[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]
[Notices]
[Pages 33534-33539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-15762]
[[Page 33533]]
_______________________________________________________________________
Part IV
Department of Commerce
_______________________________________________________________________
International Trade Administration
_______________________________________________________________________
Countervailing and Antidumping Notices; Oil Country Tubular Goods;
Notices
Federal Register / Vol. 60, No. 124 / Wednesday, June 28, 1995 /
Notices
[[Page 33534]]
DEPARTMENT OF COMMERCE
International Trade Administration
[C-433-806]
Final Affirmative Countervailing Duty Determination: Certain Oil
Country Tubular Goods (``OCTG'') From Austria
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 28, 1995.
FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Daniel Lessard,
Office of Countervailing Investigations, Import Administration, U.S.
Department of Commerce, Room 3099, 14th Street and Constitution Avenue,
NW., Washington, DC 20230; telephone (202) 482-0189 or 482-1778,
respectively.
Final Determination
The Department of Commerce (``the Department'') determines that
benefits which constitute subsidies within the meaning of section 701
of the Tariff Act of 1930, as amended (``the Act''), are being provided
to manufacturers, producers, or exporters in Austria of certain oil
country tubular goods (``OCTG''). For information on the estimated net
subsidy, please see the Suspension of Liquidation section of this
notice.
Case History
Since the publication of the notice of the preliminary
determination in the Federal Register (60 FR 4600, January 24, 1995),
the following events have occurred. On February 2, 1995, pursuant to a
request by Voest-Alpine Stahlrohr Kindberg (``Kindberg''), the
Department postponed the final determination in the companion
antidumping investigation (60 FR 6512) until not later than June 19,
1995. Because this investigation is aligned with the companion
antidumping investigation, we notified parties that the final
determination in this investigation would also be made no later than
June 19, 1995.
We conducted verification of the responses submitted by the
Government of Austria (``GOA'') and Voest-Alpine Stahlrohr Kindberg
(``Kindberg'') from February 27 through March 8, 1994. Both respondents
and petitioners submitted case and rebuttal briefs on May 23 and May
30, 1995, respectively. A hearing was not requested.
Scope of the Investigation
For purposes of this investigation, OCTG are hollow steel products
of circular cross-section, including oil well casing, tubing, and drill
pipe, of iron (other than cast iron) or steel (both carbon and alloy),
whether seamless or welded, whether or not conforming to American
Petroleum Institute (API) or non-API specifications, whether finished
or unfinished (including green tubes and limited service OCTG
products). This scope does not cover casing, tubing, or drill pipe
containing 10.5 percent or more of chromium. The OCTG subject to this
investigation are currently classified in the Harmonized Tariff
Schedule of the United States (HTSUS) under item numbers:
7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40,
7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10,
7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50,
7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20,
7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60,
7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30,
7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80,
7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60,
7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45,
7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30,
7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00,
7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90,
7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10,
7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.
After the publication of the preliminary determination, we found
that HTSUS item numbers 7304.20.10.00, 7304.20.20.00, 7304.20.30.00,
7304.20.40.00, 7304.20.50.10, 7304.20.50.50, 7304.20.60.10,
7304.20.60.50, and 7304.20.80.00 were no longer valid HTSUS item
numbers. Accordingly, these numbers have been deleted from the scope
definition.
Although the HTSUS subheadings are provided for convenience and
customs purposes, our written description of the scope of this
investigation is dispositive.
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute and to the
Department's regulations are references to the provisions as they
existed on December 31, 1994. References to the Countervailing Duties:
Notice of Proposed Rulemaking and Request for Public Comments, 54 FR
23366 (May 31, 1989) (``Proposed Regulations''), which has been
withdrawn, are provided solely for further explanation of the
Department's CVD practice.
Injury Test
Because Austria is a ``country under the Agreement'' within the
meaning of section 701(b) of the Act, the U.S. International Trade
Commission (``ITC'') must determine whether imports of OCTG from
Austria materially injure, or threaten material injury to, a U.S.
industry. On August 24, 1994, the ITC published its preliminarily
determination that there is a reasonable indication that an industry in
the United States is being materially injured or threatened with
material injury by reasons of imports from Austria of the subject
merchandise (59 FR 43591, August 24, 1994).
