[Federal Register Volume 64, Number 109 (Tuesday, June 8, 1999)]
[Notices]
[Pages 30774-30790]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-13677]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-427-815]
Final Affirmative Countervailing Duty Determination: Stainless
Steel Sheet and Strip in Coils From France
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: June 8, 1999.
FOR FURTHER INFORMATION CONTACT: Rosa Jeong, Marian Wells, or Annika
O'Hara, AD/CVD Enforcement, Group I, Office 1, Import Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone: (202) 482-3853, 482-6309, or 482-
3798, respectively.
Final Determination
The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to producers and exporters
of stainless steel sheet and strip in coils from France. For
information on the estimated countervailing duty rates, please see the
``Suspension of Liquidation'' section of this notice.
The Petitioners
The petition in this investigation was filed by the Allegheny
Ludlum Corporation, Armco Inc., Washington Steel Division of Bethlehem
Steel Corporation, United Steel Workers of America, AFL-CIO/CLC, Butler
Armco Independent Union, and Zanesville Armco Independent Organization,
Inc. (collectively referred to hereinafter as ``the petitioners'').
Case History
Since the publication of the preliminary determination (see
Preliminary Affirmative Countervailing Duty Determination and Alignment
of Final Countervailing Duty Determination with Final Antidumping Duty
Determination: Stainless Steel Sheet and Strip in Coils from France, 63
FR 63876 (November 17, 1998) (Preliminary Determination)), the
following events have occurred:
We conducted verification in Belgium and France of the
questionnaire responses submitted by the European Commission (EC), the
Government of France (GOF), and Usinor (the only respondent company in
this investigation) from November 11 through November 24, 1998. On
November 24 and December 8, 1998, we received allegations of certain
clerical errors in the Preliminary Determination. We corrected these
errors in a January 20, 1999, memorandum to Laurie Parkhill, Acting
Deputy Assistant Secretary (see ``Clerical Error Allegations in the
Preliminary Determination of Stainless Steel Sheet and Strip in Coils
from France'' (``Clerical Errors Memo'') which is on file in the
Central Records Unit of the Department). On February 18, 1999, we
postponed the final determination of this investigation until May 19,
1999 (see Countervailing Duty Investigations of Stainless Steel Sheet
and Strip in Coils from France, Italy, and the Republic of Korea:
Notice of Extension of Time Limit for Final Determinations, 64 FR 9476
(February 26, 1999)). The petitioners and Usinor/GOF filed case and
rebuttal briefs on March 3 and March 10, 1999. A public hearing was
held on March 12, 1999.
Scope of Investigation
We have made minor corrections to the scope language excluding
certain stainless steel foil for automotive catalytic converters and
certain specialty stainless steel products in response to comments by
interested parties.
For purposes of this investigation, the products covered are
certain stainless steel sheet and strip in coils. Stainless steel is an
alloy steel containing, by weight, 1.2 percent or less of carbon and
10.5 percent or more of chromium, with or without other elements. The
subject sheet and strip is a flat-rolled product in coils that is
greater than 9.5 mm in width and less than 4.75 mm in thickness, and
that is annealed or otherwise heat treated and pickled or otherwise
descaled. The subject sheet and strip may also be further processed
(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that
it maintains the specific dimensions of sheet and strip following such
processing.
The merchandise subject to this investigation is classified in the
Harmonized Tariff Schedule of the United States (HTSUS) at the
following subheadings: 7219.13.00.30, 7219.13.00.50, 7219.13.00.70,
7219.13.00.80, 7219.14.00.30, 7219.14.00.65, 7219.14.00.90,
7219.32.00.05, 7219.32.00.20, 7219.32.00.25, 7219.32.00.35,
7219.32.00.36, 7219.32.00.38, 7219.32.00.42, 7219.32.00.44,
7219.33.00.05, 7219.33.00.20, 7219.33.00.25, 7219.33.00.35,
7219.33.00.36, 7219.33.00.38, 7219.33.00.42, 7219.33.00.44,
7219.34.00.05, 7219.34.00.20, 7219.34.00.25, 7219.34.00.30,
7219.34.00.35, 7219.35.00.05, 7219.35.00.15, 7219.35.00.30,
[[Page 30775]]
7219.35.00.35, 7219.90.00.10, 7219.90.00.20, 7219.90.00.25,
7219.90.00.60, 7219.90.00.80, 7220.12.10.00, 7220.12.50.00,
7220.20.10.10, 7220.20.10.15, 7220.20.10.60, 7220.20.10.80,
7220.20.60.05, 7220.20.60.10, 7220.20.60.15, 7220.20.60.60,
7220.20.60.80, 7220.20.70.05, 7220.20.70.10, 7220.20.70.15,
7220.20.70.60, 7220.20.70.80, 7220.20.80.00, 7220.20.90.30,
7220.20.90.60, 7220.90.00.10, 7220.90.00.15, 7220.90.00.60, and
7220.90.00.80. Although the HTSUS subheadings are provided for
convenience and customs purposes, the Department's written description
of the merchandise under investigation is dispositive.
Excluded from the scope of this investigation are the following:
(1) sheet and strip that is not annealed or otherwise heat treated and
pickled or otherwise descaled; (2) sheet and strip that is cut to
length; (3) plate (i.e., flat-rolled stainless steel products of a
thickness of 4.75 mm or more); (4) flat wire (i.e., cold-rolled
sections, with a prepared edge, rectangular in shape, of a width of not
more than 9.5 mm); and (5) razor blade steel. Razor blade steel is a
flat-rolled product of stainless steel, not further worked than cold-
rolled (cold-reduced), in coils, of a width of not more than 23 mm and
a thickness of 0.266 mm or less, containing, by weight, 12.5 to 14.5
percent chromium, and certified at the time of entry to be used in the
manufacture of razor blades. See Chapter 72 of the HTSUS, ``Additional
U.S. Note'' 1(d).
In response to comments by interested parties the Department has
determined that certain specialty stainless steel products are also
excluded from the scope of this investigation. These excluded products
are described below:
Flapper valve steel is defined as stainless steel strip in coils
containing, by weight, between 0.37 and 0.43 percent carbon, between
1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent
manganese. This steel also contains, by weight, phosphorus of 0.025
percent or less, silicon of between 0.20 and 0.50 percent, and sulfur
of 0.020 percent or less. The product is manufactured by means of
vacuum arc remelting, with inclusion controls for sulphide of no more
than 0.04 percent and for oxide of no more than 0.05 percent. Flapper
valve steel has a tensile strength of between 210 and 300 ksi, yield
strength of between 170 and 270 ksi, plus or minus 8 ksi, and a
hardness (Hv) of between 460 and 590. Flapper valve steel is most
commonly used to produce specialty flapper valves in compressors.
Also excluded is a product referred to as suspension foil, a
specialty steel product used in the manufacture of suspension
assemblies for computer disk drives. Suspension foil is described as
302/304 grade or 202 grade stainless steel of a thickness between 14
and 127 microns, with a thickness tolerance of plus-or-minus 2.01
microns, and surface glossiness of 200 to 700 percent Gs. Suspension
foil must be supplied in coil widths of not more than 407 mm and with a
mass of 225 kg or less. Roll marks may only be visible on one side,
with no scratches of measurable depth. The material must exhibit
residual stresses of 2 mm maximum deflection and flatness of 1.6 mm
over 685 mm length.
Certain stainless steel foil for automotive catalytic converters is
also excluded from the scope of this investigation. This stainless
steel strip in coils is a specialty foil with a thickness of between 20
and 110 microns used to produce a metallic substrate with a honeycomb
structure for use in automotive catalytic converters. The steel
contains, by weight, carbon of no more than 0.030 percent, silicon of
no more than 1.0 percent, manganese of no more than 1.0 percent,
chromium of between 19 and 22 percent, aluminum of no less than 5.0
percent, phosphorus of no more than 0.045 percent, sulfur of no more
than 0.03 percent, lanthanum of less than 0.002 or greater than 0.05
percent, and total rare earth elements of more than 0.06 percent, with
the balance iron.
Permanent magnet iron-chromium-cobalt alloy stainless strip is also
excluded from the scope of this investigation. This ductile stainless
steel strip contains, by weight, 26 to 30 percent chromium and 7 to 10
percent cobalt, with the remainder of iron, in widths 228.6 mm or less,
and a thickness between 0.127 and 1.270 mm. It exhibits magnetic
remanence between 9,000 and 12,000 gauss, and a coercivity of between
50 and 300 oersteds. This product is most commonly used in electronic
sensors and is currently available under proprietary trade names such
as ``Arnokrome III.'' 1
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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering
Company.
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Certain electrical resistance alloy steel is also excluded from the
scope of this investigation. This product is defined as a non-magnetic
stainless steel manufactured to American Society of Testing and
Materials (ASTM) specification B344 and containing, by weight, 36
percent nickel, 18 percent chromium, and 46 percent iron, and is most
notable for its resistance to high-temperature corrosion. It has a
melting point of 1390 degrees Celsius and displays a creep rupture
limit of 4 kilograms per square millimeter at 1000 degrees Celsius.
This steel is most commonly used in the production of heating ribbons
for circuit breakers and industrial furnaces, and in rheostats for
railway locomotives. The product is currently available under
proprietary trade names such as ``Gilphy 36.'' 2
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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.
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Certain martensitic precipitation-hardenable stainless steel is
also excluded from the scope of this investigation. This high-strength,
ductile stainless steel product is designated under the Unified
Numbering System (UNS) as S45500-grade steel, and contains, by weight,
11 to 13 percent chromium and 7 to 10 percent nickel. Carbon,
manganese, silicon and molybdenum each comprise, by weight, 0.05
percent or less, with phosphorus and sulfur each comprising, by weight,
0.03 percent or less. This steel has copper, niobium, and titanium
added to achieve aging and will exhibit yield strengths as high as 1700
Mpa and ultimate tensile strengths as high as 1750 Mpa after aging,
with elongation percentages of 3 percent or less in 50 mm. It is
generally provided in thicknesses between 0.635 and 0.787 mm, and in
widths of 25.4 mm. This product is most commonly used in the
manufacture of television tubes and is currently available under
proprietary trade names such as ``Durphynox 17.'' 3
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\3\ ``Durphynox 17'' is a trademark of Imphy, S.A.
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Finally, three specialty stainless steels typically used in certain
industrial blades and surgical and medical instruments are also
excluded from the scope of this investigation. These include stainless
steel strip in coils used in the production of textile cutting tools
(e.g., carpet knives). 4 This steel is similar to AISI grade
420 but containing, by weight, 0.5 to 0.7 percent of molybdenum. The
steel also contains, by weight, carbon of between 1.0 and 1.1 percent,
sulfur of 0.020 percent or less, and includes between 0.20 and 0.30
percent copper and between 0.20 and 0.50 percent cobalt. This steel is
sold under proprietary names such as ``GIN4 Mo.'' The second excluded
stainless steel strip in coils is similar to AISI 420-J2 and contains,
by weight, carbon of between 0.62 and 0.70 percent, silicon of between
0.20 and 0.50 percent, manganese of between 0.45 and 0.80 percent,
phosphorus of no more than 0.025 percent, and sulfur of
[[Page 30776]]
no more than 0.020 percent. This steel has a carbide density on average
of 100 carbide particles per 100 square microns. An example of this
product is ``GIN5'' steel. The third specialty steel has a chemical
composition similar to AISI 420 F, with carbon of between 0.37 and 0.43
percent, molybdenum of between 1.15 and 1.35 percent, but lower
manganese of between 0.20 and 0.80 percent, phosphorus of no more than
0.025 percent, silicon of between 0.20 and 0.50 percent, and sulfur of
no more than 0.020 percent. This product is supplied with a hardness of
more than Hv 500 guaranteed after customer processing, and is supplied
as, for example, ``GIN6''. 5
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\4\ This list of uses is illustrative and provided for
descriptive purposes only.
\5\ 'GIN4 Mo,'' ``GIN5'' and ``GIN6'' are the proprietary grades
of Hitachi Metals America, Ltd.
