[Federal Register Volume 64, Number 249 (Wednesday, December 29, 1999)]
[Notices]
[Pages 73244-73277]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-33237]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-827]
Final Affirmative Countervailing Duty Determination: Certain Cut-
to-Length Carbon-Quality Steel Plate From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: December 29, 1999.
FOR FURTHER INFORMATION CONTACT: Norbert Gannon, Kristen Johnson, or
Michael Grossman, Office of CVD/AD Enforcement II, Import
Administration, U.S. Department of Commerce, Room 4012, 14th Street and
Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-
2786.
Final Determination. The Department of Commerce (the Department)
determines that countervailable subsidies are being provided to certain
producers and exporters of certain cut-to-length carbon-quality steel
plate from Italy. For information on the countervailing duty rates,
please see the ``Suspension of Liquidation'' section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Bethlehem Steel
Corporation, U.S. Steel Group, a Unit of USX Corporation, Gulf States,
Inc., IPSCO Steel Inc., and the United Steelworkers of America (the
petitioners).
Case History
Since the publication of our preliminary determination in this
investigation (Preliminary Affirmative Countervailing Duty
Determination and Alignment of Final Countervailing Duty Determination
with Final Antidumping Duty Determination: Certain Cut-to-Length
Carbon-Quality Steel Plate from Italy, 64 FR 40416 (July 26, 1999)
(Preliminary Determination)), the following events have occurred:
We issued supplemental questionnaires on July 23, 26, and 27, 1999,
to ILVA S.p.A. (ILVA) and ILVA Lamiere e Tubi S.p.A. (ILT)
(collectively referred to as ILVA/ILT), Palini & Bertoli S.p.A. (Palini
& Bertoli), and the Government of Italy (GOI), respectively. We
received the respondents' questionnaire responses on September 3, 1999.
We conducted verification of the countervailing duty questionnaire
responses from September 13 through September 24, 1999. Because the
final determination of this countervailing duty investigation was
aligned with the final antidumping duty determination (see 64 FR at
40416), and the final antidumping duty determination was postponed (see
64 FR at 46341), the Department on August 25, 1999, extended the final
determination of this countervailing duty investigation until no later
than December 13, 1999 (see 64 FR at 46341). On November 8, 1999, we
issued to all parties the verification reports for ILVA/ILT, Palini &
Bertoli, and the regional government of Friuli Venezia Giulia. On
November 12, 1999, we issued the verification report for the GOI.
Petitioners, the GOI, and ILVA/ILT filed case briefs on November 18,
1999. Rebuttal briefs were submitted to the Department by the
petitioners and ILVA/ILT on November 23, 1999. The case hearing was
held on November 30, 1999.
Scope of Investigation
The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) universal mill plates (i.e., flat-rolled products
rolled on four faces or in a closed box pass, of a width exceeding 150
mm but not exceeding 1250 mm, and of a nominal or actual thickness of
not less than 4 mm, which are cut-to-length (not in coils) and without
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75
mm or more and of a width which exceeds 150 mm and measures at least
twice the thickness, and which are cut-to-length (not in coils).
Steel products to be included in this scope are of rectangular,
square, circular or other shape and of rectangular or non-rectangular
cross-section where such non-rectangular cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Steel products that meet the noted
physical characteristics that are painted, varnished or coated with
plastic or other non-metallic substances are included within this
scope. Also, specifically included in this scope are high strength, low
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum.
Steel products to be included in this scope, regardless of
Harmonized Tariff Schedule of the United States (HTSUS) definitions,
are products in which: (1) iron predominates, by weight, over each of
the other contained elements, (2) the carbon content is two percent or
less, by weight, and (3) none of the elements listed below is equal to
or exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not equal or exceed any one of the
levels listed above, are within the scope of these investigations
unless otherwise specifically excluded. The following products are
specifically excluded from these investigations: (1) products clad,
plated, or coated with metal, whether or not painted, varnished or
coated with plastic or other non-metallic substances; (2) SAE grades
(formerly AISI grades) of series 2300 and above; (3) products made to
ASTM A710 and A736 or their proprietary equivalents; (4) abrasion-
resistant steels (i.e., USS AR 400, USS AR 500); (5) products made to
ASTM A202, A225, A514 grade S, A517 grade S, or their proprietary
equivalents; (6) ball bearing steels; (7) tool steels; and (8) silicon
manganese steel or silicon electric steel.
The merchandise subject to these investigations is classified in
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,
7226.91.8000, 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
[[Page 73245]]
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions effective January 1, 1995, the effective
date of the amendments made to the Tariff Act of 1930 (the Act) by the
Uruguay Round Agreements Act (URAA). In addition, unless otherwise
indicated, all citations to the Department's regulations are to the
regulations codified at 19 CFR Part 351 (1998) and to the substantive
countervailing duty regulations published in the Federal Register on
November 25, 1998 (63 FR 65348) (CVD Regulations).
Injury Test
Because Italy 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 Italy materially injure, or threaten material
injury to, a U.S. industry. On April 8, 1999, the ITC published its
preliminary determination 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 Italy of the
subject merchandise (see Certain Cut-to-Length Steel Plate From the
Czech Republic, France, India, Indonesia, Italy, Japan, Korea, and
Macedonia; Determinations, 64 FR 17198 (April 8, 1999)).
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1998.
Corporate History of ILVA/ ILT 1
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\1\ As discussed in this section, ILVA/ILT's carbon steel
predecessor companies are: Nuova Italsider (1981-1987), Italsider
(1987-1988), ILVA S.p.A. (1989-1993), and ILP (1994-1996).
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Prior to 1981, the Italian government holding company Istituto per
la Ricostruzione Industriale (IRI), controlled Italy's nationalized
steel industry through its wholly-owned subsidiary, Finsider S.p.A
(Finsider). The steel operations of Finsider were subdivided into three
main companies: Italsider (carbon steel); Terni (stainless and special
steel); and Dalmine (pipe and tube). Italsider was the sector leader
and the primary producer of the subject merchandise. In 1981, the GOI
implemented a restructuring plan, restructuring Finsider into several
operating companies including: Nuova Italsider (carbon steel flat
products); Terni (speciality flat steels); Nuova Sias (special long
products); and other steel product divisions. In the course of the 1981
Restructuring Plan, Italsider transferred all of its assets, with the
exception of certain plants, to Nuova Italsider. Italsider became a
one-company holding company with Nuova Italsider's stock as its primary
asset.
During 1987, Finsider restructured three of its main operating
companies: Nuova Italsider, Deltasider, and Terni. Nuova Italsider
spun-off its assets to Italsider and transferred its shares in
Italsider to Finsider. Nuova Italsider ceased operations after this
divestment and Finsider had direct ownership of Italsider. Upon
completion of the 1987 restructuring, Italsider re-emerged as the steel
sector's carbon steel products producer.
Later in 1987, Finsider and its main operating companies
(Italsider, TAS, and Nuova Deltasider) were placed in liquidation, and
the GOI subsequently implemented the 1988 Restructuring Plan. The goal
of the 1988 Restructuring Plan was to restructure Finsider and its
operating companies, assembling the group's most productive assets into
a new operating company, ILVA S.p.A. (ILVA S.p.A. or (old) ILVA), which
was created on January 1, 1989. The 1988 Restructuring Plan, like the
1981 plan, was submitted to and approved by the European Commission
(EC). In accordance with the plan, ILVA S.p.A. took over some of the
assets and liabilities of the liquidating companies, and Finsider
closed certain facilities to comply with the EC's requirements. With
respect to Italsider, part of the company's liabilities and the
majority of its viable assets, including assets associated with the
production of carbon steel flat-rolled products, were transferred to
ILVA S.p.A., which commenced production on January 1, 1989. Non-
productive assets and a substantial amount of liabilities were left
behind with Finsider and the liquidating operating companies.
The facilities retained by ILVA S.p.A were organized into four
primary operating groups: carbon steel flat products, stainless steel
flat products, stainless steel long products, and seamless pipe and
tube. In 1992, ILVA Lamiere e Tubi (ILT), a carbon steel flat products
operation, was created as a wholly-owned subsidiary of ILVA S.p.A. ILVA
S.p.A. was also the majority owner of a large number of separately
incorporated subsidiaries. Some of these subsidiaries produced various
types of steel products. The other subsidiaries were service centers,
trading companies, and an electric power company, among others. ILVA
S.p.A., together with its subsidiaries, constituted the ILVA Group. The
ILVA Group was wholly-owned by IRI.
Although ILVA S.p.A. was profitable in 1989 and 1990, the company
encountered financial difficulties in 1991, and became insolvent by
1993. On October 31, 1993, ILVA S.p.A. entered into liquidation. On
December 31, 1993, IRI demerged ILVA S.p.A.''s main productive assets
and a share of its liabilities into two new companies: ILVA Laminati
Piani (ILP) (carbon steel flat products) and Acciai Speciali Terni
(AST) (speciality and stainless steel flat products). On January 1,
1994, ILP and AST were formally established as separately incorporated
firms in advance of privatization. See Memorandum to David Mueller:
Verification Report for ILVA S.p.A. and ILVA Lamiere e Tubi, dated
November 8, 1999 (public version on file in the Central Records Unit
(CRU) (Room B-099 of the Main Commerce Building) (ILVA/ILT Verification
Report), at Exhibit 1993/94-1 and Memorandum to David Mueller:
Verification Report for the Government of Italy, dated November 12,
1999 (public version on file in the CRU) (GOI Verification Report) at
11. ILT, the carbon flat steel products operation, was transferred to
ILP as its wholly-owned subsidiary. The remainder of ILVA S.p.A.''s
assets and existing liabilities, along with much of the redundant
workforce, was placed in ILVA Residua (a.k.a., ILVA in Liquidation).
In 1995, 100 percent of ILP was sold through a competitive public
tender managed by IRI with the assistance of Istituto Mobiliare
Italiano (IMI). The sale of ILP was executed through a share purchase
agreement between IRI and a consortium of investors led by Riva Acciaio
S.p.A. (RIVA) and investment companies. The contract of sale was signed
on March 16, 1995, and all shares of ILP were transferred to the
consortium on April 28, 1995. As of that date, the GOI no longer
maintained any ownership interest in ILP or had any ownership interest
in any of ILP's new owners.
On January 1, 1997, RIVA changed the name of ILP to ILVA S.p.A
(creating the ``new'' ILVA, referred to hereafter as ILVA or (new)
ILVA). ILVA continues to wholly-own ILT. Within RIVA's corporate
structure, ILT, at its Taranto Works facility, produces the subject
merchandise, which is exported to the United States. ILVA, with the
assistance of ILVA Commerciale S.p.A. (ICO), a sales company wholly-
owned by ILVA, is responsible for selling and exporting the subject
merchandise to the United States and other markets.
[[Page 73246]]
As of 1998, RIVA owns and/or controls 82.0 percent of ILVA and two
foreign-incorporated investment companies own the remaining 18.0
percent.
According to ILVA/ILT, Sidercomit Taranto C.S. Lamiere S.r.l.
(Sidercomit) was created in 1992, as an indirect subsidiary of (old)
ILVA. Sidercomit became an operating unit within (new) ILVA in 1997,
and currently operates service centers for the distribution of
merchandise, including the subject merchandise for ILVA/ILT. Any
benefits to Sidercomit under programs that have been found
countervailable have been mentioned separately within those program
sections below.
Corporate History of Palini & Bertoli
Palini & Bertoli, a 100 percent privately-owned corporation, was
incorporated in December 1963. Palini & Bertoli has never been part of
the Italian state-owned steel industry.
Change in Ownership
In the General Issues Appendix (GIA), appended to the Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Austria, 58 FR 37217, 37226 (July 9, 1993) (Certain Steel from
Austria), we outlined our methodology for the treatment of subsidies
received prior to the sale of a government-owned company to a private
entity (i.e., privatization), or the spinning-off (i.e., sale) of a
productive unit from a government-owned company to a private entity.
Under this methodology, we estimate the portion of the purchase
price attributable to prior subsidies. We do this by first dividing the
sold company's subsidies by the company's net worth for each year
during the period beginning with the earliest point at which non-
recurring subsidies would be attributable to the POI and ending one
year prior to the sale of the company. We then take the simple average
of these ratios. This averaged ratio serves as a reasonable estimate of
the percent that subsidies constitute of the overall value of the
company. Next, we multiply this ratio by the purchase price to derive
the portion of the purchase price attributable to the payment 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 the company is sold.
With respect to the spin-off of a productive unit, consistent with
the Department's methodology set out above, we analyze the sale of a
productive unit to determine what portion of the sales price of the
productive unit 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. The result of this
calculation yields the amount of remaining subsidies attributable to
the spun-off productive unit. We next estimate the portion of the
purchase price going towards repayment of prior subsidies in accordance
with the methodology set out above, and deduct it from the maximum
amount of subsidies that could be attributable to the spun-off
productive unit.
Use of Facts Available
Both the GOI and ILVA/ILT failed to fully respond to the
Department's questionnaires concerning the program ``Debt Forgiveness:
1981 Restructuring Plan.'' Section 776(a)(2) of the Act requires the
use of facts available when an interested party withholds information
that has been requested by the Department, or when an interested party
fails to provide the information requested in a timely manner and in
the form required. In such cases, the Department must use the facts
otherwise available in reaching the applicable determination. Because
the GOI and ILVA/ILT failed to submit the information that was
specifically requested by the Department, we find that the respondents
have failed to cooperate to the best of their abilities. Therefore, we
have based our determination for this program on the facts available.
In accordance with section 776(b) of the Act, the Department may
use an inference that is adverse to the interests of that party in
selecting from among the facts otherwise available when the party has
failed to cooperate by not acting to the best of its ability to comply
with a request for information. Such adverse inference may include
reliance on information derived from (1) the petition; (2) a final
determination in a countervailing duty or an antidumping investigation;
(3) any previous administrative review, new shipper review, expedited
antidumping review, section 753 review, or section 762 review; or (4)
any other information placed on the record. See 19 CFR 351.308(c). In
the absence of information from the GOI and ILVA/ILT, we consider the
February 16, 1999 petition, as well as our findings from the final
determination of Certain Steel from Italy to be appropriate bases for a
facts available countervailing duty rate calculation. See Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Italy, 58 FR 37327, 37329-30 (July 9, 1993) (Certain Steel from
Italy).
The Statement of Administrative Action accompanying the URAA
clarifies that information from the petition and prior segments of the
proceeding is ``secondary information.'' See Statement of
Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)
(1994) (SAA), at 870. If the Department relies on secondary information
as facts available, section 776(c) of the Act provides that the
Department shall, to the extent practicable, corroborate such
information using independent sources reasonably at its disposal. The
SAA further provides that to corroborate secondary information means
simply that the Department will satisfy itself that the secondary
information to be used has probative value. However, where
corroboration is not practicable, the Department may use uncorroborated
information. With respect to the program for which we did not receive
complete information from the respondents, the secondary information
was corroborated through exhibits (i.e., financial statements) attached
to the petition. The financial transactions discussed within Finsider's
1984 and 1985 financial statements confirm that the GOI engaged in
transactions which are tantamount to the assumption of debt and debt
forgiveness. Based on such review of the transactions discussed in the
financial statements, we find that the secondary information (i.e., the
petition and Certain Steel from Italy) has probative value and,
therefore, the information regarding the debt forgiveness provided
under the 1981 Restructuring Plan has been corroborated.
Subsidies Valuation Information
Allocation
Section 351.524(d)(2) of the CVD Regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System and updated by the Department of
Treasury. The presumption will apply unless a party claims, and
establishes that, these tables do not reasonably reflect the AUL of the
renewable physical assets for the
[[Page 73247]]
company or industry under investigation, and the party can establish
that the difference between the company-specific or country-wide AUL
for the industry under investigation is significant.
On June 21, 1999, ILVA/ILT submitted to the Department four tables
illustrating company-specific AUL calculations for (old) ILVA, ILP,
ILT, and (new) ILVA, both separately and in combination. In addition,
the GOI provided estimates of the country-wide AUL for the Italian
steel industry. Based upon our analysis of the data submitted by ILVA/
ILT regarding the AUL of their assets, we preliminarily determined that
the calculation which takes into consideration all producers of the
subject merchandise over the past 10 years is the most appropriate AUL
calculation. However, because this calculation did not yield a company-
specific AUL which is significantly different from the AUL listed in
the IRS tables, in the Preliminary Determination, we used the 15 year
AUL as reported in the IRS tables to allocate non-recurring subsidies
under investigation for ILVA/ILT in the preliminary calculations.
After considering the parties' comments and verifying the data
submitted by ILVA/ILT regarding the AUL of their assets, we continue to
use a 15 year AUL for ILVA/ILT. We have rejected respondents company-
specific AUL calculation and the country-wide depreciation information
provided by the GOI and are using the IRS tables pursuant to 19 CFR
351.524(d)(2)(i). For an explanation of why we are rejecting ILVA/ILT's
company-specific AUL and the country-wide depreciation information, see
Comment 2.
In its questionnaire response of July 6, 1999, Palini & Bertoli
stated that it ``does not have sufficient resources to respond'' to the
Department's inquiry of whether the company wished to rebut the 15 year
AUL as reported in the IRS tables. Therefore, we are using a 15 year
AUL for Palini & Bertoli.
Equityworthiness
In measuring the benefit from a government equity infusion, in
accordance with section 351.507(a)(2) of the Department's CVD
Regulations, the Department compares the price paid by the government
for the equity to actual private investor prices, if such prices exist.
According to section 351.507(a)(3) of the Department's CVD Regulations,
where actual private investor prices are unavailable, the Department
will determine whether the firm was unequityworthy at the time of the
equity infusion.
In this case, private investor prices are unavailable; therefore,
it is necessary to determine whether ILVA/ILT's predecessor companies
were unequityworthy in the years in which equity infusions were made.
Our review of the record has not led us to change our findings from
prior investigations, in which we found ILVA/ILT's predecessor
companies, Nuova Italsider and (old) ILVA, unequityworthy from 1984
through 1988, and from 1991 through 1992. See, e.g.,Certain Steel from
Italy, 58 FR 37328; Final Affirmative Countervailing Duty
Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR
40474, 40477 (July 29, 1998) (Wire Rod from Italy); Final Affirmative
Countervailing Duty Determination: Stainless Steel Plate in Coils from
Italy, 64 FR 15508, 15511 (March 31, 1999) (Plate in Coils from Italy)
and Final Affirmative Countervailing Duty Determination: Stainless
Steel Sheet and Strip in Coils from Italy, 64 FR 30624, 30627 (June 8,
1999) (Sheet and Strip from Italy). We have not examined whether (old)
ILVA was equityworthy in 1989 and 1990, because the company did not
receive an equity infusion from the GOI in either of those years.
Section 351.507(a)(3) of the Department's CVD Regulations views an
infusion of equity into an unequityworthy company as inconsistent with
the usual investment practices of private investors. In such cases, the
Department will apply the methodology described in section
351.507(a)(6) of the regulations, treating the equity infusion as a
grant. Use of the grant methodology for equity infusions into an
unequityworthy company is based on the premise that an
unequityworthiness finding by the Department is tantamount to saying
that the company could not have attracted investment capital from a
reasonable investor in the year in which the infusion was received
based on the available information.
Creditworthiness
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from France, 58 FR 37304 (July 9, 1993), and Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Venezuela, 62 FR 55014 (October 21, 1997). The Department will consider
a firm to be uncreditworthy if it is determined that, based on
information available at the time of the government-provided loan, the
firm could not have obtained a long-term loan from conventional
sources. See section 351.505(a)(4)(i) of the CVD Regulations.
Italsider, Nuova Italsider, and (old) ILVA were found to be
uncreditworthy from 1977 through 1993. See Certain Steel from Italy, 58
FR at 37328-29, Wire Rod from Italy, 63 FR at 40477, and Sheet and
Strip from Italy, 64 FR at 30627. In its September 3, 1999 response,
ILVA/ILT stated that the Department has incorrectly determined that
Finsider and (old) ILVA were uncreditworthy, since these companies were
able to borrow money from commercial lenders at prevailing market rates
of interest. ILVA/ILT discussed the existence of IRI guarantees as the
reason why both Finsider and (old) ILVA were able to obtain loans at
commercial interest rates. See ILVA/ILT's September 3, 1999
Questionnaire Response (QR), at 12-13.
We disagree with respondents. The existence of commercial loans to
a government-owned company is not dispositive for purposes of
determining the company's creditworthiness. In the preamble to the CVD
Regulations, we state that for government-owned firms, the Department
will make its creditworthiness determination by examining those factors
listed in paragraph (a)(4)(i) of section 351.505. See Preamble to the
CVD Regulations, 63 FR at 65367. Those factors outlined in paragraph
(a)(4)(i) include, among other things: (1) the receipt by the firm of
comparable, commercial financing, (2) the present and past financial
health of the firm as indicated by various financial indicators, (3)
the firm's past and present ability to meet its costs and fixed
financial obligations with its cash flow, and (4) evidence of the
firm's future financial position.
No information with respect to the above factors has been presented
in this investigation that would lead us to reconsider our earlier
findings that Italsider, Nuova Italsider, and (old) ILVA were
uncreditworthy from 1977 through 1993. Therefore, consistent with our
past practice, we continue to find Italsider, Nuova Italsider, and
(old) ILVA uncreditworthy from 1977 through 1993.
We have not analyzed ILP's, (new) ILVA's, or ILT's creditworthiness
in the years 1994 through 1998, because the companies did not negotiate
new loans with the GOI or EC during these years.
Benchmarks for Long-Term Loans and Discount Rates
In the Preliminary Determination, we based our discount rates on
the Italian
[[Page 73248]]
Bankers' Association (ABI) rates, which was consistent with the
Department's finding in Wire Rod from Italy, 63 FR at 40477 and Sheet
and Strip from Italy, 64 FR at 30626-30627. However, at verification,
we learned that the ABI rate does not represent a long-term interest
rate, but is rather an average of the short-term interest rates
commercial banks charge to their most favored customers. A Bank of
Italy (BOI) official explained at verification that an overdraft loan
is the most wide-spread short-term instrument of financing available in
Italy for companies and individuals. There is no set maturity on an
overdraft loan and a company or individual repays the principal when
the banks call in the loans. The Italian Bankers Association averages
the banks' short-term interest rates to arrive at the ABI rate which
the BOI publishes in its economic bulletins and annual reports. See GOI
Verification Report, at 3-4.
At verification, we inquired whether the BOI collects data on long-
term interest rates charged by commercial banks. We learned that only
recently (i.e., beginning with financial year 1995) has the BOI started
to compile statistics on long-term interest rates charged by banks. The
only long-term interest rate for which the BOI has historical yearly
information is the rate charged on treasury bonds issued by the GOI.
See Id.
Because we were unable to gather information on commercial long-
term interest rates from either the BOI or independent research for the
period 1984 through 1998, and the government bond rate does not
represent a commercial rate, for purposes of this final determination,
we have continued to use the ABI rates to construct discount rates. We
note that, in Wire Rod from Italy, the ABI rate was said to be ``the
most suitable benchmark for long-term financing to Italian companies.''
See Memorandum to Barbara Tillman re: Countervailing Duty Investigation
of Certain Stainless Steel Wire Rod from Italy: Discussions with
Company Officials from Gabetti per L'impresa, Banca Di Roma, and
Reconta Ernst & Young, dated June 3, 1998 (public document on file in
CRU).
In calculating the interest rate applicable to a borrower,
commercial banks typically add a spread ranging from 0.55 percent to
4.0 percent, which is determined by the company's financial health. See
Wire Rod from Italy, 63 FR at 40477. Additionally, information on the
record indicates that the published ABI rates do not include amounts
for fees, commissions, and other borrowing expenses. While we do not
have information on the expenses that would be applied to long-term
commercial loans, the GOI supplied information on the borrowing
expenses for overdraft loans in 1997, as an approximation of the
expenses on long-term commercial loans. This information shows that
expenses on overdraft loans range from 6.0 to 11.0 percent of interest
charged. Such expenses, along with the applied spread, raise the
effective interest rate that a company would pay. Because it is the
Department's practice to use effective interest rates, where possible,
we are including an amount for these expenses in the calculation of our
effective benchmark rates. See section 351.505(a)(1) of the CVD
Regulations. Therefore, we have added the average of the spread (i.e.,
2.28 percent) and borrowing expenses (i.e., 8.5 percent of the interest
charged) to the yearly ABI rates to calculate the effective discount
rates.
For the years in which ILVA/ILT or their predecessor companies were
uncreditworthy (see ``Creditworthiness'' section above), we calculated
discount rates in accordance with the formula for constructing a long-
term benchmark interest rate for uncreditworthy companies as stated in
section 351.505 (a)(3)(iii) of the CVD Regulations. This formula
requires values for the probability of default by uncreditworthy and
creditworthy companies. For the probability of default by an
uncreditworthy company, we relied on the weighted-average cumulative
default rates reported for the Caa to C-rated category of companies as
published in Moody's Investors Service, ``Historical Default Rates of
Corporate Bond Issuers, 1920-1997'' (February 1998).2 For
the probability of default by a creditworthy company, we used the
weighted-average cumulative default rates reported for the Aaa to Baa-
rated categories of companies in the study. The weighted-average
cumulative default rates for the Aaa to Baa-rated categories is
indicated as the ``Investment Grade'' default rates. See Memorandum to
the File: Moody's Investment Grade Default Rates, dated November 9,
1999 (public document on file in the CRU). For non-recurring subsidies,
the average cumulative default rates for both uncreditworthy and
creditworthy companies were based on a 15 year term, since all of ILVA/
ILT's allocable subsidies were based on this allocation period.