Corporate History of Respondent Kindberg
Prior to 1987, the subject merchandise was produced in the steel
division of Voest-Alpine AG (``VAAG''), a large conglomerate which also
had engineering and finished products divisions. In 1987, VAAG
underwent a major restructuring and several new companies were formed
from the three major divisions of VAAG. The steel division was
incorporated as Voest-Alpine Stahl GmbH, Linz (``VA Linz''). Among VA
Linz's separately incorporated subsidiaries were Kindberg and Voest-
Alpine Stahl Donawitz GmbH (``Donawitz''). VAAG became a holding
company for VA Linz and its other former divisions.
In 1988, VAAG transferred its ownership interest in VA Linz to
Voest-Alpine Stahl AG (``VAS''). At the same time, Kindberg became a
subsidiary of Donawitz. Donawitz and other companies were owned by VAS,
which in turn was owned by VAAG.
In 1989, VAS and all other subholdings of VAAG were transferred to
Industrie und Beteiligungsverwaltung GmbH (``IBVG''). In 1990, IBVG, in
turn, was renamed Austrian Industries AG (``AI''). VAAG remained in
existence, but separate from IBVG and AI, holding only residual
liabilities and non-steel assets.
In 1991, as part of the reorganization of the long products
operations, Donawitz was split. The rail division remained with the
existing company (i.e., Donawitz), however, the name of the company was
changed to Voest-Alpine Schienen GmbH (``Schienen''). In addition to
producing rails, Schienen also became the holding company for Kindberg
and the other Donawitz subsidiaries. The metallurgical division of the
former Donawitz was incorporated as a new company and was
[[Page 33535]] named Voest-Alpine Stahl Donawitz (``Donawitz II'').
Equityworthiness
As discussed below, we have determined that the GOA provided equity
infusions, through the state-owned industry holding company,
Osterreichische Industrieholding-Aktiengesellschaft (``OIAG''), to VAAG
in the years 1983, 1984, and 1986, and to Kindberg in 1987. In order
for the Department to find an equity infusion countervailable, it must
be determined that the infusion is provided on terms inconsistent with
commercial considerations. Petitioners have alleged that VAAG and
Kindberg were unequityworthy in the years in which they received equity
infusions and that the equity infusions were, therefore, inconsistent
with commercial considerations. According to Sec. 355.44(e)(2) of the
Department's Proposed Regulations, for a company to be equityworthy it
must show the ability to generate a reasonable rate of return within a
reasonable period of time. A detailed equityworthiness analysis can be
found in the Department's Concurrence Memorandum dated June 19, 1995. A
summary of that analysis follows.
In the Final Affirmative Countervailing Duty Determination: Certain
Steel Products from Austria, 58 FR 37217 (July 9, 1993) (``Certain
Steel''), the Department found VAAG to be unequityworthy in the years
1978-84 and 1986. Respondents have not questioned this determination
and no additional information concerning that period has come to light.
Therefore, we determine VAAG to be unequityworthy during the period
1978-84, and for 1986.
With respect to the equityworthiness of Kindberg in 1987, we have
further examined the information provided regarding Kindberg's future
prospects. This information included a more detailed excerpt of the VA
Neu study than was available at the time of the preliminary
determination, OIAG Finance Concepts, and an internal operating
forecast performed by Kindberg. Although the forecasts show a trend
toward profitability, they fail to establish that Kindberg would
generate a reasonable rate of return in a reasonable period of time.
Therefore, we determine that the 1987 equity infusion into Kindberg was
inconsistent with commercial considerations. We also reaffirm our
preliminary determination, based on our analysis from Certain Steel,
that VAAG's poor performance prior to the restructuring supports a
finding that the 1987 infusion into Kindberg was inconsistent with
commercial considerations.
Allocation of Non-Recurring Benefits
We have determined that the subsidies received by Kindberg are
``non-recurring'' because the benefits are exceptional and the
recipient could not expect to receive them on an ongoing basis (see,
the General Issues Appendix to the Final Countervailing Duty
Determination: Certain Steel Products from Austria (``GIA''), 58 FR
37225, 37226 (July 9, 1993)). Consequently, as explained in Sec. 355.49
of the Proposed Regulations, we have allocated the benefits over a
period equal to the average useful life of assets in the industry.