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The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the
Act). In addition, unless otherwise indicated, all citations to the
Department's regulations are to the regulations codified at 19 CFR Part
351 (1998).
Injury Test
Because France is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from France materially injure, or threaten material
injury to, a U.S. industry. On August 9, 1998, the ITC published its
preliminary determination finding that there is a reasonable indication
that an industry in the United States is being materially injured or
threatened with material injury by reason of imports from France of the
subject merchandise (see Certain Stainless Steel Sheet and Strip From
France, Germany, Italy, Japan, the Republic of Korea, Mexico, Taiwan,
and the United Kingdom, 63 FR 41864 (August 9, 1998)).
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1997.
Corporate History
As stated in the Preliminary Determination, the GOF identified the
Ugine Division of Usinor as the only producer of the subject
merchandise that exported to the United States during the POI.
In the early 1980s, Ugine (then called Ugine Aciers) was one of
several producers of stainless steel in France. In 1982, the French
steel company Sacilor acquired a controlling interest in Ugine. In the
following year, Sacilor bought a majority of the shares in another
stainless steel producer, Forges de Gueugnon, which was merged with one
part of Ugine and renamed Ugine-Gueugnon. During the same time, Usinor
was a separate steel company with one division called Usinor Chatillon
producing stainless steel. In 1987, the GOF placed Usinor and Sacilor
in a holding company named Usinor Sacilor. At the same time, Ugine-
Gueugnon and Usinor Chatillon were combined into one company called
Ugine Aciers de Chatillon et Gueugnon (Ugine ACG).
In 1991, Ugine ACG merged with Sacilor and became Ugine S.A., a
subsidiary of the Usinor Sacilor holding company. In 1994, Usinor
Sacilor sold approximately 40 percent of its equity in Ugine S.A. to
the general public. However, in 1995, Usinor Sacilor bought back the
shares in Ugine S.A. and obtained total control of the company. In late
1995, Ugine S.A. was converted into a division of Usinor Sacilor and
became ``the Ugine Division,'' producing stainless steel and alloys.
Finally, in 1997, Usinor Sacilor was renamed Usinor.
The GOF was the majority owner of both Usinor and Sacilor until the
mid-1980s. In 1986, the GOF emerged as the sole owner of both companies
after a capital restructuring. In 1987, the GOF created the Usinor
Sacilor holding company. In 1991, Credit Lyonnais, a government-owned
bank, bought 20 percent of the equity in the company.
In July 1995, the privatization of Usinor Sacilor began. At the
same time, Usinor Sacilor offered additional shares for sale in the
form of a capital increase. All shares were sold through a public
offering of shares which consisted of a French public offering, an
international public offering, and an employee offering. In accordance
with the French privatization law, a certain portion of the shares were
also sold to a group of so-called ``stable shareholders,'' some of
which were government-owned banks and other entities. The privatization
continued throughout the years 1996 and 1997. At the end of the
privatization, the stable shareholders held approximately 14 percent of
Usinor's total shares, 10 percent of which were held by government-
owned or controlled entities.
Usinor purchased shares from the GOF in 1995 to sell to employees
on an extended payment plan in 1996. In addition, the GOF sold shares
to employees at the time of the 1995 privatization. Monies for these
shares were received by the GOF in 1995, 1996, and 1997. In December
1995, Usinor Sacilor repurchased shares of Ugine which had been
previously sold to the public, approximately 41 percent of Ugine's
shares.
In early 1997, the GOF transferred (without remuneration) a small
part of its stake in Usinor to individual French shareholders and
company employees who had held their shares for at least 18 months
following the July 1995 privatization. In October 1997, the GOF sold
most of its remaining shares on the market, leaving it with less than
one percent of total Usinor shares. These shares were to be given away
without remuneration (for ``free'') in August 1998.
As noted in the February 19, 1999, Usinor Verification Report
(Usinor Report), because the French steel industry was not thriving in
the mid-1990's, Usinor made an effort to streamline its holdings and
maintain ownership of only steel-producing divisions. This streamlining
included the sale of the Richemont power plant in 1994, as well as the
sale of assets to FOS-OXY in 1993 and Entreprise Jean LeFebvre in 1994.
Change in Ownership
In the General Issues Appendix (GIA), attached to the Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Austria, 58 FR 37217, 37226 (July 9, 1993), we explained our
current methodology with respect to the treatment of subsidies received
prior to the sale of the company (privatization) or the spinning-off of
a productive unit.
Under this methodology, we estimate the portion of the purchase
price attributable to prior subsidies. We compute this by first
dividing the privatized company's subsidies by the company's net worth
for each year during the period beginning with the earliest point at
which non-recurring subsidies would be attributable to the POI (i.e.,
in this case, 1984 for Usinor) and ending one year prior to the
privatization. We then take the simple average of the ratios. The
simple average of these ratios of subsidies to net worth serves as a
reasonable surrogate for the percent that subsidies constitute of the
overall value of the company. Next, we multiply the average ratio by
the purchase price to derive the portion of the purchase price
attributable to repayment of prior subsidies. Finally, we reduce the
benefit streams of the prior subsidies by the ratio of the repayment
amount to the net present
[[Page 30777]]
value of all remaining benefits at the time of privatization. For
further discussion of our privatization methodology, see Preliminary
Determination, 63 FR at 63878, and the Clerical Errors Memo.
With respect to spin-offs, consistent with our position regarding
privatization, we analyze the spin-off of productive units to assess
what portion of the sales price of the productive units can be
attributable to payment for prior subsidies. To perform this
calculation, we first determine the amount of the seller's subsidies
that the spun-off productive unit could potentially take with it. To
calculate this amount, we divide the value of the assets of the spun-
off unit by the value of the assets of the company selling the unit. We
then apply this ratio to the net present value of the seller's
remaining subsidies. We next estimate the portion of the purchase price
that can be viewed as payment for prior subsidies in accordance with
the privatization methodology outlined above.
Usinor and the GOF have indicated their opposition to the
Department's methodology in recalculating the amount of subsidies
attributable to Usinor after the spin-off of the Richemont facility.
(We did this recalculation to address a clerical error in the
Preliminary Determination.) The GOF and Usinor do not agree that the
subsidies attributable to Richemont should have been reallocated to
Usinor as a result of the sale of Richemont. Instead, in their view, at
least some of the subsidies originally attributable to Richemont's
production should have been assigned to Richemont after its sale.
The petitioners support the corrections described in the
Department's Clerical Errors Memo. They argue that, in making the
changes, the Department has applied correctly the spin-off methodology
upheld by the court in British Steel plc v. United States, 27 F. Supp.
2d 209 (CIT 1998). The petitioners maintain that there is not an
extinguishment of subsidies in a spin-off, citing the Final
Determination of Redetermination Pursuant to Delverde SrL v. United
States, 989 F. Supp. 218 (CIT 1997).
We disagree with the GOF and Usinor, and we have continued to apply
the methodology described in the Clerical Errors Memo regarding the
sale of the Richemont facility. The revised calculation comports with
the Department's methodology as described in the GIA, 58 FR at 37269.
In this instance, application of our methodology leads to the
conclusion that all subsidies potentially allocable to Richemont were,
in fact, returned to the seller (Usinor) through the price paid for
Richemont.
In addition, the petitioners have argued that, because the change
in ownership of Ugine in 1994, as well as the privatization of Usinor
in 1996 and 1997, did not result in changes in the control of these
companies, the change-in-ownership methodology should not be applied.
The petitioners cite to Inland Steel Bar Co. v. United States, 155 F.3d
1370, 1374 (Fed. Cir. 1998) (Inland Steel), in which the court stated
that a purchaser's valuation of a company ``will depend not only on the
intrinsic value of the unit, but also on whether the purchaser opts to
discharge the liability at purchase time rather than continuing to pay
countervailing duties until the obligation expires.''
According to the petitioners, the court's reasoning dictates that a
purchaser must be able to value a company's assets and liabilities,
assume the liabilities and opt to repay or reallocate the
countervailing duty liability. In order to do this, the petitioners
argue that a purchaser must take control of the company. The
petitioners argue that where the purchasing company acquires only a
minority share in the subsidized company, the liability remains with
the current majority owners while the minority purchaser simply buys
into the subsidized company.
In further support of their position, the petitioners cite to the
GIA, 58 FR at 37273, where the Department stated that ``a change in
ownership position, whereby a company's percentage of ownership
fluctuates over time, is not a bona fide spin-off. Therefore, we did
not perform the spin-off calculation with regard to change in ownership
position.'' The petitioners warn that application of the change-in-
ownership methodology to small-share transactions that do not affect
the control of a company would create a loophole in the countervailing
duty law whereby each share transaction on the open market would
constitute a change-in-ownership. In effect, point out the petitioners,
the privatization of a company via stock issuance would result in the
extinguishment of subsidies as each trade would result in a
reallocation of those subsidies. The petitioners also state that
continued application of the change-in-ownership methodology involving
minority transfers of ownership could also provide an incentive for
majority owners to manipulate share transactions so as to eliminate
countervailing duty liability.
The GOF and Usinor contend that the Department has never linked
application of its change-in-ownership methodology to a change in
control of the company. The GOF and Usinor insist that the methodology
should continue to be applied to the sale of shares in Ugine.
We have not adopted the position urged by the petitioners. In the
Department's recent decision in the Final Affirmative Countervailing
Duty Determination: Stainless Steel Plate in Coils from Italy, 64 FR
15508, 15510 (March 31, 1999) (Italian Plate), regarding the
application of the change-in-ownership methodology, the Department
stated:
We were not persuaded by petitioners' argument that a
transaction must involve a transfer of control in order for our
methodology to be applicable. However, we are deeply concerned that
application of our methodology to sales of private minority share
interests such as these could lead us toward the application of our
methodology to daily transactions on the open market for publicly
traded companies--a clearly absurd result that must be prevented.
The specific facts presented in Italian Plate led the Department to
conclude that it should not apply its methodology to certain changes in
the ownership of a respondent, AST. However, the Department has applied
its change-in-ownership methodology in other situations where there was
no change in control. For example, the Department applied its change-
in-ownership methodology to the partial privatizations of a respondent,
SSAB, undertaken by the Government of Sweden. See Final Affirmative
Countervailing Duty Determinations; Certain Steel Products from Sweden,
58 FR 37385, 37386 (July 9, 1993) (Certain Steel from Sweden).
Similarly, in Industrial Phosphoric Acid from Israel; Final Results of
Countervailing Duty Administrative Review, 63 FR 13626, 13627 (March
20, 1998) (IPA from Israel 1995 Review), the Department applied the
change-in-ownership methodology to the partial privatization of a
respondent, ICL. In that case, 24.9 percent of ICL's shares were sold.
Moreover, the Department has applied its change-in-ownership
methodology to transactions involving changing levels of ownership over
time. In Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from
the United Kingdom; Final Results of Countervailing Duty Administrative
Review, 63 FR 18367, 18368 (April 15, 1998) (UK Lead Bar 1996 Review),
as well as Certain Hot-Rolled Lead and Bismuth Carbon Steel Products
from the United Kingdom; Final Results of Countervailing Duty
[[Page 30778]]
Administrative Review, 61 FR 58377, 58381 (November 14, 1996) (UK Lead
Bar 1994 Review), the Department examined a situation where British
Steel placed its special steel business into a joint venture, UES. In
return, British Steel became partial owner of UES (and, consequently,
partial owner of the business it formerly owned). The Department
recognized this change and applied its change-in-ownership methodology
to this ``spin-off.'' Later, when UES was repurchased (``spun-in'') by
British Steel, the Department found that the subsidies that
``traveled'' with the UES should be ``rejoined'' with its parent
company's pool of untied subsidies. Thus, the change-in-ownership
methodology was also applied to this transaction. The UES spin-off
demonstrates, that the Department does not require a change in control
before it applies its change-in-ownership methodology. Moreover, where
changes in the level of ownership occur over time, as was the case with
British Steel and UES, we account for those changes through the change-
in-ownership methodology.
