[Federal Register Volume 64, Number 142 (Monday, July 26, 1999)]
[Notices]
[Pages 40457-40463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18858]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-560-806]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Certain Cut-to-Length Carbon-Quality
Steel Plate From Indonesia
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 26, 1999.
FOR FURTHER INFORMATION CONTACT: Kathleen Lockard or Eva Temkin, Office
of CVD/AD Enforcement VI, Import Administration, U.S. Department of
Commerce, Room 4012, 14th Street and Constitution Avenue, NW,
Washington, DC 20230; telephone (202) 482-2786.
PRELIMINARY DETERMINATION: The Department of Commerce (the Department)
preliminarily determines that countervailable subsidies are being
provided to certain producers and exporters of certain cut-to-length
carbon-quality steel plate from Indonesia. For information on the
estimated countervailing duty rates, please see the ``Suspension of
Liquidation'' section of this notice.
SUPPLEMENTARY INFORMATION:
Petitioners
The petition in this investigation was filed by Bethlehem Steel
Corporation, U.S. Steel Group, a unit of USX Corporation, Gulf States
Steel, Inc., IPSCO Steel, Inc., Tuscaloosa Steel Corporation, and the
United Steel Workers of America (the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register (see Initiation of Countervailing Duty Investigations: Certain
Cut-To-Length Carbon-Quality Steel Plate from France, India, Indonesia,
Italy, and the Republic of Korea, 64 FR 12996 (March 16, 1999)
(Initiation Notice)), the following events have occurred. On March 16,
1999, we issued countervailing duty questionnaires to the Government of
Indonesia (GOI), and the producers/exporters of the subject
merchandise. On April 21, 1999, we postponed the preliminary
determination of this investigation until no later than July 16, 1999.
See Certain Cut-to-Length Carbon-Quality Steel Plate From France,
India, Indonesia, Italy, and the Republic of Korea: Postponement of
Time Limit for Countervailing Duty Investigations, 64 FR 23057 (April
29, 1999).
We received responses to our initial questionnaires from the GOI
and two of the three producers of the subject merchandise, PT Gunawan
Dianjaya Steel (Gunawan), and PT Jaya Pari Steel Corporation (Jaya
Pari), on April 29, 1999. On May 11, 1999 and June 3, 1999, we issued
supplemental questionnaires to the responding parties. On June 7, 1999,
petitioners alleged additional subsidies that were not contained in the
original petition. We determined to include these allegations in this
investigation on June 21, 1999. See Memorandum for Bernard Carreau,
Deputy Assistant Secretary for AD/CVD Enforcement Group II, a public
document on file in the Central Records Unit, room B-099 of the Main
Commerce Building (CRU). We issued a questionnaire addressing these
programs on June 22, 1999. We received additional responses between
June 1, 1999 and July 14, 1999.
Scope of Investigation
The products covered by this scope are certain hot-rolled carbon-
quality steel: (1) Universal mill plates (i.e., flat-rolled products
rolled on four faces or in a closed box pass, of a width exceeding 150
mm but not exceeding 1250 mm, and of a nominal or actual thickness of
not less than 4 mm, which are cut-to-length (not in coils) and without
patterns in relief), of iron or non-alloy-quality steel; and (2) flat-
rolled products, hot-rolled, of a nominal or actual thickness of 4.75
mm or more and of a width which exceeds 150 mm and measures at least
twice the thickness, and which are cut-to-length (not in coils).
Steel products to be included in this scope are of rectangular,
square, circular or other shape and of rectangular or non-rectangular
cross-section where such non-rectangular cross-section is achieved
subsequent to the rolling process (i.e., products which have been
``worked after rolling'')--for example, products which have been
beveled or rounded at the edges. Steel products that meet the noted
physical characteristics that are painted, varnished or coated with
plastic or other non-metallic substances are included within this
scope. Also, specifically included in this scope are high strength, low
alloy (HSLA) steels. HSLA steels are recognized as steels with micro-
alloying levels of elements such as chromium, copper, niobium,
titanium, vanadium, and molybdenum.