---------------------------------------------------------------------------
\2\ We note that since publication of the CVD Regulations,
Moody's Investors Service no longer reports default rates for Caa to
C-rated category of companies. Therefore, for the calculation of
uncreditworthy interest rates, we will continue to rely on the
default rates as reported in Moody's Investors Service's publication
dated February 1998 (at Exhibit 28).
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In addition, ILVA/ILT had two long-term, fixed-rate loans under
ECSC Article 54 outstanding during the POI. Therefore, we have selected
a U.S. dollar-based interest rate as our benchmark. See section
351.505(a)(2)(i) of the CVD Regulations. Consistent with the
Preliminary Determination, we have used as our benchmark the average
yield to maturity on selected long-term corporate bonds as reported by
the U.S. Federal Reserve, since both of these loans were denominated in
U.S. dollars. We have used these rates since we were unable to obtain
at verification or through independent research, a long-term borrowing
rate for loans denominated in U.S. dollars in Italy. Because ILVA was
uncreditworthy in the years in which the loans were contracted, we
calculated the uncreditworthy benchmark rates in accordance with
section 351.505 (a)(3)(iii) of the CVD Regulations.
I. Programs Determined To Be Countervailable
Government of Italy Programs
A. Equity Infusions to Nuova Italsider and (Old) ILVA 3
The GOI, through IRI, provided new equity capital to Nuova
Italsider or (old) ILVA, two predecessor companies of ILVA/ILT that
produced carbon steel plate, in every year from 1984 through 1992,
except in 1987, 1989, and 1990. We determine that these equity
infusions constitute countervailable subsidies within the meaning of
section 771(5)(B)(i) of the Act. These equity infusions constitute
financial contributions, as described in section 771(5)(D)(i) of the
Act. Because they were not consistent with the usual investment
practices of private investors (see ``Equityworthiness'' section
above), the equity infusions confer a benefit within the meaning of
section 771(5)(E)(i) of the Act. Because these equity infusions were
limited to Finsider and its operating companies, Nuova Italsider and
(old) ILVA, we determine that they are specific within the meaning of
section 771(5A)(D)(iii) of the Act.
---------------------------------------------------------------------------
\3\ In the Initiation Notice, these equity infusions were
separately listed as ``Equity Infusions into Italsider/Nuova
Italsider'' and ``Equity Infusions into ILVA.''
---------------------------------------------------------------------------
We have treated these equity infusions as non-recurring subsidies
given in the year each infusion was received because each required a
separate authorization. We allocated the equity infusions over a 15
year AUL.
[[Page 73249]]
Because Nuova Italsider and (old) ILVA were uncreditworthy in the years
the equity infusions were received, we constructed uncreditworthy
discount rates to allocate the benefits over time. See ``Subsidies
Valuation Information'' section, above. We noted, and petitioners
discussed in their November 18, 1999 case brief, that a ministerial
error was made in the Preliminary Determination with respect to the
1986 equity infusion Nuova Italsider received from IRI. See
Petitioners' November 18, 1999 Case Brief, at 48. The error was
numerical and was insufficient to require a ministerial error
correction of the preliminary calculations. For this final
determination, we have corrected the error.
For equity infusions originally provided to Nuova Italsider, a
predecessor company that produced carbon steel plate, we consider these
equity infusions to be attributable to (old) ILVA and subsequently to
ILP, because they are simply restructured entities of the government-
owned steel company. Accordingly, we did not apportion to the other
operations of (old) ILVA any part of the equity infusions originally
provided directly to Nuova Italsider. While we acknowledge that it
would be our preference to look at equity infusions into (old) ILVA as
a whole and then apportion an amount to ILP when it was spun-off from
(old) ILVA, we find our approach in this case to be the most feasible
since information on equity infusions provided to the non-carbon steel
operations of (old) ILVA is not available. For the equity infusions to
(old) ILVA, however, we did apportion these by asset value to all (old)
ILVA operations in determining the amount applicable to ILP.
We applied the repayment portion of our change in ownership
methodology to all of the equity infusions described above to determine
the subsidy allocable to ILP after its privatization. We divided this
amount by ILVA's total sales 4 during the POI. On this
basis, we determine the net countervailable subsidy to be 3.07 percent
ad valorem for ILVA/ILT. Palini & Bertoli did not receive any equity
infusions from the GOI.
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\4\ Since February 1997, ILVA and ILT have had an exclusive
sales arrangement, by which, all of ILT products are sold to ILVA,
which, in turn, sells them to outside customers. When ILVA purchases
goods from ILT, ILVA considers the purchase as an increase of
inventory and the transaction is recorded as an ``acquisition cost''
in its accounting books. See ILVA/ILT Verification Report, at 2.
Because of this sales arrangement, we are using as our denominator,
ILVA's 1998 sales sourced from the company's unconsolidated
financial statement.
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B. Debt Forgiveness: 1981 Restructuring Plan
The GOI reported that the objective of the 1981 Restructuring Plan
was to redress the economic and financial difficulties the iron and
steel industry was realizing in the early 1980's. The GOI stated that
this plan, which extended to 1985, due to the prolonged crisis within
the sector, envisaged financial interventions to aid in the recovery of
the Finsider group. As discussed above in the ``Use of Facts
Available'' section, the GOI and ILVA/ILT failed to submit complete
information in regard to the assistance provided under the 1981
Restructuring Plan. Therefore, based on the facts available, we
determine that certain financial transactions conducted in association
with the 1981 Restructuring Plan are countervailable subsidies.
Following Italsider's transfer of all its company facilities to
Nuova Italsider in September 1981, Italsider held 99.99 percent of
Nuova Italsider's shares. In 1983, Italsider was placed in liquidation.
While in liquidation, Italsider sold its shares of Nuova Italsider to
Finsider in December 1984. The sales price was 714.6 billion lire. As
part of this payment, Finsider assumed Italsider's debts owed to IRI of
696.4 billion lire. The difference between the 714.6 billion lire and
696.4 billion lire was paid directly by Finsider to Italsider.
On December 31, 1984, Finsider also granted to Italsider a non-
interest bearing loan of 563.5 billion lire to cover losses realized
from the liquidation. A matching provision was also made to Finsider's
``Reserve for Losses on Investments and Securities,'' to cover the
losses of the liquidation of Italsider. Following a shareholders'
meeting of Finsider on December 30, 1985, the amount of 563.5 billion
lire was disbursed to cover the losses of Italsider and Italsider's
state of liquidation was revoked.
In Certain Steel from Italy, the Department determined that the
1981 Restructuring Plan merely shifted assets and debts within a family
of companies, all of which were owned by Finsider, and ultimately, by
the GOI. Therefore, we determined that both the 696.4 billion lire
assumption of debt and the 563.5 billion lire debt forgiveness were
specifically limited to the steel companies and constitute
countervailable subsidies. See Certain Steel from Italy, 58 FR at
37330. No new factual information or evidence of changed circumstances
has been provided to the Department in this instant investigation to
warrant a reconsideration of the earlier finding that the debt
assumption and debt forgiveness are countervailable subsidies.
Therefore, consistent with our treatment of these transactions in
Certain Steel from Italy, we determine that the 1984 assumption of debt
and 1985 debt forgiveness constitute countervailable subsidies within
the meaning of section 771(5)(B)(i) of the Act. In accordance with
Certain Steel from Italy, debt assumption and debt forgiveness are
treated as grants which constitute financial contributions under
section 771(5)(D)(i) of the Act. The transactions also confer benefits
to the recipient within the meaning of section 771(5)(E)(i) of the Act,
in the amount of the debt coverage. Because the debt assumption and
debt forgiveness were limited to Italsider, one of ILVA/ILT's
predecessor companies, we determine that these transactions are
specific within the meaning of section 771(5A)(D)(iii) of the Act.
To calculate the benefit, we have treated the assumption of debt
and debt forgiveness to Italsider as non-recurring subsidies because
each transaction was a one-time, extraordinary event. We allocated the
1984 debt assumption and 1985 debt forgiveness over a 15 year AUL. See
the ``Allocation Period'' section, above. In our grant formula, we used
constructed uncreditworthy discount rates based on our determination
that Italsider was uncreditworthy in 1984 and 1985. See ``Benchmark for
Long-Term Loans and Discount Rates'' and ``Creditworthiness'' sections,
above.
As with the equity infusions originally provided to Nuova
Italsider, we consider the assumption of debt and debt forgiveness to
be attributable to (old) ILVA and subsequently to ILP, because they are
simply restructured entities of the government-owned steel company. To
determine the amount appropriately allocated to ILP after its
privatization, we followed the methodology described in the ``Change in
Ownership'' section above. We divided this amount by ILVA's sales
during the POI. On this basis, we determine the net countervailable
subsidy to be 1.09 percent ad valorem for ILVA/ILT. Palini & Bertoli
did not receive any benefit under this program.
C. Debt Forgiveness: 1988 Restructuring Plan
As discussed above in the ``Corporate History of ILVA/ILT'' section
of this notice, the GOI liquidated Finsider and its main operating
companies in 1988, and assembled the group's most productive assets
into a new operating company, ILVA S.p.A. (i.e., (old) ILVA).
[[Page 73250]]
The Finsider restructuring plan was developed at the end of 1987, and
was approved by the GOI on June 14, 1988, and by the EC on December 23,
1988. The objective of the plan was to restore the industrial,
financial, and economic balance to the public iron and steel-making
sector in Italy. The restructuring plan included the voluntary
liquidation of Finsider, and IRI's assumption of the debts not covered
by the sale of assets of the companies being liquidated. IRI was the
majority owner of Finsider, and therefore, the party responsible for
payment of Finsider's debts.
A transfer of assets and liabilities from Finsider to (old) ILVA
was to be accomplished at the latest by March 31, 1990. Upon completion
of the 1988 Restructuring Plan, (old) ILVA owned Finsider's productive
assets and a small portion of the group's liabilities. Included in the
transfer were the productive portions of the flat-rolled facilities
located at Taranto, Genoa, and Novi Ligure.5 The liquidating
companies retained the non-productive assets and the vast majority of
the liabilities, which had to be repaid, assumed, or forgiven. Thus,
while (old) ILVA emerged from the process with a positive net worth,
the other companies were left with capital structures in which their
liabilities greatly exceeded the liquidation value of their assets.
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\5\ The subject merchandise which ILT produced and (new) ILVA
exported to the United States in 1998, was produced at the Taranto
facilities.
---------------------------------------------------------------------------
We determine that certain financial transactions associated with
the 1988 Restructuring Plan constitute countervailable subsidies. In
1988, IRI established a fund of 2,943 billion lire to cover losses
which Finsider would realize while in liquidation. As of December 31,
1988, Finsider had accumulated losses in excess of its equity. In order
to prevent Finsider from becoming insolvent during 1989, IRI utilized
1,364 billion lire of the fund to forgive debts it was owed by Finsider
to cover the losses. We determine that IRI's action of forgiving
Finsider's debts in 1989, constitutes a countervailable subsidy.
Later in 1990, IRI forgave debts it was owed by Finsider when it
purchased (old) ILVA's stock from Finsider (and Terni) for 2,983
billion lire. The 2,983 billion lire was used to pay the liquidated
companies' debts which existed at the time of the sale. Prior to the
preliminary determination, ILVA/ILT disagreed with our characterization
in Certain Steel from Italy that the share purchase was an act of debt
forgiveness. They stated that the price paid by IRI for (old) ILVA's
shares reflected the market value of the shares and, therefore, the
purchase was not an act of debt forgiveness. We preliminarily disagreed
with ILVA/ILT's argument and determined that IRI's purchase of (old)
ILVA's stock was tantamount to debt forgiveness; however, we stated
that we would seek further clarification of the stock purchase
transaction for the final determination. See Preliminary Determination,
64 FR at 40422.
In the July 23, 1999 questionnaire and at verification, we asked
the GOI and ILVA/ILT to provide all feasibility studies, market
reports, economic forecasts, or similar documents completed prior to
(old) ILVA's share purchase, which related to the future expected
financial performance of the company. We examined the McKinsey &
Company (McKinsey) report of August 1988, which respondents claim
provides a comprehensive analysis of the expected future financial
performance of (old) ILVA. For reasons discussed in Comment 7, we find
that the McKinsey report did not assess the expected future financial
health of (old) ILVA. Rather, we find that the report examined the
viability of the government's 1988 Restructuring Plan for the period
1988 to 1990, and assessed whether the creation of (old) ILVA would
conform with the EC's trade and competition rules. See GOI Verification
Report, at 5. Therefore, on January 1, 1989, the day on which IRI
committed to purchasing (old) ILVA's shares, IRI did not have
sufficient financial data and analysis which would have allowed it to
evaluate the potential risk versus the expected return in (old) ILVA.
See Id., at 9-10. Because IRI did not undertake the financial analysis
that a private investor would have prior to purchasing shares, we
determine that ILVA's share purchase was not in accordance with the
normal investment practice of a private investor.
Consistent with our preliminary determination, we find that IRI's
purchase of (old) ILVA's shares from Finsider merely shifted assets
(i.e., ownership of company stock) within a family of companies which
were all owned by the government. The purpose of IRI's decision to
purchase (old) ILVA's stock on January 1, 1989, was to provide to
Finsider in liquidation cash to repay debts. As such, IRI's purchase of
(old) ILVA's stock was tantamount to debt forgiveness. Thus, we
determine that IRI's purchase of (old) ILVA's stock is a
countervailable subsidy because it effectively forgave Finsider's
debts.
At the Preliminary Determination, we noted that Finsider's 1989
Annual Report at page 12 states that: ``During the fiscal year, your
company [Finsider] recorded losses totaling 1,568 billion lire;
therefore, the circumstances reoccur for which the shareholder IRI
later renounced its own credits necessary to cover the difference.''
Thus, Finsider realized a net loss of 1,568 billion lire for fiscal
year 1989. In order to avoid insolvency of the company, IRI should
have, but did not, forgive the 1,568 billion lire it was due to cover
Finsider's losses in excess of equity during 1990. At the Preliminary
Determination, we stated that we would seek additional information
regarding Finsider's 1,568 billion lire of losses.
For this final determination, we have examined whether IRI expected
to receive payment of the 1,568 billion lire debt which Finsider owed
it in 1990. Based on the record evidence, we determine that IRI did not
expect Finsider to pay the 1,568 billion lire debt. First, in 1988, IRI
created a fund with the sole purpose to cover the losses which Finsider
would realize while in liquidation. Second, IRI utilized 1,364 billion
lire of the fund to cover losses in 1989, by forgiving debt of an
equivalent amount. In addition, respondents did not submit information
on the record regarding the value of the assets which remained in
Finsider as of December 31, 1989, to demonstrate that Finsider had
viable assets which it could sell for cash to pay the debt owed to IRI.
On the basis of these facts, we determine that IRI had no expectation
that Finsider would pay the 1,568 billion lire debt. Therefore, we
determine that IRI provided to Finsider debt forgiveness of 1,568
billion lire in 1990. For a further discussion see Comment 6.
On the basis of the record evidence, we determine that the debt
forgiveness which IRI provided in 1989 and 1990, constitute
countervailable subsidies within the meaning of section 771(5)(B)(i) of
the Act. In accordance with our practice, debt forgiveness is treated
as a grant which constitutes a financial contribution under section
771(5)(D)(i) of the Act, and provides a benefit in the amount of the
debt coverage. Because the debt forgiveness was received by only (old)
ILVA, a predecessor company of ILVA/ILT, we determine that the debt
coverage is specific under section 771(5A)(D)(iii)(I) of the Act.
The record of this investigation demonstrates that (old) ILVA did
not obtain all of Finsider's assets. Based on the information submitted
to the Department, we have calculated the percentage of Finsider's
assets which were transferred to (old) ILVA. We calculated that, on
December 31, 1988, 71.31 percent of Finsider's assets were transferred
to (old) ILVA. We also
[[Page 73251]]
calculated the value of the additional assets which were transferred to
(old) ILVA during the course of 1990. We then summed the assets
transferred to (old) ILVA in 1989 and 1990, and divided that amount by
Finsider's total asset value as of December 31, 1988, to derive the
percentage of Finsider's assets which were obtained by (old) ILVA. On
this basis, we calculated that 84.94 percent of Finsider's assets were
transferred to (old) ILVA. For a further discussion see the
Department's Position to Comment 5.
To determine the benefit from these countervailable subsidies, we
have treated the amounts of debt forgiveness provided under the 1988
Restructuring Plan as non-recurring grants because they were one-time,
extraordinary events. For the debt forgiveness provided in 1989, we
applied 71.31 percent to the amount of debt forgiveness to determine
the amount attributable to (old) ILVA. With respect to the debt
forgiveness provided in 1990, we applied 84.94 percent to the total
amount of debt forgiveness to determine the amount attributable to
(old) ILVA. Because (old) ILVA was uncreditworthy in 1989 and 1990, the
years in which the assistance was provided, we used constructed
uncreditworthy discount rates to allocate the benefits over time. We
allocated the debt forgiveness provided in 1989 and 1990, over a 15
year AUL. See the ``Subsidies Valuation Information'' section, above.
We also apportioned the debt coverage by asset value to all (old)
ILVA operations in determining the amount applicable to ILP. We next
applied the repayment portion of our change in ownership methodology to
the debt forgiveness to determine the amount of the subsidy allocable
to ILP after its privatization. We divided this amount by ILVA's total
sales during the POI. On this basis, we determine the net
countervailable subsidy to be 5.12 percent ad valorem for ILVA/ILT.
Palini & Bertoli did not receive any benefit under this program.
In addition, at the time of the Preliminary Determination, there
was ambiguity as to whether the GOI provided additional financial
assistance to Finsider in liquidation, and if so, the amount of
assistance actually disbursed (see 64 FR at 40423). For purposes of the
preliminary determination, we found, based on the information provided
to the Department by ILVA/ILT, that IRI provided 738 billion lire to
Finsider to cover costs and losses in 1989. See Id. However, we stated
that we would seek further clarification from the GOI and ILVA/ILT of
the assistance provided under the 1988 Restructuring Plan.
At verification, we discussed with GOI and company officials the
aid disbursed to Finsider for the closure of steel plants and other
losses realized in the liquidation process. In particular, we asked the
officials to account for the financial assistance the EC authorized for
plant closure costs and liquidation losses in the 89/218/ECSC Decision
of December 23, 1988. We learned that the EC authorized the
disbursement of a maximum of 738 billion lire in additional financial
aid to Finsider to cover costs and losses realized in the liquidation
process. However, the GOI and ILVA/ILT officials stated that, although
the EC authorized the additional financial assistance, this aid was not
needed. They stated that no additional assistance was required because
the cash received from the sale of Finsider's assets was greater than
expected. See GOI Verification Report, at 10 and ILVA/ILT Verification
Report, at 11. To confirm whether this additional 738 billion lire of
assistance was provided, we examined Finsider's and IRI's 1989
financial statements and found no evidence that IRI provided additional
aid to Finsider based upon the 89/218/ECSC Decision. Therefore, we
determine that IRI did not provide to Finsider an additional 738
billion lire to cover closure costs and losses in 1989.
D. Debt Forgiveness: 1993-1994 Restructuring Plan, ILVA-to-ILP
6
During 1992 and 1993, (old) ILVA incurred heavy financial losses,
which compelled IRI to place the company into liquidation. In December
1993, the Italian government proposed to the EC a plan to restructure
and privatize (old) ILVA by the end of 1994. The reorganization
provided for splitting (old) ILVA's main productive assets into two new
companies, ILP and AST. ILP would consist of the carbon steel flat
production of (old) ILVA, receiving the Taranto facilities. AST would
consist of the speciality and stainless steel production. The rest of
(old) ILVA's productive assets (i.e., tubes, electricity generation,
specialty steel long products, and sea transport), together with the
bulk of (old) ILVA's existing debt and redundant work force were placed
in a third entity known as ILVA Residua. Under the restructuring plan,
ILVA Residua would sell those productive units it could for cash to pay
debts and then would be liquidated, with IRI (i.e., the Italian
government) absorbing the remaining debt.
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\6\ This program was referred to as ``Debt Forgiveness Given in
the Course of Privatization in Connection with the 1993-1994
Restructuring Plan'' in the Initiation Notice (see 64 FR at 13000).
---------------------------------------------------------------------------
The demerger of the majority of (old) ILVA's viable manufacturing
activities and a portion of its liabilities occurred on December 31,
1993. On January 1, 1994, ILP and AST were formally established as
separate corporations which, respectively, had operating assets and
relatively modest debt loads. See ILVA/ILT Verification Report, at
Exhibit 1993/94-1. (Old) ILVA in liquidation became a shell company,
known as ILVA Residua, with liabilities far exceeding its assets,
although it did contain some operating assets that were later sold. The
liabilities which remained with ILVA Residua had to be repaid, assumed,
or forgiven. On April 12, 1994, the EC, through the 94/259/ECSC
decision, approved the GOI's restructuring and privatization plan for
(old) ILVA and IRI's intention to cover ILVA Residua's remaining
liabilities.
We determine that ILP received a countervailable subsidy on January
1, 1994, within the meaning of section 771(5)(B)(i) of the Act, when
the bulk of (old) ILVA's liabilities were placed in ILVA Residua,
rather than being proportionately allocated to ILP and AST when they
were formally established as separate corporations. The retention of
liabilities by (old) ILVA that should have been transferred to ILP when
the company was created constitutes a financial contribution to ILP in
accordance with section 771(5)(D)(i) of the Act in the form of debt
forgiveness. Prior to the separate incorporation of ILP and AST, (old)
ILVA significantly wrote down the value of its assets, thereby
increasing the net liabilities that it retained when ILP and AST were
created. These write-downs can be tied to specific assets that were
either transferred to ILP and AST, or retained by (old) ILVA. In order
to more accurately calculate the value of the benefit to ILP from the
debt forgiveness, we have factored in the value of each company's asset
write-downs, to determine the total benefit from debt forgiveness to
ILP and AST, rather than apportioning the total benefit by using a
ratio calculated from the asset values each company took at the point
of demerger. This is further discussed below and in Comment 11.
We determine that the amount of liabilities which resulted from the
1993-94 Restructuring Plan which should have been attributable to ILP,
but were instead retained by ILVA Residua, was equivalent to debt
forgiveness for ILP at the time of its separate incorporation. In
accordance with our practice, debt forgiveness is treated as a
[[Page 73252]]
grant which constitutes a financial contribution under section
771(5)(D)(i) of the Act, and provides a benefit in the amount of the
debt forgiveness.
We also determine, based on record evidence, that the liquidation
process of (old) ILVA did not occur under the normal application of a
provision of Italian law, and therefore, the debt forgiveness is de
facto specific under section 771(5A)(D)(iii)(II) of the Act. As stated
above, the liquidation of (old) ILVA was done in the context of a
massive restructuring/privatization plan of the Italian steel industry
undertaken by the GOI and approved and monitored by the EC. Because
(old) ILVA's liquidation was part of an extensive state-aid package to
privatize the Italian state-owned steel industry, and the debt
forgiveness was received by only privatized (old) ILVA operations, we
find that the assistance provided under the 1993-1994 Restructuring
Plan is de facto specific. In support of this finding, we note the EC's
94/259/ECSC decision, in which the Commission identified the
restructuring of (old) ILVA as a single program, the basic objective of
which was the privatization of the ILVA steel group by the end of 1994.
As set forth in the EC's decision, the 1993-1994 Restructuring Plan was
limited by its terms to (old) ILVA and the benefits of the plan were
received by only (old) ILVA's successor companies. For a further
discussion see Comment 13.
To determine the benefit attributable to ILP, it is first necessary
to determine the total amount of liabilities which the government
forgave. We would prefer to base our calculation on information at the
time a portion of (old) ILVA's assets and liabilities were demerged to
ILP and the company was separately incorporated. However, the
information contained in (old) ILVA's 1993 financial statement
regarding the assets and liabilities of the company was found to be
unreliable by the company's auditor. We note the following statement
within the ``Report on the Management'' section of ILVA Residua's 1994
annual report: ``In the financial statement for 1993, we pointed out
how the opening of liquidation would require drawing up a balance sheet
formulated not with values of normal operation but with values of
estimated cost. The brevity of time available then and the complexity
of the valuations to be executed in that meeting allowed putting
together only a few limited adjustments of values for which sure
elements of judgement were available.'' See ILVA Residua's 1994 Annual
Report in the February 16, 1999 Petition, at Volume 8, Tab 11. Because
this information has been determined to be unreliable, we have resorted
to facts otherwise available. As such, we have used information
contained in the EC's 10th Monitoring Report which provides the most
reliable data that is on the record for determining the benefit
conferred by this program. We intend, however, to seek additional
information to establish the value of the debt forgiveness at the time
of the separate incorporation of ILP, in a subsequent administrative
review should this investigation result in a countervailing duty order.
Therefore, based upon the methodology that we employed in the final
determination of Sheet and Strip from Italy, the amount of liabilities
that we attributed to ILP is based on the gross liabilities left behind
in ILVA Residua, as reported in the EC's 10th Monitoring Report (see 64
FR at 30628). In calculating the amount of unattributable liabilities
remaining after the separate incorporation of ILP, we started with the
most recent ``total comparable indebtedness'' amount from the 10th
Monitoring Report, which represents the indebtedness, net of debts
transferred in the privatization of ILVA Residua's operations and
residual asset sales, of a theoretically reconstituted, pre-liquidation
(old) ILVA. In order to calculate the total amount of unattributed
liabilities which amounted to countervailable debt forgiveness, we made
the following adjustments to this figure: for the residual assets that
had not actually been liquidated as of the 10th and final Monitoring
Report; for assets that comprised SOFINPAR, a real estate company
(because these assets were sold prior to the demergers of AST and ILP);
for the liabilities transferred to AST and ILP; for income received
from the sale of ILVA Residua's productive assets; and for the amount
of debts transferred to Cogne Acciai Speciali (CAS), an ILVA subsidiary
that was left behind in ILVA Residua and later spun off, as well as the
amount of (old) ILVA debt attributed to CAS and countervailed in Wire
Rod from Italy (see 63 FR at 40478). As discussed above, we subtracted
the value of the asset write-downs taken by ILVA.