There have also been situations where application of the change-in-
ownership methodology was not appropriate. In Italian Plate, 64 FR at
15510, for example, the transactions at issue involved ``the sale of a
relatively small amount of shares by minority owners of a holding
company two levels removed from the production of the subject
merchandise.'' Also, in IPA from Israel 1995 Review, 63 FR at 13627,
the Department did not apply the change-in-ownership methodology to the
sales by another party, Rotem, of less than 0.05 percent of ICL because
the sale of shares had no impact on Rotem's overall net subsidy rate.
In light of these precedents and recognizing the flexibility
afforded by the statute in recognizing changes in ownership, we have
reexamined the circumstances surrounding the spin-off and spin-in of
Ugine, as well as the 1996 and 1997 sales of Usinor's shares by the GOF
for this final determination. We have continued to apply the change-in-
ownership methodology to the spin-off of Ugine and the post-1995 sale
of Usinor's shares by the GOF. Both sets of transactions involved sales
by a government or government-owned company (Usinor) and a significant
number of shares.
We have not, however, applied the change-in-ownership methodology
to the spin-in of Ugine. The repurchase of shares consisted of numerous
transactions between a predominately privately owned purchaser (Usinor)
and individual minority shareholders. By contrast, when UES was
reacquired by British Steel, the transaction involved only two parties,
each holding fifty percent of the subsidized company. Reallocation of
subsidies was appropriate in that case because the seller was a single
company selling a significant interest. Application of the change-in-
ownership methodology to the repurchase of Ugine shares in this case
would essentially result in an allocation of Ugine's subsidies to
individual investors who are trading Ugine shares on the market. As we
indicated in Italian Plate, the change-in-ownership methodology was
never intended to result in such an allocation. Therefore, the
subsidies spun off in the 1994 sale of Ugine's shares were returned to
Usinor in their entirety when Usinor repurchased Ugine in 1995.
Consequently, in this final determination, we have applied the
change-in-ownership methodology to the following transactions: (1) the
sale of Ugine shares in 1994; (2) the 1994 sale of Centrale
Siderurgique de Richemont (CSR); (3) the privatization of Usinor which
spans 1995, 1996, and 1997; (4) the spin-off of assets to Entreprise
Jean LeFebvre in 1994; and (5) the spin-off of assets to FOS-OXY in
1993. See also our responses to Comment 2 concerning the spin-off of
assets to FOS-OXY and Entreprise Jean LeFebvre, and Comment 3
concerning the privatization of Usinor during the years 1995, 1996, and
1997.
Subsidies Valuation Information
Benchmarks for Loans and Discount Rates: To calculate the
countervailable benefit from loans and non-recurring grants received,
we used Usinor's company-specific cost of long-term, fixed-rate loans
where available. For years where a company-specific rate was not
available, we used the rates for average yields on long-term private-
sector bonds in France as published by the OECD. For years in which
Usinor was determined to be uncreditworthy (i.e., 1984 through 1988),
we added a risk premium to the benchmark interest rate (see our
response to Comment 10 below regarding the selection of this rate) in
accordance with our practice described in Sec. 355.44(b)(6)(iv) of
Countervailing Duties; Notice of Proposed Rulemaking and Request for
Public Comment, 54 FR 23366, 23374 (May 31, 1989) (1989 Proposed
Regulations). While the 1989 Proposed Regulations are not controlling
in this case, they do represent the Department's practice with respect
to this investigation.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service (IRS) for the
industry-specific average useful life of assets in determining the
allocation period for non-recurring subsidies. See GIA. In British
Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995) (British Steel
I), the U.S. Court of International Trade (the Court) held that the IRS
information did not necessarily reflect a reasonable period based on
the actual commercial and competitive benefit of the subsidies to the
recipients. In accordance with the Court's remand order, the Department
calculated a company-specific allocation period for non-recurring
subsidies for Usinor Sacilor based on the average useful life (AUL) of
its non-renewable physical assets of 14 years. This remand
determination was affirmed by the Court in British Steel plc v. United
States, 929 F. Supp. 426 (CIT 1996) (British Steel II).
As discussed below, the current investigation includes untied, non-
recurring subsidies that were found to be countervailable in Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from France, 58 FR 37304 (July 9, 1993) (Certain Steel from France),
i.e., PACS, FIS, and Shareholders' Advances. Because we have already
assigned a company-specific allocation period of 14 years to those
previously investigated subsidies, we determine that it is appropriate
to continue to allocate those subsidies over 14 years. See our response
to Comment 1, below.
This investigation includes no other non-recurring subsidies that
have been determined to provide countervailable benefits that should be
allocated over time. Accordingly, we have not calculated a new company-
specific allocation period for subsidies not previously investigated.
Based upon our analysis of the petition, the responses to our
questionnaires, and the results of verification, we determine the
following:
I. Programs Determined To Be Countervailable GOF Programs
A. Loans With Special Characteristics (PACS)
The steel restructuring plan of 1978 created a steel amortization
fund, called the Caisse d'Amortissement pour l'Acier (CAPA), for the
purpose of ensuring repayment of funds borrowed by these companies
prior to June 1, 1978. According to the 1978 plan, bonds issued
previously on behalf of the steel companies and pre-1978 loans from
Credit National and Fonds de Developpement Economique et Social (FDES)
were converted into ``loans with
[[Page 30779]]
special characteristics'' or PACS. As a result of this process, the
steel companies were no longer liable for the loans and bonds, but they
did take on PACS obligations.
In 1978, Usinor and Sacilor converted 21.1 billion French francs
(FF) of debt into PACS. From 1980 to 1981, Usinor and Sacilor issued FF
8.1 billion of new PACS. PACS in the amount of FF 13.8 billion, FF 12.6
billion, and FF 2.8 billion were converted into common stock in 1981,
1986, and 1991, respectively.
In Certain Steel from France and Final Affirmative Countervailing
Duty Determinations: Certain Hot Rolled Lead and Bismuth Carbon Steel
Products from France, 58 FR 6221 (January 27, 1993) (Lead Bar from
France), the Department determined that the conversion of PACS to
common stock in 1981 and 1986 constituted equity infusions on terms
inconsistent with commercial considerations because Usinor Sacilor was
found to be unequityworthy during those years. No new information or
evidence of changed circumstances has been submitted in this proceeding
to warrant a reconsideration of our earlier finding. Therefore, we
continue to find that these equity infusions constitute countervailable
subsidies within the meaning of section 771(5) of the Act. Using the
allocation period of 14 years, the 1986 conversion of PACS continues to
yield a countervailable benefit during the POI of this investigation.
Consistent with our practice in Certain Steel from France, we have
treated the equity infusion as a non-recurring grant received in 1986.
Because Usinor was uncreditworthy in the year of receipt, we used a
discount rate that includes a risk premium to allocate the benefits
over time. Additionally, we followed the methodology described in the
``Change in Ownership'' section above to determine the amount of each
equity infusion appropriately allocated to Usinor during the POI. We
divided this amount by Usinor's total sales during the POI.
Accordingly, we determine the countervailable subsidy to be 1.22
percent ad valorem.
B. Shareholders' Advances
The GOF provided Usinor and Sacilor grants in the form of
shareholders' advances during the period 1982 through 1986. The purpose
of these advances was to finance the revenue-shortfall needs of Usinor
and Sacilor while the GOF planned for the next major restructuring of
the French steel industry. These shareholders' advances carried no
interest and there was no precondition for receipt of these funds.
These advances were converted to common stock in 1986.
In Certain Steel from France and Lead Bar from France, the
Department determined that the shareholders' advances constituted
countervailable grants at the time the advances were received because
no shares were exchanged for them. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
a reconsideration of our earlier finding. Therefore, we continue to
find that these grants constitute countervailable subsidies within the
meaning of section 771(5) of the Act. Using the allocation period of 14
years, subsidies dating back to 1984 continue to provide
countervailable benefits during the POI of this case.
Consistent with our practice in Certain Steel from France, we have
treated these advances as non-recurring grants. Because Usinor was
uncreditworthy in the years of receipt, we used a discount rate that
includes a risk premium to allocate the benefits over time.
Additionally, we followed the methodology described in the ``Change in
Ownership'' section above to determine the amount of each grant
appropriately allocated to Usinor during the POI. We divided this
amount by Usinor's total sales during the POI. Accordingly, we
determine the countervailable subsidy to be 0.97 percent ad valorem.
C. Steel Intervention Fund (FIS)
The 1981 Corrected Finance Law granted Usinor and Sacilor the
authority to issue convertible bonds. In 1983, the Fonds d'Intervention
Sid deg.rurgique (FIS), or steel intervention fund, was created to
implement that authority. In 1983, 1984, and 1985, Usinor and Sacilor
issued convertible bonds to the FIS which, in turn, with the GOF's
guarantee, floated the bonds to the public and to institutional
investors. These bonds were converted to common stock in 1986 and 1988.
In Certain Steel from France and Lead Bar from France, the
Department determined that the conversions of FIS bonds to common stock
in 1986 and 1988 constituted equity infusions on terms inconsistent
with commercial considerations because Usinor Sacilor was found to be
unequityworthy during those years. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
a reconsideration of our earlier finding. Therefore, we continue to
find that these equity infusions constitute countervailable subsidies
within the meaning of section 771(5) of the Act. Using the allocation
period of 14 years, the 1986 and 1988 conversions of FIS bonds yield a
benefit during our POI.
We have treated the equity infusions as non-recurring grants given
in 1986 and 1988. Because Usinor was uncreditworthy in the years of
receipt, we used discount rates that include a risk premium to allocate
the benefits over time. Additionally, we followed the methodology
described in the ``Change in Ownership'' section above to determine the
amount of each equity infusion appropriately allocated to Usinor during
the POI. Dividing this amount by Usinor's total sales during the POI,
we determine the countervailable subsidy to be 3.09 percent ad valorem.
D. Investment and Operating Subsidies
During the period 1987 through 1997, Usinor received a variety of
small investment and operating subsidies from various GOF agencies as
well as from the European Coal and Steel Community (ECSC). The
subsidies were provided for research and development, projects to
reduce work-related illnesses and accidents, projects to combat water
pollution, etc. The subsidies are classified as investment, equipment,
or operating subsidies in the company's accounts, depending on how the
funds are used.
At verification, the GOF provided information about the water
program subsidies which indicated that Usinor received only a small
portion of the total amount of funding provided by the regional water
boards (les agences de l'eau) to reduce industrial pollution. For
reasons outlined in our response to Comment 8 below, we determine that
the water board subsidies are not specific to Usinor.
However, the GOF did not provide any information regarding the
distribution of funds under the other investment and operating subsidy
programs, citing the ``extreme burden'' of providing such information
and also because, in the GOF's view, the total amount of investment and
operating subsidies received by Usinor was ``insignificant and would .
. . be expensed.''
In accordance with section 776(a)(2) of the Act, we have,
therefore, decided to use facts available because the GOF did not
provide information that had been requested. Section 776(b) of the Act
permits the Department to draw an inference that is adverse to the
interests of an interested party if that party has ``failed to
cooperate by not acting to the best of its ability to comply with a
request for information.'' See Industrial
[[Page 30780]]
Phosphoric Acid from Israel: Final Results of Countervailing Duty
Administrative Review, 64 FR 2879, 2885 (January 19, 1999) (IPA from
Israel 1996 Review). Therefore, the Department determines it
appropriate to use an adverse inference in concluding that the
investment and operating subsidies (except those provided by the water
boards) are specific within the meaning of section 771(5A)(D) of the
Act.
We also determine that the investment and operating subsidies
provide a financial contribution, as described in section 771(5)(D)(i)
of the Act, in the form of a direct transfer of funds from the GOF and
the ECSC to Usinor, providing a benefit in the amount of the grants.
Because the investment and operating subsidies received in the
years prior to the POI were less than 0.5 percent of Usinor's sales
during the respective years of receipt, we have expensed these grants
in the years of receipt. To calculate the ad valorem rate of the
subsidy, we divided the subsidies received in 1997 by Usinor's total
sales during the POI. Accordingly, we determine the countervailable
subsidy to be 0.10 percent ad valorem.