A company-specific discount rate was not available for the
allocation. Therefore, we have used the bond rate designated as being
for ``Industry and other Austrian Issuers'' in the Austrian National
Bank's Annual Report. Although respondents reported an alternative
borrowing rate to be used as the discount rate, we verified that their
proposed rate reflected large government borrowings. Because we are
measuring the benefit to the recipient company, we prefer a commercial
benchmark. Therefore, we have rejected the rate dominated by government
borrowing and selected instead a rate which reflects what it costs
businesses to borrow.
Calculation of the Benefit
For purposes of this final determination, the period for which we
are measuring subsidies (the POI) is calendar year 1993. In determining
the benefits received under the various programs described below, we
used the following calculation methodology. We first calculated the
benefit attributable to the POI for each countervailable program, using
the methodologies described in each program section below. For each
program, we then divided the benefit attributable to Kindberg in the
POI by Kindberg's total sales revenue. Next, we added the benefits for
all programs to arrive at Kindberg's total subsidy rate. Because
Kindberg is the only respondent company in this investigation, this
rate is also the country-wide rate.
Based upon our analysis of the petition, responses to our
questionnaires, verifications and comments made by interested parties,
we determine the following:
A. Programs Determined To Be Countervailable
We determine that subsidies are being provided to manufacturers,
producers, or exporters in Austria of OCTG under the following
programs:
1. Equity Infusions to Voest-Alpine AG (VAAG): 1983, 1984 and 1986
The GOA provided equity infusions through OIAG to VAAG in 1983,
1984 and 1986, while VAAG owned the facilities which became Kindberg,
the producer of the subject merchandise. The 1983 and 1984 infusions
were given by OIAG pursuant to Law 589/1983. The 1986 equity infusion
was given as an advance payment for funds to be provided under Law 298/
1987 (the OIAG Financing Act). Law 589/1983 and Law 298/1987 provide
authority for disbursement of funds solely to companies of OIAG, of
which VAAG is one.
In Certain Steel, the Department determined these equity infusions
to be de jure specific. Respondents did not provide any information
disputing these findings in this proceeding. Moreover, since we have
determined that VAAG was unequityworthy in these years, we determine
that these infusions were provided to VAAG on terms inconsistent with
commercial considerations.
Respondents argue that subsidies received by VAAG prior to the 1987
restructuring are not appropriately attributable to Kindberg. However,
we have determined that these subsidies continue to benefit Kindberg's
production of OCTG, in accordance with restructuring methodology
discussed in the GIA, at 37265-8. (See Comment Two, below, for a
discussion of respondents' comments and the Department's position on
this matter.)
To calculate the portion of these subsidies to VAAG which is
attributable to Kindberg, we divided Kindberg's asset value on January
1, 1987, by VAAG's total asset value on December 31, 1986 (i.e., pre-
restructuring). This ratio best reflects the proportion of VAAG's total
1986 assets that became Kindberg in 1987.
We then applied this ratio to VAAG's subsidy amount to calculate
the portion of these infusions allocable to Kindberg. To calculate the
benefit for the POI, we treated each of the equity amounts as a grant
and allocated the benefits over a 15 year period beginning in the years
the equity was received by VAAG. Our treatment of equity as grants is
discussed in the GIA, at 37239. We then divided the benefit by total
sales of Kindberg during the POI. On this basis, we determine the net
subsidies for these equity infusions to be 1.37 percent ad valorem for
all manufacturers, producers, and exporters in Austria of OCTG.
[[Page 33536]]
2. Grants Provided to VAAG: 1981-86
The GOA provided grants to VAAG through OIAG pursuant to Law 602/
1981, Law 589/1983, and Law 298/1987. In Certain Steel, the Department
found grants disbursed under Law 602/1981, Law 589/1983 and Law 298/
1987 to be provided specifically to the steel industry and, hence,
countervailable (58 FR 37221). Respondents have not challenged the
countervailability of these grants in this proceeding.