The amount of liabilities remaining represents the pool of
liabilities that were not individually attributable to specific (old)
ILVA assets. We apportioned this debt to ILP, AST, and viable assets of
ILVA Residua based on their relative asset values. We used the total
consolidated asset values reported for ILP and AST for the year ending
December 31, 1993.7 The asset values recorded for ILP and
AST as of December 31, 1993, were the opening asset values for each
company when they were separately incorporated on January 1, 1994. See
ILVA/ILT Verification Report, at 12 and Exhibit 1993/94-2, for ILP's
asset value. For ILVA Residua, we used the sum of the purchase price
plus debts transferred as a surrogate for the viable asset value of the
operations sold from ILVA Residua. Because we subtracted a specific
amount of ILVA's gross liabilities attributed to CAS in Wire Rod from
Italy, we did not include its assets in the amount of ILVA Residua's
privatized assets. Also, we did not include in ILVA Residua's viable
assets those assets sold to IRI, because the sales do not represent
sales to a non-governmental entity. To ensure that liabilities retained
by ILVA Residua were properly apportioned across the three companies,
we added the amount of the write-downs that were tied to the asset pool
which ILP took when it was separately incorporated from (old) ILVA. The
total amount of write-downs were previously subtracted from the pool of
liabilities.
---------------------------------------------------------------------------
\7\ Because the ultimate objective of the 1993-94 Restructuring
Plan was the privatization of ILP and AST, which were separately
incorporated from (old) ILVA on January 1, 1994, we have no reason
not to believe that the value of the assets which were transferred
to ILP and AST were accurately assessed during the liquidation
process.
---------------------------------------------------------------------------
We have treated the debt forgiveness provided to ILP as a non-
recurring subsidy because it was a one-time, extraordinary event. The
discount rate we used in our grant formula was a constructed
uncreditworthy benchmark rate based on our determination that (old)
ILVA was uncreditworthy in 1993, the year in which the 1993-94
Restructuring Plan was approved by the GOI. See ``Benchmarks for Long-
Term Loans and Discount Rates'' and ``Creditworthiness'' sections,
above. We followed the methodology described in the ``Change in
Ownership'' section above to determine the amount of benefit
appropriately allocated to ILP after its privatization. We divided this
amount by ILVA's total sales during the POI. On this basis, we
determine the net countervailable subsidy to be 13.27 percent ad
valorem for ILVA/ILT. Palini & Bertoli did not receive any benefits
under this program.
E. Capital Grants to Nuova Italsider Under Law 675/77
In 1977, the Italian Parliament passed Law 675 to establish an
industrial plan for Italy which was experiencing an economic downturn.
The objective of the law was to identify those industries vital to the
economic health and development of Italy and provide to them financial
assistance to modernize
[[Page 73253]]
and restructure production facilities. See GOI Verification Report, at
16. In total, eleven sectors were identified as eligible for
assistance. See Certain Steel from Italy, 58 FR at 37330-31. The types
of funding provided under Law 675/77 included: (1) interest payments on
bank loans and bond issues; (2) low interest loans granted by the
Ministry of Industry; (3) grants for companies located in the South;
(4) grants for personnel retraining; and (5) increased VAT reductions
for firms located in the Mezzogiorno area.
In Certain Steel from Italy, we verified that of the sectors which
received Law 675/77 funding, steel accounted for 36.4 percent of the
total funding provided under Law 675/77 (see 58 FR 37331). On this
basis, we determined that assistance provided to steel companies under
Law 675/77 is limited to a specific enterprise or industry, or group of
enterprises or industries, and therefore is countervailable.
In regard to the record of the instant investigation, the GOI
stated that the objective of the capital grants program was to support
the development of regions in the south of Italy. See GOI's May 28,
1999 QR. The only eligibility criterion for receipt of this ``one-
time'' assistance was the location of factories in the south of Italy.
Consistent with our preliminary finding, we determine that this
program constitutes a countervailable subsidy within the meaning of
section 771(5)(B)(i) of the Act. The capital grants constitute a
financial contribution under section 771(5)(D)(i) of the Act providing
a benefit in the amount of the grants. Because the steel sector was
found to be the dominant user of Law 675/77 and the capital grants were
limited to enterprises located in the south of Italy, we determine that
the program is specific under section 771(5A)(D)(iii) and (iv) of the
Act.
At the verification of this investigation, we examined the
application which Italsider submitted on February 20, 1980, for
assistance under Law 675/77, and the corresponding approval
notification of November 19, 1982. We noted that Nuova Italsider, the
successor company to Italsider, was awarded a grant of 125,040 million
lire. We examined Nuova Italsider's financial statements and learned
that the grant was disbursed in several tranches during the years 1985,
1986, and 1987.
To determine the benefit, we have treated the capital grant as a
non-recurring subsidy because the receipt of the grant was a one-time,
extraordinary event. Because the benefit to Nuova Italsider is greater
than 0.5 percent of the company's sales for 1982 (the year in which the
grant was approved), we allocated the benefit over a 15 year AUL. See
section 351.524(b)(2) of the CVD Regulations. We applied the change in
ownership methodology to the capital grant to determine the subsidy
allocable to ILP after its privatization. We divided this amount by
ILVA's total sales during the POI. On this basis, we determine the net
countervailable subsidy to be 0.13 percent ad valorem for ILVA/ILT.
Palini & Bertoli did not use this program.
F. Early Retirement Benefits
Law 451/94 was created to conform with EC requirements of
restructuring and capacity reduction of the Italian steel industry. Law
451/94 was passed in 1994, and enabled the Italian steel industry to
implement workforce reductions by allowing steel workers to retire
early. During the 1994-1996 period, and into January 1997, Law 451/94
provided for the early retirement of up to 17,100 Italian steel
workers. Benefits applied for during this period continue until the
employee reaches his/her natural retirement age, up to a maximum of ten
years.
In the final determinations of Plate in Coils from Italy and Sheet
and Strip from Italy, 64 FR at 15514-15 and 64 FR at 30629-30,
respectively, as well as in the Preliminary Determination of the
instant investigation, 64 FR at 40425-26, the Department determined
that early retirement benefits provided under Law 451/94 are
countervailable subsidies under section 771(5)(B)(i) of the Act. Law
451/94 provides a financial contribution, as described in section
771(5)(D)(i) of the Act, because Law 451/94 relieves the company of
costs it would have normally incurred by having to employ individuals
until the normal age of retirement. Also, because Law 451/94 was
developed for, and exclusively used by, the steel industry, we
determined that Law 451/94 is specific within the meaning of section
771(5A)(D)(iii) of the Act. No new factual information or evidence has
led us to change our prior findings that early retirements under Law
451/94 are countervailable.
As in the Preliminary Determination, we have treated one-half of
the amount paid by the GOI as benefitting the company. Recognizing
that, under Law 223/91, ILP would have been required to enter into
negotiations with the unions before laying off workers, it is
impossible for the Department to determine the outcome of those
negotiations absent Law 451/94. At one extreme, the unions might have
succeeded in preventing lay offs. If so, the benefit to ILP would be
the difference between what it would have cost to keep those workers on
the payroll and what the company actually paid under Law 451/94. At the
other extreme, the negotiations might have failed and ILP would have
incurred only the minimal costs described under the so-called
``Mobility'' provision of Law 223/91, which identifies the minimum
payment the company would incur when laying off workers. The benefit to
ILP would have been the difference between what it would have paid
under Mobility and what it actually paid under Law 451/94.
We have no basis for believing either of these extreme outcomes
would have occurred. It is clear, given the EC regulations that called
for restructuring within the steel industry, that ILP would have laid
off workers. However, we do not believe that ILP would have simply
fired the workers without reaching accommodation with the unions. GOI
officials have indicated that failure to negotiate a separation package
with the unions would likely have led to social strife. Therefore, we
have proceeded on the assumption that ILP's early retirees would have
received some support from ILP.
In attempting to determine the level of post-employment support
that ILP would have negotiated with its unions, we examined the
situation facing (old) ILVA before ILP and AST were separately
incorporated. By the end of 1993, (old) ILVA had established an overall
plan for terminating redundant workers--a plan that would ultimately
affect both ILP and AST. Under this plan, early retirees would first be
placed on a temporary worker assistance measure under Law 223/91, Cassa
Integrazione Guadagni--Extraordinario (CIG-E), while awaiting the
passage of Law 451/94, and then would receive benefits under Law 451/
94, once implemented. This indicates that, at the time an agreement was
being negotiated with the unions and the Ministry of Labor on the terms
of the layoffs, (old) ILVA and its workers were aware that government
contributions would ultimately be made to workers' benefits. In such
situations, i.e., where the company and its workers are aware at the
time of their negotiations that the government will be making
contributions to the workers' benefits, the Department's prior practice
has been to treat half of the amount paid by the government as
benefitting the company. We have stated that when the government's
willingness to provide assistance is known at the time the contract is
being negotiated, this
[[Page 73254]]
assistance is likely to have an effect on the outcome of the
negotiations. While we continue to adhere to this logic in the preamble
to the CVD Regulations, we stated that we would examine the facts of
each case to determine the appropriate portion of the funds to be
considered countervailable. See CVD Regulations, 63 FR at 65380.
With respect to ILP and its workers, we determine that, under
Italian Law 223, ILP would be required to negotiate with its unions
about the level of benefits that would be made to workers permanently
separated from the company. Since (old) ILVA and its unions were aware
at the time of their negotiations that the GOI would be making payments
to those workers under Law 451/94, some portion of the payment is
countervailable. However, we have no basis for apportioning the
benefit. Therefore, we consider the benefit to ILVA/ILT to be one-half
of the amount paid to the workers by the GOI under Law 451/94.
Consistent with the Department's practice with regard to allocation
of worker-related subsidies, we have treated benefits to ILVA/ILT under
Law 451/94 as recurring grants expensed in the year of receipt. To
calculate the benefit received by ILVA/ILT during the POI, we
multiplied the number of employees by employee type (blue collar, white
collar, and senior executive) who retired early by the average salary
by employee type. Since the GOI was making payments to these workers
equaling 80 percent of their salary, we attributed one-half of that
amount to ILVA/ILT. Therefore, we multiplied the total wages of the
early retirees by 40 percent. We then divided this total amount by
ILVA's total sales during the POI. On this basis, we determine a net
countervailable subsidy to be 1.39 percent ad valorem for ILVA/ILT.
As mentioned in the ``Corporate History of ILVA/ILT'' section of
this notice, in October 1993, (old) ILVA entered into liquidation and
became known as ILVA Residua. In December 1993, IRI initiated the
demerger of (old) ILVA's main productive assets into two new companies,
ILP and AST. On January 1, 1994, ILP and AST became separately
incorporated firms. The remainder of (old) ILVA's productive assets and
existing liabilities, along with much of the redundant workforce, was
placed in ILVA Residua. By placing much of this redundant workforce in
ILVA Residua, ILP and AST were able to begin their respective
operations with a relatively ``clean slate'' in advance of their
privatizations. ILP and AST were relieved of having to assume their
respective obligations to those redundant workers who were placed in
ILVA Residua and received early retirement benefits under Law 451/94.
Therefore, we have determined that ILVA/ILT has received a
countervailable benefit during the POI, because it was relieved of a
financial obligation that would otherwise have been due.
In order to calculate the subsidy received by ILVA/ILT during the
POI, we first needed to determine the appropriate number of early
retirees in ILVA Residua that originally should have been apportioned
to ILP. Consistent with our findings for the 1993-94 Restructuring
Plan, we used the asset value we apportioned to ILP as a percentage of
total viable assets of (old) ILVA immediately prior to ILP's separate
incorporation. We then multiplied this percentage by the total number
of ILVA Residua early retirees. It was then necessary to estimate the
numbers and salaries of early retirees by employee type since the GOI
did not provide this information. To do this, we applied the same
ratios of workers by employee type as ILP retired, and applied this to
ILVA Residua. We also used the same salaries of ILVA/ILT employees by
worker type. As we did with ILP early retirees, we then multiplied the
number of employees, by employee type, by the average salary by
employee type. Since the GOI was making payments to these workers
equaling 80 percent of their salary, we attributed one-half of that
amount to ILVA/ILT. Therefore, we multiplied the total wages of the
early retirees by 40 percent. We then divided this total amount by
ILVA's total sales during the POI. On this basis, we determine a net
countervailable subsidy to be 0.66 percent ad valorem for ILVA/ILT.
The Sidercomit unit of ILVA/ILT also received early retirement
benefits under Law 451/94 separately from ILVA/ILT. As we did with
ILVA/ILT, we multiplied the total wages of the early retirees by 40
percent and then divided this amount by the total sales of ILVA during
the POI. On this basis, we preliminarily determine the net
countervailable subsidy to be less than 0.005 percent ad valorem for
ILVA/ILT.
Upon consolidation of the above determined rates, we determine a
total net countervailable subsidy of 2.06 percent ad valorem for ILVA/
ILT under Law 451/94 for the POI. Palini & Bertoli did not use this
program.
G. Exemptions From Taxes
Presidential Decree 218/1978 exempted firms operating in the
Mezzogiorno from both the ILOR and IRPEG profit taxes. Companies are
eligible for full exemption from the 16.2 percent ILOR tax on profits
arising from eligible projects in the Mezzogiorno and less developed
regions of the center-north of Italy for ten consecutive years after
profits first arise. New companies undertaking productive activities in
the Mezzogiorno are entitled to a full exemption from the IRPEG tax (37
percent of a majority of profits and 19 percent of certain profits) for
ten consecutive years after the project is completed. While the ILOR
tax was repealed beginning with tax year 1998, a successor tax, IRAP,
has been introduced beginning with tax year 1998.
We determine that exemptions from ILOR and IRPEG taxes are
countervailable subsidies in accordance with section 771(5)(B)(i) of
the Act. These tax exemptions constitute financial contributions under
section 771(5)(D)(ii) of the Act, since revenue that is otherwise due
is being foregone. Because these exemptions are limited to a group of
enterprises or industries within a designated geographical region, they
are specific in accordance with section 771(5A)(D)(iv). Benefits
resulting from ILOR and IRPEG tax exemptions were found to be
countervailable in Certain Steel from Italy (see 58 FR at 37334-35).
ILT received an exemption from the IRPEG tax and a partial
exemption from the ILOR tax on its 1997 tax return, filed during the
POI. In order to calculate the benefit stemming from the exemption from
IRPEG, we multiplied ILT's total profits that would otherwise have been
subject to IRPEG by the IRPEG tax rate. We then divided the result by
ILVA's total sales during the POI to determine the ad valorem subsidy.
On this basis, we determine the subsidy to be 1.05 percent ad valorem
for ILVA/ILT.
To compute ILT's partial exemption from ILOR, we took the amount of
profits exempted from the ILOR tax, as shown in ILVA/ILT Verification
Exhibits Tax-2 and Tax-3, and multiplied that amount by the ILOR tax
rate of 16.2 percent to determine the benefit. We then divided the
result by ILVA's total sales during the POI to determine the ad valorem
subsidy. On this basis, we determine the subsidy to be 0.24 percent ad
valorem for ILVA/ILT. Upon consolidation of the IRPEG and ILOR
exemptions, we determine the net consolidated subsidy for ILVA/ILT to
be 1.29 percent ad valorem. Palini & Bertoli did not use this program.
H. Exchange Rate Guarantees Under Law 796/76
Law 796/76 established a program to minimize the risk of exchange
rate
[[Page 73255]]
fluctuations on foreign currency loans. All firms that contract foreign
currency loans from the European Coal and Steel Community (ECSC) or the
Council of Europe Resettlement Fund (CERF) could apply to the Ministry
of the Treasury (MOT) to obtain an exchange rate guarantee. The MOT,
through the Ufficio Italiano di Cambi (UIC), calculates loan payments
based on the lire-foreign currency exchange rate in effect at the time
the loan is contracted (i.e., the base rate). The program establishes a
floor and ceiling for exchange rate fluctuations, limiting the maximum
fluctuation a borrower would face to two percent above or below the
base rate. If the lire depreciates more than two percent against the
foreign currency, a borrower is still able to purchase foreign currency
at the established (guaranteed) ceiling rate. The MOT absorbs the loss
in the amount of the difference between the guaranteed rate and the
actual rate. If the lire appreciates against the foreign currency, the
MOT realizes a gain in the amount of the difference between the floor
rate and the actual rate.
This program was terminated effective July 10, 1992, by Decree Law
333/92. However, the pre-existing exchange rate guarantees continue on
any loans outstanding after that date. Italsider contracted two loans,
one in 1978, and the other in 1979. Both of these loans were ultimately
transferred to ILVA/ILT. These two foreign currency denominated loans
were outstanding during the POI and exchange rate guarantees applied to
both.
We determine that this program constitutes a countervailable
subsidy within the meaning of section 771(5)(B)(i) of the Act. This
program provides a financial contribution, as described in section
771(5)(D)(i) of the Act, to the extent that the lire depreciates
against the foreign currency beyond the two percent limit. When this
occurs, the borrower receives a benefit in the amount of the difference
between the guaranteed rate and the actual exchange rate.
During the recent verification of the GOI in the Plate in Coils
from Italy and Sheet and Strip from Italy investigations, GOI officials
explained that over the last decade, roughly half of all guarantees
made under this program were given to coal and steel companies. See
Results of Verification of the Government of Italy, Memorandum to the
File, dated February 3, 1999 (public version of the document is
available on the public file in the CRU). This is consistent with the
Department's finding in a previous proceeding that the Italian steel
industry has been a dominant user of the exchange rate guarantees
provided under Law 796/76. See Final Affirmative Countervailing Duty
Determination: Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June 19,
1995). No new information to contradict these earlier findings of
specificity has been received in this case. Therefore, we determine
that the program is specific under section 771(5A)(D)(iii)(II) of the
Act.
Once a loan is approved for exchange rate guarantees, access to
foreign exchange at the established rate is automatic and occurs at
regular intervals throughout the life of the loan. Therefore, we are
treating the benefits under this program as recurring grants. ILVA/ILT
and its predecessor companies from which these loans were transferred,
paid a foreign exchange commission fee to the UIC for each payment
made. We determine that this fee qualifies as an `` . . . application
fee, deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy.'' See section
771(6)(A) of the Act. Thus, for the purposes of calculating the
countervailable benefit, we have added the foreign exchange commission
to the total amount ILVA/ILT paid under this program during the POI.
See Wire Rod from Italy, 63 FR at 40479.
Under this program, we have calculated the total countervailable
benefit as the difference between the total loan payment due in foreign
currency, converted at the current exchange rate, less the sum of the
total loan payment due in foreign currency converted at the guaranteed
rate and the exchange rate commission. We divided this amount by ILVA's
total sales during the POI. On this basis, we determine the net
countervailable subsidy to be 0.07 percent ad valorem for ILVA/ILT.
Palini & Bertoli did not use this program.
I. Interest Grants on Loans Under Law 64/86
The GOI has maintained a system of ``extraordinary intervention''
in southern Italy since the 1950's, authorizing aid to the
disadvantaged region. Over time, various laws were passed, including
Decree 218/78, relating to the extraordinary intervention in the South.
In 1986, Law 64/86 was passed in order to consolidate all laws relating
to the extraordinary intervention in the South into one development
policy.
In 1992, Sidercomit was created as a subsidiary of (old) ILVA. In
1997, Sidercomit became an operating unit within (new) ILVA. During
verification, the Department determined that in 1996, Sidercomit
received a loan for which it was granted interest contributions under
Law 64. Subsequent to receiving this loan, but prior to the POI,
Sidercomit was subsumed into ILVA as an operating unit, and was no
longer a separate corporate entity.
ILVA/ILT did not report these interest contributions in its
questionnaire responses. We found at verification, through examining
the financial statements of (new) ILVA and discussions with company
officials, that Sidercomit had received a ``soft loan'' in 1996, which
was ultimately recorded in (new) ILVA's financial statements once
Sidercomit was subsumed into (new) ILVA. We further learned that, under
this loan, the Ministry of Industry was to assume a large part of the
interest payments, which effectively reduced the payments for
Sidercomit. The Ministry pays the interest contributions directly to
the bank. As such, these contributions reduce the interest rate that
Sidercomit (and now (new) ILVA) must pay on the loan. Accordingly,
under section 771(5)(D)(i) of the Act, we have determined that these
interest contributions represent financial contributions.
Under section 771(5A)(D)(iv) of the Act, we determine that these
contributions are specific since assistance under Law 64 was only
available to a limited geographical region within the country. This is
consistent with our determinations in numerous Italian countervailing
duty investigations, including the Final Affirmative Countervailing
Duty Determination: Certain Pasta from Italy, 61 FR 30288, 30293 (June
14, 1986). Pursuant to section 771(5)(E)(ii) of the Act, we are
calculating the benefit conferred as the ``difference between the
amount the recipient of the loan pays on the loan and the amount the
recipient would pay on a comparable commercial loan that the recipient
could actually obtain on the market.'' In this particular case, the
benefit conferred is equal to the amount of the interest contributions
provided by the GOI during the POI. We have divided the benefit over
ILVA's total sales during the POI. On this basis, we determine the net
countervailable subsidy to be less than 0.005 percent ad valorem for
ILVA/ILT. Palini & Bertoli did not use this program.
Programs of the Regional Government of Friuli-Venezia Giulia
A. Development Grants Under Law 30 of 1984
Law 30 of 1984 was enacted by the Regional Government of Friuli-
Venezia
[[Page 73256]]
Giulia to provide one-time development grants to companies for
investments in industrial projects, including the construction of new
plants and modernization or expansion of existing plants. Eligible
companies could receive a grant amounting to 20 percent of the cost of
the investment, with the grant not to exceed 1,000,000,000 lire. Law 30
has not been officially terminated by Decree, but funding for grants
outlined under the law has not been provided since 1993. Those projects
approved for funding prior to 1993, would still receive the grant at
the conclusion of the investment project.
At verification, the Department learned that companies from all
industries that planned future industrial investments were eligible to
receive development grants under Law 30. Eligibility under the law was,
however, confined to certain geographical areas within the Friuli-
Venezia Giulia region. Eligible firms were those operating in
mountainous zones north of Udine, those in the provinces of Trieste and
Gorizia, and those in the industrial areas of Aussa Corno and San Vitto
al Tagliamento. Because these grants are available to firms within
designated areas of the Friuli-Venezia Giulia region, they are specific
in accordance with section 771(5A)(D)(iv) of the Act. The grants
provided under this program represent a financial contribution under
section 771(5)(D)(i) of the Act.
In 1989, Palini & Bertoli submitted to the regional government an
application for a development grant under Law 30. The company received
approval for the grant in 1989, and received the grant in 1993. To
determine the benefit, we have treated the grant as a non-recurring
subsidy because receipt of the grant was a one-time, extraordinary
event. Because the benefit to Palini & Bertoli is greater than 0.5
percent of the company's sales for 1989 (the year in which the grant
was approved), we allocated the benefit over a 15 year AUL. See section
351.524(b)(2) of the CVD Regulations. To calculate the benefit, we
determined the benefit allocable to the POI and divided it by Palini &
Bertoli's total sales during the POI. On this basis, we determine the
net countervailable subsidy to be 0.12 percent ad valorem for Palini &
Bertoli. ILVA/ILT did not use this program.
European Commission Programs
A. ECSC Loans Under Article 54
Article 54 of the 1951 ECSC Treaty established a program to provide
industrial investment loans directly to the member iron and steel
industries to finance modernization and purchase new equipment.
Eligible companies apply directly to the EC (which administers the
ECSC) for up to 50 percent of the cost of an industrial investment
project. The Article 54 loans are generally financed on a ``back-to-
back'' basis. In other words, upon granting loan approval, the ECSC
borrows funds (through loans or bond issues) at commercial rates in
financial markets which it then immediately lends to steel companies at
a slightly higher interest rate. The mark-up is to cover the costs of
administering the Article 54 program.
We determine that these loans constitute a countervailable subsidy
within the meaning of section 771(5)(B)(i) of the Act. This program
provides a financial contribution, as described in section 771(5)(D)(i)
of the Act, which confers a benefit to the extent the interest rate is
less than the benchmark interest rate. The Department has found Article
54 loans to be specific in several proceedings, including Electrical
Steel from Italy, 59 FR at 18362, Certain Steel from Italy, 58 FR at
37335, and Plate in Coils from Italy, 64 FR at 15515, because loans
under this program are provided only to iron and steel companies. The
EC has also indicated on the record of this investigation that Article
54 loans are only available to steel and coal companies which fall
within the scope of the ECSC Treaty. Therefore, we determine that this
program is specific pursuant to section 771(5A)(D)(i) of the Act.