E. Myosotis Project
Since 1988, Usinor has been developing an innovative continuous
thin-strip casting process called ``Myosotis'' in a joint venture with
the German steelmaker Thyssen. The Myosotis project is intended to
eliminate the separate hot-rolling stage of Usinor's steelmaking
process by transforming liquid metal directly into a coil between two
to five millimeters thick.
To assist this project, the GOF, through the Ministry of Industry
and L'Agence pour la Matrise de L'nergie (AFME), entered into three
agreements with Usinor Sacilor (in 1989) and Ugine (in 1991 and 1995).
The first agreement, dated December 27, 1989, covered a three-year
period and established schedules for the initial and subsequent
payments to Usinor. These payments were contingent upon the submission
of progress reports including a statement of investment outlays. The
final payment was contingent upon the submission of a final program
report and a statement of total expenses. The three installments were
paid in 1989, 1991, and 1993. The 1991 Agreement between Ugine and AFME
covered the cost of some equipment for the project. This agreement
resulted in two disbursements to Ugine from AFME in 1991 and 1992. The
1995 agreement with Ugine provided interest-free reimbursable advances
for the final two-year stage of the project, with the goal of casting
molten steel from ladles to produce thin strips. The first reimbursable
advance was made in 1997. Repayment of one-third of the reimbursable
advance is due July 31, 1999. The remaining two-thirds are due for
repayment on July 31, 2001.
The GOF has claimed that assistance for the Myosotis project was
provided under the Grands Projets Innovants (GPI) program which is
available to all industrial sectors in France. The GOF also asserts
that the program is a non-countervailable (i.e., ``green-light'')
research subsidy within the meaning of section 771(5B)(B) of the Act.
At verification, we confirmed that the reimbursable advances were
provided under the GPI program. However, the information provided was
not sufficient to establish that the grants provided by the Ministry of
Industry and AFME were connected to the GPI program.
Accordingly, we determine that the grants constitute
countervailable subsidies within the meaning of section 771(5) of the
Act. The amounts transferred are financial contributions in the form of
direct transfers of funds from the GOF to Usinor and/or Ugine pursuant
to section 771(5)(D)(i) of the Act. The GOF did not provide any
information indicating that the grants were provided to other companies
in France. Therefore, we determine that the grants provided to the
Myosotis project are specific within the meaning of section 771(5A)(D)
of the Act because they were provided exclusively to Usinor.
We determine the subsidies provided between 1989 and 1993 to be
non-recurring grants based on the analysis set forth in the Allocation
section of the GIA. Because the amounts received during these years
were less than 0.5 percent of Usinor or Ugine's sales during their
respective year of receipt, we are expensing these grants in the years
of receipt.
With respect to the reimbursable advance received in 1997, we are
treating this advance as a long-term interest-free loan. Information
provided at verification indicates that Usinor makes all payments of
interest on its long-term loans on an annual basis. According to
information provided by private banks of France, we found that such a
payment schedule would not be considered atypical of general banking
practices in France. Accordingly, we have assumed that a payment on a
comparable commercial loan taken out by Usinor at the time of the
Myosotis advance would not be due until 1998. Because there would be no
effect on Usinor's cash flow during the POI (i.e, no payment would have
been made on a benchmark loan during the POI), we determine that there
is no benefit attributable to the POI. See GIA, 58 FR at 37228-29.
Consequently, we have not addressed whether the reimbursable advance
received under the GPI program in 1997 is countervailable. See our
response to Comment 9 below.
F. Electric Arc Furnace
In 1996, the GOF agreed to provide assistance in the form of
reimbursable advances to support Usinor's research and development
efforts to improve and increase the efficiency of the melting process--
the first stage in steel production. The first disbursement of funds
occurred on July 17, 1998.
The Department deems benefits to have been received at the time
that there is an effect on the recipient's cash flow. See GIA, 58 FR at
37228-29. Because Usinor did not receive any payments until 1998, there
is no benefit during the POI of this investigation. Consequently, we
have not addressed whether this program is countervailable.
G. GOF Conditional Advance
During our verification of Usinor, we learned that Usinor received
an interest-free conditional advance from the GOF. This advance was
provided through the Ministry of Industry in connection with a project
aimed to develop a new type of steel used in the production of
catalytic converters. Ugine, Sollac, and two unaffiliated companies
participated in the project and each company received a portion of the
total project funding provided by the GOF. Ugine received its first
payment in 1992 and a second payment in 1995. According to the
agreement between the GOF and the participating companies, repayment of
the advance was contingent upon sales of the product resulting from
this project exceeding a set amount. Because this condition has not
been met, the entire amount of the advance received by Ugine remained
outstanding during the POI.
We determine that this conditional advance constitutes a
countervailable subsidy within the meaning of section 771(5) of the
Act. Because assistance was only provided to four companies, two of
which are part of the Usinor group, the program is specific pursuant to
section 771(5A)(D) of the Act. According to the Department's practice,
as reflected in Sec. 355.49(f) of the 1989 Proposed Regulations, the
Department normally treats an interest-free loan, for which the
repayment obligation is contingent upon certain subsequent events, as
an interest-free, short-term
[[Page 30781]]
loan for the purpose of calculating the amount of benefit. See also
Sec. 351.505(d) of Countervailing Duties; Final Rule, 63 FR 65438,
65410 (November 25, 1998) (Final CVD Regulations). Accordingly, we have
calculated the benefit from the advance by dividing the amount of
interest that would be due using the benchmark rate by the value of
Ugine's total sales. On this basis, we determine the countervailable
subsidy from this program to be less than 0.005 percent ad valorem.
H. Related-Party Grants
Usinor's financial statements identify ``grants from related
parties'' in the years 1992 through1995. Information provided by Usinor
demonstrates that these grants do not constitute a separate program
from the Myosotis project and investment and operating subsidies
discussed above. Specifically, a yearly breakdown of these grants shows
that the amount of each grant corresponds to the amounts provided under
the Myosotis project or investment and operating subsidies. Therefore,
we have not treated ``Related Party Grants'' as a separate program. See
``Myosotis Project'' and ``Investment and Operating Subsidies''
sections of this notice.
I. 1991 Grant to Ugine
Ugine's 1991 financial statements indicate that Ugine received FF
26,318 thousand in subsidies and also note that FF 16,295 thousand of
``share'' in subsidies were posted to income. Information provided by
Usinor indicates that these amounts reflect the funds received under
the Myosotis project as well as investment and operating subsidies.
Specifically, a breakdown of these grants shows that the amount of each
grant corresponds to the amounts provided under the Myosotis project or
investment and operating subsidies. Because we investigated Myosotis
and investment and operating subsidies separately in this proceeding,
we have not treated the ``1991 Grant to Ugine'' as a separate program.
See ``Myosotis Project'' and ``Investment and Operating Subsidies''
sections of this notice.
EC Program
European Social Fund. The European Social Fund (ESF), one of the
Structural Funds operated by the EC, was established in 1957. The main
purpose of the Fund is to improve workers' employment opportunities,
raise their living standards, and increase their geographical and
occupational mobility within the European Union (EU). It provides
support for vocational training, employment, and self-employment.
The member states are responsible for identifying and implementing
the individual projects that are selected to receive ESF financing. The
member states must also contribute to the financing of the projects. In
general, the maximum benefit provided by the ESF is 50 percent of the
project's total cost for projects geared toward Objectives 2, 3, 4, and
5b (see below). For Objective 1 projects, the ESF contributes a maximum
of 75 percent of the project's total cost.
Like the other Structural Funds, the ESF contributes to the
attainment of the five different objectives identified in the EC's
framework regulations for Structural Funds: Objective 1 is to promote
development and structural adjustment in underdeveloped regions,
Objective 2 addresses areas in industrial decline, Objective 3 relates
to combating long-term unemployment and creating jobs for young people
and people excluded from the labor market, Objective 4 focuses on the
adaptation of workers to industrial changes and changes in production
systems, and Objective 5 pertains to rural development. Recently, the
EC added a sixth objective under which assistance is provided to
sparsely populated areas in northern Europe.
Ugine S.A. received an ESF grant for worker readaptation training
in 1995. In the same year, the company also received an approximately
equivalent amount from the GOF as cofinancing for the project. In 1997,
the Ugine Division of Usinor received an ESF grant for training workers
in a new production process at its cold-rolling mill in Isbergues. At
verification, we found that the Ugine Division had also received a
small ESF grant for its plant in Gueugnon in 1997. No GOF cofinancing
for the 1997 ESF grants was received during the POI. All the ESF grants
were provided under Objective 4.
The Department considers worker-assistance programs to provide a
countervailable benefit to a company when the company is relieved of a
contractual or legal obligation it would otherwise have incurred. See
Final Affirmative Countervailing Duty Determination: Certain Pasta From
Italy, 61 FR 30288, 30294 (June 14, 1996) (Pasta From Italy). While
Usinor has stated that the ESF grants did not relieve it of any
contractual or legal obligations, neither Usinor nor the GOF has
provided any documentation to support this claim. Since companies
normally incur the costs of training to enhance the job-related skills
of their employees, we determine that the ESF grants relieved Usinor of
an obligation it would have otherwise incurred.
Neither the EC nor the GOF has provided any documentation regarding
the distribution of ESF grants in France. At verification GOF officials
stated that, during the POI, Usinor did not receive a disproportionate
amount of ESF assistance, but they did not provide any documentation in
support of this statement.
In accordance with section 776(a)(2) of the Act, we have,
therefore, decided to use facts available because the GOF did not
provide information that we had requested. Section 776(b) of the Act
permits the Department to draw an inference that is adverse to the
interests of an interested party if that party has ``failed to
cooperate by not acting to the best of its ability to comply with a
request for information.'' See IPA from Israel 1996 Review. Therefore,
the Department determines it appropriate to use an adverse inference in
concluding that the ESF grants are specific within the meaning of
section 771(5A)(D) of the Act.
We also determine that the ESF grants provide a financial
contribution, as described in section 771(5)(D)(i) of the Act, in the
form of a direct transfer of funds from the EC and the GOF to Usinor,
providing a benefit in the amount of the grants.
Normally, the Department considers the benefits from worker-
training programs to be recurring. See GIA, 58 FR at 37255. However,
consistent with our past practice and our understanding that ESF grants
relate to specific, individual projects which require separate
government approvals, we have treated these as non-recurring grants.
See Final Affirmative Countervailing Duty Determination: Certain
Stainless Steel Wire Rod from Italy, 63 FR 40474, 40488 (July 29, 1998)
(Wire Rod from Italy), and Pasta from Italy, 61 FR at 30295. Because
the value of the ESF grants and the accompanying GOF contribution were
less than 0.5 percent of Ugine's total sales in 1995 and 1997,
respectively, we expensed these grants in the years of receipt. We
calculated the benefit for the POI by dividing the amount of the ESF
grant received in 1997 by Ugine's total sales in that year. In this
way, we determine the countervailable subsidy to be less than 0.005
percent ad valorem for this program.
II. Programs Determined To Be Not Countervailable
A. Purchase of Power Plant
In 1994, Usinor sold the shares of CSR to Electricite de France
(EDF), a government-owned entity. CSR was set up to convert gas
generated by steel plants in the Lorraine region into electricity for
sale to l'Union Siderurgique de L'Energie (USE). USE, in turn, sold the
electricity to steel
[[Page 30782]]
producers in the region. At the time of the transaction, both CSR and
USE were owned by Usinor and Usinor factories purchased their
electricity from USE.
In addition to the physical assets of CSR (i.e., land, buildings,
plant and equipment), the 1994 transaction also provided EDF the
exclusive right to supply electricity to USE for a 15-year period.
Prior to the transaction, Usinor and EDF conducted independent
valuations of the transaction based on detailed projections of future
costs and revenues associated with the operation of CSR and sales of
electricity to USE. The projected revenues were calculated using
detailed estimates of yearly outputs, consumption, and rates.
Similarly, projected costs were based on estimated costs for purchasing
gas and operating expenses, as well as costs for developing an electric
power system. After negotiations, Usinor and EDF agreed on a purchase
price of FF 1 billion, which represented a compromise between the
independent valuations of the transaction by Usinor and EDF.