The grant received in 1981 was less than 0.50 percent of VAAG's
sales in that year. Hence, as explained in Sec. 355.44(a) of our
Proposed Regulations and the GIA, at 37217, we have expensed the grant
received in 1981 in that year. To calculate the benefit from the other
grants, we used the methodology described in Equity Infusions to VAAG:
1983-84, 1986 section, above. On this basis, we determine the net
subsidies under this program to be 3.68 percent ad valorem for all
manufacturers, producers, and exporters in Austria of OCTG.
3. Assumption of Losses at Restructuring by VAAG on Behalf of Kindberg
In Certain Steel, we determined that, in connection with the 1987
restructuring, VAAG retained all the losses carried forward on its
balance sheet and that no losses were assigned to its newly created
subsidiaries. VAAG later received funds from the GOA under Law 298/1987
to offset these losses. We found that VAAG's subsidiaries benefitted
because VAAG retained these losses when the company was restructured.
In the present investigation, petitioners allege that this assumption
of losses provided a countervailable subsidy to Kindberg, a subsidiary
of VAAG.
In our preliminary determination, respondents argued that the
assumption of losses did not provide a benefit to Kindberg because
Kindberg could have used such losses to reduce income-tax liabilities
in the future. We stated that this argument would be more closely
analyzed for our final determination.
At verification, we learned that Austrian Commercial Law and
Austrian Tax Law distinguish between two types of losses: tax losses
and commercial losses. Kindberg's tax losses were carried forward after
the restructuring and were used to offset income taxes in future years.
The losses which were retained by VAAG and countervailed in Certain
Steel, were commercial losses. All commercial losses were retained by
VAAG after the restructuring. Hence we conclude that the losses
retained by VAAG could not be used to reduce the future tax liabilities
of Kindberg.
Respondents now argue that these commercial losses were not
generated by Kindberg and, therefore, the assumption of losses by VAAG
does not benefit Kindberg. At verification, however, respondents were
unable to identify how the losses which remained on VAAG's books were
incurred. Moreover, Kindberg's auditor's report states that Kindberg
incurred significant commercial losses in 1985 and 1986. Hence, we find
no basis for concluding that the losses retained by VAAG should not be
attributed in part to Kindberg.
We concluded in Certain Steel that, ``if VAAG had assigned these
losses to its new companies, then each of the new companies would have
been in a * * * precarious financial position'' (Certain Steel, 37221).
Similarly, we determine that the assumption of losses provided a
benefit to Kindberg.
To calculate the benefit, we have treated the losses not
distributed to Kindberg as a grant received in 1987. Kindberg's share
of the losses was determined by reference to its asset value relative
to total VAAG assets. To allocate the benefit, we used the methodology
described in Equity Infusions to VAAG: 1983-84, 1986 section, above. On
this basis, we determine the net subsidies for this program to be 1.26
percent ad valorem for all manufacturers, producers, and exporters in
Austria of OCTG.
4. Equity Infusion to Kindberg: 1987
A direct equity infusion from OIAG to Kindberg was made on January
1, 1987, pursuant to Law 298/1987. As under Law 589/1983, funds under
Law 298/1987 were provided solely to the steel industry. Therefore, we
find this infusion to be specific. Moreover, since we have determined
that Kindberg was unequityworthy in 1987, this infusion was made on
terms inconsistent with commercial considerations. Thus, we determine
this infusion to be countervailable.
To calculate the benefit for the POI, we treated the equity amount
as a grant and allocated the benefit over 15 years. Because the equity
investment was made directly in Kindberg, and because Kindberg was
separately incorporated as of that year, the entire benefit has been
attributed to Kindberg. The portion allocated to the POI was divided by
total sales of Kindberg during the POI to determine the ad valorem
benefit. On this basis, we determine the net subsidies for this program
to be 5.13 percent ad valorem for all manufacturers, producers, and
exporters in Austria of OCTG.
