02-5106. Notice of Preliminary Negative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determinations: Certain Cold-Rolled Carbon Steel Flat Products From Argentina

AGENCY:

Import Administration, International Trade Administration, Department of Commerce.

ACTION:

Preliminary determination of countervailing duty investigation.

SUMMARY:

The Department of Commerce preliminarily determines that countervailable subsidies are not being provided to producers or exporters of certain cold-rolled carbon steel flat products from Argentina.

EFFECTIVE DATE:

March 4, 2002.

FOR FURTHER INFORMATION CONTACT:

Suresh Maniam or Jarrod Goldfeder at [phone] or [phone], respectively; Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Preliminary Determination

The Applicable Statute and Regulations

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

The Petitioners

The petition in this investigation was filed by Bethlehem Steel Corp., United States Steel LLC., LTV Steel Co., Inc., Steel Dynamics, Inc., National Steel Corp., Nucor Corp., WCI Steel, Inc., and Weirton Steel Corp. (collectively, “the petitioners”).

Case History

The following events have occurred since the publication of the notice of initiation in the Federal Register (see Notice of Initiation of Countervailing Duty Investigations: Certain Cold-Rolled Carbon Steel Flat Products From Argentina, Brazil, France, and the Republic of Korea, 66 FR 54218 (October 26, 2001) (“Initiation Notice”)).

On November 2, 2001, we issued a countervailing duty questionnaire to the Government of Argentina (“GOA”) and Siderar Sociedad Anonima Industrial Y Comercial (“Siderar”), a producer/exporter of the subject merchandise from Argentina. Our decision to select Siderar to respond to our questionnaire is explained in the Memorandum to Susan H. Kuhbach, “Respondent Selection,” dated November 2, 2001, which is on file in the Central Records Unit, room B-099 of the main Department building.

On November 30, 2001, we extended the time limit for the preliminary determination of this investigation to January 28, 2002. See Certain Cold-Rolled Carbon Steel Flat Products from Argentina, Brazil, France, and the Republic of Korea: Extension of Time Limit for Preliminary Determinations in Countervailing Duty Investigations, 66 FR 63523 (December 7, 2001).

On November 15, 2001, Emerson Electric Co. submitted a request to exclude certain merchandise from the scope of this investigation. On February 22, 2002, the petitioners submitted an objection to this request. See section below on “Scope of the Investigation: Scope Comments” for an analysis of these submissions and the Department's determination.

We received a questionnaire response from the GOA and Siderar on December 21, 2001. The petitioners submitted comments regarding these questionnaire responses on January 2, 2002.

We issued supplemental questionnaires to the GOA and Siderar on January 22, 2002, and received responses to these questionnaires on February 6, 2002.

On January 18, 2002, we further extended the time limit for the preliminary determination in this investigation until February 25, 2002. See Certain Cold-Rolled Carbon Steel Flat Products from Argentina, Brazil, France, and the Republic of Korea: Extension of Time Limit for Preliminary Determinations in Countervailing Duty Investigations, 67 FR 3482 (January 24, 2002).

Scope of the Investigation

For purposes of this investigation, the products covered are certain cold-rolled (cold-reduced) flat-rolled carbon-quality steel products. For a full description of the scope of this investigation, see the Appendix to this notice.

Scope Comments

In the Initiation Notice, we invited comments on the scope of this proceeding. On November 15, 2001, we received a request from Emerson Electric Company (“Emerson”) to amend the scope of this investigation, as well as the concurrent countervailing and antidumping duty investigations pertaining to subject merchandise. Specifically, Emerson requested that the scope be amended to exclude all types of nonoriented coated silicon electrical steel, whether fully- or semi-processed, because such products are not treated in the marketplace as carbon steel products.

On February 22, 2002, we received a response to the Emerson request from the petitioners. The petitioners objected to excluding these products from the scope and have explained that the scope language is not overly inclusive with respect to these products. Therefore, we determine that nonoriented coated silicon electric steel is within the scope of these proceedings.

The Department has also received several other scope exclusion requests in the cold-rolled steel investigations. We are continuing to examine these exclusion requests, and plan to reach a decision as early as possible in the proceedings. Interested parties will be advised of our intentions prior to the final determinations and will have the opportunity to comment.