We examined whether Usinor received more than a reasonable market
price from the EDF in this transaction. We determine that, while FF 1
billion represented a large gain over the book value of CSR's physical
assets, the purchase price was based on independent valuation of the
future sales of electricity by EDF to Usinor. These valuations were
supported by reasonable estimates of projected costs and revenues. We
found no evidence to indicate that the transaction was anything other
than an arms-length transaction for full market value. Accordingly, we
determine that this program does not constitute a countervailable
subsidy within the meaning of section 771(5) of the Act.
B. Related-Party Loans
Usinor's 1992 and 1993 financial statements identify ``interest
free loans to related parties'' in the amounts of FF 622 million in
1993 and FF 455 million in 1992. According to Usinor, these loans
consist of interest-free advances by Usinor and other Usinor Group
entities to non-consolidated entities within the Usinor Group.
Information provided by Usinor indicates that the funds for these loans
were provided out of Usinor's self-generated cash flow. Because there
is no financial contribution as defined under section 771(5)(D) of the
Act, we determine that these loans do not constitute a countervailable
subsidy.
C. Work/Training Contracts
Employers who hire young people (16-25 years of age) through
various government-administered work/training or apprenticeship
contracts may receive grants and an exemption from social security
contributions. The contracts also impose training requirements for
those employees and establish minimum compensation set in proportion to
the SMIC (the indexed minimum wage) according to the age of the young
person and the duration of the contract. This program is administered
by Delegation Generale a l'Emploi et a la Formation Professionnelle of
the Ministere de l'Emploi et de la Solidarite at the national level and
locally by the Directions Departementales du Travail, de l'Emploi et de
la Formation Professionnelle (DDTEFP) (Departmental Labor, Employment
and Professional Training Head Offices). The purpose of this program is
to encourage the permanent employment of young people.
Usinor has entered into two types of such contracts: (1)
apprenticeship contracts and (2) contracts of specific duration
(including qualification agreements and adaptation agreements). Any
employer can hire an apprentice and enter into an apprenticeship
contract providing training for the apprentice. Qualification and
adaptation agreements require approval by the DDTEFP. Approval is
dependent upon (1) adoption of an agreement with an educational
institution or training entity and (2) the company's approval of a
standard agreement adopted by the GOF and an occupational organization.
Usinor received lump-sum payments and exemptions from social security
contributions as a result of these contracts.
We analyzed whether the benefits provided under this program are
specific ``in law or fact'' within the meaning of section 771(5A) of
the Act. We determine that the program is not de jure specific because
the receipt of the benefits, in law, is not contingent on export
performance or on the use of domestically-sourced goods over imported
goods; nor are the benefits limited to an enterprise, industry or
region.
Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de
facto specific if one or more of the following factors exists: (1) the
number of enterprises, industries or groups thereof which use a subsidy
is limited; (2) there is predominant use of a subsidy by an enterprise,
industry, or group; (3) there is disproportionate use of a subsidy by
an enterprise, industry, or group; or (4) the manner in which the
authority providing a subsidy has exercised discretion indicates that
an enterprise or industry is favored over others. As explained in the
Statement of Administrative Action (SAA) (H.R. Doc. No. 103-316 at 931
(1994)), the fourth criterion normally serves to support the analysis
of other de facto specificity criteria.
Assistance under this program was distributed to a wide variety of
industries in the majority of the regions of France. Therefore, the
program is not limited based on the number of users. The evidence also
indicates that the steel industry did not receive a predominant or a
disproportionate share of the total funding. Given our findings that
the number of users is large and that there is no predominant or
disproportionate use of the program by the steel industry, we do not
reach the issue of whether administrators of the program exercised
discretion in awarding benefits. Accordingly, we determine that this
program is not specific and has not conferred countervailable subsidies
within the meaning of section 771(5) of the Act.
III. Programs Determined To Be Not Used
Based on the information provided in the responses and the results
of verification, we determine that Usinor did not apply for or receive
benefits under the following programs during the POI:
GOF Programs
A. Export Financing under Natexis Banque Programs
B. DATAR Regional Development Grants (PATs)
C. DATAR 50 Percent Taxing Scheme
D. DATAR Tax Exemption for Industrial Expansion
E. DATAR Tax Credit for Companies Located in Special Investment Zone
F. DATAR Tax Credits for Research
G. GOF Guarantees
H. Long-Term Loans from CFDI
EC Programs
A. Resider I and II Programs
B. Youthstart
C. ECSC Article 54 Loans
D. ECSC Article 56(2)(b) Redeployment/Readaptation Aid
E. Grants from the European Regional Development Fund (ERDF)
IV. Program Determined Not To Exist
Forgiveness of Shareholders' Loans
Usinor's 1994 and 1995 financial statements indicate that the
balance in the account identified as ``loans granted
[[Page 30783]]
by the shareholders'' or ``borrowings granted by the shareholders'' was
reduced from FF 2.161 billion in 1993 to FF 1.92 billion in 1994 (i.e.,
a reduction in the amount of FF 241 million). At the end of 1995, the
balance in the same account was zero. The petitioners alleged that the
reduction in the loan balance represented a debt forgiveness by the GOF
in order to make the company more attractive to investors prior to its
privatization.
Information provided by Usinor and the GOF indicates that there was
no loan forgiveness. Rather, the decreases of the loan balances in the
financial statements represent a combination of loan payments by the
company and the elimination of the disclosure requirement in accordance
with international accounting standards due to a reduction in
shareholdings. Specifically, the 1995 reduction reflects the
elimination of disclosure requirements applicable to loans from Credit
Lyonnais as the result of the reduction in Credit Lyonnais' ownership
interest in Usinor from 20 percent to less than 10 percent at the time
of Usinor's privatization. There were no disclosed shareholder loans at
the end of 1995 because there were no shareholders with an interest of
10 percent or greater. International accounting standards require
disclosure of transactions between a business entity and owners of more
than 10 percent of shares. For 1994, the reduction is accounted for by
repayments of certain outstanding loans during that year. On this
basis, we determine that this program does not exist.
Interested Party Comments
Comment 1: Allocation Period
Usinor and the GOF argue that, in the Preliminary Determination,
the Department applied the 14-year AUL period found in Certain Steel
from France improperly to allocate the benefits of certain non-
recurring subsidies found countervailable in that case. Usinor and the
GOF urge the Department to apply instead a company-specific allocation
period based on information submitted in the instant investigation.
Usinor and the GOF argue that the Department's use of the
allocation period derived from a different proceeding is inconsistent
with the applicable court decision and the Department's past practice.
The respondents point out that, in British Steel I, the court rejected
the Department's previous allocation methodology based on the IRS
tables because the methodology was not based on substantial evidence on
the record. Consequently, the respondents note, the Department formally
abandoned the use of IRS tables and instead adopted the practice of
determining a company-specific AUL based on record evidence. Usinor and
the GOF state that this practice is reflected in the Department's
countervailing duty questionnaires, as well as in the 1997 Proposed
Regulations, which direct a firm to calculate its average AUL over a
period of ten years. By deviating from that practice, Usinor and the
GOF contend that the Department's approach in the Preliminary
Determination violated its court-ordered mandate to allocate subsidies
in a manner supported by evidence on the record of the instant
proceeding. Usinor and the GOF add that the Department's practice is
tantamount to penalizing the company simply because it happens to have
been the subject of a prior investigation. Usinor and the GOF contend
that, absent the earlier investigation, the programs at issue--PACS,
FIS and Shareholders'' Advances--would have been deemed outside the
scope of the present investigation.
Usinor and the GOF argue that the 14-year AUL from a different
investigation--involving different producers, different subject
merchandise, and a different time period--is not a proper measure of
benefit for the current investigation. According to the respondents,
the AUL merely represents a reasonable period for allocation of
benefits in a particular investigation rather than the actual duration
of the benefit. Usinor and the GOF state that any given company-
specific AUL in an investigation is a snapshot that can vary from year
to year because it is based on the company's asset values and
depreciation charges that inevitably vary from year to year. Therefore,
the respondents contend, a decision not to revisit the allocation
period in a subsequent investigation undermines the integrity of the
later investigation by failing to allocate all subsidies found in
accordance with the record of that investigation. Usinor and the GOF
assert, the methodology of focusing on the POI and the preceding nine
years is reasonable because it is linked to the time period for which
alleged subsidies were received.
Usinor and the GOF point out that, although the Department has
applied the same allocation period in different segments of the same
proceeding, it has never before applied a previously determined AUL in
an entirely separate proceeding. Citing Certain Carbon Steel Products
from Sweden; Final Results of Countervailing Duty Administrative
Review, 62 FR 16549,16550 (April 7, 1997) (Carbon Steel from Sweden),
Usinor and the GOF recognize the Department's rationale that revising
an allocation period in subsequent segments of the same proceeding
would create an entirely new benefit stream, thereby resulting in
under-countervailing or over-countervailing the benefits in the review
period. According to the respondents, however, this rationale does not
apply when dealing with an entirely separate proceeding because the
allocation period that was determined in one proceeding has no effect
on the benefit stream in a separate proceeding. Usinor and the GOF also
distinguish the current situation from UK Lead Bar 1996 Review, where
the Department applied an 18-year company-specific AUL period found in
separate proceeding (see Final Results of Redetermination Pursuant to
Court Remand on General Issue of Allocation: British Steel plc v.
United States, Consol. Ct. No. 93-09-00550-CVD, Slip Op. 95-17 and
Order (CIT Feb. 9, 1995) (UK Certain Steel)) instead of the 15-year IRS
table-based AUL used in the earlier segment of the same proceeding. In
that case, Usinor and the GOF argue, the rejected allocation period--
i.e., the IRS tables-based allocation period--was one that was
overruled by the British Steel I decision.
The petitioners counter that the Department should affirm its
decision in the Preliminary Determination and continue to apply
Usinor's 14-year AUL to the company's previously investigated
subsidies. The petitioners argue that the application of Usinor's
company-specific AUL is consistent with the Department's established
allocation methodology. According to the petitioners, the Department
has concluded in past cases, such as Pasta from Italy and Carbon Steel
from Sweden, that previously countervailed subsidies based on an
allocation period established in an earlier segment of the proceeding
should not be reallocated over a different period of time. The
petitioners contend that the principle underlying the Department's
decision to use the same AUL across different segments of a single
proceeding applies equally in the current investigation. According to
the petitioners, the Department followed this reasoning recently in UK
Lead Bar where it applied a single company-specific AUL to the same
subsidies across different proceedings involving the same company to
avoid ``significant inconsistencies.''
[[Page 30784]]
Citing to the GIA, the petitioners state further that the
Department's practice in the Preliminary Determination was consistent
with the statutory requirement that the amount of the countervailable
subsidy, including the allocated subsidy stream, is not to be
reevaluated based upon subsequent events. The petitioners contend that,
because the 14-year AUL and the benefit stream of the previously
investigated subsidies are based on data from the period when those
subsidies were received, they represent a more accurate measurement of
the duration of the benefit to the company. The petitioners note that,
for subsidies that have not been previously investigated, the
Department's current approach of requesting data for a time period
linked to the POI is a reasonable and administrable method for
allocating those subsidies. For previously investigated and allocated
subsidies, in contrast, the petitioners contend that the established
benefit streams should be maintained consistently in future
investigations. The petitioners argue that using the new 11-year AUL
would result in effectively revaluing the subsidies that were allocated
over a 14-year AUL, thereby ignoring the continuing benefit to the
company.
The petitioners contend that the fact that a company's AUL is bound
to change from year to year should not affect the Department's prior
AUL finding because, at the time Usinor received the subsidies in
question, the Department determined that those subsidies benefitted
Usinor for 14 years from the point of receipt. The changing value of
the company's assets after the appropriate allocation period, according
to the petitioners, is a subsequent event which should be considered
irrelevant to the allocated subsidy stream. The petitioners emphasize
that, despite the respondent's claims to the contrary, the present
investigation involves the same untied subsidies, the same producer,
and the same product. Specifically, the petitioners point out that, in
Certain Steel from France, the subsidies in question--FIS, PACS and
Shareholders' Advances--were found to benefit all products produced by
the entire Usinor group.