B. Programs Determined not to Benefit the Subject Merchandise
We included in our investigation subsidies provided after 1987 to
VA Linz, VAAG and VAS based on petitioners' allegation that subsidies
to these companies benefitted Kindberg. Based on information provided
in the responses and our findings at verification, we determine that no
subsidies were being transmitted to Kindberg from its related
companies. Therefore, the following programs did not bestow a benefit
on Kindberg. For a discussion of the transmittal of subsidies, see the
Department's Concurrence Memorandum dated June 19, 1995.
1. 1987 Equity Infusion to VA Linz.
2. Post-Restructuring Equity Infusions to VAAG.
3. Post-Restructuring Grants to VAAG.
4. Post-Restructuring Grants to VAS.
C. Analysis of Upstream Subsidies
The petitioners have alleged that manufacturers, producers, or
exporters of OCTG in Austria receive benefits in the form of upstream
subsidies. Section 771A(a) of the Tariff Act of 1930, as amended (the
Act), defines upstream subsidies as follows:
The term ``upstream subsidy'' means any subsidy * * * by the
government of a country that:
(1) Is paid or bestowed by that government with respect to a
product (hereinafter referred to as an ``input product'') that is
used in the manufacture or production in that country of merchandise
which is the subject of a countervailing duty proceeding;
(2) In the judgment of the administering authority bestows a
competitive benefit on the merchandise; and
(3) Has a significant effect on the cost of manufacturing or
producing the merchandise.
Each of the three elements listed above must be satisfied in order for
the Department to find that an upstream subsidy exists. The absence of
any one element precludes the finding of an upstream subsidy. As
discussed below, respondents have shown that a competitive benefit does
not exist. Therefore, we have not addressed the first and third
criteria.
Competitive Benefit
In determining whether subsidies to the upstream supplier(s) confer
a competitive benefit within the meaning of section 771A(a)(2) on the
subject merchandise, section 771A(b) directs that:
* * * a competitive benefit has been bestowed when the price for the
input product * * * is lower than the price that the manufacturer or
producer of merchandise [[Page 33537]] which is the subject of a
countervailing duty proceeding would otherwise pay for the product
in obtaining it from another seller in an arms-length transaction.
The Proposed Regulations offer the following hierarchy of benchmarks
for determining whether a competitive benefit exists:
* * * In evaluating whether a competitive benefit exists pursuant to
paragraph (a)(2) of this section, the Secretary will determine
whether the price for the input product is lower than:
(1) The price which the producer of the merchandise otherwise
would pay for the input product, produced in the same country, in
obtaining it from another unsubsidized seller in an arm's length
transaction; or
(2) A world market price for the input product.
In this instance, there is not another supplier in Austria of the input
product, steel blooms. However, Kindberg does purchase the input
product from an unrelated foreign supplier. Therefore, we have used the
prices charged to Kindberg by the foreign supplier as the benchmark
world market price.
Because the foreign supplier's prices are delivered, we made an
upward adjustment to the domestic supplier's prices to account for the
cost of freight between Kindberg and that supplier. Based on our
comparison of these delivered prices for identical grades of steel
blooms, we found no competitive benefit was bestowed on Kindberg during
the POI. Therefore, we determine that Kindberg did not receive an
upstream subsidy.
Interested Party Comments
Comment One: Attribution of VAAG subsidies to Kindberg
Respondents argue that in British Steel plc v. United States, the
CIT established that ``a subsidy cannot be provided to a `productive
unit' or `travel' with it unless the `productive unit' is itself an
artificial person capable of receiving a subsidy.'' Prior to 1987,
Kindberg was not a separately incorporated company--Kindberg was not an
``artificial person.'' Therefore, respondents claim that subsidies
received by VAAG prior to 1987 could not ``travel'' with Kindberg after
the restructuring. Moreover, they argue that the requirements in
British Steel also preclude the Department from attributing losses
assumed at restructuring by VAAG to Kindberg because only subsidies
received directly by Kindberg after its incorporation are
countervailable.
Petitioners assert that British Steel is irrelevant to Kindberg
because it involved cases where subsidized state-owned companies were
privatized. However, in this investigation, the Austrian government
still owns 100% of Kindberg (i.e., Kindberg has not been privatized).