Injury Test

Because Argentina is a “Subsidies Agreement Country” within the meaning of section 701(b) of the Act, the U.S. International Trade Commission (“ITC”) is required to determine whether imports of the subject merchandise from Argentina materially injure, or threaten material injury to, a U.S. industry. On November 19, 2001, the ITC published its preliminary determination finding that there is a reasonable indication of material injury or threat of material injury to an industry in the United States by reason of imports of certain cold-rolled carbon steel flat products from Argentina. See Certain Cold-Rolled Steel Products From Argentina, Australia, Belgium, Brazil, China, France, Germany, India, Japan, Korea, Netherlands, New Zealand, Russia, South Africa, Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela, 66 FR 57985 (November 19, 2001).

Alignment With Final Antidumping Duty Determination

On February 21, 2002, the petitioners submitted a letter requesting alignment of the final determination in this investigation with the final determination in the companion antidumping duty investigations (see Notice of Initiation of Antidumping Duty Investigations: Certain Cold-Rolled Carbon Steel Flat Products from Argentina, Australia, Belgium, Brazil, France, Germany, India, Japan, Korea, the Netherlands, New Zealand, the People's Republic of China, the Russian Federation, South Africa, Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela, 66 FR 54198 (October 26, 2001)). The companion antidumping duty investigations and this countervailing duty investigation were initiated on the same date and have the same scope. Therefore, in accordance with section 705(a)(1) of the Act, we are aligning the final determination in this investigation with the final determination in the antidumping duty investigations of certain cold-rolled carbon steel flat products.

Period of Investigation

The period of investigation (“POI”) for which we are measuring subsidies corresponds to Siderar's fiscal year, July 1, 2000 through June 30, 2001.

Subsidies Valuation Information

Allocation Period

Pursuant to 19 CFR 351.524(b), non-recurring subsidies are allocated over a period corresponding to the average useful life (“AUL”) of the renewable physical assets used to produce the subject merchandise. Section 351.524(d)(2) creates a rebuttable presumption that the AUL will be taken from the U.S. Internal Revenue Service's 1977 Class Life Asset Depreciation Range System (“the IRS Tables”). For certain cold-rolled carbon steel flat products, the IRS Tables prescribe an AUL of 15 years.

In order to rebut the presumption in favor of the IRS tables, the challenging party must show that the IRS tables do not reasonably reflect the company-specific AUL or the country-wide AUL for the industry in question, and that the difference between the company-specific or country-wide AUL and the IRS tables is significant. 19 CFR 351.524(d)(2)(i). For this difference to be considered significant, it must be one year or greater. 19 CFR 351.524(d)(2)(ii).

In this proceeding, Siderar has calculated a company-specific AUL of 8 years. We preliminarily determine that this AUL is not distortive and that it is significantly different from the 15-year AUL prescribed by the IRS Tables. Therefore, we are using this AUL to identify those subsidies that potentially give rise to a countervailable benefit during the POI.

We note that subsidies to Siderar's predecessors (Sociedad Mixta Siderugica (SOMISA) and Propulsora Siderugica S.A.I.C (Propulsora)) were previously allocated over 15 years. See Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina: Final Results of Countervailing Duty Administrative Review, 62 FR 52974 (October 10, 1997). We note further that subsidies to Siderar were allocated over 15 years in Final Affirmative Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products from Argentina, 66 FR 37007 (July 16, 2001). In both cases, to allocate subsidies, the Department used the 15-year AUL prescribed by the IRS Tables. At the time of the former case, however, it was not the Department's policy to permit companies to request a company-specific allocation period; and the latter case was decided on the basis of adverse facts available.

Because the 8-year company-specific AUL calculated by Siderar was calculated pursuant to 19 CFR 351.524(d)(iii)) and is significantly different from the AUL prescribed by the IRS Tables (as defined in 19 CFR 351.524(d)(ii)), the Departments regulation at 19 CFR 351.524(d)(i) directs that we use it. The use of this 8-year company-specific AUL means that all benefits received prior to Siderar's 1993 fiscal year provided no benefit to Siderar in the POI. Accordingly, in this preliminary determination, we have not discussed the merits of any arguments relating to any alleged subsidies received prior Siderar's 1993/1994 fiscal year.

Equityworthiness and Creditworthiness

The petitioners claim that SOMISA was unequityworthy from 1984 through 1990. In the Initiation Notice, we stated that we would examine the equityworthiness of SOMISA during this period should we find any countervailable equity infusions received in those years. 66 FR at 54226. However, because of the use of Siderar's 8-year, company-specific AUL, any non-recurring subsidies received in the years of alleged unequityworthiness would be fully allocated prior to the POI. Accordingly, because Siderar would not benefit in the POI from any equity infusions received in 1986 through 1990, there is no need to examine its equityworthiness for the that period.