The petitioners state that the Department routinely applies a
determination from one proceeding to a separate proceeding despite the
absence of evidence on the record of the new proceeding. The
petitioners note that, for example, absent new evidence of changed
circumstances, the Department does not revisit its determinations
regarding a company's equityworthiness. Consistent with this standard,
the petitioners argue that the AUL determination based on the record
evidence in the prior proceeding should only be revisited if new
information regarding the validity of the previous determination is
presented. Because the respondents have not provided any such
information, the petitioners maintain that the Department should
continue to apply Usinor's 14-year AUL to the previously investigated
subsidies.
Department's Position: For this final determination, we have
continued to apply Usinor's company-specific AUL of 14 years found in
Certain Steel from France to allocate the benefits of certain non-
recurring subsidies found countervailable in that case.
We disagree with the respondents that our use of the 14-year AUL is
inconsistent with the court decision in British Steel I and our
practice. In British Steel I, the court emphasized that by using the
IRS table-based allocation methodology, the Department did not allocate
the benefits of the non-recurring subsidies in a manner reflecting the
actual ``commercial and competitive benefits'' of the subsidies. See
British Steel I, 879 F. Supp. at 1298. Following the court's remand
order in that case, the Department calculated a Usinor-specific AUL of
14 years based on its company-specific information. The court upheld
this methodology in British Steel II, stating that ``the AUL
methodology using company-specific calculations is a reasonable method
of allocating the commercial and competitive benefit of subsidy
benefits.'' 929 F. Supp. at 438.
The most important factor in our decision is the fact that we are
investigating the same respondent, Usinor, and the same untied
subsidies. The AUL of 14 years, based on Usinor's company-specific
information, was determined to be a reasonable reflection of the actual
``commercial and competitive benefits'' for the subsidies in question.
As stated in UK Lead Bar, ``[d]ifferent allocation periods for the same
subsidies in two different proceedings involving the same company
generate significant inconsistencies.'' 63 FR at 18369.
Further, we disagree that applying the 14-year AUL amounts to
penalizing Usinor for being the subject of an earlier investigation.
The respondents were afforded ample opportunity in the earlier
proceeding (and in the subsequent remands) to submit any factual
information and comments related to the AUL calculation. The
calculation, as affirmed by the court, was based on the company-
specific facts Usinor submitted. As noted by the petitioners, it is
well within the Department's practice to apply a determination from one
proceeding to a separate proceeding absent evidence of changed
circumstances. In the instant investigation, for example, we have
applied the determination of creditworthiness from Certain Steel from
France for certain years. We also applied our finding in Certain Steel
from France that certain long-term loans issued by FDES were not
countervailable to exclude those loans from the instant investigation.
See Notice of Initiation of Countervailing Duty Investigations:
Stainless Steel Sheet and Strip in Coils from France, Italy, and the
Republic of Korea, 63 FR 37539, 37542 (July 13, 1998). A
reconsideration of the Department's determination in one proceeding,
regardless of the parties involved, would only be warranted if there is
new evidence to indicate that the circumstances with respect to the
initial decision have changed. Moreover, we find that the decision in
UK Lead Bar to apply the allocation period determined in a separate
proceeding is reflective of our current practice regarding the issue of
allocation.
Comment 2: Information on Spin-Offs Presented at Verification
The GOF and Usinor contend that the Department should apply its
change-in-ownership methodology as it relates to the spin-off of
productive assets to the sale of its oxygen-generating unit to FOS-OXY,
the sale of its lime-production division to Entreprise Jean LeFebvre,
and its sale of J&L shares. The petitioners oppose the application of
the Department's change-in-ownership methodology to these three
transactions. Pointing out that the specific information regarding
these transactions was provided to the Department at verification, the
petitioners argue that verification was not an opportunity for Usinor
to submit new information. According to the petitioners, the purpose of
verification is to ensure that the information submitted by the
respondent is complete and accurate. The petitioners cite Tianjin
Machinery Import and Export v. United States, 806 F. Supp. 1008, 1015
(CIT 1992) (Tianjin), and Heavy Forged Hand Tools, Finished or
Unfinished, with or without Handles, from the People's Republic of
China; Final Results of Antidumping Duty Administrative Review, 63 FR
16758, 16761 (April 6, 1998) (Hand Tools). The petitioners argue that
the Department has stated that it will not allow the submission of new
information that constitutes substantive information and not simply a
clerical error. The petitioners contend
[[Page 30785]]
that, because Usinor did not submit this information within the time
requirements imposed by the statute, this information should not be
considered for the final determination.
The petitioners also state that under no circumstances should the
Department apply its change-in-ownership methodology to the sale of
shares in J&L, Ugine's U.S. subsidiary. The petitioners point out that,
according to the GIA, 58 FR at 37236, the Department found that
Usinor's subsidies were ``tied to domestic production and, accordingly,
. . . allocated the benefits of those subsidies to sales of Usinor
Sacilor's domestically produced merchandise and excluded sales of
Usinor Sacilor's foreign-produced merchandise.'' Since Usinor has not
shown that any of the subsidies investigated are attributable to
merchandise produced by J&L, the petitioners claim that the Department
should not attribute any of Usinor's subsidies to J&L after the sale of
Usinor's shares in J&L.
Department's Position: Regarding the J&L shares, we agree that no
subsidies were attributable to J&L's production in this investigation.
Therefore, it would not be appropriate to apply the change-of-ownership
methodology to the sale of J&L shares.
With respect to the sale of productive assets to Entreprise Jean
LeFebvre and FOS-OXY, we have applied the change-of-ownership
methodology. Although we agree with the petitioners that the purpose of
verification is to ascertain the accuracy of already-presented
information, the special circumstances of this case have led us to use
the verified data we have on these transactions. First, we note that we
did not request information on spin-offs of productive assets in our
questionnaire. Second, because verification followed directly on the
issuance of the Preliminary Determination and, in fact, the
calculations were disclosed to the respondents at verification, Usinor
did not have any opportunity to submit data after learning of our
methodology in the Preliminary Determination and before verification.
In light of these circumstances, we believe it is appropriate to use
the data obtained at verification and to apply the change-of-ownership
methodology to these transactions.
Comment 3: Privatization and Prior Subsidies
The GOF and Usinor comment that the Department should find that
Usinor's privatization extinguished prior subsidies. The GOF and Usinor
cite section 771(5)(F) of the Act and the SAA at 928, stating that the
Department is required to examine the circumstances of the
privatization transaction to determine whether and to what extent
subsidies pass through to the privatized entity and to what extent the
privatization of a government-owned firm eliminated subsidies.
The GOF and Usinor continue their argument citing Inland Steel,
155 F.3d at 1376:
When [a market] price is paid in an arms [sic] length
transaction by a new owner, it is difficult to understand why future
production by the new owner would carry the burden of prior
subsidization.
Usinor and the GOF conclude that the full value of pre-existing
subsidies was embodied in the purchase price, such that the purchasers
of Usinor shares paid for any residual value added to the company by
the subsidies found previously. Usinor and the GOF argue that the
Department is required to make an explicit finding of this pass-through
of prior subsidies for the final determination.
The petitioners cite to section 771(5)(F) of the Act where it
states that a change-in-ownership does not require an automatic finding
of no pass-through of subsidies, even if accomplished by an arm's-
length transaction. In addition, the petitioners cite to the SAA at 928
which notes that the statutory provision is intended to ``correct and
prevent such an extreme interpretation'' as the idea that subsidies are
eliminated automatically in an arm's-length sale. Contrary to the
respondents' claim that the Department has never really faced the issue
of whether an arms-length sale extinguishes subsidies under the URAA,
the petitioners mention Wire Rod from Italy in which the Department
rejected the assertion that an arm's length privatization at market
value extinguished prior subsidies. The petitioners also point out that
the Department's repayment calculation has been upheld by the Court of
International Trade in Delverde.
Department's Position: As we stated in Italian Plate, under our
existing methodology, we neither presume automatic extinguishment nor
automatic pass-through of prior subsidies in an arms-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 pass through
to the buyer. In the instant proceeding, the Department relied upon the
pertinent facts of the case in determining whether the countervailable
benefits received by Usinor Sacilor pass through to Usinor and Ugine.
Following the GIA methodology, the Department subjected the level of
previously bestowed subsidies and Usinor'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 Usinor was privatized a portion of the benefits received by
Usinor Sacilor passed through to Usinor and a portion was repaid to the
government. This is consistent with our past practice and has been
upheld 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. 1997), and Delverde.
The Department rejects Usinor's argument that an arms-length
transaction at fair market value extinguishes any previously bestowed
subsidies because no benefit was conferred. As explained in the Final
Determination of Redetermination Pursuant to Delverde. SrL v. United
States, 989 F. Supp. 218 (CIT 1997) (Delverde Remand), the
countervailable subsidy amount is fixed at the time that the government
bestows the subsidy. The sale of a company, per se, does not and cannot
eliminate this potential countervailability because the countervailing
duty statute ``does not permit the amount of the subsidy, including the
allocated subsidy stream, to be revalued based upon subsequent events
in the market place.'' GIA, 58 FR at 37263. The Court of Appeals for
the Federal Circuit, in Saarstahl II, addressed the Department's
privatization methodology and ``specifically stated that the Department
does not need to demonstrate competitive benefit.''
The Department's methodology requires it to consider and rely upon
several facts particular to the change of ownership at issue. In this
investigation, these facts included the nature of the previously
bestowed subsidies, the amounts of those subsidies, the time when those
subsidies were bestowed, the appropriate period for allocating the
subsidies, the net worth over time of the company sold, and the amount
of the purchase price. Based on these facts, the Department determined
the ultimate repayment of the prior subsidies to the GOF. In sum, the
Department considered all of the factual evidence presented by Usinor
and then followed its existing methodology properly. Furthermore, this
methodology was upheld by the Federal Circuit in
[[Page 30786]]
Saarstahl II, British Steel, 78 F.3d 1471, and Delverde.
Comment 4: Sale of Shares in 1996 and 1997
The petitioners argue that the GOF's sales of its shares in Usinor
in 1996 and 1997 did not transfer control of Usinor and the Department
should, therefore, not apply the change-in-ownership methodology to the
sales of these shares (as discussed in the change-in-ownership section
above). The petitioners purport that, because there was not a change in
control, these sales of shares do not constitute a ``bona-fide change-
in-ownership.''
The GOF and Usinor state that the Department should apply the
change-in-ownership methodology arguing that the sales of these shares
were not ``post-privatization.'' The GOF and Usinor contend that the
1996 and 1997 transfer of shares were the last stages of the
privatization rather than ``post-privatization'' transactions. The GOF
and Usinor note that the Department has applied its change-in-ownership
methodology to partial privatizations in IPA from Israel 1995 Review,
63 FR at 13627.
Department's Position: We agree with the GOF and Usinor that the
application of the change-of-ownership methodology is appropriate in
this situation. As explained above, it is not the Department's practice
to require a change in control in order to apply the change-in-
ownership methodology. As we noted at verification, the 1995
privatization continued through the years 1996 and 1997. Moreover, the
sales of these shares in these years were sufficiently large. Compare
IPA from Israel 1995 Review, 63 FR at 13627 (where the Department did
not apply the change-of-ownership methodology to small sales of
shares). Therefore, we have applied the change-in-ownership methodology
to the sales of these shares in these years.
Comment 5: Purchase of Power Plant
The petitioners urge the Department to reconsider its preliminary
determination that the purchase of CSR by EDF was not a countervailable
subsidy. The petitioners note that, in their questionnaire responses
and at verification, Usinor and the GOF focused exclusively on the
valuation method used to determine the FF 1 billion sales price.
According to the petitioners, however, the valuation methodology
detailed in the verification reports does not address the decisive
question of whether Usinor received a financial benefit from the
transaction. The petitioners argue that evidence does not establish
that the valuation methodology can serve as a benchmark for an arms-
length, negotiated commercial transaction between two entities.