Petitioners note that two types of corporate restructuring were
identified in Certain Steel. Privatizations (i.e., mergers, spin-offs,
and acquisitions) were one type of corporate restructuring, while
internal corporate restructurings were the other type. The 1987 VAAG
restructuring was identified as an internal corporate restructuring.
Petitioners note that an internal restructuring does not constitute a
sale for purposes of evaluating the extent to which subsidies passed
through to a new entity. Therefore, they assert that none of the issues
addressed in British Steel are relevant.
DOC Position
Respondents' reliance on British Steel PLC v. United States, Slip
Op. 95-17 (CIT February 9, 1995) is misplaced. First, British Steel is
not a final decision of the CIT, and no decision has been made
regarding whether any issue contained in that opinion should be
appealed. Therefore, the Department is not bound by that opinion.
Further, even if British Steel were a final decision, the issues
contained in the opinion which relate to privatization are inapposite
in this case. The entire British Steel opinion is premised on an actual
privatization of a company, i.e., a sale of all or part of the
government's interest. In this case, Kindberg has not been privatized.
Although the immediate parent of Kindberg changed through the
restructuring, the ultimate equity owner was and remains the GOA. The
British Steel opinion did not address a situation in which a company
was restructured, but there was no sale of the government's interest.
Comment Two: Allocation Time-Period
Respondents argue that allocating benefits from nonrecurring grants
and equity infusions over fifteen years, based on the IRS tables,
contravenes established judicial precedent, as well as congressional
intent. They state that a recent CIT decision (i.e., British Steel plc
v. the United States) held that this allocation methodology, used in
Certain Steel, was contrary to law. Respondents argue that the
Department should employ an allocation methodology which reasonably
reflects the relevant commercial and competitive advantages enjoyed by
Kindberg. Specifically, the Department should allocate benefits using
the 3, 5, and 10-year schedules of depreciation found in Kindberg's
balance sheet and statement of profit and loss.
Petitioners claim that the the CIT did not find that the
Department's allocation methodology was unlawful per se. The court's
specific concern was that the Department had not adequately explained
how the IRS tables reflected the benefit from subsidies used for
purposes other than the purchase of physical assets. The court
recognized that, after engaging in an examination of the firms under
investigation, the Department might still find that the IRS tables
could serve as a proxy for allocating subsidy benefits.
Petitioners argue that Kindberg has not provided sufficient
evidence that fifteen years does not reflect the benefit to Kindberg
from non-recurring subsidies. Petitioners note that Kindberg did not
provide cites for the 3, 5, and 10 year depreciation schedules.
Moreover, Kindberg did not explain the relevance of these depreciation
schedules, nor did it identify the assets that are subject to the
depreciation schedules. Given the lack of contrary evidence in the
record, the Department should determine that the 15-year allocation
period reasonably represents the benefit to Kindberg from non-recurring
subsidies.
DOC Position
As noted previously, respondents' reliance on British Steel PLC v.
United States, Slip Op. 95-17 (CIT February 9, 1995) is misplaced.
British Steel is not a final decision of the CIT, and no decision has
been made regarding whether any issue contained in that opinion should
be appealed. Therefore, the Department is not bound by that opinion.
Furthermore, renewable physical assets are essential to the
continuation of a company's productive activity, which in turn affects
the commercial and competitive position of a company. Therefore, the
Department has determined that the average useful life of renewable
physical assests is an appropriate measure of the commercial and
competitive benefits from non-recurring subsidies (see, GIA, at 37227).
Comment Three: Assumption of Losses
Respondents argue that the evidence on record does not support the
Department's preliminary finding that VAAG's assumption of losses
provided a countervailable subsidy to Kindberg. According to
respondents, it was determined at verification that the losses which
remained on VAAG's books after the restructuring were incurred by other
units of Voest-Alpine. Respondents claim that ``absent substantial
evidence on the record attributing VAAG's losses to Kindberg,
[[Page 33538]] the Department's final determination should not result
in a net subsidy calculation for these fictive benefits.''
According to petitioners, the Department was told at verification
that the majority of the losses in question were incurred by divisions
other than Kindberg, and that Kindberg's portion would therefore be
small. Petitioners note that respondents were unable to document or
even to determine the actual amount of the losses which were
attributable to Kindberg. Petitioners further argue that, had any of
VAAG's losses been allocated to Kindberg, the newly formed company
would have required additional capital in order to avoid insolvency.