The petitioners also alleged that Siderar was uncreditworthy during 1992. We stated in the Initiation Notice that we would examine Siderar's creditworthiness in 1992 if we found that SOMISA received any non-recurring grants, loans, or loan guarantees in 1992. Id. However, because of our decision to use Siderar's 8-year, company-specific AUL, any non-recurring subsidies received in 1992 would be fully allocated prior to the POI. In addition, no countervailable loans or loan guarantees were received in 1992. Accordingly, because Siderar did not benefit in the POI from any countervailable non-recurring grants, loans or loan guarantees received in 1992, there is no need to examine its creditworthiness for that year.

I. Programs Preliminarily Determined To Be Countervailable

A. Zero Tariff Turnkey Bill

The Zero Tariff Turnkey Bill is a program established by Resolution 502/95 of the Ministry of Economy. The purpose of the program is to provide an incentive to import goods and equipment that will be used to modernize productive processes in Argentina. The program achieves this objective by allowing for the importation of new merchandise and equipment without the payment of import duties. Resolution 502/95 was repealed in 2000 and replaced with a modified version established by Resolution 1089/00.

In the original questionnaire and in a supplemental questionnaire, we asked the GOA to provide information regarding the distribution of benefits among industries and companies for the year the benefit was approved and for the prior three years. The GOA provided us in both responses with what appears to be the distribution of benefits for the years 1996/1997 only. Although this information indicates that the program is not specific, the GOA did not claim that it could not provide more recent data. Therefore, because it is unclear at this stage whether the provided data provided by the GOA is the relevant data, for specificity purposes, we have preliminarily made an assumption that the benefits are de facto specific. We intend to clarify prior to the final determination the specificity of this program during the POI. We note, however, that, despite this assumption of specificity, the benefits from the program to Siderar for the POI are insignificant, amounting to only 0.01 percent ad valorem.

Because this program provides a duty exemption, we have preliminarily found the benefit as recurring, pursuant to 19 CFR 351.524(a) and (c). Prior to the final determination, we intend to clarify whether these benefits are tied to capital assets and consider whether they should be treated as non-recurring.

To calculate the subsidy rate, we multiplied the value of the imported goods by the applicable duty rate. Because this entire amount was rebated, we treated the entire amount as a benefit in the POI. We divided this benefit by Siderar's total sales in the POI. Accordingly, we preliminarily determine Siderar's POI benefit from this program to be 0.01 percent ad valorem.

II. Programs Preliminarily Determined To Be Not Countervailable

A. “Committed Investment” Into APSA

According to the petitioners, at the time of APSA's privatization in 1992, the GOA required all bidders to commit to invest $100 million in equity into APSA during the two years following the company's sale. The petitioners allege that the GOA sold APSA at a price that was below fair market value, thereby inducing Propulsura, the eventual purchaser, to agree to the investment commitment. The petitioners argue that the investment commitment constituted an indirect equity infusion in which the GOA “directed or entrusted” Propulsura to make an infusion in APSA, an unequityworthy company. The petitioners suggest two ways to address the committed investment required by the GOA: 1) as revenue forgone and 2) as an equity infusion “directed” by the GOA.

Regarding the first approach, the petitioners rely upon the Department's finding in Certain Cut-to-Length Carbon Steel Plate From Mexico: Final Results of Countervailing Duty Administrative Review, 66 FR 14549 (March 13, 2001) and accompanying Issues and Decision Memorandum, at Discussion of Analysis of Programs: Committed Investment (“Mexican Plate”). In Mexican Plate, we found that the government of Mexico forwent revenue owed to it when it allowed the bidders to use a commitment to invest in the company in the future as a partial equivalent to the payment of cash for the company at the time of sale.

In Mexican Plate, the benefit occurred at the time that revenue was forgone by the government, i.e., at the time the company was sold. In this case, any revenue forgone from the committed investment would have taken place at the time of the sale of the company, which was in 1992. As stated above, however, because of the use of Siderar's 8-year company-specific AUL in this investigation, any benefits received in 1992 would be fully allocated prior to the POI. Therefore, we have not made a determination of whether the GOA actually forwent revenue because, regardless of whether it did, Siderar did not benefit in the POI.