ILVA/ILT had two long-term, fixed-rate loans outstanding during the
POI, each denominated in U.S. dollars. These loans were contracted by
Italsider, one in 1978 and one in 1979. Consistent with Wire Rod from
Italy, we have used as our benchmark the average yield to maturity on
selected long-term corporate bonds as reported by the U.S. Federal
Reserve, since both of these loans were denominated in U.S. dollars
(see 63 FR at 40486). We used these rates since we were unable to find
a long-term borrowing rate for loans denominated in U.S. dollars in
Italy. The interest rate charged on both of ILVA/ILT's two Article 54
loans was lowered part way through the life of the loan. The interest
rate on the loan contracted in 1978 was lowered in 1987, and the rate
on the loan contracted in 1979 was lowered in 1992. Therefore, for the
purpose of calculating the benefit, we have treated these loans as if
they were contracted on the date of this rate adjustment. Because ILVA
was uncreditworthy in the year these loans were contracted, 1987 and
1992 (based on the interest rate adjustments mentioned above), we
calculated the uncreditworthy benchmark rate in accordance with section
351.505 (a)(3)(iii) of the CVD Regulations. See ``Benchmark for Long-
Term Loans and Discount Rates'' section, above.
To calculate the benefit under this program, pursuant to section
351.505(c)(2) of the CVD Regulations, we employed the Department's
long-term fixed-rate loan methodology. We compared ILVA/ILT's interest
rates on the two loans to our benchmark interest rate for
uncreditworthy companies on interest paid by ILVA/ILT during the POI.
We then divided the benefit by ILVA's total sales during the POI. On
this basis, we determine the net countervailable subsidy to be 0.02
percent ad valorem for ILVA/ILT. Palini & Bertoli did not use this
program.
ILVA/ILT was also repaying four ECSC loans under Article 54 during
the POI that were taken by ILP for the construction of housing for coal
and steel industry workers. Funding for these loans came entirely from
the ECSC operational budget, which is composed of levies imposed on
coal and steel producers, investment income on those levies, guarantee
fees and fines paid to the ECSC, and interest received from companies
that have obtained loans from the ECSC. Consistent with previous
determinations, because ECSC funding for these types of loans is
completely from non-government sources, we find these loans to be not
countervailable. See Electrical Steel from Italy, 59 FR at 18364 and
Certain Steel from Italy, 58 FR at 37336.
II. Programs Determined To Be Not Countervailable
Government of Italy Programs
A. Law 308/82
On March 16, 1999, the Department initiated on the program ``Grants
to ILVA.'' In their May 13, 1999 response, ILVA/ILT report that
Italsider was approved for a grant under Law 308/82 in 1983. In Certain
Steel from Italy, we verified that benefits under Law 308/82 were
widely and fairly evenly distributed with no one sector or sectors
receiving a disproportionate amount. Because Law 308/82 grants were not
limited to a specific enterprise or industry, or group of enterprises
or industries, we determined them to be not countervailable. See
Certain Steel from Italy, 58 FR at 37336. No new factual information or
evidence of changed circumstances has been provided to the Department
in this instant investigation to warrant the Department to revisit its
earlier determination that grants provided
[[Page 73257]]
under Law 308/82 are not countervailable.
B. Unpaid Portion of Payment Price for ILP
Petitioners alleged that the GOI effectively gave RIVA a zero-
interest loan on a portion of the contract price agreed to by RIVA for
ILP, because RIVA has not paid the full contract price for ILP. RIVA
reported that the company entered into arbitration after the transfer
of ownership of ILP in April 1995. RIVA stated that it did not invoke
arbitration to challenge the purchase price of ILP, but invoked
arbitration to obtain an indemnity from pre-existing and unreported
liabilities in accordance with the indemnification provision of the
contract of sale. The dispute concerns whether IRI owes RIVA a sum of
money as indemnification for liabilities, which RIVA has potentially
incurred as a result of the acquisition of ILP. To preserve its
leverage in the dispute and ensure that the company will obtain relief
in the event that it is awarded indemnification by the arbitration
panel, RIVA has withheld payment of amounts due to IRI under the
contract of sale.
We inquired about the arbitration procedure and whether any Italian
company which purchases either a government-owned or private entity can
enter into arbitration to remedy a dispute. RIVA reported that Article
25 of the contract of sale provides for arbitration under the rules of
the International Chamber of Commerce and that Article 806 of the
Italian Civil Code authorizes the use of arbitration to settle
litigation. Any company in Italy that purchases another company from
either the government or a private seller can include such an
arbitration provision in the contract of sale. Because the use of
arbitration to settle disputes between two parties is a normal
commercial practice in Italy and there is no information that this
particular arbitration has proceeded in a non-commercial manner, we
determine that no countervailable benefit has been provided under this
process.
Programs of the Regional Government of Friuli-Venezia Giulia
A. Interest Contributions Under Law 25 of 1965
Under Regional Law 25 of 1965, companies making manufacturing
investments in the region of Friuli-Venezia Giulia were eligible to
receive interest contributions from the region on loans taken out for
those investments. For a firm to receive interest contributions, it had
to construct a new industrial plant, or modernize or expand an existing
plant. Interest contributions effectively lower the interest rate on a
loan taken out for such an investment. While the firm pays interest on
the loan at an agreed-upon rate, the regional government will reimburse
the company the difference between the agreed-upon rate and a reference
rate decided on by the region. The Department learned at verification
that, although the program has not been officially terminated, no
regional investments made after 1991 have been approved for interest
contributions.
The regional government approved Palini & Bertoli for interest
contributions in 1991. The company began receiving payments in 1993,
after construction of a new plant was completed. During the POI, Palini
& Bertoli received two interest contributions under Law 25. We verified
that assistance under Law 25 was provided to a large number of firms
from a wide range of industries throughout the entire region of Friuli-
Venezia Giulia, and that the steel industry did not receive a
disproportionate share of assistance under the program. Because
interest contributions under Regional Law 25 are not specific in
accordance with section 771(5A)(D) of the Act, we determine that this
program is not countervailable.
III. Programs Determined To Be Not Used
Government of Italy Programs
A. Lending From the Ministry of Industry Under Law 675/77
ILVA/ILT reported that at the time of its privatization the company
became responsible for certain loan obligations of its predecessor
companies. ILVA/ILT was responsible for repaying loans provided under
Law 675/77, which were applicable to those facilities that produce the
subject merchandise. We confirmed at verification that the repayment
obligations on these loans ended in December 1997. We also verified
with the GOI that no new loans have been provided under Law 675/77
since 1987. Because ILVA/ILT did not have loans under Law 675/77
outstanding during the POI, we determine that the program was not used.
B. Interest Contributions Under Law 675/77
ILVA/ILT reported and we verified that the company received an
interest contribution in 1998, against a loan provided under Law 675/
77. Because the loan against which the interest contribution was
received was repaid in full in December 1997, we determine that this
program was not used during the POI. It is the Department's practice to
treat an interest contribution as countervailable on the date the
company made the corresponding interest payment, despite any delay in
the receipt of the interest contribution. This is because the company's
entitlement to the interest contribution was automatic when it made the
interest payment and the amount of any benefit from the interest
contribution was known at the time of the interest payment. Therefore,
we find, for purposes of the benefit calculation, that the benefit was
received at the time the interest payment was made, and, as such, the
program was not used during the POI. See e.g., Sheet and Strip from
Italy, and Final Affirmative Countervailing Duty Determination: Oil
Country Tubular Goods from Italy, 60 FR 33577, 33579 (June 28, 1995)
(Oil Country Tubular Goods from Italy).
C. Law 305/89
ILVA/ILT reported that (old) ILVA, its predecessor company, applied
for a grant under Law 305/89 in 1990. The GOI approved (old) ILVA's
application in 1991, and awarded the company a grant of 2.2 billion
lire. However, payment of the grant was delayed. We learned at
verification that ILP received a portion of the grant in 1996, and
ILVA/ILT received the remaining portion of the grant in 1997. We
applied the 0.5 percent allocation test against the full grant amount
approved in 1991. See section 351.524(b)(2) of the CVD Regulations. We
calculated the amount of the grant received under Law 305/89 to be less
than 0.5 percent ad valorem of (old) ILVA's sales in 1991. Therefore,
even if we determined that Law 305/89 is countervailable, the grant
would have been expensed in the years of receipt, 1996 and 1997.
Because the grant would be expensed, it would not provide any benefit
to ILVA/ILT during the POI. Therefore, we determine that Law 305/89 was
not used by ILVA/ILT.
D. Interest Grants for ``Indirect Debts'' Under Law 750/81
In 1984, Italsider received a residual payment of 25.3 billion lire
against interest grants provided in fiscal years 1981, 1982, and 1983.
At verification, we learned that under Law 750 of 1981, the GOI
approved funding for IRI, which was providing financial assistance to
its sub-holdings that were incurring debts. See GOI Verification
Report, at 19-20. In 1981, 1982, and 1983, Italsider incurred costs,
associated with debts, at the Bagnoli plant and the Elba Island
[[Page 73258]]
mines, and the grant received in 1984, was for the plant and mines.
However, since the grant was received in 1984, the POI (i.e., 1998)
would be the last year of the allocation period. Therefore, even if we
were to allocate the grant over time, rather than expense it in the
year of receipt, any benefit during the POI would be less than 0.005
percent ad valorem.
E. Capital Grants Under Decree 218/78 and Law 64/86
The GOI reported that (old) ILVA received a grant in 1988, under
Decree 218. The original grant amount was approved in 1978. We applied
the 0.5 percent test against the full grant amount approved in 1978.
See section 351.524(b)(2) of the CVD Regulations. We calculated the
benefit as less than 0.5 percent ad valorem of Italsider's sales in
1978. Additionally, Sidercomit and Centro Acciai received several
grants under Decree 218 and Law 64 between 1984 and 1997. We summed all
grants by year of approval and applied the 0.5 percent test against the
total amounts for each year. We calculated the benefit as less than 0.5
percent ad valorem of the sales of ILVA/ILT or its respective
predecessor company corresponding to the year the grants were received.
Therefore, even if we determined that this program is countervailable,
the above-mentioned grants would have been expensed in the respective
years of receipt. Because the grants would be expensed and would not
provide any benefit to ILVA/ILT during the POI, we determine that this
program was not used.
F. Urban Redevelopment Packages Under Law 181/89
ILVA/ILT and its predecessor companies, ILP and (old) ILVA,
received grants under Law 181/89 between 1991 and 1997. No grants were
received during the POI. Because the approved amount of each grant,
separately, was less than 0.5 percent of total sales of ILVA/ILT (or
predecessor company) in the corresponding year, we would expense the
benefit of each approved grant in that year. See section 351.524(b)(2)
of the CVD Regulations. Therefore, since the grants would be expensed
in the years of receipt, and ILVA/ILT would not realize any benefit
during the POI, we determine that Urban Redevelopment Packges under Law
181/89 were not used.
G. Grants to ILVA
For a discussion, see Comment 20, below.
H. Closure Payments Under Law 481/94 and Predecessor Law
I. Closure Grants Under Laws 46 and 706
J. Decree Law 120/89
K. Law 488/92
L. Law 341/95 Tax Concessions
M. Interest Rate Reductions Under Law 902
N. Interest Contributions Under the Sabatini Law
O. Export Marketing Grants Under Law 394/81
P. Law 549/95: Tax Exemptions on Reinvested Profits for Steel Producers
in Objective 1, 2, and 5(B) Areas
European Commission Programs
A. European Social Fund (ESF)
The GOI has reported that ESF grants were provided to Nuova
Italsider, Italsider and (old) ILVA from 1985 through 1993. Because the
total of all grants provided under the program in each year was less
than 0.5 percent of total sales of Nuova Italsider, Italsider or (old)
ILVA (depending on the year of approval) in the corresponding year, we
would expense the benefit of each grant payment received in that year.
See section 351.524(b)(2) of the CVD Regulations. Therefore, there is
no benefit to ILVA/ILT during the POI.
ILVA/ILT has reported that ESF payments were also made to ILP in
1994 and 1995, and to ILVA/ILT in 1998, for the DUSID, DUTEM, and DUMES
training programs having taken place in 1994 and 1995. While some ILP
employees took part in these training programs, there is no evidence
that ILP benefitted from the ESF payments under these training
programs, or that these programs provided training to ILP employees
that ILP would otherwise have had to incur. As such, we find that these
programs do not provide a countervailable subsidy. See Comment 19,
below.
Based on the fact that grants received in 1985 through 1993, would
provide no benefit to ILVA/ILT during the POI, and that funds received
for the DUSID, DUTEM, and DUMES training programs are not
countervailable, we determine that the ESF was not used by ILVA/ILT.
B. Interest Rebates on ECSC Article 54 Loans
C. ECSC Conversion Loans, Interest Rebates, Restructuring Grants and
Traditional and Social Aid Under Article 56
D. ERDF Aid
E. Resider and Resider II (Commission Decision 88/588)
IV. Programs Determined Not To Exist or To Have Been Terminated
A. Additional Debt Forgiveness in the Course of Privatization
B. Grants to ILVA To Cover Closure and Liquidation Expenses as Part of
the 1993-1994 Privatization Plan
C. Working Capital Grants to ILVA in 1993
With respect to the programs A, B, and C listed above, the GOI
reported in its May 10, 1999 questionnaire response that all monetary
assistance (old) ILVA received in the course of the 1993-1994
Restructuring Plan was effected in the EC Decision 94/259/ECSC of April
12, 1994. We found no evidence at verification that there was any
further debt forgiveness or grants provided as part of the 1993-1994
Restructuring Plan beyond the assistance outlined in the April 12, 1994
EC decision. We therefore determine that these programs do not exist.
D. Personnel Retraining Grants Under Law 675/77
The GOI reported, and we verified, that personnel retraining grants
provided under Law 675/77 were terminated in 1987. The government
stated that the resources provided under this program were allocated
over the years 1981 through 1987. The GOI reported that no other law
providing personnel retraining grants or financial allocations under
Law 675/77 have been approved since 1987.
E. VAT Reductions Under Law 675/77
The GOI reported, and we verified that, the tax reductions referred
to in Section 18 of Law 675 of August 12, 1977, were terminated
effective March 29, 1991. Pursuant to Section 14(3) of Law 64 of March
1, 1986, Section 18 of Law 675/77, applied for a period of five years
from the date of promulgation of the law.
F. Grants to RIVA/ILP
Interested Party Comments
The case brief submitted by the GOI addresses, what they consider
to be, errors and omissions contained the in the GOI's verification
report issued by
[[Page 73259]]
the Department on November 12, 1999. Principally, they state the errors
concern the liquidation of Finsider and the assistance provided by IRI
in connection with the liquidation. The GOI also states that no
subsidies passed through to the new owner of ILP upon its privatization
in 1995, and that failure by the Department to recognize this fact
would be inconsistent with U.S. obligations under the WTO Agreement.
With regard to the GOI's statement on the privatization of ILP, we
address the issue of privatization in Comment 14 below. Because the
other comments made by the GOI are not substantive arguments, we have
not addressed them separately.
Palini & Bertoli did not submit any comments, therefore, when we
refer to ``respondents'' below, we are referring to ILVA/ILT, except
for Comment 14 where we refer to ILVA/ILT and the GOI.
Comment 1: Use of ILVA's Verified 1998 Sales
Respondents argue that the Department in calculating the final CVD
rates should use the correct and verified 1998 sales denominator. They
state that at the time of the preliminary determination ILVA (i.e.,
(new) ILVA) had not completed its official trial balance for 1998. When
preparing for verification, using the finalized trial balance, ILVA
found that the sales denominator submitted earlier to the Department
was incorrect. Respondents note that the Department confirmed the
correct sales denominator at verification, and therefore, that sales
denominator should be used in the final determination.
Department's Position: We agree with the respondents that the
Department should use ILVA's verified 1998 sales figure as the
denominator to calculate the final CVD rates. We verified the correct
1998 sales figure by reconciling that amount to ILVA's completed trial
balance which was examined at verification. Therefore, we have used
ILVA's corrected 1998 sales denominator in the final determination.
Comment 2: Average Useful Life of Assets
Respondents provided four tables illustrating its proposed company-
specific AUL calculations for ILVA's (i.e., (new) ILVA) and ILT's
assets, both separately and in combination. Both respondents and
petitioners have focused their arguments on two of the four tables. The
primary difference between the AUL calculations contained in each of
these two tables is the treatment of the 1993 write-down of ILVA's
assets. The first calculation presents a simple division of the annual
average gross book values of the depreciable fixed assets by the
aggregated annual charge to accumulated depreciation over a ten-year
period (calculation 1). The second calculation adjusts the figures
contained in the first calculation to reduce the gross book values by
the amount of write-downs that occurred in connection with the 1993-94
restructuring and demerger of ILP from the (old) ILVA (calculation 2).
According to respondents, they provided the Department an
inadequate explanation of ILVA's AUL worksheets prior to the
Preliminary Determination, and, as a result, the Department relied on a
worksheet (calculation 1) that substantially overstated the value of
ILVA's depreciable assets. Respondents further maintain that, as
demonstrated at verification, using the correct numbers from the
correct worksheet yields an AUL for the renewable physical assets of
ILVA and ILT of approximately 11 years.
Respondents state that this 11-year AUL not only accords with
Generally Accepted Accounting Principals (GAAP) and is consistent with
ILVA's financial statements, but also reflects precisely the type of
normalizing adjustment required by the Department for companies that
have recorded asset write-downs as per the preamble to the Department's
final CVD Regulations, (see 63 FR at 65397). Respondents maintain that
because ILVA made the normalizing adjustment, the Department should use
this 11-year AUL from calculation 2 in its final determination.
According to respondents, the AUL calculation, which was provided by
respondents and used by the Department in its preliminary determination
does not produce an AUL using actual asset values, since it disregards
the write-downs of 1993. In other words, this calculation does not
include the normalizing adjustment for the asset write-down, and as a
result seriously distorts the AUL calculation. Respondents also claim
the Department cannot accept the calculation 1 result, because it omits
the normalizing adjustment for the asset write-down and the only
purpose served by calculation 1 was to illustrate the impact of the
1993 write down on the asset values and depreciation recorded in
calculation 2.
Petitioners contend that calculation 1 provides the closest
approximation to the AUL methodology established by the Department in
19 CFR 351.524(d)(iii) and that this calculation produces an AUL of
assets that does not differ by a year or more from the 15 year period
provided for in the IRS tables. Therefore, petitioners request that the
Department use the AUL established by the IRS as it did in the
preliminary determination.
Petitioners contend that adjusting the asset values to account for
the extraordinary write-downs in the value of ILVA's fixed assets in
1993 due to the liquidation of ILVA in connection with the 1993-94
restructuring has the effect of distorting the AUL calculation in a
manner that makes the calculation unreliable for purposes of
determining ILVA/ILT's company-specific AUL. Petitioners cite the
preamble to the current regulations (see 63 FR at 65396) to support
their contention that the company-specific AUL calculation is not
appropriate ``* * * for companies that have been sold and that it
presents problems when a company revalues its assets, for example, as a
result of declaring bankruptcy.''
Petitioners cite Steel Wire Rod from Germany to support the
contention that whether or not an asset write-down is done in
accordance with GAAP is not necessarily the determining factor when
examining whether these write-downs should be reflected in the average
annual gross value of fixed assets in the AUL calculation. See Final
Affirmative Countervailing Duty Determination: Stainless Steel Wire Rod
from Germany, 62 FR 54990, 54999 (October 22, 1997) (Steel Wire Rod
from Germany). Petitioners state that the asset write-down adjustment
does not represent a reasonable estimate of the life of equipment at
the time it was purchased, but instead ILVA/ILT 's calculation
represents a mixture of the average useful life of the assets and the
remaining useful life of assets after the revaluation. They further
state that a company-specific AUL may be inappropriate when the company
under investigation has faced recent changes in ownership or
bankruptcy.
Finally, both respondents and petitioners argue that the country-
wide AUL information provided by the GOI should not be used by the
Department.
Department's Position: Under 19 CFR 351.524(d)(2), the Department
presumes that the AUL set out in the IRS's 1977 Class Life Asset
Depreciation Range System is the appropriate allocation period by which
to allocate non-recurring subsidies, and the burden is placed on the
party contesting these AULs to establish that the IRS tables do not
reasonably reflect the company-specific AUL. In addition, the
contesting party must demonstrate that the company-specific AUL differs
significantly from the AUL in the IRS tables.
[[Page 73260]]
It is clear from the preamble to the CVD Regulations that, based on
the Department's experience, using a company-specific AUL in situations
where there have been major asset revaluations in connection with
bankruptcy poses significant problems: ``We have found that the method
[i.e., company-specific AUL calculation] may not be appropriate for
companies that have been sold and that it presents problems when a
company revalues its assets as a result of declaring bankruptcy (see,
e.g., Steel Wire Rod from Germany, 62 FR at 54990 (October 22,
1997)).'' See CVD Regulations, 63 FR at 65396. In addition, the
preamble states: ``It may also be necessary to make normalizing
adjustments for factors that distort the calculation of an AUL. We are
not in a position at this time to provide additional detail in the
regulation itself on when we will make normalizing adjustments and how
such adjustments will be made because the types of necessary
adjustments will likely vary based on the facts of a particular case.
However, certain obvious normalizing adjustments that come to mind are
situations in which a firm may have charged an extraordinary write-down
of fixed assets to depreciation, or where the economy of the country in
question has experienced persistently high inflation.'' See Id., at
65397.
With regard to this last statement from the preamble, we disagree
with respondents that adjusting the AUL calculation for the asset
write-downs, as was done in calculation 2, is the normalizing
adjustment called for in the regulations. Respondents misread the
regulations; it is precisely the existence of a massive asset write-
down that requires a ``normalizing adjustment'' in the first place. We
also find the distinction drawn between Saarstahl's situation in Steel
Wire Rod from Germany and ILVA/ILT by respondents to be uninformative.
There is little substantive difference between a situation where a
company acquires assets from another company then revalues them at
acquisition cost and a situation where assets are revalued before the
transfer with the new owner carrying the assets on its books at the new
revalued amount.
The basic point being made in the Department's regulations is that
the basis of a company-specific AUL calculation is called into question
when a situation exists such as the situation we are currently facing
with ILVA/ILT, i.e., numerous changes in ownership, a massive asset
write-down, and bankruptcy. We do not agree with respondents that the
only issue here is one of consistency between the numerator and the
denominator in the company-specific calculation. The larger issue is
whether we should depart from the IRS asset depreciation schedules. We
do not find the fact that the 1993 asset write-downs were in accordance
with GAAP to be particularly persuasive. The AUL calculation is an
attempt to derive the average useful life of renewable physical assets.
Whether or not it is in accordance with GAAP, the accounting treatment
of asset values, which is usually done for tax purposes, does not
necessarily attempt to accurately reflect the physical life of a
particular asset. Because there are so many different ways to calculate
asset values for tax purposes, the IRS constructed its tables to ensure
consistency. There is a tendency on the part of the Department to rely
on the IRS tables because, as is stated in the preamble to the
countervailing duty regulations: ``In our experience, we have found
that for most industries and most types of subsidies, the IRS tables
have provided an accurate and fair approximation of the AUL of assets
in the industry in question. * * *'' See CVD Regulations, 63 FR at
65396. In other words, the presumption that the IRS tables do not
reflect the actual physical life of an asset for a particular company
is not an easy one to overcome. In our view, respondents have failed to
meet this threshold.
As noted above, respondents have provided four different AUL
calculations, all with different results. By respondents' own
admission, very little, if any explanation of how these calculations
were done was provided until relatively late in the case. Respondents
have argued that the main issue in the AUL calculation for this
investigation is a simple matter of consistency between the numerator
and the denominator. Respondents argument that their calculation 2,
which takes the asset write-downs into account in both the asset value
and depreciation, is the only reliable calculation is unpersuasive.
Calculation 1, which we relied upon in the Preliminary Determination,
is flawed according to respondents, because the asset values do not
reflect the write-down while depreciation does reflect the write-down.
Since by respondents' own admission, calculation 1 is flawed, we are
rejecting calculation 1 as a basis for the company-specific AUL.
With regard to the Italian country-wide AUL, 19 CFR
351.524(d)(2)(iii) states that ``A country-wide AUL for the industry
under investigation will not be accepted by the Secretary unless the
respondent government demonstrates that it has a system in place to
calculate AULs for its industries, and that this system provides a
reliable representation of AUL.'' The GOI has not met this burden, nor
have respondents argued that they have.
We therefore reject respondents company-specific AUL calculation
and the country-wide depreciation information provided by the GOI, and
have used the IRS tables for purposes of determining the period over
which to allocate non-recurring subsidies.
We note that in the 1993 Certain Steel cases, our practice was to
use the IRS tables to allocate non-recurring subsidies over time.
Subsequent to that case, the Court overturned over use of the IRS
tables in favor of company-specific rates. See British Steel plc v.
United States, 879 F. Supp. 1254 (CIT 1995) and British Steel plc v.
United States, 929 F. Supp. 426, 439 (CIT 1996). Under the current
regulations, we have decided to revert to the IRS tables as a
rebuttable presumption. In a 1997 Italian investigation, while we did
attempt to calculate a company-specific AUL, we were unable to do so
and used a surrogate AUL instead. See Wire Rod from Italy, 63 FR 40477.
While our preference is to apply the same AUL to the same subsidies
across cases, we have not been able to do that in Italy due to the
changes in our allocation methodology mandated by the Court and our
subsequent decision to use the IRS table as a rebuttable presumption.
This is the first Italy case subject to the new regulations.
Accordingly, we are applying the regulatory standard to determine the
AUL.
Comment 3: 1984 Debt Transfer Was Not a Countervailable Event
Respondents disagree with the Department's classification of the
1984 debt transfer from Italsider to Finsider as being equivalent to a
government grant. They note that, under section 771(5)(D) of the Act,
the Department can countervail a transfer of debt only if it involves a
financial contribution from the government.