They conclude that at least some of the losses assumed by VAAG may have
been incurred by Kindberg and should, therefore, have been allocated to
Kindberg. The assumption of those losses provided a countervailable
subsidy to Kindberg.
DOC Position
We agree with petitioners. At verification, VAAG officials
explained that the amount of VAAG's losses attributable to Kindberg is
not determinable. While we did see evidence that substantial losses
were incurred by other divisions of VAAG prior to the restructuring, it
does not follow that no losses were created by Kindberg. Moreover, an
excerpt from Kindberg's 1987 auditor's report notes that Kindberg
incurred operating losses in the amounts of AS 781 million in 1985 and
AS 289 million in 1986. Thus, the evidence on the record indicates that
Kindberg incurred losses prior to 1987.
Comment Four: 1987 Equityworthiness of Kindberg
Respondents assert that the Department should not rely solely on
the past financial performance of VAAG in determining whether Kindberg
was equityworthy in 1987. The Department's determination should take
into consideration Kindberg's expected future performance--as outlined
in the VA Neu study, the FGG reports, and Kindberg's operating
forecasts. Respondents claim that these sources all predicted
profitability within three years of the date of incorporation.
Furthermore, respondents argue that the company's performance both
prior to and after its effective incorporation date should be
considered. With respect to Kindberg's actual performance, respondents
note that as early as the third quarter of 1987, Kindberg's performance
showed marked improvement over 1986. Therefore, even before Kindberg's
equity infusion was provided, future financial prospects for the firm
had improved significantly. Moreover, they state that Kindberg's
performance continued to improve during 1988 and 1989 and that by 1990,
Kindberg was operating at a profit. They contend that at the time of
the equity infusion, a reasonable private investor would have
recognized that Kindberg was capable of generating a sizable return on
investment in a reasonable amount of time.
Petitioners claim that the Department's stated policy in the GIA is
to place greater reliance on past indicators than on studies of future
expected performance. The starting point of the Department's analysis,
therefore, should be a review of VAAG's past performance--which would
lead to a finding that Kindberg was unequityworthy in 1987.
With respect to the VA Neu Study, petitioners argue that the
information is inadequate to establish whether Kindberg was
equityworthy. They argue that the Department cannot properly analyze
the study because respondents only submitted excerpts containing
general discussions of possible cost savings.
Additionally, petitioners assert that Kindberg's predicted
profitability does not establish that the company would generate a
reasonable rate of return within a reasonable time--particularly in
light of the substantial losses that Kindberg was expected to incur
prior to achieving profitability.
Finally, petitioners stress that the Department does not consider
the actual performance of the company subsequent to the receipt of an
equity infusion. Kindberg's actual performance after 1987 is irrelevant
for purposes of an equityworthiness determination because such
information would not have been available to a private investor at that
time.
DOC Position
We agree with respondents that the Department should not rely
solely on the past financial performance of VAAG to determine whether
the 1987 equity infusion in Kindberg was consistent with commercial
considerations. As stated in the GIA, as 37244, in circumstances such
as a restructuring it may be appropriate to place greater weight on
certain factors (such as future prospects), than others (past
performance). Hence, the Department has examined closely the expected
results of the restructuring for Kindberg. At the same time, we
reaffirm our earlier conclusion as to VAAG's performance.
We also disagree with petitioners that the information provided by
respondents regarding future prospects is inadequate. While the VA Neu
study by itself might not be sufficient, largely because it was
internally generated and because it was undertaken for different
purposes, we have not relied solely on that study. In addition, we have
relied on the estimates provided in conjunction with the FGG's
``oversight'' activities in the restructuring. Although the FGG is part
of the Austrian Finance Ministry, there is no indication that it did
not operate independently in its assessments of the restructuring
process.
We do, however, agree with petitioners that these forecasts do not
provide a basis for concluding that the GOA would receive a reasonable
return within a reasonable amount of time. Heavy losses were predicted
for the early years and the best year showed only that the company
would break even (or possibly return a small profit). Although these
estimates showed a trend toward profitability, they also showed a
negative net return over the time horizon they covered.