According to the petitioners, the facts demonstrate that the power
plant had little, if any, commercial value and as such, could not have
been sold on the open market. The petitioners point out that there were
no other offers to purchase the plant and the only potential offer--
from Generale de Chauffe--refers to a ``significantly lower price.''
The petitioners allege that the two parties recognized that the plant
had very little commercial value and, thus, developed the ``future
revenue stream'' approach to value the transaction. The petitioners add
that, according to the GOF's description, Usinor was anxious to sell
the plant prior to its privatization.
The petitioners argue further that there is no evidence that the
valuation methodology used by Usinor and the EDF was one that would be
used by a private purchaser of a power plant. The petitioners contend
that, while a private investor may evaluate the potential revenue in
deciding whether to purchase an asset, it would not form the basis for
establishing market value to the private investor. Rather, the
petitioners claim, the basis for value would include the book value and
the market value of the assets, as well as the cost of building a
similar facility. Accordingly, the petitioners conclude that the power
plant was purchased for more than its worth, resulting in a
countervailable benefit in the amount of the gain over the net book
value of the assets.
Usinor and the GOF contend that the relevant issue is not whether
Usinor received a financial benefit from the transaction; rather, the
issue is whether EDF paid ``more than adequate remuneration'' for the
sale. Usinor and the GOF assert that facts, as verified by the
Department, demonstrate that no excess remuneration was paid by EDF
and, thus, the transaction was not countervailable. With respect to the
potential offer by Generale de Chauffe, Usinor and the GOF argue that
Generale de Chauffe never made a formal offer and the terms of the deal
contemplated by Generale de Chauffe were different from the terms
between Usinor and EDF. According to the respondents, Generale de
Chauffe's potential terms contemplated that Usinor was to retain
ownership of the plant. In addition, the respondents point out that an
independent review of the transaction by the Audit Office (a quasi-
judicial tribunal) suggested that the EDF had negotiated a good deal
for itself.
Department's Position: We disagree with the petitioners that Usinor
received a countervailable benefit from its sale of CSR to the
government-owned EDF. Evidence on the record, which we verified,
demonstrates that the valuation of the transaction was based on
reasonable projections of future costs and revenues associated with the
operation of CSR and the sale of electricity produced by CSR. The
resulting sales price for CSR represented the amount of money, in net
present terms, that would be saved by Usinor if it were to continue
producing electricity through its CSR facilities. Additionally, we
found no evidence to indicate that the negotiations were not conducted
on an arms-length basis.
Because the sales price was based entirely on the value of the
right to produce electricity, the amount of gain in excess of the
nominal book value of the physical assets of CSR is irrelevant. Both
Usinor and EDF indicated that the book value of the assets was, in
fact, never considered in the valuation process. The parties were only
interested in obtaining the right to produce and sell electricity; the
physical facility of CSR was only a means to secure that right. The
value of a company is often based on more than its physical assets.
Intangible assets, e.g., goodwill, patents, and licenses, which are
valued for the future revenue stream that they represent, may
constitute an important part of a company's worth. In the present
investigation, the exclusive right to produce electricity was the
significant intangible asset, if not the only material asset, of CSR.
In addition, given the nature of the transaction, it is not
possible to compare the sales price with that of a similar transaction
between private parties. As noted by the respondents, the difference in
the material terms, as well as its inconclusive nature, renders the
potential offer by Generale de Chauffe unsuitable for comparison
purposes. We have not found, and the petitioners have not presented, a
price from a comparable transaction that demonstrates that the price
paid by EDF exceeded the fair value of the transaction.
Comment 6: Capital Increase
The petitioners argue that, by authorizing a capital increase of FF
4,999,999,975 at the time of Usinor's 1995 privatization, the GOF
conferred a benefit upon Usinor in the amount of the increased capital.
The petitioners claim that, as the sole owner of Usinor
[[Page 30787]]
prior to the 1995 privatization, the GOF was entitled to all the
revenue from the sale of the company, whether the revenue resulted from
the sale of new or existing shares. By transferring the proceeds from
the sale of new shares to Usinor, the petitioners argue, the GOF was
foregoing revenue otherwise due to it, acting in a non-commercial
manner. According to the petitioners, the fact that the report by the
Privatization Commission concluded that the issuance of new shares
would not alter substantially the value of the shares does not
establish that the transaction did not confer a countervailable
benefit. The petitioners contend that the respondents have not provided
``any objective studies that evaluated the extent to which the new
shares diminished the value of the GOF's existing shares.''
In the alternative, the petitioners argue that the capital increase
is countervailable as an indirect subsidy because the GOF structured
the privatization transaction in such a way that the private investors
were entrusted to make an equity investment in Usinor. The petitioners
state that the transaction was inconsistent with a typical government-
equity transaction in that the GOF did not receive any form of
remuneration in exchange for its investment. As such, the petitioners
argue that the GOF conferred a benefit upon Usinor in the amount of the
foregone revenue from the sale of the new shares that the company
otherwise would not have received but for the GOF's actions.
Usinor and the GOF rebut that, because the FF 4,999,999,975 that
Usinor received through the capital increase was not provided by the
GOF, Usinor did not receive a countervailable benefit as defined by
section 771(5)(B) of the Act. The respondents argue that, rather than
giving up revenue, the GOF benefitted from the capital increase because
the private capital infusion resulted in increasing the value of the
company being sold by the GOF. The respondents explain:
It simply cannot be the case that every time a company (whether
government-owned or otherwise) raises capital by means of a stock
increase, it is the beneficiary of a grant. A shareholder does not
in such circumstances give away money to which it otherwise would be
entitled. Instead, it participates in the growth in the value of the
company attributable to the capital increase.
The respondents add that the findings at verification demonstrate
that there was an objective finding by the private investment bankers
that the price of the shares would be not affected by the capital
increase. This finding, according to the respondents, undercuts the
petitioners' argument further that the GOF gave up revenues.
Department's Position: As an initial matter, we note that the
arguments set forth by the petitioners may constitute a subsidy
allegation made in untimely manner. According to
Sec. 351.301(d)(4)(i)(A) of the Department's regulations, a subsidy
allegation in an investigation is due no later than 40 days before the
scheduled date of the preliminary determination. The record shows that
the first instance on which the petitioners presented this particular
argument was a submission dated October 29, 1998 (``pre-preliminary
comments''), merely ten days before the scheduled date of the
preliminary determination (November 9, 1998). Nevertheless, we have
opted to address the substantive aspects of the petitioners' comment.
In exercising our discretion, we considered the fact that the
respondents did not express an objection to the petitioners' allegation
with respect to its possible untimeliness.
Substantively, we disagree with the petitioners that Usinor
received a subsidy by virtue of the capital increase. The petitioners
argue first that revenue otherwise due to the GOF was foregone when the
GOF authorized a capital increase in Usinor and the money earned from
the sale of shares to effect the capital increase was paid directly to
Usinor. According to the petitioners, all revenues received from the
sale of Usinor's shares should have accrued to the GOF because the GOF
was the sole owner at that time.
We do not agree that, in fact, revenue was foregone by the GOF in
this situation. In 1995, the GOF decided to privatize Usinor by selling
off the majority of the existing shares in the company. At the same
time, the GOF authorized an increase in Usinor's share capital. This
increase was funded through the sale of newly issued shares in Usinor.
These new shares were sold as part of the privatization but, instead of
the proceeds going to the GOF, they went to Usinor. Potential
purchasers of shares in Usinor were aware that new shares were being
issued and how the proceeds from the sale of those shares would be
used.
Had the GOF sold its outstanding shares in Usinor without any
capital increase, the GOF would have received an amount reflecting the
value of Usinor as it existed without the new capital. With the
increase in its capital, the value of Usinor increased. However, since
the increase in value did not result from an infusion of GOF funds, the
GOF did not have a direct or exclusive claim on the increased value.
Instead, the increase in Usinor's value came from the purchasers of the
new shares and all shareholders benefitted. Thus, petitioners are
incorrect that the GOF should have claimed all the proceeds of the sale
of Usinor's shares. The GOF received the return from the sale of its
existing shares and did not forego revenue when the proceeds from the
sale of new shares went to Usinor.
As a holder and seller of existing shares, the GOF did have an
indirect claim on the increased value of Usinor resulting from the
capital increase. Specifically, as the value of Usinor increased, the
value of shares in Usinor should have increased. At the same time,
however, because the capital increase was effected through a sale of
new shares, the total number of shares increased. Thus, although the
total value of Usinor increased, the concurrent increase in the number
of shares would offset the increase in value per share. The
Privatization Commission Report to which the petitioners refer makes
this very point when it states in reference to the share increase that,
``on the basis of experts'' reports which have been submitted to it,
the Commission believes that this transaction shall not substantially
alter the value of shares, in as much as its diluting nature shall be
offset by its beneficial effects upon the Group's financial
structure.'' These statements support the conclusion that no value was
forgone by the GOF in authorizing the capital increase for Usinor
through the sale of new shares.
In the alternative, the petitioners have argued that the capital
increase was an indirect subsidy because the GOF structured the
privatization such that private investors were entrusted to make a
countervailable equity infusion into Usinor. We do not need to reach
the issue of whether private investors were ``entrusted'' to provide a
subsidy because we find that there is no subsidy in this equity
purchase. Under section 771(5)(E)(i) of the Act, a countervailable
subsidy is conferred, in the case of an equity infusion, ``if the
investment decision is inconsistent with the usual investment practice
of private investors * * * in the country in which the equity infusion
is made.'' The focus of the Department's inquiry into this allegation
is whether the decision Usinor's investors made was consistent with the
private-investor standard. The Department will determine that the
equity infusion was inconsistent with usual investment practice of
private investors if the company is determined to be unequityworthy or
if the terms and the nature of the equity purchased
[[Page 30788]]
otherwise indicates that the investment was inconsistent with the usual
private investment practice. See Sec. 351.507(3) of the Final CVD
Regulations.
In the instant investigation, we have not found, and the
petitioners have failed to provide, any evidence indicating that Usinor
was unequityworthy or that the equity purchased by the investors was
otherwise inconsistent with the usual investment practice of private
investors. See also Sec. 351.507(a)(7) of the Final CVD Regulations
(stating that the Department will not investigate an equity infusion in
a firm absent a specific allegation by the petitioner that the
investment decision was inconsistent with the usual investment practice
of private investors). Therefore, we determine that Usinor's investors
acted in a manner consistent with the investment practices of private
investors.
For the reasons discussed above, we determine that the 1995 capital
increase in Usinor was not a countervailable subsidy.
Comment 7: European Social Fund Grants
Usinor and the GOF argue that the ESF grant the Ugine Division
received in 1997 is not specific and, therefore, not countervailable.
The respondents point to two factors in support of their position.
First, they claim that the Department found at verification that the
Ugine Division did not receive a disproportionate amount of the ESF
funds provided to France in 1997. Second, the respondents maintain that
the purpose of the grant was to train people at risk of unemployment
pursuant to Objective 4. Because Objective 4 projects are funded
throughout France, assistance provided to such projects is not
regionally specific, the respondents argue.
The petitioners refute the respondents' arguments. First, they say,
the verification report merely quotes statements by GOF officials to
the effect that Usinor did not get a disproportionate amount of ESF
assistance and that Usinor was the only steel company receiving such
funds during the POI. The petitioners note that GOF officials did not
provide any documentation in support of these statements. Second, they
argue that while EU officials stated at verification that Objective 4
projects are funded throughout France, they did not provide any
documentation supporting this assertion. The petitioners also point out
that, according to the EU verification report, the EU does not maintain
any records showing which individual companies receive ESF funding.
Thus, there is no documentation to support the notion that ESF grants
are not specific, according to the petitioners.
Department's Position: We agree with the petitioners. Because we do
not have sufficient information on the record regarding the actual use
of Objective 4 funds in France during the POI, we must use facts
available (see discussion under the description of the ESF grants in
Section I above). On this basis, we have determined that the ESF grants
received by the Ugine Division are specific and, therefore,
countervailable.