In 1984, debts were transferred from Italsider's balance sheet to
that of Finsider, which under the sole shareholder provision of the
Italian Civil Code, had legal responsibility for all debts of
Italsider. Respondents contend that the debts remained fully in effect,
but that Finsider now had direct rather than indirect responsibility
for their payment. They argue that IRI made no financial contribution
in 1984, by allowing the transfer of debt from Italsider to Finsider.
Respondents point out that the Department itself
[[Page 73261]]
recognized that the transfer ``merely shifted assets and debts within a
family of companies, all of which were owned by Finsider.'' They submit
that it would be double-counting to countervail both the 1984 debt
transfer and the subsequent forgiveness of the same debt through the
liquidation of the Finsider Group in 1988. Since no debt was forgiven
in 1984, the Department has no legal or factual justification to
countervail the 696.4 billion lire of debt which was transferred within
the Finsider Group.
Petitioners urge the Department to continue to use facts available
to make its finding with respect to the debt forgiveness provided under
the 1981 Restructuring Plan. They state that, despite numerous
requests, the GOI failed to provide to the Department the necessary
information regarding the 1984 assumption of debt and 1985 debt
forgiveness. Therefore, the Department should continue to rely on
information provided in the petition and Certain Steel Products from
Italy (see 58 FR at 37329-30), and determine that the 1984 assumption
of debt and 1985 debt forgiveness are countervailable subsidies.
Department's Position: We disagree with ILVA/ILT that IRI provided
no financial contribution in 1984, by allowing the transfer of debt
from Italsider to Finsider. Under section 771(5)(D)(i) of the Act, the
GOI provided a financial contribution when it allowed Finsider to
assume the debts Italsider owed to IRI. The benefit provided to
Italsider was debt forgiveness. See section 351.508 of the CVD
Regulations.
We also disagree with respondents' argument that it would be
double-counting to countervail both the 1984 debt transfer and the
subsequent forgiveness of the same debt through the liquidation of the
Finsider Group in 1988. Respondents have not demonstrated that the
696.4 billion lire which was transferred to Finsider in 1984, was part
of the 1,364 billion lire of debt forgiveness which IRI provided to
Finsider in 1989. As noted above, we requested information from
respondents on several occasions regarding the debt assumption and debt
forgiveness provided under the 1981 Restructuring Plan. The burden is
on respondents to provide to the Department the necessary information
with which to conduct a complete analysis. Absent information regarding
how the 1984 debt transfer is connected to the 1989 debt forgiveness,
the Department must rely on the facts available.
Therefore, we affirm our Preliminary Determination that, based on
the facts available, the 696.4 billion lire transferred to Finsider in
1984, was tantamount to debt forgiveness because respondents have not
demonstrated that it was part of Finsider's 1,364 billion lire debt
which IRI forgave in 1989.
Comment 4: Allocation of Benefits From the 1981 Plan Using the Correct
Asset Ratios
Respondents assert that the Department has incorrectly allocated
100 percent of the countervailable benefits received by Italsider and
Nuova Italsider to ILP. During verification, the Department reviewed
the separation of certain carbon steel flat product assets that
occurred between 1985, and the creation of ILP on January 1, 1994,
verifying that ILP inherited only 88.29 percent of the total fixed,
productive assets of Nuova Italsider. See ILVA/ILT Verification Report,
at Exhibit 1985Rest-1.
Respondents submit that under, long-standing policy, the Department
apportions benefits to successor and spin-off companies on the basis of
asset ratios. As noted in the 1993 General Issues Appendix, to
calculate benefits, the Department divides ``the value of the assets of
the spun-off unit by the value of the assets of the company selling the
unit.'' See GIA, 58 FR at 37269. Therefore, consistent with this
established policy, the Department should attribute benefits in
accordance with the ratio of assets that actually traveled with ILP.
Petitioners argue that the Department should reject the information
regarding the assets of Nuova Italsider because, not only was it
untimely, but is also inconsistent with other evidence on the record.
Section 351.301 of the Department's procedural regulations mandates
that ``a submission of factual information is due no later than * * *
seven days before the date on which the verification of any person is
scheduled to commence.'' They emphasize that verification was the first
time ILVA/ILT mentioned a 1985 Restructuring Plan and the transfer of
Nuova Italsider's assets. No such plan was discussed in the GOI's
questionnaire response, though the Department requested information on
``the restructuring of the Italian steel industry from 1981 through
1998,'' including ``a detailed description of each restructuring
plan.'' See Department's March 19, 1999 questionnaire, at Section II-1,
Part I, Question A.1.
Petitioners add that, should the Department decide to consider this
new information, it should not reduce the subsidy benefit to (new) ILVA
(i.e., formerly named ILP) from the 1981 Restructuring Plan because the
information provided by ILVA/ILT does not clearly establish that any
productive units of Nuova Italsider were spun-off in 1985. They argue
that the mere fact that assets related to certain plants were not
listed as part of the assets of ILP does not establish that they were
spun-off as productive units in 1985. In fact, there is record evidence
that two plants were in fact closed down as part of the 1988 and 1993-
94 Restructuring Plans. See EC Decision 89/218/ECSC of December 23,
1988, and EC Decision 94/259/ECSC of April 12, 1994.
ILVA/ILT rebuts petitioners' arguments, stating that there was no
restructuring plan in 1985, and that the company has never maintained
otherwise. Respondents explain that ILVA/ILT's verification exhibit
simply traces the disposition of assets under the 1988 and 1993-94
restructuring plans that Italsider and Nuova Italsider had owned prior
to 1987, but which ultimately did not travel to ILP. See ILVA/ILT
Verification Report, at Exhibit 1985Rest-1. They state that the asset
allocation arose for the first time in the Preliminary Determination,
when the Department incorrectly presumed that 100 percent of the assets
of Nuova Italsider traveled to ILP.
Department's Position: Information regarding the percentage of
Nuova Italsider's assets which were transferred to ILP was first
presented to the Department during ILVA/ILT's verification. Thus, the
Department did not have sufficient time between the presentation of the
information and this final determination to permit a thorough
examination of the accuracy of the data. In addition, information
necessary to determine the amount of productive assets which remained
with Nuova Italsider was not placed on the record of this
investigation. Therefore, in accordance with section 351.311(c)(2) of
the Department's procedural regulations, we have deferred consideration
of the percentage of Nuova Italsider's assets which were transferred to
ILP. If this investigation goes to order and an administrative review
is requested, we will, at that time, examine this issue again if
complete information is provided in that review.
Comment 5: Use of the Verified Asset Ratio to Apportion Finsider
Benefits From the 1988 Restructuring Plan
Respondents state that, at the Preliminary Determination, the
Department allocated the countervailable benefits from the 1988
Restructuring Plan in accordance with an asset allocation table
prepared by ILVA/ILT which used the best
[[Page 73262]]
information available prior to verification (see 64 FR at 40423). At
verification, IRI, the owner of both Finsider and (old) ILVA, provided
to the Department a more precise allocation of assets between Finsider
and (old) ILVA based on IRI's consolidated financial statements. See
GOI Verification Report, at 7 and ILVA/ILT Verification Report, at 10.
Respondents argue that the Department not only verified the asset ratio
using IRI's consolidated statements, but also tied the results to (old)
ILVA's consolidated financial statements. Therefore, in line with the
Department's long-standing policy of allocating benefits in accordance
with asset ratios, respondents argue that the Department should use the
correct and verified ratio of 51.2 percent to allocate the benefits of
the Finsider restructuring to (old) ILVA.
Petitioners assert that the Department's methodology in the
Preliminary Determination with respect to the percentage of debt
forgiveness from the 1988 Restructuring Plan attributable to (old) ILVA
is incorrect. They argue that only where a portion of Finsider's assets
were transferred to a productive unit other than (old) ILVA, should the
Department allocate a portion of the subsidy amount to those assets.
They note that this approach was taken by the Department in Plate in
Coils from Italy (see 64 FR at 15523) and is consistent with the
opinion of the CIT in British Steel Corp. v. United States, 605 F.
Supp. 286 (1985) (British Steel). In that decision, the court ruled
that ``the competitive benefit of funds used to acquire assets does not
cease upon the assets' premature retirement, but rather such benefit
continues to contribute to the firm's manufacture, production, or
exportation of products accomplished by the firm's remaining assets.''
See British Steel, at 296.
However, if the Department insists on calculating the percentage of
Finsider's assets actually transferred to (old) ILVA as a result of the
1988 Restructuring Plan, petitioners urge the Department to reject the
estimate used in the Preliminary Determination and the estimate
provided at verification. They contend that these estimates are
incorrect because: (1) the estimate used in the preliminary analysis
does not account for the additional assets transferred to (old) ILVA in
1990, as part of the 1988 Restructuring Plan, and (2) neither
calculation accounts for the write-down in the value of Finsider's
assets which took place in 1989. Therefore, if the Department continues
to use ILVA/ILT's calculations for the final, the amount of debt
forgiveness that benefitted (old) ILVA will be substantially
underestimated.
Petitioners claim that it would be inappropriate to use net asset
values from the end of 1989 or 1990, to estimate the assets transferred
from Finsider to (old) ILVA, because the asset values were
substantially written down in 1989, in connection with the
restructuring. To compare asset values after the write-down (those
assets in (old) ILVA) with asset values before (those assets remaining
in Finsider) will inevitably lead to the incorrect conclusion that a
substantial amount of Finsider's assets were not transferred to (old)
ILVA.
In their rebuttal brief, ILVA/ILT submits that petitioners have
confused the benefit of liquidation, i.e., debt coverage, with the
allocation of this benefit. They contend that liquidation provides a
benefit because it enables a spun-off company to emerge without the
unsustainable debt burden that had deprived the company in liquidation
of viability; it is the liquidated company that lacks viability, not
the individual assets. The viability of the assets of the Finsider
Group was demonstrated both by the audited financial statements of
1988, and by the subsequent success of the liquidated Finsider Group in
generating revenue from the sale of assets to offset its net debt
coverage.
ILVA/ILT further states that since the benefit was received by the
Finsider Group as a whole, the Department must allocate the benefit
over the entire Group. As stated in the GIA, ``The amount of the
potential pass-through subsidy is calculated by applying the ratio of
the book value of the productive unit sold to the book value of the
assets of the entire company at the time the productive unit is spun-
off.'' See GIA, 58 FR at 37268. Accordingly, the Department must use a
ratio that bases the asset values in the numerator (the assets of each
successor) and the asset values in the denominator (all assets of the
predecessor, before the spin-offs) on the same base year and the same
valuation method. Respondents add that it is the Department's
established policy to use book value in the last accounting period
preceding the spin-offs, taken from the consolidated audited financial
statements.
Department's Position: We reject the respondents' asset allocation
calculation, which indicates that 51.2 percent of Finsider's assets
were transferred to (old) ILVA. The calculation appears to take into
consideration Finsider's asset value of December 31, 1988, prior to the
write downs, and (old) ILVA's asset value after the write downs, and
consequently derives an incorrect percentage of assets transferred.
Record evidence indicates the opposite of ILVA/ILT's statement that
``assets were transferred from Finsider to ILVA at their written down
value.'' We note in IRI's 1989 consolidated financial statement that
Finsider's net fixed asset value for year-end 1988, was 8,023 billion
lire. For year-end 1989, Finsider's net fixed asset value was 1,345
billion lire and (old) ILVA's was 3,910 billion lire. These amounts
closely reconcile to those presented in the June 14,1989 McKinsey
report 8 which indicates that the write down of assets
occurred on January 1, 1989, after they were transferred to (old) ILVA
on December 31, 1988. We learned at verification that Finsider
transferred assets to (old) ILVA on December 31, 1988, in advance of
the company's commencement of production as a steel company on January
1, 1989. See GOI Verification Report, at 6.
---------------------------------------------------------------------------
\8\ This report was submitted to the Department by the GOI on
July 9, 1999.
---------------------------------------------------------------------------
We further note that ILVA/ILT was not able to substantiate their
claim that Finsider's assets were transferred to (old) ILVA at their
written down value. In support of their statement, respondents simply
translated a paragraph from Finsider's 1989 financial statement. ILVA/
ILT did not place information on the record which clearly indicates
when the asset write downs were taken or the method by which the assets
were revalued. In particular, at verification, ILVA/ILT did not
demonstrate that Finsider's net fixed asset value of 8,023 billion lire
as of December 31, 1988, was the value of the company's assets post-
write downs.
On the basis of the record evidence, for purposes of this final
determination, we have recalculated the percentage of Finsider's assets
transferred to (old) ILVA using pre-write down asset values. To
calculate the percentage of assets transferred to (old) ILVA, we used
information from the June 14, 1989 McKinsey report which the GOI
submitted to the Department on July 9, 1999. The report indicates that
Finsider as of December 31, 1988, had a net fixed asset value of 8,610
billion lire. Of Finsider's assets, 6,140 billion lire of the assets
were conferred to (old) ILVA on December 31, 1988. On January 1, 1989,
(old) ILVA's assets were written down. This information demonstrates
that prior to the write downs, 71.31 percent of Finsider's assets were
transferred to (old) ILVA.
We agree with petitioners that it is necessary to add to the 71.31
percent asset figure the assets transferred to (old) ILVA during 1990.
During 1990,
[[Page 73263]]
705 billion lire in assets were transferred to (old) ILVA. See (old)
ILVA's 1990 Annual Report, at 46, contained in the February 16, 1999
Petition, at Volume VIII, Exhibit 4 and 5. Because it is likely that
the 705 billion lire is based on asset values after the write-downs of
1989, we have assumed that these assets were written down by a similar
percentage as (old) ILVA'' assets on January 1, 1989, (i.e., 39.9
percent). Accordingly, we have increased the value of the assets
transferred during 1990, to their pre-write down value of 1,173 billion
lire. We then summed the 1,173 billion lire and the 6,140 billion lire
assets values, to arrive at the total asset value of 7,313 billion lire
which was transferred to (old) ILVA. Therefore, we determine that, in
total, 84.94 percent of Finsider's assets were transferred to (old)
ILVA.
Respondents are incorrect in arguing that the methodology to be
applied here is the ``spin-off'' methodology described in the GIA. We
do not consider the creation of (old) ILVA to be a ``spin-off'' from
Finsider, because they were still government-owned companies. Normally,
in such a situation, we would not separate the untied subsidies within
the corporate group. However, the facts of this case, i.e., numerous
restructurings and assumption of liabilities by the government which
should have been taken by each new company created, dictate that we
must apportion the subsidies provided to each of the new companies
created. The most reliable way to determine the percentage of subsidies
provided to the predecessor companies that are attributable to the
successor companies is through the value of the assets taken by each
company.
Comment 6: Debt Forgiveness Provided From the Reserve Fund
Petitioners claim that, in the Preliminary Determination, the
Department did not countervail the 1,568 billion lire in net losses
which Finsider realized in 1989, stating that it would seek additional
information in regard to Finsider's indebtedness to IRI (see 64 FR at
40422-23). While the Department notes in its verification report that
Finsider is still officially in liquidation, the fact that Finsider has
not paid IRI for the debt a decade after the 1988 restructuring should
be sufficient for the Department to determine that this debt has been
forgiven. See GOI Verification Report, at 8. They state that since the
1988 restructuring, Finsider has been a shell corporation that assumed
the liabilities which were stripped from those assets transferred to
(old) ILVA. Accordingly, the Department must countervail the 1,568
billion lire debt forgiveness as benefitting (old) ILVA in 1990, the
year in which it was identified, as an amount that would not be repaid
to IRI.
In their rebuttal brief, ILVA/ILT states that the reserve fund
involved a suspension rather than a forgiveness of debt. See GOI
Verification Report, at 8 and ILVA/ILT's September 3, 1999 QR, at
Exhibit 1. They emphasize that the record demonstrates that no
forgiveness of the 1,568 billion lire debt has yet occurred and that
Finsider, in liquidation, continues to possess assets that may enable
it to cover the debt without recourse to IRI's reserve. See GOI
Verification Report, at 9. Because IRI has not forgiven Finsider's
remaining debt, and ultimately may not need to forgive any of this
debt, they argue that no countervailable forgiveness has yet occurred.
Department's Position: On the record of this investigation, the GOI
has reported that in 1988, IRI established a fund of 2,943 billion lire
to cover Finsider's losses while in liquidation. See GOI's July 8, 1999
QR, at Program 4, Question 3a and GOI Verification Report, at 8. The
government stated that the fund equaled the total amount of assistance
IRI expected to provide to Finsider during the liquidation process.
IRI, which earlier extended 2,943 billion lire in loans to Finsider,
questioned whether Finsider would default on the loans, and therefore,
established the reserve fund to cover the outstanding loans. See GOI
Verification Report, at 8.
Finsider realized losses of 1,364 billion lire in 1988. To prevent
Finsider from becoming insolvent, IRI utilized 1,364 billion lire of
the fund in 1989, to forgive debts Finsider owed to it. In 1989,
Finsider realized losses of 1,568 billion lire. Because the purpose of
the reserve fund was to cover losses that Finsider would realize while
in liquidation, IRI should have, but did not, cover the 1,568 billion
lire of losses in 1990, by forgiving debt of an equivalent amount.
At verification, we learned that Finsider, which remains in
liquidation, still had losses of 1,568 billion lire carried forward in
its financial statement of December 31, 1998. Likewise, within IRI's
financial statement as of year-end 1998, IRI still maintained a balance
of 1,568 billion lire in the reserve fund. See GOI Verification Report,
at 9. IRI officials explained that the agency expects Finsider to repay
all outstanding debts with revenue realized through the sale of
remaining assets. However, until the liquidation is officially
terminated, IRI must keep the fund on its books in case any outstanding
debts cannot be covered with cash earned from the sale of assets. See
Id.
We analyzed whether, when Finsider realized losses of 1,568 billion
lire in 1990, IRI expected to receive payment against the debts owed to
it by Finsider. Based on the record evidence, we determine that IRI did
not expect Finsider to pay the 1,568 billion lire debt. First, in 1988,
IRI created a fund with the sole purpose to cover the losses which
Finsider would realize while in liquidation. Second, IRI utilized 1,364
billion lire of the fund to cover losses in 1989, by forgiving debt of
an equivalent amount. In addition, respondents did not submit
information on the record regarding the value of the assets which
remained in Finsider as of December 31, 1989, to demonstrate that
Finsider had viable assets which it could sell to obtain cash to pay
IRI. On the basis of these facts, we determine that in 1990, IRI had no
expectation that Finsider would pay the 1,568 billion lire debt.
Therefore, for this final determination, we find that in 1990, IRI
provided to Finsider debt forgiveness of 1,568 billion lire.
Comment 7: IRI's Purchase of Finsider Shares
Respondents contend that IRI's purchase in 1990, of (old) ILVA's
shares from Finsider, Italsider, and Terni in liquidation was step one
of a two-step asset purchase. They state that the liquidators of the
Finsider Group used a two-step process to raise cash for the benefit of
creditors by selling assets of the liquidated companies. In step one,
Finsider, Italsider, and Terni in liquidation sold assets to (old) ILVA
in exchange for shares of the company. In step two, Finsider, Italsider
and Terni in liquidation sold their shares in (old) ILVA to IRI in
exchange for cash at the same value. Respondents contend that this two-
step sale enabled the companies in liquidation to liquidate productive
assets at the assets' appraised market value for the benefit of their
creditors.
They argue that, because IRI's purchase of shares was an asset sale
at market value, the Department has no legal or factual basis for
countervailing the transaction. They stress that this process was not
``tantamount to debt forgiveness,'' stating that IRI simply purchased
the shares in (old) ILVA which Finsider, Italsider and Terni in
liquidation had received in exchange for the assets which they
transferred to (old) ILVA. IRI paid the assets' appraised market value
to Finsider, Italsider and Terni in liquidation. Under section
771(5)(E)(iv) of the Act, a
[[Page 73264]]
purchase of assets by or for the government provides a countervailable
benefit only ``if such goods are purchased for more than adequate
remuneration'' and that adequate remuneration ``shall be determined in
relation to prevailing market conditions.''
Respondents state that the appraisal of the assets in question was
based on prevailing market conditions, and utilized the comprehensive
market assessment of McKinsey, as described in ILVA/ILT's September 3,
1999 QR. Therefore, they argue that no countervailable benefit was
conveyed because the remuneration provided by the government for the
assets was adequate.
Petitioners argue that the McKinsey study was not an analysis of
whether (old) ILVA in 1990, was a good investment. Rather, the study
was an analysis of the viability of the 1988 Restructuring Plan, i.e.,
whether the restructuring of Finsider into (old) ILVA would meet the
objectives set out by the GOI and the EC. At verification, the
Department learned that ``[t]he consulting firm of McKinsey & Company
was hired to examine whether the creation of ILVA S.p.A. would conform
with the EC's trade and competition rules.'' See GOI Verification
Report, at 5. No analysis of the risk of an investment in (old) ILVA
versus the potential return of such an investment is contained in the
study, nor any comparison to the expected return of alternative
investment opportunities, as is required under the Department's
practice.
Petitioners add that there is no basis for concluding that the GOI
was acting as a normal investor in buying (old) ILVA's shares in 1990.
They highlight (old) ILVA's negative return on equity for the years
1986, 1987, and 1988, and conclude that no private investor would have
made an investment in such a financially unsound company. On the basis
of this information, the Department should determine that (old) ILVA
was unequityworthy in 1989, and that IRI's purchase of (old) ILVA's
shares was equivalent to debt forgiveness.
In their rebuttal brief, ILVA/ILT dispute petitioners' argument
that (old) ILVA was unequityworthy in 1989. They state that. contrary
to petitioners' calculation, which appears to have been based on data
for Finsider in liquidation and not (old) ILVA, (old) ILVA had a return
on equity of 7.6 percent for 1989. The McKinsey report, which they
contend does satisfy the Department's requirements for investment
studies, projected a level of profitability of 12.8 percent in 1990,
for (old) ILVA.
Department's Position: As in our Preliminary Determination, we
continue to find that IRI's purchase of (old) ILVA's shares is
countervailable. It is the Department's position that prior to
purchasing shares of a company, it is the usual investment practice of
a private investor to evaluate the potential risk versus the expected
return. This includes an objective analysis of information sufficient
to determine the expected risk-adjusted return and how such a return
compares to that of alternative investment opportunities of similar
risk. In the July 23, 1999 questionnaire and at verification, we asked
the GOI and ILVA/ILT to provide all feasibility studies, market
reports, economic forecasts, or similar documents completed prior to
(old) ILVA's share purchase, which related to the future expected
financial performance of the company.
We disagree with respondents that IRI's purchase of (old) ILVA's
shares in 1990, was preceded by a comprehensive and objective financial
analysis of (old) ILVA. We find that the McKinsey report which was
commissioned by the EC and the GOI, examined not the expected financial
performance of (old) ILVA, but assessed the viability of the
government's ``ILVA Steel Plan'' (i.e., the 1988 Restructuring Plan)
for the period 1988 to 1990. The scope of the study was to ``examine
the ILVA Steel Plan trying to verify consistency with the Italian
government proposals' and focused on (old) ILVA's steel making
activities to ensure compliance with the EC's trade and competition
rules. See GOI Verification Report, at 5. We note that the McKinsey
team's evaluation involved: (1) reviewing the ILVA plan with the
managers to ensure a full understanding of the underlying programs; (2)
validating the feasibility of the plan using sound management
principles; and (3) verifying EC mandated guidelines for price/cost
squeeze and profitability. See McKinsey Report, ``Evaluating the
Viability of the ILVA Steel Plan,'' of August 5, 1988, in the GOI's
July 8, 1999 QR.
We determine that the McKinsey report did not incorporate the type
of objective, quantitative analysis that an investor would require
prior to a share purchase to evaluate the potential risk versus the
expected return of an investment in (old) ILVA. There is no financial
forecasting of (old) ILVA which would inform the investor of the
viability of the company. Respondents discuss in their case brief that
the McKinsey report evaluated (old) ILVA's ability to realize a minimum
level of profitability of 12.8 percent in 1990. See ILVA/ILT's November
23, 1999 Rebuttal Brief, at 6. However, respondents have taken that
``probability'' out of context. In fact, the report states, ``[T]he
overall plan meets CEC [EC] guidelines for a 2.5 percent annual price/
cost squeeze and exceeds guidelines for a minimum MOL [operating margin
improvement]-profitability level in 1990 of 12.8 percent of revenue.''
See Id. As discussed in the report, the MOL level of 12.8 percent of
consolidated revenues is the target level that (old) ILVA had to reach,
as a whole, in order to meet the EC guidelines for viability, and not
the company's projected profitability. The report further states that
when calculating (old) ILVA's MOL profitability-level, the McKinsey
team had no confirmation of (old) ILVA's official financial plans.
Therefore, they assumed a normal capital structure for (old) ILVA in
their evaluation and urged the government to create a sound financial
base for the new enterprise. See Id., at section ``1990 Profitability
Meets CEC Guidelines.''
The facts on the record indicate that IRI, which committed itself
on January 1, 1989, to purchase (old) ILVA's shares from Finsider, did
not have sufficient financial data which would have allowed it to
evaluate the potential risk versus the expected return in an investment
in (old) ILVA. Further, at the GOI's verification, we learned that
under Italian law, a company in liquidation must sell all of its assets
to repay outstanding debt. See GOI Verification Report, at 9-10. IRI,
which wanted to remain in the steel business, committed itself on the
day (old) ILVA was created, to purchase from Finsider the shares of the
company. See Id. With the cash from the sale, Finsider repaid a portion
of its outstanding debts. See Id. Therefore, on the basis of the record
evidence, IRI did not act like a private investor when it decided to
purchase (old) ILVA's stock on January 1, 1989. The purpose of the
share purchase was to provide to Finsider with cash to repay debts.