We also agree with petitioners that Kindberg's actual performance
after the equity infusion is irrelevant to this determination. Our
examination focuses on what the investor could have expected to receive
at the time the investment was made.
Comment Five: Amount of the 1987 Equity Infusion
Petitioners argue that the Department should find the total amount
of equity received by Kindberg in 1987 (i.e., both the direct infusion
from OIAG and the initial equity contribution by VAAG) to be a
countervailable subsidy.
DOC Position
The equity on Kindberg's opening balance sheet for 1987 was
composed of initial start-up capital provided by VAAG, an increase in
VAAG's equity position due to a revaluation of the assets contributed
by VAAG to Kindberg, and the 1987 equity infusion by OIAG. VAAG was
later reimbursed by OIAG for its initial equity contribution.
In Certain Steel, the Department concluded that VAAG's
contributions of equity capital to its newly formed subsidiaries in
1987 did not constitute countervailable equity infusions. Rather, VAAG
merely distributed its pre-existing assets and liabilities to its
subsidiaries. Because the method used to allocate assets and
liabilities to the new subsidiaries was reasonable, the Department
found that no countervailable benefit was conferred in this action. The
initial equity received by Kindberg was part of that
[[Page 33539]] redistribution of VAAG's assets. Therefore, consistent
with Certain Steel, we have found that the assets provided by VAAG to
Kindberg are not a subsidy. However, as discussed above, the losses
retained by VAAG did give rise to a subsidy to Kindberg.
Comment Six: Bayou Steel Corporation (``BSC'')
Respondents assert that the Department should not countervail the
equity infusions and grants received by VAAG in 1983 and 1984 because
these funds were used to cover losses incurred by BSC in the United
States. Moreover, because BSC was sold in 1986, Kindberg cannot be
receiving any benefits from those funds.
Petitioners argue that in Certain Steel, the Department found that
the funds in question were provided to cover VAAG's worldwide losses,
including those associated with Bayou Steel. Therefore, the subsidies
are attributable to all of VAAG, including Kindberg.
DOC Position
We agree with petitioner. In Certain Steel, we determined that
these funds were provided to cover VAAG's worldwide losses. Respondents
have not provided information that these funds were intended solely to
benefit BSC (see GIA, at 37236). With respect to the sale of BSC, we
have applied the spin off methodology applied in the Certain Steel
cases. A portion of the subsidies received by VAAG would have been
allocated to BSC at the time of its sale, but the payment VAAG received
for BSC was sufficiently large that all of the subsidies reverted to
VAAG. Hence, these subsidies continue to be, in part, attributable to
Kindberg.
Verification
In accordance with section 776(b) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government and
company officials, and examination of 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 Central Records Unit (Room B-099 of the Main Commerce
Building).
Suspension of Liquidation
In accordance with our affirmative preliminary determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of OCTG from Austria, which were entered or withdrawn from
warehouse for consumption, on or after January 24, 1995, the date our
preliminary determination was published in the Federal Register.
Under Article 5, paragraph 3 of the GATT Subsidies Code,
provisional measures cannot be imposed for more than 120 days without
final affirmative determinations of subsidization and injury.
Therefore, we instructed the U.S. Customs Service to discontinue
suspension of liquidation on the subject merchandise beginning May 24,
1995, but to continue suspension of liquidation of all entries, or
withdrawals from warehouse, for consumption of the subject merchandise
entered from January 24 through May 23, 1995. We will reinstate
suspension of liquidation under section 703(d) of the Act, 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 amount indicated below.
OCTG
Country-Wide Ad Valorem Rate: 11.44 percent
ITC Notification
In accordance with section 705(c) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under administrative protective order, without the written consent of
the Deputy Assistant Secretary for Investigations, 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 cancelled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order directing Customs officers to assess
countervailing duties on OCTG from Austria.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 705(d) of the
Act and 19 CFR 355.20(a)(4).
Dated: June 19, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-15762 Filed 6-27-95; 8:45 am]
BILLING CODE 3510-DS-P