The second approach advocated by the petitioners is based on our treatment of the committed investment in Argentina Hot-Rolled. In that case, we treated the same committed investment that is under investigation in this case as non-recurring grants received in the years in which the investments were made. See Notice of Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination with Final Antidumping Duty Determination: Certain Hot-Rolled Carbon Steel Flat Products from Argentina, 66 FR 109901, 10997 (February 21, 2001). That decision, however, was made on the basis of adverse facts available, and the methodology used in that case for the treatment of the committed investment reflected an adverse inference by the Department.

We believe that the revenue forgone analysis performed in Mexican Plate is the appropriate examination to be used in the case of committed investments. However, because the petitioners have, in part, relied on Argentina Hot-Rolled in making their allegations, we have examined the merits of this allegation in light of Argentina Hot-Rolled. We note several problems with the petitioners' second approach. First, unlike in Argentina Hot-Rolled, the GOA and Siderar have cooperated fully in this investigation and, therefore, our determination in Argentina Hot-Rolled is not instructive. Second, an examination of the evidence placed on the record of this investigation in light of the approach used in Argentina Hot-Rolled reveals significant issues with regard to the specificity of any benefits and the nature of the financial contribution. Finally, even assuming arguendo that these investments were countervailable, the resulting subsidy rate would be small enough that it does not raise the overall subsidy rate above de minimis. As a result, because the countervailability of this program does not make a difference in the outcome of this preliminary determination, we find that no further examination of this approach is needed. Based on all of the above, we find this program not countervailable.

B. Export Subsidies: Reintegro

The Reintegro program entitles Argentine exporters to a rebate of various internal and domestic taxes levied during the production, distribution, and sales process on many exported products. The Reintegro is calculated as a percentage of the FOB invoice price of an exported product. See, e.g., Final Affirmative Countervailing Duty Determination: Honey from Argentina, 66 FR 50613 (October 4, 2001), and accompanying Issues and Decision Memorandum at “Programs Determined to Confer Subsidies: Federal Programs—Argentine Internal Tax Reimbursement/Rebate (Reintegro)” (“Honey Final”).

In order to determine whether a countervailable benefit is provided by programs that rebate cumulative indirect taxes, the Department normally examines whether the amount remitted or rebated exceeds the amount of prior-stage cumulative indirect taxes paid on inputs consumed in the production of subject merchandise, making normal allowances for waste. 19 CFR 351.518(a)(2). If the amount rebated exceeds the amount of prior-stage cumulative indirect taxes paid, the excess amount is a countervailable benefit. Id.

However, 19 CFR 351.518(a)(4) states that the Department will consider the entire amount of the tax rebate or remission to confer a benefit unless:

1. The government in question has in place and applies a system or procedure to confirm which inputs are consumed in the production of the exported products and in what amounts, and to confirm which indirect taxes are imposed on these inputs, and the system or procedure is reasonable, effective for the purposes intended, and is based on generally accepted commercial practices in the country of export; or

2. If the government in question does not have a system or procedures in place, if the system is or procedure is not reasonable, or if the system or procedure is instituted and considered reasonable, but is found not to be applied or not be applied effectively, the government in question has carried out an examination of actual inputs involved to confirm which inputs are consumed in the production of the exported product, in what amounts, and which indirect taxes are imposed on the inputs.

19 CFR 351.518 (a)(4)(i) and (ii).

According to the GOA, the government has no written procedures or guidelines for the operation of this rebate system. However, the GOA claims that it does receive information from the industry regarding the actual incidence of indirect taxes, which it takes into account in setting the Reintegro rate. These rates are adjusted from time to time at the discretion of the Ministry of Economy.

The Department has previously examined the Reembolso, the predecessor to the Reintegro. In the most recent examination, Honey from Argentina: Preliminary Affirmative Countervailing Duty Determination and Alignment With Final Antidumping Duty Determination on Honey from the People's Republic of China, 66 FR 14521, 14524 (March 13, 2001), we stated that:

[T]he GOA established a rebate system in 1971, which was known as the “reembolso” program. In 1986, Decree 1555/86 was promulgated to implement the reembolso program in a manner consistent with the General Agreement on Tariffs and Trade. In May 1991, the GOA issued Decree 1011/91, which renamed the reembolso program as Reintegro and modified the legal structure of the program. Under Decree 1011/91, Reintegro rebated indirect taxes only. Decree 1011/91 has been the relevant governing decree since 1991. The nature and structure of the program have remained unchanged since then, although the Ministry of Economics modifies Reintegro rebate levels from time to time.