Comment 8: Finsider Received No Countervailable Operating Assistance
During Its Liquidation
Respondents argue that the Department should not countervail the
amount of 738 billion lire which was the ceiling the EC imposed on
IRI's coverage of losses incurred during the liquidation of Finsider.
They contend that IRI provided no such assistance apart from the 1,364
billion lire in loss coverage which the Department has countervailed
separately. They point out that IRI demonstrated that the global
[[Page 73265]]
assistance amount did not exceed 1,364 billion lire, as documented in
the relevant financial statements. See GOI Verification Report, at
Exhibits Plan 1988/1-6.
Petitioners argue that the Department should affirm its preliminary
determination for the following reasons: One, the GOI claimed that no
assistance beyond the 1,364 billion lire in debt forgiveness from 1989,
was provided by IRI; however this statement made at verification
conflicted with the GOI's own July 8, 1999 QR. See GOI Verification
Report, at 10, and GOI's July 8, 1999 QR, at Part II, P.S. Q. Program
4. Two, the GOI could not provide any documentation to support its
claim that IRI only provided 1,364 billion lire in assistance. See GOI
Verification Report, at 10.
Department's Position: In the Preliminary Determination, we
discussed the ambiguous information on the record regarding the
additional financial assistance, if any, the GOI provided to Finsider
in liquidation (see 64 FR at 40423). We preliminarily found, based on
information provided by ILVA/ILT, that IRI provided 738 billion lire to
Finsider to cover costs and losses in 1989. See Id. However, we stated
that we would seek further clarification from the GOI and ILVA/ILT
regarding all assistance provided under the 1988 Restructuring Plan.
We learned that through the 89/218/ECSC Decision of December 23,
1988, the EC authorized the disbursement of a maximum of 738 billion
lire in additional financial assistance to Finsider to cover costs and
losses realized in the liquidation process. However, because the cash
received from the sale of Finsider's assets was greater than expected,
IRI did not have to disburse to Finsider any portion of the 738 billion
lire of aid authorized for closure costs and liquidation expenses. See
GOI Verification Report, at 10 and ILVA/ILT Verification Report, at 11.
At verification, we examined Finsider's and IRI's 1989 financial
statements, in particular, sections where such assistance would have
been recorded. We found no evidence that IRI provided any aid to
Finsider in addition to the 1,364 billion lire in 1989. Therefore, on
this basis, we determine that IRI did not provide to Finsider an
additional 738 billion lire to cover closure costs and losses in 1989.
Comment 9: Allocation of the 1993 Restructuring Benefits Using the
Consolidated Asset Values for the ILVA Group
Respondents contend that in the Preliminary Determination, the
Department incorrectly allocated the benefits from the 1993-94 ILVA
restructuring to ILP, AST and ILVA Residua. Though it is the
Department's policy to allocate benefits to successor and spin-off
companies by asset value, the Department did not use the actual
consolidated asset values of all three companies as the denominator for
its allocation of the 1993-94 benefits. Rather, the Department used the
consolidated asset values only for ILP and AST. For ILVA Residua, the
Department ``used the sum of the purchase price plus debts transferred
as a surrogate for the viable asset value of the operations sold from
ILVA Residua.'' See Preliminary Determination, 64 FR at 40424. They
explain that by using the consolidated assets of ILP and AST, but not
ILVA Residua, the Department distorted the allocation and exaggerated
the benefits attributed to ILP from the restructuring.
The respondents stress that by using a surrogate value for ILVA
Residua's assets, the Department erred in three fundamental respects:
First, the Department had no basis in law or accounting to use a
surrogate, because ILVA/ILT submitted the actual consolidated asset
value for ILVA Residua as recorded in audited financial statements.
Second, the surrogate was based not on year-end 1993 data, but on ``the
purchase price plus debts'' of ``operations sold from ILVA Residua.''
See Id. These sales occurred after year-end 1993, and, in many cases,
not until years later. In contrast, the ILP and AST assets used in the
Preliminary Determination were from year-end 1993 financial statements.
For purposes of consistency and accuracy, allocations of asset values
must incorporate the value of all the assets at one common point in
time. Third, respondents emphasize that the Department used as its
surrogate the post-1993 purchases of assets from the unconsolidated
ILVA Residua, which excluded the asset values of the many subsidiary
companies that ILVA Residua sold in market transactions. They add that
by using consolidated assets for ILP and AST (i.e., including
subsidiary companies owned by ILP and AST), but using a surrogate only
for the unconsolidated ILVA Residua's assets (i.e., excluding
subsidiary companies), the Department significantly understated the
asset value of ILVA Residua in comparison to ILP and AST as of year-end
1993.
Petitioners argue that the correct asset value for ILVA Residua is
the price paid for each subsidiary sold plus the debts transferred.
This approach reflects the fact that the debt forgiveness should only
be allocated to the viable assets of (old) ILVA and not to any assets
that were to be closed or otherwise ceased to be viable. See Plate in
Coils from Italy, 64 FR at 15523.
They contend that this analysis is consistent with legal precedent
with respect to subsidies provided for closure of inefficient plants.
Petitioners cite British Steel in which the CIT ruled that subsidies
used to close redundant facilities provide countervailable benefits to
the remaining, productive assets of the recipient firm because
``redundancy funds and plant closures make the recipient more efficient
and relieve it of significant financial burdens.'' See British Steel,
at 293. They also reference the GIA, in which the Department states:
``* * * subsidies are not extinguished either in whole or in part when
a company closes facilities. Rather, the subsidies continue to benefit
the merchandise being produced by the company.'' See GIA, 58 FR at
37269.
It would not be appropriate to allocate the debt forgiveness to the
total assets of ILVA Residua as of year-end 1993, as this would
allocate benefits to assets that were closed or otherwise became non-
viable following the restructuring. They emphasize that, at
verification, the ILVA/ILT officials could not support their statement
that all assets remaining in ILVA Residua were viable. See ILVA/ILT
Verification Report, at 11. Therefore, the Department should continue
to rely on the EC's 10th Monitoring Report for purposes of determining
the viable assets remaining in ILVA Residua, and use that figure for
purposes of allocating the debt forgiveness of the 1993-94
Restructuring Plan among ILP, AST and ILVA Residua.
Department's Position: We find that, given the information on the
record, the most reliable asset value for ILVA Residua is the price
paid for each subsidiary sold plus the debts transferred. It is the
Department's practice to apportion otherwise untied liabilities
remaining in a shell corporation to the new, viable operations that had
been removed from the predecessor company. Therefore, consistent with
our past practice, we have assigned a portion of these liabilities to
ILP and AST based on the ratio of assets each company took to the total
viable assets of all three companies, including ILVA
Residua.9 This approach is consistent with the methodology
employed in the recent
[[Page 73266]]
stainless steel investigations. See, e.g., Plate in Coils from Italy,
64 FR at 15523.
---------------------------------------------------------------------------
\9\ Because the ultimate objective of the 1993-94 Restructuring
Plan was the privatization of ILP and AST, which were separately
incorporated from (old) ILVA on January 1, 1994, we have no reason
not to believe that the value of the assets which were transferred
to ILP and AST were accurately assessed during the liquidation
process.
---------------------------------------------------------------------------
As stated earlier in the notice, based on the record evidence of
this investigation, the EC's 10th Monitoring Report is the only
reliable information available to the Department to establish the value
of those productive assets which remained in ILVA Residua at the point
ILP and AST were separately incorporated. We disagree with respondents
that the best source of data is the consolidated asset value for ILVA
Residua as of December 31, 1993. Evidence on the record indicates that
the asset value for ILVA Residua as of year-end 1993, is seriously
flawed. At verification, the EC economist who monitored the
restructuring and privatization of (old) ILVA stated that the ``balance
sheets for December 31, 1993, provide only an estimate of ILVA in
Liquidation's indebtedness which IRI would have to cover, the amount of
debts to be transferred, etc.'' See GOI Verification Report, at 13. He
also explained that the balance sheets of December 31, 1994, were the
first audited financials of IRI and ILVA Residua since the commencement
of the liquidation in the fall of 1993. See Id.
We examined ILVA Residua's 1994 annual report and noted the
following statement pertaining to 1993, within the ``Report on the
Management:'' ``In the financial statement for 1993, we pointed out how
the opening of liquidation would require drawing up a balance sheet
formulated not with values of normal operation but with values of
estimated cost. The brevity of time available then and the complexity
of the valuations to be executed in that meeting allowed putting
together only a few limited adjustments of values for which sure
elements of judgement were available.'' See ILVA Residua's 1994 Annual
Report in the February 16, 1999 Petition, at Volume 8, Tab 11. In
addition, at verification, we obtained a listing of the amount of
assets from each ILVA Group company which were placed in ILVA Residua
as of December 31, 1993. See ILVA/ILT Verification Report, at Exhibit
1993/94-4. Respondents claimed, but could not document, that all of the
assets were viable. See ILVA/ILT Verification Report, at 11. As the
auditor's opinion clearly indicates, the asset value for ILVA Residua,
recorded in the company's financial statement as of December 31, 1993,
was distorted, and respondents have submitted no evidence to
substantiate their claim that the assets were accurately valued. As
such, it is not appropriate to apportion the subsidies to ILVA Residua
using the company's 1993 consolidated asset value. To determine the
amount of liabilities from the 1993-94 Restructuring Plan, that should
be apportioned to ILVA Residua, we must first determine the value of
the productive assets that remained in ILVA Residua.
Given that the Department does not have the necessary asset values
to make this determination from financial statements prepared at the
point (old) ILVA's assets were demerged into ILP and AST, we consider
that the EC report provides the only reliable information on the record
to determine the viable assets which remained in ILVA Residua. The EC
report provides a list of subsidiaries and shareholdings sold by ILVA
Residua from 1993 through 1998, together with the sales price for each
company and the debts transferred from ILVA Residua upon each sale.
Respondents themselves note this fact in their case brief: ``The 10th
EC Monitoring Report describes these sales [i.e., ILVA Residua's assets
sold in market transactions], which involved virtually all of ILVA
Residua's consolidated assets.'' See ILVA/ILT's November 18, 1999 Case
Brief, at 16. Moreover, the EC Monitoring Report notes that ``[t]he
privatisation or the sale of shareholdings of all the companies
formerly part of the ILVA Group (over 100 companies) is now practically
completed,'' with only a negligible amount of assets remaining to be
sold.
Therefore, to calculate the asset value of the viable operations,
which were in ILVA Residua, we summed the cash price paid plus debts
transferred at the time of their sale. We believe this approach
provides a reasonable surrogate asset value because the newly sold
company's books will, by the basic accounting equation of ``assets
equal liabilities plus owners'' equity,'' reflect an asset value that
is equal to the debts transferred plus the cash purchase price. The
debts transferred become the liabilities in the new company's books,
while the cash purchase price becomes the owners' equity. See Plate in
Coils from Italy, 64 FR at 15523. Given the record evidence of this
investigation, this calculation is the most reasonable estimate of the
amount of viable assets that were left in ILVA Residua upon the
separate incorporation of ILP and AST. However, should this
investigation result in an order and an administrative review is
requested, we will examine whether, at the point ILP and AST were
separately incorporated, more accurate information can be obtained with
regard to the value of those productive assets which remained in ILVA
Residua.
Comment 10: Countervailable Debt Coverage Should Be Offset by Revenue
From ILP/AST Sales
Respondents state that the Department's preliminary analysis,
guided by the EC's 10th Monitoring Report, disregarded the EC's
treatment of revenue from the sale of ILP and AST as an offset to debt
coverage. They argue that, by overlooking this revenue offset, the
Department overstated the net amount of debt coverage. The record of
the case demonstrates the legal obligation of the GOI and IRI to use
the revenue from the sale of ILP and AST for the benefit of ILVA
Residua's creditors. See GOI Verification Report, at 14. Since revenue
from the ILP and AST privatizations is no different from revenue
generated by the sale of ILVA Residua's other productive enterprises,
they argue that all revenue should be deducted from the gross
liabilities of ILVA Residua prior to attributing any countervailable
debt coverage to ILP.
In support of their argument, respondents note that the EC in its
Decision 94/259 of April 12, 1994, at Article 3(2), states: ``The
income obtained through the sale of the companies in the (old) ILVA
Group shall be used in full to reduce the indebtedness of the group.''
Because the revenue from the privatizations was intended to reduce the
debt coverage provided by IRI to ILVA Residua, the Department has no
legal justification to exclude this revenue from its calculation of the
net debt relief attributable to the liquidation process. Respondents
add that under the Italian Civil Code, IRI had a legal obligation to
the ILVA Group's creditors to apply the revenue from the subsequent
privatizations of ILP and AST for the creditors' benefit.
They further state that the Department in the Preliminary
Determination (see 64 FR 40424) recognized the revenue from asset sales
by ILVA Residua as an offset to the countervailable debt coverage
provided by the liquidation. Because no justifiable distinction can be
drawn between the ILP and AST privatization revenue and the revenue
from other asset sales, the Department should apply the 2,665 billion
lire from the privatization of ILP and AST as an offset to the
countervailable debt coverage attributed to the 1993-94 restructuring
process.
Petitioners counter that the subsidy at issue is the amount of
liabilities stripped from the operating company of (old) ILVA, which
were placed in ILVA Residua, and not the amount of ILVA Residua's debts
the GOI ultimately forgave or paid, nor the source of the
[[Page 73267]]
funds used to satisfy the debt. ILVA/ILT is confusing the benefit to
the recipient of the subsidy the Department must measure (i.e., the net
liabilities stripped from ILP) with the subsequent transactions between
ILVA Residua and the GOI. They argue that the Department rejected the
same argument in Plate in Coils from Italy (see 64 FR at 15522-23),
stating that such an analysis would calculate the cost to government,
rather than the benefit to the recipient, in violation of the law.
Petitioners submit that the same analysis is applicable in the instant
investigation.
They add that there is a fundamental difference between the revenue
from the privatization of ILP and AST and the revenue from other asset
sales by ILVA Residua. Despite ILVA/ILT's claims, the GOI's receipt of
cash from the proceeds of its sale of ILP (and AST) did not come from
(old) ILVA itself and therefore does not constitute an ``offset'' to
the liabilities stripped from (old) ILVA. Petitioners note that section
771(6) of the Act provides a list of proper offsets in determining the
net countervailable subsidy and the proceeds from a privatization are
not included within the list.
Department's Position: As mandated by law under section 771(5)(E)
of the Act, the Department must calculate subsidies as the benefit to
the recipient and not the cost to the government as proposed by
respondents. Accordingly, we must determine, at the time ILP was spun-
off from (old) ILVA, the benefit that ILP received, calculated as the
portion of (old) ILVA's liabilities which was forgiven on behalf of
ILP. At the time of ILP's separate incorporation of January 1, 1994,
ILP clearly benefitted to the extent that it did not assume a
proportional share of (old) ILVA's liabilities. ILP emerged with a
positive equity position as a result of ILVA Residua's assumption of
the vast majority of (old) ILVA's liabilities, which included that
portion of liabilities which should have been transferred to ILP.
While the EC's Monitoring Report is a useful source of information
about the liquidation of (old) ILVA, the methodologies the EC employs
to measure and report amounts associated with the liquidation may not
be appropriate for our purposes, i.e., for identifying and measuring
the countervailable benefit to ILP from the GOI's liquidation
activities. For example, we cannot rely on calculations based on the
cost to the government rather than the benefit to the recipient. See
Sheet and Strip from Italy, 64 FR at 30633.
It is the Department's practice to determine the benefit to a
respondent as the amount of liabilities that are not directly
associated with any given assets that the respondent should have taken.
See Plate in Coils from Italy, 64 FR at 15522-23. If liabilities are
not properly distributed to a new company through a restructuring
process, a benefit is conferred upon the productive assets of the new
entity. The assumption by a government of those liabilities not
apportioned is the countervailable event. If the new company is later
sold, as was the case with ILP, then the Department applies its change
in ownership methodology to determine the portion of the purchase price
attributable to the repayment of prior subsidies. We note that the cash
transfer for ILP did not take place at the time of the company's
separate incorporation, but over a year later when ILP was sold to the
RIVA Group in April 1995. Therefore, consistent with the Department's
policy, we determine that ILP received a benefit when it was separately
incorporated from (old) ILVA; the benefit was that portion of
liabilities of (old) ILVA which should have transferred to ILP, but
instead remained with ILVA Residua. See, e.g., Electrical Steel from
Italy, 59 FR at 18365, and Certain Steel from Austria, 58 FR at 37221.
Comment 11: ILVA 1993 Asset Write-Downs
Respondents contend that as a matter of law, accounting and simple
fact, the Department's preliminary approach to this subject was in
error. In the Preliminary Determination, according to respondents, the
Department countervailed the asset write-downs taken by (old) ILVA in
1993, treating the write-downs as a countervailable event. This,
according to respondents, reflected the Department's preliminary view
that the write-downs generated losses and that these losses were the
equivalent of debts that would have to be covered by the government.
Respondents maintain that the asset write-downs taken by the ILVA Group
in 1993 amounted to 1,780 billion lire, including write-downs of 1,685
billion lire for assets that would later be transferred to ILP.
Respondents claim that both Italian and U.S. GAAP require the write
down of asset values, once the impaired condition of the assets is
manifest, particularly in the face of an impending sale or transfer of
assets. Respondents state that the correct application of these
accounting rules in the current investigation requires an appreciation
of the fundamental distinctions between asset write-downs, losses, and
debts.
According to respondents, the occurrence of a loss by a company, as
reflected on the balance sheet by a reduction in shareholder's equity
and an accompanying asset write-down, involves neither a direct
transfer of funds into the company nor the forgiveness of any debts.
Rather, the asset write-downs are accounting entries required by
Italian and U.S. GAAP in the event the losses reflect a material
impairment of an asset's earnings potential over its remaining useful
life. The asset write-down does not ``cause'' the loss; instead events
or circumstances which cause losses, such as overcapacity or
obsolescence, may require an extraordinary write down of asset values
on the asset side of the balance sheet and an offsetting reduction to a
capital account on the liabilities/shareholders' equity side of the
balance sheet.
Respondents take issue with the Department's analysis in the
Preliminary Determination. Although respondents agree that under
section 771(5)(D) of the Act, the Department has an obligation to
identify a ``financial contribution'' from the government to (old)
ILVA, they believe the Department erred in preliminarily determining
that asset write-downs are a ``direct transfer of funds'' in accordance
with section 771(5)(D)(I). See Preliminary Determination, 64 FR at
40423.
Respondents claim that two fundamental flaws with the Department's
Preliminary Determination are evident. First, the Department has
confused ``real'' events and obligations with accounting entries that
create no such obligations. Second, the Department has double or even
treble counted benefits conferred by a single financial contribution.
Regarding the confusion over ``real'' events versus accounting entries,
respondents state that the assumption or forgiveness of a debt is
equivalent to a grant only if the government voluntarily pays a debt on
behalf of the company, or voluntarily waives its right to receive a
payment from the company. They further state that above all, there has
to be a debt and it has to be forgiven and that a loss is not a debt
and is by no means equivalent to a debt. A loss is recorded on the
income statement and typically impacts the balance sheet as a reduction
to retained earnings, reserves or other capital account. If the loss-
making company wants to avoid an erosion in its capital, it can
replenish its funds either by obtaining additional equity or incurring
additional debt. The loss, in and of itself, will have no direct impact
[[Page 73268]]
on debt and may never have any impact on debt, given other means of
absorbing losses available to the company. Respondents contend that an
asset write-down neither increases debt nor forgives debt. The act of
borrowing is a ``real'' event, not simply an accounting event, just as
the act of debt forgiveness is a ``real'' event, whereas the recording
of an asset write-down, or the reduction of shareholders' equity, are
accounting entries that impose no new obligations on the company.
Regarding double counting the benefit from a single financial
contribution, respondents state that the failure to distinguish between
(1) past financial contributions, (2) potential future financial
contributions, and (3) actual financial contributions that occur in
subsequent years, has led the Department to double or even treble count
the benefit from individual contributions of the same capital. To the
extent that the government contributed either equity or debt to (old)
ILVA, and thereby conferred a subsidy, those financial contributions
remain countervailable over the AUL period. To the extent the
government forgave accumulated debt, that act of debt forgiveness is
also potentially countervailable. Respondents go on to argue that an
intervening loss and asset write-down incurred by the company that
received the original equity infusion, and that might later benefit
from a debt forgiveness, would not represent an additional financial
contribution from the government or confer a separate countervailable
benefit. In the absence of a new financial contribution, as defined by
section 771(5)(D) of the Act, there can be no subsidy.
In (old) ILVA's case, according to respondents, the 1991/92 equity
infusions of 660 billion lire provided a financial contribution from
the GOI that supported the acquisition of assets and other operations
of (old) ILVA and thereby conferred a countervailable benefit. (Old)
ILVA's subsequent losses (and associated write downs) involved no
additional financial contribution or benefit because they involved no
affirmative action of any sort on the government's part. Instead, they
simply reflected the company's failure to earn a profit. As described
above, such losses result in a reduction of retained earnings or other
capital account on the balance sheet. No government action is
associated with an accounting entry of this type, and no benefit is
conferred. An additional financial contribution by the government can
be said to occur only in the event of additional equity infusions,
loans or debt forgiveness provided by the government. Thus, to impose
countervailing duties in connection with the 1993 asset write-down
would unlawfully double penalize ILVA for the same capital.
Petitioners contend that the debt forgiveness and coverage of
losses provided by IRI to ILP (now (new) ILVA) in connection with the
1993-94 Restructuring Plan provided a financial contribution to (new)
ILVA in the form of a direct transfer of funds--the equivalent of a
grant--as described in section 771(5)(D)(I) of the Act. Petitioners
cite Sheet and Strip from Italy, 64 Fed. Reg. at 30,628. They point out
that ILVA/ILT has repeatedly argued that the coverage of losses by the
GOI resulting from asset write-downs in the various restructurings of
the Italian state-owned steel industry does not constitute a financial
contribution and that this argument is in error.
Petitioners cite Plate in Coils from Italy in their argument that
the Department has previously considered the countervailability of the
coverage of losses resulting from the write-down of assets in
connection with the 1993-94 restructuring. In that case the Department
found that because the asset write-downs generated a loss that was
eventually covered by the GOI through its debt forgiveness to ILVA, the
asset write-downs are countervailable. Petitioners also cite Electrical
Steel from Italy for their assertion that the Department has previously
considered countervailability of asset write-downs in Italy. In that
case assets transferred from a GOI created ``shell company'' (TAS) to
(old) ILVA were written down prior to the transfer and as a result, the
GOI created ``shell company'' was forced to absorb greater losses,
which were countervailed.
According to petitioners, in order to understand the connection
between the countervailable benefit from the reduction of liabilities
afforded (old) ILVA and the asset write-downs, the Department need only
consider the methodology it used to determine the amount of
countervailable benefit that arises from the liabilities that were
stripped from (old) ILVA in the 1993-94 restructuring. In particular,
the countervailable benefit equals the total (gross) liabilities
transferred out of (old) ILVA minus the total assets transferred, which
equals the net liabilities transferred. For example, if the government
transfers $100 in gross liabilities and $20 in assets, then the net
benefit is $80. Obviously, the correct result from this calculation
depends on the correct value of both the gross liabilities and the
assets. If, in this example, it is determined after the transfer takes
place that the assets are, in fact, worth only $10 and are written down
accordingly, then the true amount of net liabilities transferred is
$90--or $10 more as reflected in the amount of the asset write-down.
Respondents dispute petitioners use of Electrical Steel from Italy
(see, 59 FR at 18359) pointing out that the passages from that final
used by petitioners address the Finsider restructuring (not the (old)
ILVA restructuring) and that this passage neither references nor
identifies a financial contribution. In fact, respondents claim that
the Electrical Steel from Italy determination illustrates that by
focusing exclusively on the perceived benefit without identifying any
financial contribution, the Department has unlawfully engaged in double
counting of a single subsidy event. Further, respondents dispute
petitioners' other cited case, Plate in Coils from Italy (see, 64 FR at
15525). Respondents argue that the issue of countervailing asset write-
downs in Plate in Coils from Italy was decided on the basis of a
deficient record in which the Department did not have the benefit of
the complete legal, accounting, and factual information contained in
the record of this current investigation, which is necessary for the
Department to reach an informed determination.
Respondents argue that the Department has countervailed (old)
ILVA's equity infusions that preceded the asset write-down as well as
the debt forgiveness that followed the asset write-downs, and that it
would be unlawful to countervail the intervening asset write-downs,
which involved no new or separate financial contribution from the GOI.
Department's Position: Respondents misunderstand the Departments
position concerning the asset write-downs that (old) ILVA took in 1993
as part of the restructuring/privatization plan. We disagree with
respondents that the technical GAAP requirements on asset write-downs
of either country are particularly relevant to the issue. The main
point is that retained liabilities of (old) ILVA represent the portion
of the company not covered by assets and, therefore, this is the pool
of liabilities covered by the GOI. To clarify, the recognition of the
fact that (old) ILVA's assets had become impaired in value (a real
event), and needed to be written-down, increases the retained losses
(i.e., negative equity), in the same manner as any other operating
expense or loss. The large retained losses, while not technically debt,
represents the portion of the company's liabilities that cannot be
covered by the sale or transfer of assets. It is clear that the total
amount
[[Page 73269]]
of debt is not increased by the asset write-downs. However, the writing
down of assets must be factored in to accurately reflect the amount of
debt the GOI is forgiving.