Comment 8: Investment and Operating Subsidies
Usinor and the GOF argue that the investment and operating
subsidies Usinor received from the GOF are not specific and, therefore,
should not be countervailed. With regard to the funds received from
regional water boards for water protection, pollution control, and
water rehabilitation projects, Usinor and the GOF contend that the
Department verified that these funds were not limited to Usinor or to
the steel industry. Based on the information submitted by the GOF at
verification, Usinor and the GOF also maintain that the steel industry
did not receive a disproportionate amount of the water board subsidies.
The petitioners contend that the Department should continue to
treat the investment and operating subsidies as specific and that they,
therefore, should be subject to countervailing duties. The petitioners
assert that the Department's GOF verification report does not draw any
conclusions with respect to the specificity of this program.
Furthermore, the petitioners argue that information supporting a
respondent's claim of non-specificity should be submitted with the
original questionnaire response in order to ensure that the Department
and the petitioners have ample time to evaluate and comment upon the
factual evidence prior to verification. They state that verification
should not be used as an opportunity to submit new, substantive
information to supplement the original questionnaire response.
The petitioners finally contend that, even if the information GOF
officials provided at verification had been submitted in a timely
manner, it would not corroborate the respondents' claim of non-
specificity. The petitioners argue that, although GOF officials
maintained that this assistance was provided to any type of enterprise
or industry, the documentation presented at verification did not
demonstrate actual usage by type of industry.
Department's Position: In our Preliminary Determination, we found
that the investment and operating subsidies, including the assistance
from the regional water boards, provided a financial contribution in
the form of a direct transfer of funds from the GOF to Usinor pursuant
to section 771(5)(D)(i) of the Act. Prior to the Preliminary
Determination, the GOF argued that the water board grants were not
specific but did not provide any information to support this statement.
Therefore, as facts available, we determined preliminarily that these
subsidies were specific under section 771(5A)(D) of the Act.
However, at verification the GOF presented, and we verified,
information showing that assistance under the program provided by the
water boards was provided to a wide variety of water-related projects.
We also found that the amount received by Usinor constituted a very
small percentage of the total amount provided by the water boards to
combat industrial pollution. In principle we agree with the petitioners
that information supporting a respondent's claim of non-specificity, as
well as other factual information, should be submitted with the
questionnaire response, but we do not believe that the information
presented to us at verification should be classified as entirely
``new.'' We learned about the existence of the water program from
Usinor's and the GOF's questionnaire responses in which the GOF also
made a claim for non-specificity of this program. The Department has
the discretion to accept new information at verification when ``the
information makes minor revisions to information already on the record
or * * * the information corroborates, supports, or clarifies
information already on the record.'' See Final Results of Antidumping
Administrative Review: Titanium Sponge from the Russian Federation, 61
FR 58525 (November 15, 1996), and Certain Refrigeration Compressors
from the Republic of Singapore: Final Results of Countervailing Duty
Administrative Review, 63 FR 32849, 32852 (June 16, 1998). In this
instance, we believe that the information presented to us at
verification merely clarified information already on the record.
Although this information is not sufficient to determine that the water
board program is not specific in general, we believe that it is enough
to support a finding that the program is not specific to Usinor.
Accordingly, we determine that the grants from the regional water
boards are not specific to Usinor within the meaning of section
771(5A)(D)(iii) of
[[Page 30789]]
the Act and, therefore, not countervailable.
However, due to the lack of information about their usage and
distribution, as adverse facts available, we continue to find the other
programs included in the category investment and operating subsidies to
be countervailable (our reasons for using adverse facts available are
explained in section I.D above).
Comment 9: Myosotis Project
Usinor and the GOF urge the Department to grant green-light status
to the benefits received by Usinor for the Myosotis project. They argue
that this project qualifies as industrial research as defined by
section 771(5B)(B)(ii)(I) of the Act because its purpose is to develop
``new products, processes, or services'' or to bring about ``a
significant improvement to existing products, processes, or services.''
The respondents state further that the level of assistance is far below
the 75-percent maximum that the statute permits for industrial research
and that the EU has found the project to be in concordance with its
State Aids Code. Moreover, the respondents argue, the Myosotis project
qualifies for green-light treatment because it is a pre-competitive
development activity involving the development of a prototype that
cannot be put to commercial use as described in section
771(5B)(B)(ii)(II) of the Act. According to the respondents, the level
of assistance is well below the 50-percent maximum that the statute
allows for pre-competitive development activities.
Usinor and the GOF argue that, if the Department should decide not
to grant the Myosotis project green-light status, it should determine
that the assistance for this project is not countervailable because it
is not specific. The respondents state that the Myosotis assistance
came from the GPI program which is administered by the Ministry of
Industry. They contend that at verification the Department found that
GPI funding is not limited by law to any particular industry and, also,
that assistance from this fund is provided to a wide range of
industries. Last, the respondents assert that the Department found at
verification that the steel industry did not receive a disproportionate
share of GPI funds in the years that Usinor received assistance for the
Myosotis project.
The petitioners urge the Department to follow its decision in the
Preliminary Determination and not address the respondents' green-light
claim for the Myosotis project. First, the petitioners state, in the
preliminary determination, the Department expensed the grants Usinor
received between 1989 and 1993 for Myosotis because they were below 0.5
percent of the company's sales in the years of receipt and, with
respect to the reimbursable advance received in 1997, the Department
preliminarily determined that there was no benefit attributable to the
POI. Accordingly, the petitioners observe, the countervailable subsidy
rate for the Myosotis program was 0.00 percent ad valorem in the
Preliminary Determination. The petitioners note that the new
regulations state specifically that the Department will not consider a
green-light claim for a subsidy that does not provide a benefit to the
subject merchandise in the period of investigation or review.
Therefore, they argue, the Department should not address the green-
light claim advanced by Usinor and the GOF.
As a second argument for not making a green-light determination,
the petitioners point to administrative efficiency. Citing Final
Negative Countervailing Duty Determination: Fresh Atlantic Salmon from
Chile, 63 FR 31437 (June 9, 1998), Final Affirmative Countervailing
Duty Determination: Steel Wire Rod from Germany, 62 FR 54990 (October
22, 1997), and Final Negative Countervailing Duty Determination and
Final Negative Critical Circumstances Determination: Certain Laminated
Hardwood Trailer Flooring from Canada, 62 FR 5201 (February 4, 1997),
the petitioners argue that a decision not to address Usinor's green-
light claim would be consistent with the Department's practice, as
established in these cases, of not analyzing a program that has no
impact on the net countervailable subsidy rate.
Third, the petitioners argue that the Department should not make a
green-light determination because the administrative record in this
proceeding is incomplete. Specifically, the petitioners point to the
GOF's refusal to make certain reports on the Myosotis project available
to the Department at verification. The petitioners believe that the
absence of these documents from the record is particularly relevant in
light of the Department's ``commitment to interpret [the green-light]
provisions strictly as required by the SAA.''
The petitioners recommend that the Department to postpone a green-
light decision on the Myosotis project until the next administrative
review to ensure (1) that a more complete administrative record can be
developed, and (2) that there is a benefit to Usinor from the 1997
reimbursable advance.
Department's Position: We agree with the petitioners that there is
no need for us to make a determination regarding green-light treatment
of the assistance provided under the Myosotis project. As stated in the
preamble to the Department's recently issued regulations:
[W]e will not consider claims for green light status if the
subject merchandise did not benefit from the subsidy during the
period of investigation or review. Instead, consistent with the
Department's existing practice, the green light status of a subsidy
will be considered only in an investigation or review of a time
period where the subject merchandise did benefit from the subsidy.
See Final CVD Regulations, 63 FR at 65388. While these final
regulations are not controlling in this case, they do reflect the
Department's current practice. Therefore, we will not make a green-
light determination when there is no countervailable benefit in the
period of investigation or review, in accordance with our existing
practice. We also consider a specificity determination to be
unwarranted when there is no benefit in the POI. Instead, we intend to
make determinations on green-light status and specificity in an
administrative review, if this investigation results in a
countervailing duty order.
Comment 10: Lending Rates
The petitioners argue that the Department should use the lending
rates reported in Table 4.11 of the Bulletin of Banque de France as the
benchmark lending rate for the years in which Usinor was found to be
uncreditworthy. The petitioners assert that the statements made by
private bank and GOF officials at verification indicate the lending
rates in question represent an average cost of credit for companies in
France which includes high- and low-risk financing. The petitioners
argue that these interest rates provide a better indication of the rate
at which Usinor could have actually obtained financing for those years
in which Usinor was found to be uncreditworthy because they reflect
some degree of greater risk.
Usinor and the GOF point out that the officials of the Banque de
France indicated that the rates reported in Table 4.11 include variable
rates. Usinor and the GOF argue that, as such, the Table 4.11 rates are
inappropriate to use as benchmark rates because the Department's
preference, as reflected in the 1989 Proposed Regulations, is to use
the average cost of long-term fixed-rate loans. Moreover, Usinor and
the GOF point to the statement made by the GOF officials at
verification asserting that the Table 4.11 rates ``do not reflect the
cost of credit for a company as Usinor because the rates are surveys of
rates applicable for companies of all sizes and
[[Page 30790]]
types'' and that an average interest rate derived from a survey would,
thus, not be an accurate indicator of the cost of credit for an
individual company.
Department's Position: We agree with the petitioners that the rates
reported in Table 4.11 of the Bulletin are more appropriate benchmark
and discount rates for the years in which Usinor was found to be
uncreditworthy and where the other benchmark interest rates are lower
than the rates reported in Table 4.11. For this final determination, we
have applied the methodology described in the 1989 Proposed Regulations
for calculating the benchmark and discount rates for the years in which
Usinor was found uncreditworthy. Specifically, the 1989 Proposed
Regulations state that the long-term fixed benchmark rate for an
uncreditworthy firm will be calculated by taking the sum of 12 percent
of the prime interest rate in the country in question and, in order of
preference: ``(1) the highest long-term fixed interest rate commonly
available to firms in the country in question; (2) the highest long-
term variable interest rate commonly available to firms in the country
in question; or (3) the short-term benchmark interest rate determined
in accordance with [the Department's methodology].''
Sec. 355.44(b)(6)(iv)(A) of the 1989 Proposed Regulations (emphasis
added). Accordingly, we have applied the rates reported in Table 4.11
in our calculation where those rates represented the highest long-term
interest rate among the various types of interest rates the respondents
provided to us. Contrary to the respondents' assertion, an expressed
``preference'' for a fixed rate does not preclude us from using a rate
that we find more appropriate, even if that rate happens to include
variable rate loans. Further, we disagree with the respondents that the
Table 4.11 rates are not appropriate because the rates are derived from
surveys of rates applicable for companies of all sizes and types. While
an average rate which by its very definition is derived from rates
applicable to more than one company, may not represent the most
accurate rate applicable to any single company, it nevertheless
provides a reasonable indicator of rates ``commonly available to firms
in the country in question.''
Verification. In accordance with section 782(i) 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 examining relevant accounting
records and original source documents. Our verification results are
detailed in the public versions of the verification reports, which are
on file in the Central Records Unit.
Suspension of Liquidation. In accordance with section
705(c)(1)(B)(i) of the Act, we have calculated an individual rate for
Usinor. Because Usinor is the only respondent in this case, its rate
serves as the all-others rate. We determine that the total estimated
net countervailable subsidy rate is 5.38 percent ad valorem for Usinor
and for all others.
In accordance with our Preliminary Determination, we instructed the
U.S. Customs Service to suspend liquidation of all entries of stainless
steel sheet and strip in coils from France, which were entered or
withdrawn from warehouse, for consumption on or after November 17,
1998, the date of the publication of our Preliminary Determination in
the Federal Register. 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 January 2, 1999, but to
continue the suspension of liquidation of entries made between
September 4, 1998, and January 1, 1999. We will reinstate suspension of
liquidation under section 706(a) 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
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.
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).
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: May 19, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-13677 Filed 6-7-99; 8:45 am]
BILLING CODE 3510-DS-P