Moreover, in Preliminary Results of Full Sunset Review, Carbon Steel Wire Rod From Argentina, 64 FR 28978 (May 28, 1999), we stated that:

[W]e found that the legal structure of the reembolso program was changed by Decree 1011/91 in May 1991. Specifically, the Department found that the rebate system was changed to cover only the reimbursements of the indirect local taxes and does not cover import duties, except reimbursement of duties paid on imported products which are re-exported.

In Honey Final, we found that the Reintegro program provides a countervailable benefit in the full amount of the Reintgro rebate because the GOA was unable to demonstrate that it had a reasonable and effective system in place for its honey industry. However, while this was true for the honey industry, because systems or procedures may differ from industry to industry, we have examined the system or procedure in place for the steel industry.

In previous steel cases, the Department determined that, for the steel industry, the GOA carries out an appropriate examination of actual inputs to confirm which inputs are consumed in the production of the exported products. See, e.g., Cold-Rolled Carbon Steel Flat-Rolled Products From Argentina: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order, 49 FR 18006, 18009-10 (April 26, 1984) (and its subsequent reviews) and Final Affirmative Countervailing Duty Determination and Countervailing Duty Order: Oil Country Tubular Goods From Argentina, 49 FR 46564, 46566 (November 27, 1984) (and its subsequent reviews).

In this case, Siderar claims that it submits its tax incidence study to the GOA on a regular basis (and provided to the Department, in this investigation, its studies for the fiscal years 1998/1999 and 2000/2001). Because the GOA has used these studies in its determination of the Reintgro rate (which are similar to the studies examined by the GOA in previous cases) and regularly updates these rates, we continue to find, consistent with our past cases, that the GOA has appropriately examined the actual inputs involved in the production of the subject merchandise.

Because of the above, and pursuant to 19 CFR 351.518(a)(2), we then examined the extent to which Siderar received rebates in excess of its prior-stage cumulative indirect taxes on the production of subject merchandise. According to the GOA, the Reintgro rate applicable for subject merchandise for the POI was 7.5 percent (except for a brief period in which it was reduced to 0.5 percent). Based on our calculation methodology from previous cases, we examined Siderar's 2000/2001 tax incidence study and found that the company's actual POI prior-stage cumulative indirect taxes for the production of the subject merchandise exceeded 7.5 percent. Because Siderar's actual incidence of tax was higher than the Reintegro rate, we find no countervailable benefit to Siderar in the POI. Accordingly, we preliminarily find this program not countervailable.

III. Programs Preliminarily Determined To Be Not Used

Based on the information provided in the responses and/or the use of Siderar's 8-year company-specific AUL, we determine that Siderar did not receive benefits under the following programs during the POI:

A. Equity Infusions

B. Assumption of Debt and Liquidation Costs

C. Subsidies Under Decree 1144/92

D. Export Subsidies: Pre- and Post-Export Financing

Verification

In accordance with section 782(i)(1) of the Act, we will verify the information submitted by the respondents prior to making our final determination.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files, provided the ITC confirms 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.

In accordance with section 705(b)(3) of the Act, if our final determination is affirmative, the ITC will make its final determination within 75 days after the Department makes its final determination.

Public Comment

In accordance with 19 CFR 351.310, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination. The hearing is tentatively scheduled to be held 57 days from the date of publication of this preliminary determination, at the U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230. Individuals who wish to request a hearing must submit a written request within 30 days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, Room 1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Requests for a public hearing should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. An interested party may make an affirmative presentation only on arguments included in that party's case brief and may make a rebuttal presentation only on arguments included in that party's rebuttal brief. Parties should confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.

In addition, six copies of the business proprietary version and six copies of the nonproprietary version of the case briefs must be submitted to the Assistant Secretary no later than 50 days from the publication of this notice. As part of the case brief, parties are encouraged to provide a summary of the arguments not to exceed five pages and a table of statutes, regulations, and cases cited. Six copies of the business proprietary version and six copies of the nonproprietary version of the rebuttal briefs must be submitted to the Assistant Secretary no later than 5 days after the filing of case briefs. Written arguments should be submitted in accordance with 19 CFR 351.309 and will be considered if received within the time limits specified above.

This determination is published pursuant to sections 703(f) and 777(i) of the Act.

Dated: February 25, 2002.

Faryar Shirzad,

Assistant Secretary for Import Administration.