It is important to note that in its history of examining asset
write-downs in connection with Italian state-owned steel industry
restructurings, the Department has not determined that asset write-
downs per se are countervailable events. In each instance, the
Department referred to the specific situation in the Italian steel
industry, where debt forgiveness was involved. Certainly, there are
many instances where private sector companies revalue their assets in
accordance with GAAP for perfectly legitimate reasons. What the
Department has consistently determined in Electrical Steel from Italy,
Plate in Coils from Italy, and Sheet and Strip from Italy, is that
coverage of liabilities by the GOI, whether those liabilities are
created or increased by asset write-downs or any other economic event,
is countervailable. In all of these cases, the Department was presented
with the issue of how to apportion liabilities that were retained by
the GOI that should have been transferred to the new companies, ILP and
AST. To the extent that asset write-downs, recorded prior to the
separate incorporation of the companies, increased the liabilities
retained by the GOI, the Department has considered those write-downs in
the calculation of the benefit from the debt forgiveness. The real
issue here is how to apportion liabilities retained by the GOI across
the companies created by the 1993-94 Restructuring Plan, namely AST and
ILP. We can only identify the actual liabilities covered by the
government if we factor in the value of the asset write-downs. Because
the asset write-downs can be tied to specific assets that went to ILP
and AST, it is appropriate to factor these into our calculation.
Assigning the amounts of the tied write-downs to the appropriate
companies (ILP and AST) is a more reliable way to apportion the
liabilities that should have been transferred.
We disagree with respondents' argument that Electrical Steel from
Italy is not relevant here because it involved Finsider's restructuring
rather than (old) ILVA's restructuring. Respondents' distinction
between these two cases is largely cosmetic. Respondents' allegation of
double counting benefits is also without merit. In its calculation of
the total benefit from the 1993-94 Restructuring Plan, the Department
was careful to deduct the amount of liabilities associated with (old)
ILVA's asset write-downs from the amount of liabilities covered by the
GOI that were apportioned according to asset values. The amount of net
liabilities created by the asset write-downs associated with assets
transferred to ILP were then added directly to the first calculation
described above to arrive at the total amount of countervailable debt
forgiveness, thereby negating the possibility of double counting. This
calculation is consistent with Plate in Coils from Italy. We disagree
with respondents that Plate in Coils from Italy is not relevant here
since that case was ``decided on the basis of a deficient record in
which the Department did not have the benefit of the complete legal,
accounting, and factual information contained in the record of this
current investigation'' (see ILVA/ILT's November 23, 1999 Rebuttal
Brief, at 19). The issue in this current case as well as the Plate in
Coils from Italy, Sheet and Strip from Italy, and Electrical Steel from
Italy cases is not the completeness of the record. It is the
countervailability of liabilities/losses covered by the GOI and how to
apportion those amounts among respondent companies.
Comment 12: Any Benefit From Debt Coverage Was Received at the Time of
the Original Loans, Not Upon Liquidation of (Old) ILVA or Finsider
Respondents disagree with the Department's analysis that the debt
coverage provided at the time of the liquidation of Finsider in 1988
and the ILVA Group in 1993, was a new and separately countervailable
benefit. They argue that the actual benefit was many years before, when
IRI guaranteed the loans that it later had to cover during the
liquidations of Finsider and (old) ILVA. It was the loan guarantees
that later obliged IRI to provide the debt coverage, and therefore, the
only possible subsidy event occurred at the time when IRI provided the
guarantees, i.e., at the time of the original commercial borrowings.
Respondents also argue that the loan guarantee which (old) ILVA
received at the time of its commercial borrowings was consistent with
normal commercial practice in Italy, and thus, did not provide a
countervailable benefit, citing to section 351.506(b) of the CVD
Regulations. They state that Article 2362 of the Italian Civil Code
makes the sole shareholder an automatic guarantor of all loans obtained
by its wholly-owned subsidiary, and point to information placed on the
record that demonstrates the widespread use of the sole shareholder
structure in Italy. However, if the Department finds a countervailable
benefit, then that benefit could only have occurred at the time of the
original commercial borrowings which IRI guaranteed and not at the time
of liquidation. Respondents argue that the Department would be
impermissibly double-counting a single subsidy event by finding that
IRI's coverage of the same loans during liquidation subsequently
provided a new countervailable benefit.
Petitioners state that, with respect to the 1988 restructuring,
there is record evidence that the guarantee of Finsider debt by IRI was
an integral part of the overall 1988 Restructuring Plan. First, IRI
issued an explicit guarantee to the Finsider Group's creditors that all
the principal and interest of the Group's existing loans would be
repaid. See EC Decision 89/218/ECSC of December 23, 1988, contained in
the Petitioners' November 12, 1999 Case Brief, at Exhibit 1, page 77.
The guarantee issued in connection with the 1988 restructuring was
issued in 1988, and not when any outstanding loans were made to
Finsider at some earlier date. Therefore, the proper countervailable
event is the actual provision of the debt forgiveness and coverage of
losses in connection with the 1988 restructuring.
With regard to the 1993-94 Restructuring Plan, there were no IRI
``guarantees'' of loans to (old) ILVA prior to the enactment of the
plan. According to ILVA/ILT's September 3, 1999 QR, the provisions of
Italian Civil Law (i.e., Article 2362) did not apply to IRI, the ``sole
shareholder'' of (old) ILVA, until July 1992, when IRI was converted
into a public limited company. Thus, the ``sole shareholder'' guarantee
argued by respondents could not have been applicable to any loans taken
by (old) ILVA, or predecessor companies, prior to July 1992. They add
that record evidence indicates that (old) ILVA's loans pre-date July
1992. Therefore, petitioners argue that the ``guarantee'' provided by
IRI under Article 2362 is irrelevant to this case and the
countervailable event is the forgiveness of debt and coverage of losses
that occurred when (old) ILVA was demerged into AST and ILP. In
addition, petitioners argue that the ``sole shareholder'' provision is
not a normal loan guarantee.
Department's Position: ILVA/ILT's arguments that the Department is
countervailing the wrong subsidy event (i.e., debt forgiveness provided
under the 1988 and 1993-94 Restructuring Plans) and double-counting
subsidies in terms of both loan guarantees and debt coverage are
incorrect. We find that, even if there had been some earlier loan
guarantee by the GOI, a loan guarantee and the forgiveness of debt are
two
[[Page 73270]]
separate and distinct subsidy events. In a commercial context, where a
borrower defaults on a loan that is guaranteed, the borrower is still
liable to the guarantor for the debt that is now being paid by the
guarantor. Thus, if a borrower defaulted on a government-provided loan
guarantee, the borrower would still be liable to the government for the
debt, and the subsequent forgiveness of the debt would be a separate,
countervailable event from the government-provided loan guarantee. See
section 351.508 of the CVD Regulations.
Comment 13: Italy's Generally Available Liquidation Process Provided No
Countervailable Benefits
Respondents state that even if the Department regards liquidation
as a separate subsidy event from the original loan guarantees provided
by IRI, the Department must address the question of specificity under
section 771(5A) of the Act. They discuss that in the Preliminary
Determination, the Department found a specific benefit from the
liquidation of (old) ILVA, under the theory that liquidation occurred
under an EC directive which was specific to (old) ILVA (see 64 FR at
40423-24). Respondents argue, however, that the liquidation occurred
under a generally applicable provision of the Italian Civil Code, not
under an EC directive.
In support of their argument, respondents state that (old) ILVA
entered into voluntary liquidation on October 31, 1993, in accordance
with Articles 2448 et. seq. of the Italian Civil Code, which is similar
to U.S. bankruptcy procedure. The liquidation took place prior to the
EC's April 1994 Commission Decision which provided the EC with
oversight authority to prevent ``unfair competition'' and to protect
``conditions of trade in the Community steel industry.'' See EC
Decision 94/259 of April 1994, contained within ILVA/ILT's May 13, 1999
questionnaire response, at Exhibit 16.
Respondents argue that the same liquidation procedures
automatically apply to all Italian corporations, regardless of whether
they are privately-held or state-owned, and regardless of the
industrial sector in which they operate (i.e., broad cross-section of
firms utilize the process without any disproportionate or predominant
users or favoritism in the law's application). The Court of Rome's
acceptance of (old) ILVA's entry into liquidation was not the type of
discretionary government action that justifies a finding of specificity
by the Department.
They further discuss that judicial precedent has firmly established
that receivership under a generally-available bankruptcy law does not
confer a countervailable subsidy, citing Al Tech Specialty Steel Corp.
v. U.S., 661 F. Supp. 1206 (CIT 1987) (Al Tech). The court in Al Tech
upheld the Department's finding, in Certain Stainless Steel Products
from Spain, that the receivership of Olarra had extinguished prior
subsidies received in the form of loans to that company. In that case,
the Department ruled that ``where the [local] court has specifically
recognized the company's receivership, we find that any countervailable
benefits associated with loans incorporated in the receivership plan
cease to exist.'' See Certain Stainless Steel Products from Spain, 47
FR 51453, 51455 (November 15, 1982).
Petitioners state that the Department rejected the same
``generally-available liquidation'' argument with respect to a similar
restructuring plan for Cogne S.p.A. in Wire Rod from Italy (see 63 FR
40498). They submit that the record of the instant investigation
provides clear evidence that the privatization of ILP and AST was the
purpose of (old) ILVA's liquidation and that, as in Wire Rod from
Italy, the liquidation was merely the mechanism through which one
aspect of a massive government restructuring and state aid plan was to
be implemented.
Based on this record evidence, petitioners conclude that ILVA/ILT's
argument that (old) ILVA's liquidation was a normal proceeding under
Italian law is specious at best. The Plan was limited by its terms to
one entity, (old) ILVA, and the benefits were limited to (old) ILVA and
its two privatized companies: ILP and AST. The Department in both Plate
in Coils from Italy (see 64 FR 15508) and Sheet and Strip from Italy
(see 64 FR 30624) treated the 1993-94 Restructuring of (old) ILVA as
providing specific countervailable subsidies to AST. To petitioners'
knowledge, the only other entities in Italy to receive similar
restructuring benefits were other pieces of the Italian state-owned
steel industry, such as Cogne, itself formerly a part of (old) ILVA;
and these benefits were found to be specific (see, Stainless Steel Wire
Rod, 63 FR 40475). Therefore, under section 771(5A)(D), the Department
should continue to find the 1993-94 Restructuring Plan de facto
specific.
Petitioners also argue that ILVA/ILT's reliance on Al Tech to
support its position is misplaced. Al Tech involved a normal recourse
to traditional bankruptcy protection, in which the company in question
received traditional benefits under a receivership plan without special
consideration. See Al Tech, at 1212. The court made clear that the mere
use of a bankruptcy law would not insulate a subsidy recipient from the
countervailing duty law where special benefits were bestowed on
specific enterprises. See Id.
Department's Position: Consistent with our determination in Wire
Rod from Italy (see 63 FR 40498), we disagree with respondents'
argument pertaining to the sole shareholder provision of Italian law.
The record evidence demonstrates that the liquidation of (old) ILVA,
including the debt forgiveness provided, was done in the context of a
massive restructuring/privatization plan undertaken by the GOI, which
was approved and monitored by the EC. The debt forgiveness which ILP
realized was provided in the context of a massive state-aid package
designed to allow the GOI to restructure and privatize its steel
holdings. At verification, GOI officials ``emphasized that the goal of
the 1993-94 Restructuring Plan was not simply the liquidation of ILVA
S.p.A and demerger of AST and ILP, but the privatization of the Italian
steel industry.'' See GOI Verification Report, at 10-11.
While the EC did not direct the GOI to place (old) ILVA in
liquidation on October 31, 1993, the 1993-94 restructuring and
privatization plan, of which liquidation was an integral part, was
subject to the approval of, and monitoring by,10 the EC. In
fact, ILVA/ILT, in their May 13, 1999 response, states that ``[T]he
restructuring that occurred during the liquidation process was reviewed
by the EC under its competition rules and resulted in the EC decision
[of April 12, 1994].'' This statement indicates that the restructuring
and liquidation were not separate events, but two processes which the
GOI set in motion with the ultimate objective of privatizing (old) ILVA
through the demerger and separate incorporation of two spin-off
companies: ILP and AST.
---------------------------------------------------------------------------
\10\ As stated in the EC's April 12, 1994 approval, the GOI was
responsible for furnishing reports on the implementation of the
``privatization and reorganization programme and in particular * * *
financial data necessary to allow the Commission to assess whether
its conditions and requirement are fulfilled.'' See EC's 94/259/ECSC
Decision of April 12, 1994, at 69.
---------------------------------------------------------------------------
The evidence on the record demonstrates that the liquidation was
not a normal occurrence, but was part of an extensive state-aid package
designed to bestow special benefits on a specific enterprise. In
support of our
[[Page 73271]]
finding that the 1993-1994 Restructuring Plan is de facto specific, we
note the EC's 94/259/ECSC decision of April 12, 1994, in which the
Commission identified the restructuring of (old) ILVA as a single
program, the basic objective of which was the privatization of the ILVA
steel group by the end of 1994. See EC's 94/259/ECSC decision of April
12, 1994, at 65. As set forth in the EC's approval decision, the 1993-
1994 Restructuring Plan was limited by its terms to (old) ILVA and the
benefits of the plan were received by only (old) ILVA's successor
companies.
Comment 14: The Extinguishing Versus Pass-Through of Subsidies During
Privatization
The GOI and ILVA/ILT argue that, based on the verified
circumstances of the sale of ILP, the Department must conclude that
privatization extinguished any prior subsidies to (old) ILVA. The
respondents first posit that ILP's privatization, monitored by the EC,
was an open and competitive process, and therefore, was conducted at
``arm's-length.'' The privatization of ILP was accomplished through a
public tender with negotiation of terms between IRI and competing
bidders to establish an acceptable price. They equate the sale of ILP
to that of British Steel. They note that a WTO dispute resolution panel
recently determined that open and competitive bidding procedures which
result in payment of a market price for a privatized company will
extinguish prior subsidies to that company.
They add that U.S. law recognizes that privatization can extinguish
subsidies. See Section 771(5)(F) of the Act and Delverde S.r.l. v.
United States, 989 F. Supp. 218, 228 (CIT 1997). They argue that based
on the record of this investigation, U.S. law would support a
determination that no subsidies passed through to the new owners of ILP
upon its privatization in 1995. The sale of ILP occurred at a market
price and therefore involved payment for the market value of the
company, including the current value of any subsidies received by the
company prior to privatization.
Petitioners argue that the URAA confirms that subsidies remain
fully countervailable following a change in ownership, referencing
section 771(5)(F) of the Act. They add that record evidence indicates
that none of the subsidies bestowed on ILP's predecessor companies
should be treated as ``repaid'' as a result of the 1995 privatization
of ILP. The purchase price of ILP was below fair market value, and
therefore, no prior subsidies were extinguished in the sales
transaction. In support of their position, they note that the GOI
placed restrictions on the buyer of ILP such that the company could not
be shut down and no employees could be terminated for a period of three
years after the sales transaction. See GOI Verification Report, at 14-
15. Such restrictions undoubtedly caused many potential bidders not to
participate in the privatization process and surely reduced the value
of ILP to those bidders still willing to participate. Thus, the
purchase price agreed to by RIVA was undoubtedly lower than a
``negotiation process directed at obtaining the highest possible
return.'' They add that the ``below-market'' price agreed upon by RIVA
and the GOI has yet to be fully paid, as the sale is in arbitration.
Therefore, it is not rational to conclude that any subsidies were
repaid, much less extinguished in the purchase transaction.
Department's Position: Under our existing methodology, we neither
presume automatic extinguishment nor automatic pass through of prior
subsidies in an arm's-length transaction. Instead, our methodology
recognizes that a change in ownership has some impact on the allocation
of previously bestowed subsidies and, through an analysis based on the
facts of each transaction, determines the extent to which the subsidies
are allocated to the privatized company. In the instant proceeding, the
Department relied upon the pertinent facts of the case in determining
the extent to which the countervailable benefits received by ILP's
predecessor companies passed through to ILP.
Following the GIA methodology, the Department subjected the level
of previously bestowed subsidies and ILP's purchase price to a
specific, detailed analysis. This analysis resulted in a particular
``pass through ratio'' and a determination as to the extent of
repayment of prior subsidies. On this basis, the Department determined
that, when ILP was privatized, a portion of the benefits received by
(old) ILVA, and other predecessor companies, passed through to the
privatized company and a portion was repaid to the government. This is
consistent with our past practice and has been upheld in the Court of
Appeals for the Federal Circuit in Saarstahl AG v. United States, 78
F.3d 1539 (Fed. Cir. 1996) (Saarstahl II), British Steel plc v. United
States, 127 F.3d 1471 (Fed. Cir. Oct. 24, 1997) (British Steel II) and
Delverde II.
Furthermore, ILVA/ILT's contention that the sale of ILP was an
arm's-length, market-valued transaction does not demonstrate that
previous subsidies were extinguished. Section 771(5)(F) of the Act
states that the change in ownership of the productive assets of a
foreign enterprise does not require an automatic finding of no pass
through even if accomplished through an arm's-length transaction.
Section 771(5)(F) of the Act instead leaves the choice of methodology
to the Department's discretion. Additionally, the SAA directs the
Department to exercise its discretion in determining whether a
privatization eliminates prior subsidies by considering the particular
facts of each case. See SAA at 928.
Lastly, with respect to the respondents' comments concerning the
recent finding by a WTO Dispute Settlement Panel that an arm's-length
privatization automatically extinguishes prior subsidies received by
government-owned firms, the Department notes that this was an interim
(i.e., preliminary) confidential report. As such, it is inappropriate
for the parties or the Department to comment on it.
Comment 16: Repayment Portion of Change-in-Ownership Analysis
According to petitioners, Congress intended that countervailing
duties be imposed to offset subsidies to production. Since changes in
ownership do not affect production, the petitioners conclude that they
should also not affect countervailing duty liability.
The petitioners distinguish between the subsidies themselves and
countervailing duty liabilities arising from those subsidies. Citing
the GIA (58 FR at 37260) where it quotes British Steel Corp. v. United
States, 605 F. Supp. 286, 294 (CIT 1985), the petitioners state that
the Department is obligated, when injury exists, to impose duties when
subsidies have been provided ``with respect to the manufacture,
production or export * * * of a class or kind of merchandise'' imported
into the United States. To show that the liability for such subsidies
is attached to production, the petitioners cite to the same where it
states, ``if a benefit or advantage is received in connection with the
production of merchandise,'' that benefit or advantage is a ``bounty or
grant on production.'' To further demonstrate the linking of
countervailing duty liabilities to production in a post-URAA case, the
petitioners cite the Final Results of Redetermination Pursuant to Court
Remand, Delverde, SrL v. United States, Consol. Ct. No. 96-08-01997,
aff'd, Delverde, SrL v. United States, 24 F. Supp.2d 314 (CIT 1998)
where it states:
Once the Department determines that a ``subsidy'' has been
provided, it measures the amount of the subsidy, attributes the
subsidy to the appropriate production * * *
[[Page 73272]]
Generally speaking, the practical results of this system is to link
liability for, as an example, pasta subsidies to pasta production.''
The petitioners maintain that after a change in ownership, a
company will produce at the same cost, in the same volume and with the
same artificial advantages born of subsidies. Petitioners claim that
this happens because the profit-maximizing level of price and output
are unchanged. According to petitioners, regardless of whether a buyer
or seller captures the benefit of a subsidy after a change in
ownership, the buyer still acquires the subsidy-augmented production
facilities and uses them at the same profit-maximizing level, thus
leaving the misallocation of resources arising from the subsidies and
the threat to the companies' competitors unchanged.
To show that the seller actually captures the benefit of previously
bestowed subsidies, the petitioners cite a publication by the U.S.
Department of Agriculture which states that subsidies to farmers have
created inequities between existing and entering farmers by increasing
the cost of acquiring land for entering farmers.11 The
petitioners maintain that even though sellers gain the windfalls from
subsidies during a change in ownership, the reallocation of
countervailing duty liabilities back to the sellers is inappropriate.
First of all, the price paid by a buyer is discounted for the risk
associated with the countervailing duty liabilities, according to
petitioners. In addition, since the seller no longer has control over
production, the petitioners state that imposing duties on the seller
would not have the effect of offsetting the artificial advantages on
production arising from the subsidies.
---------------------------------------------------------------------------
\11\ U.S. Farm Programs and Agricultural Resources, USDA
Economic Research Service, Agricultural Information Bulletin No. 614
(Sept. 1990).
---------------------------------------------------------------------------
The petitioners further argue that the reallocation/repayment
aspects of the Department's change-in-ownership methodology amount to
measuring the effects of subsidies and taking account of events
subsequent to the bestowal of the same. According to 19 CFR 351.504-
511, the Department should not take into account the effects of
subsidies and, instead, should measure benefits at the time of
bestowal.
Finally, the petitioners take issue with the Department's practice
of automatically conducting a repayment/reallocation analysis as part
of its change-in-ownership methodology. According to the petitioners,
the URAA legislative history makes it clear that such automatically was
not intended by Congress where it says that the Department must
continue to countervail subsidies following a normal (i.e., fairly
priced) ownership change without lessening or reallocating unamortized
subsidy benefits unless something else occurs during the transaction
that ``actually serve[s] to eliminate * * * subsidies.'' See S. Rep.
No. 103-412 at 92 (1994).
Department's Position: The petitioners' main argument is that
subsidy liabilities are attached to production; therefore, subsidy
amounts cannot change when production remains unchanged. While we agree
that subsidies benefit production, that does not require the conclusion
that subsidies cannot change without changes in production. Our
rationale for applying repayment calculations as part of our change-in-
ownership methodology does not pre-suppose that production has changed.
Rather, our methodology is based on the idea that a portion of the
purchase price for ownership rights may remunerate the seller for prior
subsidies.
To the extent we countervail the portion of the subsidy existing
after repayment or reallocation, we are executing our mandate ``to
impose duties with respect to the manufacture, production or export of
a class or kind of merchandise.'' Not reducing the subsidy by the
amount of repayment or reallocation for a seller would amount to over-
imposing duties. Our repayment/reallocation methodology, as part of our
change-in-ownership methodology, has been litigated and upheld by the
Courts (see Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir.
1996), British Steel plc v. United States, 127 F.3d 1471 (Fed. Cir.
Oct. 24, 1997) British Steel plc v. United States, 929 F. Supp. 426,
439 (CIT 1996) and Delverde, SrL. v. United States, 24 F. Supp. 2d 314
(CIT 1998).
Regarding the petitioners' argument that the risk of countervailing
duty liabilities will be taken into account by a buyer, we agree that
this might occur and result in a discounted price for the company being
sold. However, at the time the changes in ownership relevant to the
investigation occurred, the Department's change-in-ownership
methodology was being challenged in court. Therefore, while there might
have been some risk, there was no certainty of a countervailing duty
liability. Any attempt to account for the risk would be purely
speculative.
We disagree with the petitioners' assertion that the ``automatic''
nature of the repayment/reallocation analysis is contrary to the URAA
legislative history. The legislative history simply says that a change
in ownership ``does not by itself require the Commerce Department to
determine that a countervailable subsidy * * * continues to be
countervailable, even if the change in ownership occurs through an
`arm's length transaction ' ''and that ``the sale of a firm at `arm's
length' does not automatically extinguish any previously-conferred
(sic) subsidies.'' See S. Rep No. 103-412 at 92 (1994). To the extent
our repayment/reallocation methodology does not make any presumptions
as to whether there will be any repayment/reallocation as a result of a
change in ownership, there is nothing inherently automatic in its
nature. Nowhere does the legislative history require that ``something
else'' must happen, as was argued by the petitioners, before subsidies
can be extinguished.
Finally, regarding the petitioners' argument that the repayment/
reallocation calculation amounts to measuring to the effects of
subsidies, we disagree. Our calculation does not look at the effects of
a subsidy, but instead looks at the effects of changes in ownership on
the subsidy.
Comment 16: Discount Rate for Net Present Value Calculations
Respondents argue that in the Preliminary Determination, the
Department used an uncreditworthy discount rate to calculate the
benefit stream from non-recurring subsidies over the entire AUL period,
while using a creditworthy discount rate to discount these same
benefits in 1998, back to 1995, the year of ILP's privatization. It is
respondents' view that under 19 CFR 351.524(d)(3) and 351.505(a)(4),
the Department must, in selecting a discount rate for any allocation of
benefits, determine creditworthiness ``in the year in which the
government agreed to provide the subsidy.'' Respondents argue that
since the Department has to use the subsidy approval year, and since
the Department regards (old) ILVA's predecessors as uncreditworthy
during that period, the Department must assign an uncreditworthy
interest rate to (old) ILVA for all of its net present value (NPV)
calculations.
Petitioners state that if the Department chooses to apply its
repayment methodology in this case, they do not disagree with the
concept that the Department should use consistent discount rates for
all NPV calculations for its final determination and that discount
rates are properly determined at the time of subsidy bestowal.
[[Page 73273]]
Department's Position: We disagree with both respondents and
petitioners concerning our use of discount rates. Consistent with our
past practice, we have used the discount rate prevailing at the time of
privatization. This issue was discussed in the GIA: ``Finally, we
reduced 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.'' (emphasis added) See GIA, 58 FR at 37263.
This is the same approach taken by the Department in Plate in Coils
from Italy, and Sheet and Strip from Italy. Given the Department's past
practice and the language of the GIA, it is inappropriate to use the
original discount rates from the subsidy allocation formula to
calculate the net present value of remaining benefits at the time of
privatization.
Comment 17: Early Retirement Benefits
Petitioners contend the appropriate benefit to ILVA/ILT from Law
451/94 is the full amount of the payments made by the GOI to workers
attributable to ILVA/ILT under Law 451/94. They state it is now clear
that, absent a government early retirement program, ILVA/ILT would not
have been in a position to lay-off a substantial number of workers.
