 financial statements indicate that the
balance in the account identified as ``loans granted
[[Page 63883]]
by the shareholders'' or ``borrowings granted by the shareholders'' was
reduced from FF 2.161 billion in 1993 to FF 1.92 billion in 1994 (i.e.,
a reduction in the amount of FF 241 million). At the end of 1995, the
balance in the same account was zero. The petitioners alleged that the
reduction in the loan balance represented a debt forgiveness by the GOF
in order to make the company more attractive to investors prior to its
privatization.
Information provided by Usinor and the GOF indicates that there was
no loan forgiveness. Rather, the decreases of the loan balances in the
financial statements represent a combination of loan payments by the
company and the elimination of any disclosure requirement in accordance
with GAAP, due to a reduction in shareholdings. Specifically, the 1995
reduction reflects the elimination of disclosure requirements
applicable to loans from Credit Lyonnais, as the result of the
reduction in Credit Lyonnais' ownership interest in Usinor from 20
percent to less than 10 percent at the time of Usinor's privatization.
There were no disclosed shareholder loans at the end of 1995 because
there were no shareholders with an interest of 10 percent or greater.
International accounting standards require disclosure of transactions
between a business entity and owners of more than 10 percent of shares.
For 1994, the reduction is accounted for by repayments of certain
outstanding loans during that year as supported by repayment
documentation. On this basis, we preliminarily determine that this
program does not exist.
V. Programs for Which We Need More Information
Resider I
The EC's September 14, 1998 questionnaire response on Resider II
included information about a predecessor program, Resider I, which was
in effect between 1988 and 1992. The purpose of both Resider programs,
which are financed by the EC's structural funds, is to diversify
economic activities in steel-producing areas that are adversely
affected by the restructuring of the steel industry.
In its September 15, 1998 response, Usinor stated that it had not
applied for, used, or benefitted from subsidies under Resider II during
the POI. As indicated above, we have, therefore, preliminarily
determined that Resider II was not used during the POI. However, with
respect to Resider I, we asked Usinor in our October 2, 1998
supplemental questionnaire if the company had received any form of aid
under this program. In its October 22, 1998 supplemental response, the
company stated that it had been unable to locate information to respond
to this question but that it would try to do so for verification.
The EC's response indicated that both Resider I and II are
administered by government agencies in the member states and that these
agencies maintain files on the individual companies that receive
benefits under these programs. Therefore, in our October 2 supplemental
questionnaire to the GOF, we requested information regarding Usinor's
use of the Resider programs. In its October 22, 1998 response, the GOF
stated that it had been unable to obtain this information but that it
would try to do so for verification.
Because we do not have sufficient information to make a preliminary
determination with respect to Resider I, we have decided to seek more
information on this program before our final determination.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual rate for Usinor, the sole manufacturer of the
subject merchandise. We preliminarily determine that the total
estimated net countervailable subsidy rate is 2.84 percent ad valorem.
Because we only investigated one producer/exporter, Usinor's rate will
also serve as the ``all others'' rate. Therefore, the ``all others''
rate is 2.84 percent ad valorem. In accordance with section 703(d) of
the Act, we are directing the U.S. Customs Service to suspend
liquidation of all entries of stainless steel sheet and strip in coils
from France which are entered, or withdrawn from warehouse, for
consumption on or after the date of the publication of this notice in
the Federal Register, and to require a cash deposit or bond for such
entries of the merchandise in the amounts indicated above. This
suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged 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 Assistant Secretary, Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of this preliminary
determination, at the U.S. Department of Commerce, 14th Street and
Constitution Avenue N.W., Washington, DC 20230. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
Requests for a public hearing should contain: (1) the party's name,
address, and telephone number; (2) the number of participants; (3) the
reason for attending; and (4) a list of the issues to be discussed. An
interested party may make an affirmative presentation only on arguments
included in that party's case brief and may make a rebuttal
presentation only on arguments included in that party's rebuttal brief.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
In addition, six copies of the business proprietary version and six
copies of the nonproprietary version of the case briefs must be
submitted to the Assistant Secretary no later than 50 days from the
publication of this notice. As part of the case brief, parties are
encouraged to provide a summary of the arguments not to exceed five
pages and a table of statutes, regulations, and cases cited. Six copies
of the business proprietary version and six copies of the
nonproprietary version of the rebuttal briefs must be submitted to the
Assistant Secretary no later than 55 days from the publication of this
notice. Written arguments should be submitted in accordance with 19 CFR
351.309 and will be considered if received within the time limits
specified above.
[[Page 63884]]
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: November 9, 1998.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 98-30736 Filed 11-16-98; 8:45 am]
BILLING CODE 3510-DS-P