Therefore, the workers were in a position to insist on the benefits
received and, absent Law 451/94, the obligation would have fallen fully
on ILVA/ILT.
Petitioners also contend that, since the GOI still owned (old) ILVA
when the negotiations took place, before the adoption of Law 451, it
was the GOI that negotiated the lay-offs and the early retirement
program with the unions. ILP, which was bought the next year by Riva,
was the beneficiary of the GOI's efforts to pay off the unions so as to
avoid social strife while still creating a viable ILP that could be
sold to a private investor.
Also, petitioners argue that since the proposed industrial plan was
a critical factor for determining which bidder could purchase ILP, it
is reasonable to assume that the GOI would have had extreme difficulty
selling ILP to anyone, had it not established Law 451/94 and ensured a
negotiated settlement with the unions on the necessary early retirement
program for (old) ILVA. Indeed, the Riva Group was forced to agree as a
condition of its purchase of ILP that no lay-offs of employees (beyond
those previously agreed to by the unions in March 1994) could happen
for a period of three years.
Respondents counter that the sales contract mandated the continued
operation of production lines (``with the purpose of ensuring
continuity of production'') as well as the continued employment of
workers. They state that, contrary to petitioners' assertion that the
contract demonstrates ILP would have kept all early retirees on its
payroll in the absence of Law 451/94, the contract actually confirms
that it was the production cut-backs and restructuring requirements
that resulted in the adoption of Law 451 in 1994. As noted in the
contract, without production cutbacks, no layoffs would have been
needed. The choice between mass firings and Law 451/94 was not and has
never been the choice that ILVA actually faced.
Regarding whether the program is countervailable, respondents argue
Law 451/94 provided no countervailable benefit to ILVA because the
government required the steel industry to restructure, based on the
requirements set forth by the EC. In recognition of the costs imposed,
the EC authorized member governments to provide early retirement and
other ``social rehabilitation'' benefits. The restructuring and
production cut-backs ordered by the EC and the GOI provided the legal
basis for the early retirement benefits. Respondents argue that the
Department does not consider worker assistance to benefit a company if
the government provides the assistance for the specific purpose of
offsetting costs imposed on that company by an industry-specific
government program, as outlined in the General Issues Appendix.
Respondents further state that ILVA would not ``normally'' have
incurred an early retirement burden, because it would not ``normally''
have needed to shutter capacity and shed workers under an EC and GOI
restructuring plan. Absent the costs of restructuring, there would have
been no Law 451/94 and no early retirement benefits. Under 19 CFR
351.513 and the GIA, Law 451/94 is not countervailable because it did
not relieve ILVA of an obligation that it would normally have incurred.
Respondents also state that absent Law 451/94, ILVA's workers would
have used the Mobility provision. ILVA had the legal right to lay off
redundant workers without paying them annual compensation. In the
absence of Law 451/94, ILVA would not have kept these workers on the
payroll. Instead, ILVA would have negotiated with the unions under Law
223 and the non-specific provisions for early retirement under that
law.
Petitioners contend that ILVA was not mandated to lay-off workers
and therefore any early retirement benefits received under Law 451/94
provided a countervailable benefit. While ILVA/ILT claims Law 451/94
was adopted to offset the burden of EC requirements imposed on the
Italian steel industry, petitioners argue that it was the EC's
intention to provide an additional subsidy to the European steel
industry, not some additional legal obligation on the industry. While
it is true that the EC did mandate some reductions in production
capacity for ILVA, petitioners state this was not done in the form of a
legal directive, but rather, as a condition for receiving EC approval
of the 1993-94 Restructuring Plan for ILVA and the massive subsidy
program inherent in the Plan that had been proposed by the GOI.
Moreover, even if one considered this a legal requirement, there is
still no indication on the record in this investigation that ILVA was
legally required to lay-off employees. Rather, the obligation, if any,
was on ILVA to reduce production capacity. Petitioners contend Law 451/
94 was not a device that ILVA could use to lay off workers, but only to
grant early retirement to those that volunteered. Given these facts,
petitioners argue the costs ILVA would have borne under Mobility are
irrelevant to the Department's analysis of this program.
Department's Position: According to section 351.513(a) of the CVD
Regulations, worker related subsidies provide a benefit to the extent
that the assistance relieves a firm of an obligation that it would
normally incur. We disagree with respondents' argument that the
Department does not consider worker assistance to benefit a company if
the government provides the assistance for offsetting costs imposed on
that company by a government program. The industry restructuring, in
and of itself, was not mandated by the GOI. Rather, the resulting
capacity reductions, and corresponding layoffs associated with those
reductions, were a condition for the receipt of additional subsidies.
Thus, the capacity reductions in the Italian steel industry were a
condition for receiving EC approval of the 1993-94 Restructuring Plan
for ILVA, and its inherent subsidies. These capacity reductions would
necessitate the layoffs. Further, since negotiations with the unions
took place while the GOI still owned (old) ILVA, the GOI, in effect,
negotiated the early retirements with the unions. Therefore, early
retirement under Law 451 can be considered as another benefit to ILP,
as an attempt to make it more attractive to a potential buyer in
advance of its privatization.
As to whether the company could have used the ``Mobility''
provision of Law 223 in the absence of Law 451, we disagree with
respondents' claims that
[[Page 73274]]
laying off a significant number of employees would not have caused
social unrest because those employees would have been compensated under
Mobility. We have no way of knowing what the social implications would
have been had there been a massive layoff in the steel industry.
However, we note that benefits available under Mobility are far less
generous than the benefits provided under Law 451. We also note that
the GOI officials explained to us at verification that there would
likely be social strife associated with such a large number of layoffs.
Because of these factors, it is not unreasonable to assume that
negative social implications would have occurred had the steel industry
simply laid off a large number of employees.
Respondents point out that, as stated by the Department in Plate in
Coils from Italy and Sheet and Strip from Italy, the benefit to ILP
would have been the difference between what it would have paid under
Mobility and what the company actually paid under Law 451/94. However,
as explained by the Department, this is relevant only if we knew that
the outcome of the negotiations between the Ministry of Labor, the
company and the unions would have resulted in the union's failure to
prevent any layoffs. The fact is that, under Law 223, the company would
have had to enter into negotiations with the unions before laying off
such a large number of workers, and we have no way of knowing what the
outcome of those negotiations would have been, absent Law 451.
With regard to ILVA Residua early retirees, we find asset value
apportioned to ILP, as a percentage of total viable assets of (old)
ILVA immediately prior to ILP's separate incorporation, to be the most
appropriate method to apportion the correct number of ILVA Residua
early retirees to ILP. This is consistent with our findings for the
1993-94 Restructuring Plan. We disagree with respondents' argument that
we should only apportion those ILVA Residua early retirees who worked
at facilities connected to the operations of ILP. To the extent Law 451
provides a benefit to the entire entity of (old) ILVA by relieving it
of costs it would otherwise have had to bear, the benefits flow to the
entire entity, regardless of which facilities employed the workers.
In addition, we disagree with respondents' characterization that
the Department verified all of the other ILVA Residua retirees came
from facilities that ``were never connected to any of the activities of
ILP.'' The Department's ILVA/ILT Verification Report states:
We were able to verify that the following facilities were not
involved in the production or sale of carbon steel plate products:
Aosta; Bagnoli; Campi; Levate; Miniere dell'Elba; Piombino; Sesto
S.G. + ex Uve/MI; Terni; Torino; and Torre Annunziata. For the
remaining facilities, we verified that carbon steel plate production
or sales either did, or could have, taken place there. The total
number of those employees is 893, as calculated on page 10 of
Verification Exhibit L451-5.12
---------------------------------------------------------------------------
\12\ See ILVA/ILT Verification Report, at page 21.
Lastly, 26 early retirees attributable to ILVA Pali Dalmine, a
former ILVA subsidiary that was sold prior to the POI, were not
included in our calculation of the benefit to ILVA/ILT resulting from
Law 451, since they would not have been employed by the company during
the POI, absent Law 451.
Comment 18: Exemptions From Taxes
Petitioners contend that, in the Preliminary Determination, the
Department failed to countervail the ILOR tax exemption that ILT
benefitted from during the POI. At verification, the Department
confirmed ILT benefitted from an exemption of both IRPEG and ILOR on
its 1997 tax return, filed during the POI.
ILVA/ILT states that, at verification, the Department confirmed the
repeal of the ILOR tax in 1997. ILOR no longer applied during the
period of investigation. ILT received no exemption from ILOR in the
1998 tax year because the tax itself no longer existed. Under 19 CFR
351.526(b), repeal of ILOR constitutes a program-wide change because it
``(1) is not limited to an individual firm or firms; and (2) is
effectuated by an official act, such as the enactment of a statute,
regulation, or decree.'' As provided in 19 CFR 351.526(a), the
Department should take this program-wide change into account in
establishing the estimated countervailing duty cash deposit rate.
Petitioners counter by stating that the benefits available under
ILOR are completely unaffected by its repeal. Petitioners contend that
the repeal of ILOR does not constitute a program-wide change since it
was accompanied with the implementation of a new tax, IRAP, which is a
substitute for ILOR. ILVA/ILT's argument also ignores subsection (d) of
19 CFR 351.526, which provides that:
The Secretary will not adjust the cash deposit under paragraph
(a) of this section if the program-wide change constitutes the
termination of a program and * * *. The Secretary determines that a
substitute program for the terminated program has been introduced
and the Secretary is not able to measure the amount of
countervailable subsidies provided under the substitute program.
ILVA/ILT also states the Department should use the verified benefit
calculations for the ILT tax exemptions from IRPEG. At verification,
the Department confirmed that IRPEG tax without the exemption would
have applied only partially at the 37% rate, because a small portion of
income would have qualified for a 19% rate. By reviewing ILT's tax
return, the Department verified that the value of the IRPEG exemption
for the 1997 tax year was smaller than that which was used in
determining the benefit in the Preliminary Determination.
Department's Position: We agree with petitioners that ILT's
exemption of the ILOR tax provides a countervailable benefit during the
POI. While respondents are correct that the ILOR tax was repealed
beginning in the tax year 1998, ILT received an exemption of the ILOR
tax on its 1997 tax return, which was filed in 1998, the POI. According
to the Department's long-standing practice, a benefit takes place at
the time of receipt, which, in this case is 1998, the year in which the
tax return was filed. See section 351.509(b)(1) of the CVD Regulations.
It is also clear to the Department that IRAP, for which eligibility for
an exemption is similar to that of ILOR, is essentially a successor tax
to ILOR; therefore, in accordance with section 351.526(d)(2), the cash
deposit rate should not be adjusted in this instance.
After examining evidence at verification, we agree with ILVA/ILT
that a portion of the profit to which the IRPEG tax applies should be
calculated at the rate of 19%, with the remainder calculated at the
rate of 37%.
Comment 19: European Social Fund (ESF)
Petitioners argue that, at verification, it was determined that at
least some ILP employees participated in ESF training programs that
took place in Taranto in 1994 and 1995. Since ILVA/ILT officials could
not confirm how many of the total participants were ILP employees, the
Department must countervail the full amount of the ESF payments as
benefitting ILP since companies normally incur the costs of training to
enhance the job-related skills of their own employees. The Department
has previously countervailed ESF training funding to Italian steel
producers.
[[Page 73275]]
ILVA/ILT states that the Department verified that these payments
were not grants but were instead payments earned by ILP ``for services
provided'' in connection with training and tutoring of workers in the
Taranto area under an ESF grant administered by IRI. The Department
noted that 11 of 64 workers that received training were from ILP,
according to the explanation and partial documentation presented at
verification. None of the training programs covered skills specific to
the steel industry, and most of the workers attending had no connection
to ILP. This general training course attended by workers of many firms
did not relieve ILP of the obligation to provide steel-specific
training to its workers and therefore is not countervailable under
section 351.513 of the CVD Regulations.
Department's Position: Certain Stainless Steel Hollow Products From
Sweden, 52 FR at 5799, states that ``because we saw no evidence that:
(1) the classes were for jobs related to stainless steel production; or
(2) that either of these companies was relieved of any expenses it
otherwise would have incurred absent this program, we determine that no
countervailable benefit was bestowed under this program.'' Based on our
findings at verification, and the overall record of this investigation,
there is nothing to suggest that the training programs in which ILP and
ILVA/ILT received payment for services provided (DUSID, DUTEM, and
DUMES) were related to the steel industry in general, let alone
production of subject merchandise, or that the company was relieved of
expenses it otherwise would have incurred.
Comment 20: Grants to ILVA
Petitioners argue that, while ILVA/ILT had claimed that the amounts
listed in its annual reports for 1989-1992 as ``Grants and Aid for
Operations'' were totals of grants provided under various programs
being separately investigated, at verification, ILVA/ILT officials
could not reconcile the figures from 1989-92 annual reports with the
amounts the company received under the various separate programs.
Petitioners claim that these discrepancies, together with the fact that
the Department found such grants to be countervailable subsidies in
Certain Steel from Italy, the Department should countervail these
grants in the final determination.
Respondents counter that, legally, Certain Steel from Italy has no
probative value and that the current investigation of ILVA is not an
administrative review of Certain Steel from Italy, therefore the
Department has no legal authority to use information from Certain Steel
from Italy for any purpose whatsoever in the current, unrelated
investigation. ILVA/ILT states that the Department investigated and
verified the benefits that (old) ILVA received under all of the
programs that might potentially have applied to ILVA between 1989-1992.
In its June 21, 1999 questionnaire response, and again at verification,
ILVA provided worksheets and supporting documentation that accounted
for the sum total of ``Grants and Aid for Operations'' recorded on
(old) ILVA's financial statements. The company noted that the majority
of the benefits to (old) ILVA during those years came from interest
contributions under Law 675/77. However, because the ILVA that now
exists is not the same company or under the same ownership as the (old)
ILVA, it has no access to records of the actual receipt or amount of
interest contribution payments to (old) ILVA between 1989-1992.
Respondents further state that ILVA did demonstrate in its June 21
response and at verification that: (1) the interest contribution
obligations of the GOI would have resulted in actual interest
contribution payments over this period; and (2) these payments could
have fully offset the difference between the sum total of ``Grants and
Aid for Operations'' recorded on old ILVA's financial statements and
the amounts verified by the Department under the specific programs
applicable at that time. Respondents argue that ILVA has, therefore,
satisfied the burden of accounting for the benefits in question.
Department's Position: We agree with respondents that the company
has satisfied the burden of accounting for any discrepancy between the
amounts recorded in the financial statement and the amounts verified.
We concluded from our verification that benefits received as interest
contributions under Law 675 are listed in the ``Grants and Aid for
Operations'' account in the company's financial statements. Although we
could not completely tie these contributions directly to the financial
statement, this is due to the difference in the recording of interest
contributions for financial statement purposes and the recording of the
actual receipt of the contributions in the company's internal accounts.
Comment 21: Additional Subsidies Discovered at Verification
Petitioners state that, at verification, the Department discovered
that Sidercomit, which merged with ILVA in 1997, received a loan under
Law 64 of March 1, 1986, in 1996, and in 1998, received interest
contributions against that loan. Petitioners argue that these interest
contributions on behalf of ILVA/ILT constitute a countervailable
subsidy. Petitioners further claim that, as outlined in the ILVA/ILT
Verification Report, these interest grants were provided to Sidercomit
``for the processing of quarto plate (i.e., cleaning, painting, and
packaging of quarto plate) at the Taranto facility,'' therefore,
pursuant to 19 CFR 351.525(b)(5) of the Department's regulations,
should be attributed only to ILVA/ILT's cut-to-length plate sales.
Therefore, the Department should use ILVA/ILT's 1998 sales of subject
merchandise as the denominator in its calculation of the ad valorem
rate attributable to this benefit.
ILVA/ILT does not contest the countervailability of the interest
contribution, but does challenge petitioners' proposed allocation
method. Sidercomit was created in 1992 as a subsidiary of IDI S.p.A.,
which was in turn a subsidiary of (old) ILVA. Thus, at the time
Sidercomit received the loans, it was a separate subsidiary of ILVA.
However, in 1997, Sidercomit became an operating unit within ILVA and
remained a unit within ILVA during the POI. As a result, respondents
argue the interest contribution received during the POI benefitted all
of ILVA, not just Sidercomit. This is confirmed by the fact that ILVA,
not Sidercomit, is the recipient of the interest contribution. ILVA/ILT
further states that the record establishes that Sidercomit operates
service centers for the distribution in Italy of quarto plate and other
products produced by ILVA/ILT. Therefore, respondents claim, the
Department should determine that the interest contribution benefitted
all of ILVA's production, not just the subject merchandise.
Petitioners also contend that the Department, during verification,
obtained additional information regarding grants to ILVA/ILT under
Decree 218 and Law 64. As noted above, Decree 218 and Law 64 were found
to provide specific benefits in Certain Steel Products from Italy.
Therefore, petitioners argue, these grants are countervailable
subsidies. Respondents counter that, as their only justification for
this request, petitioners cite the 1993 Certain Steel from Italy
determination. Certain Steel from Italy was a best information
available (BIA) determination which has no probative value and no
connection to this investigation. Since petitioners have provided no
information to support their request, and since the record demonstrates
that ILVA received no benefits during the POI under these programs,
ILVA/ILT argues that no
[[Page 73276]]
countervailing duties should be imposed in connection with these
programs.
Department's Position: The interest contributions received against
the loan to Sidercomit represent a countervailable benefit to ILVA/ILT.
We agree with petitioners that these interest contributions were tied
to the production of plate and, as such, should be attributed to all of
ILVA's plate sales, not just the plate produced by ILT. However, it is
not clear from the record that we have total sales (both domestic and
export) of plate over which to attribute these interest contributions.
While we do have sales of subject merchandise produced by ILT and sold
by ILVA, it is not clear that this figure reflects total sales of all
plate by ILVA. Therefore, we have attributed the interest contributions
to ILVA's total sales. We note that, even if we were to attribute the
interest contributions to the sales figure for subject merchandise, the
subsidy rate would be negligible.
With regard to Capital Grants under Decree 218 and Law 64, since
the total amounts of the benefits received by ILVA/ILT and its
predecessor companies would be expensed in the years of receipt, and
since no grants were provided during the POI, we find it unnecessary to
reach the issue of whether this program is countervailable.
Comment 22: ``Green Light'' Treatment of Subsidies
Petitioners state that, in the Preliminary Determination, the
Department properly rejected the requests made by the GOI and ILVA/ILT
that certain regional subsidies be considered non-countervailable under
the green light provisions of section 771(5B) of the Act. Petitioners
further point out that the GOI waived its green light claims at
verification.
ILVA/ILT does not contest petitioners' argument that the GOI waived
its prior request for green light treatment of certain programs in the
context of this investigation.
Department's Position: At verification, GOI officials stated that
they did not wish to further pursue the issue of green light treatment
of certain subsidies, and that they were waiving their prior green
light claim. Therefore, the Department will not grant green light
treatment to any program in this investigation, and does not rule on
the validity of the GOI's prior green light claim.
Comment 23: Imports Under Temporary Bond (TIB)
Respondents state that in response to the Department's preliminary
countervailing duty determination, ILVA submitted to the Department a
formal request that the Department harmonize its treatment of ILVA's
temporary importation bond entries that were subsequently exported to
Canada in the countervailing duty phase of this proceeding with its
approach in the antidumping proceeding. In that request, ILVA informed
the Department that, in the antidumping investigation, the Department
excluded ILVA's TIB entries from its margin calculation because such
entries were not ``entries for consumption.'' ILVA also argued that
exclusion of ILVA's TIB entries from the antidumping investigation
required that the Department exclude those same entries, for suspension
of liquidation and cash deposit purposes, from the corresponding
countervailing duty investigation. Respondents maintain that, to date,
the Department has not responded to this request.
Respondents reaffirm their position that U.S. law requires that TIB
entries be included in the Department's dumping margin calculation,
because the TIB entries are ``entered for consumption.'' Respondents
argue the statute thereby requires the Department to include TIB
entries in its margin calculations, suspend liquidation on those
entries, and collect estimated antidumping and countervailing duties.
If, however, in the final determination of the antidumping
investigation, the Department continues to treat ILVA's TIB entries as
not being ``entries for consumption,'' respondents request that the
Department harmonize both the antidumping and countervailing duty
investigations. Specifically, ILVA requests that the Department issue
instructions to Customs specifying that Customs not suspend liquidation
of TIB entries and not collect estimated cash deposits of estimated
countervailing duties on those entries.
Petitioners state that none of ILVA/ILT's arguments are relevant to
the Department's final determination in this countervailing duty
investigation. Any issues regarding the dumping margin calculations,
according to petitioners, should be addressed in the separate
antidumping investigation of carbon-quality steel plate from Italy and
for purposes of this countervailing duty investigation, the Department
should issue its standard instructions to the Customs Service regarding
suspension of liquidation and assessment of duties.
Department's Position: We agree with petitioners that none of
respondents' comments concerning the treatment of the TIB entries in
question with respect to the dumping margin calculation is relevant to
this proceeding. Further, respondents agree with the approach taken by
the Department at the Preliminary Determination with respect to the
suspension of liquidation of entries and collection of estimated
countervailing duties since the Department directed Customs to suspend
liquidation of all imports of subject merchandise from ILVA/ILT. With
respect to entries subject to suspension of liquidation and collection
of duties, we have continued to follow the approach to the TIB entries
in question taken in the companion antidumping duty investigation for
cut-to-length carbon steel plate from Italy. (See that notice for
further discussion of how these entries will be treated in terms of
assessment of duties.)
Comment 24: Mid-Year Convention
Petitioners discuss that the Department, in amortizing grants over
time, continues to use a methodology which assumes that subsidies are
received on the first day of the year. They argue that the Department's
methodology is unreasonable and biased against a full subsidy offset,
and is in violation of the law.
ILVA/ILT counters stating that it is the Department's long-standing
policy to allocate benefits as if the subsidy was received at the
beginning of the year of receipt. They discuss that in the final CVD
regulations, the Department rejected the ``mid-year convention''; i.e.,
the proposition that it should assume grants are received in the middle
of the year. Respondents conclude that nothing in the petitioners'
presentation merits a reconsideration of the Department's position
against the mid-year convention.
Department's Position: The petitioners' approach to allocating
subsidies was presented to the Department during the comment period of
the CVD Regulations. See CVD Regulations, 63 FR at 65399. In finalizing
its CVD Regulations, the Department considered and chose not to adopt
the methodology proposed by petitioners. We continue to follow our
policy as explained in the preamble to the CVD Regulations.
Verification
In accordance with section 782(i) of the Act, except where noted,
we verified the information used in making our final determination. We
followed standard verification procedures, including meeting with the
government and company officials, and examining relevant accounting
records and original source documents. Our verification results are
outlined in detail in the public versions of the verification reports,
which are on file in the CRU of
[[Page 73277]]
the Department of Commerce (Room B-099).
Suspension of Liquidation
In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual rate for each company investigated. We
determine that the total estimated net countervailable subsidy is 26.12
percent ad valorem for ILVA/ILT. We determine that the total estimated
net countervailable subsidy is 0.12 percent ad valorem for Palini &
Bertoli, which is de minimis. Therefore, we determine that no
countervailable subsidies are being provided to Palini & Bertoli for
its production or exportation of certain cut-to-length carbon-quality
steel plate.
In accordance with section 705(c)(5)(A)(i) of the Act, we have
calculated an all-others rate which is ``an amount equal to the
weighted-average countervailable subsidy rates established for
exporters and producers individually investigated, excluding any zero
and de minimis countervailable subsidy rates and any rates determined
entirely under section 776.'' On this basis, we determine that the all-
others rate is 26.12 percent ad valorem, which is the rate calculated
for ILVA/ILT.
------------------------------------------------------------------------
Company Net subsidy rate
------------------------------------------------------------------------
ILVA/ILT.................................. 26.12% ad valorem.
Palini & Bertoli.......................... 0.12% ad valorem.
All others................................ 26.12% ad valorem
------------------------------------------------------------------------
In accordance with our preliminary affirmative determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of certain cut-to-length carbon-quality from Italy, which were
entered or withdrawn from warehouse, for consumption on or after July
26, 1999, the date of the publication of our preliminary determination
in the Federal Register, with the exception of Palini & Bertoli, which
was de minimis in the Preliminary Determination. In accordance with
section 703(d) of the Act, we instructed the U.S. Customs Service to
discontinue the suspension of liquidation for merchandise entered on or
after November 23, 1999, but to continue the suspension of liquidation
of entries made between July 26, 1999 and November 22, 1999.
We will reinstate suspension of liquidation under section 706(a) of
the Act for all entries except for Palini & Bertoli if the ITC issues a
final affirmative injury determination and will require a cash deposit
of estimated countervailing duties for such entries of merchandise in
the amounts indicated above. If the ITC determines that material
injury, or threat of material injury, does not exist, this proceeding
will be terminated and all estimated duties deposited or securities
posted as a result of the suspension of liquidation will be refunded or
canceled.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information related 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 for Import Administration.
If the ITC determines that material injury, or threat of material
injury, does not exist, these proceedings will be terminated and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order.
Return or Destruction of Proprietary Information
In the event that the ITC issues a final negative injury
determination, this notice will serve as the only reminder to parties
subject to Administrative Protective Order (APO) of their
responsibility concerning the destruction of proprietary information
disclosed under APO in accordance with 19 CFR 351.305(a)(3). Failure to
comply is a violation of the APO.
This determination is published pursuant to sections 705(d) and
777(i) of the Act.
Dated: December 13, 1999.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 99-33237 Filed 12-28-99; 8:45 am]
BILLING CODE 3510-DS-P