Steel products to be included in this scope, regardless of
Harmonized Tariff Schedule of the United States (HTSUS) definitions,
are products in which: (1) Iron predominates, by weight, over each of
the other contained elements, (2) the carbon content is two percent or
less, by weight, and (3) none of the elements listed below is equal to
or exceeds the quantity, by weight, respectively indicated:
1.80 percent of manganese, or
1.50 percent of silicon, or
1.00 percent of copper, or
0.50 percent of aluminum, or
1.25 percent of chromium, or
0.30 percent of cobalt, or
0.40 percent of lead, or
1.25 percent of nickel, or
0.30 percent of tungsten, or
0.10 percent of molybdenum, or
0.10 percent of niobium, or
0.41 percent of titanium, or
0.15 percent of vanadium, or
0.15 percent zirconium.
All products that meet the written physical description, and in
which the chemistry quantities do not equal or exceed any one of the
levels listed above, are within the scope of these investigations
unless otherwise specifically excluded. The following products are
specifically excluded from these investigations: (1) Products clad,
plated, or coated with metal, whether or not painted, varnished or
coated with plastic or other non-metallic substances; (2) SAE grades
(formerly AISI grades) of
[[Page 40458]]
series 2300 and above; (3) products made to ASTM A710 and A736 or their
proprietary equivalents; (4) abrasion-resistant steels (i.e., USS AR
400, USS AR 500); (5) products made to ASTM A202, A225, A514 grade S,
A517 grade S, or their proprietary equivalents; (6) ball bearing
steels; (7) tool steels; and (8) silicon manganese steel or silicon
electric steel.
The merchandise subject to these investigations is classified in
the HTSUS under subheadings: 7208.40.3030, 7208.40.3060, 7208.51.0030,
7208.51.0045, 7208.51.0060, 7208.52.0000, 7208.53.0000, 7208.90.0000,
7210.70.3000, 7210.90.9000, 7211.13.0000, 7211.14.0030, 7211.14.0045,
7211.90.0000, 7212.40.1000, 7212.40.5000, 7212.50.0000, 7225.40.3050,
7225.40.7000, 7225.50.6000, 7225.99.0090, 7226.91.5000, 7226.91.7000,
7226.91.8000, 7226.99.0000.
Although the HTSUS subheadings are provided for convenience and
Customs purposes, the written description of the merchandise under
investigation is dispositive.
Scope Comments
As stated in our notice of initiation, we set aside a period for
parties to raise issues regarding product coverage. In particular, we
sought comments on the specific levels of alloying elements set out in
the description below, the clarity of grades and specifications
excluded from the scope, and the physical and chemical description of
the product coverage.
On March 29, 1999, Usinor, a respondent in the French antidumping
and countervailing duty investigations and Dongkuk Steel Mill Co., Ltd.
and Pohang Iron and Steel Co., Ltd., respondents in the Korean
antidumping and countervailing duty investigations (collectively the
Korean respondents), filed comments regarding the scope of the
investigations. On April 14, 1999, the petitioners responded to
Usinor's and the Korean respondents' comments. In addition, on May 17,
1999, ILVA S.p.A. (ILVA), a respondent in the Italian antidumping and
countervailing duty investigations, requested guidance on whether
certain products are within the scope of these investigations.
Usinor requested that the Department modify the scope to exclude:
(1) Plate that is cut to non-rectangular shapes or that has a total
final weight of less than 200 kilograms; and (2) steel that is 4'' or
thicker and which is certified for use in high-pressure, nuclear or
other technical applications; and (3) floor plate (i.e., plate with
``patterns in relief'') made from hot-rolled coil. Further, Usinor
requested that the Department provide clarification of scope coverage
with respect to what it argues are over-inclusive HTSUS subheadings
included in the scope language.
The Department has not modified the scope of these investigations
because the current language reflects the product coverage requested by
the petitioners, and Usinor's products meet the product description.
With respect to Usinor's clarification request, we do not agree that
the scope language requires further elucidation with respect to product
coverage under the HTSUS. As indicated in the scope section of every
Department antidumping and countervailing duty proceeding, the HTSUS
subheadings are provided for convenience and Customs purposes only; the
written description of the merchandise under investigation or review is
dispositive.
The Korean respondents requested confirmation whether the maximum
alloy percentages listed in the scope language are definitive with
respect to covered HSLA steels.
At this time, no party has presented any evidence to suggest that
these maximum alloy percentages are inappropriate. Therefore, we have
not adjusted the scope language. As in all proceedings, questions as to
whether or not a specific product is covered by the scope should be
timely raised with Department officials.
ILVA requested guidance on whether certain merchandise produced
from billets is within the scope of the current CTL plate
investigations. According to ILVA, the billets are converted into wide
flats and bar products (a type of long product). ILVA notes that one of
the long products, when rolled, has a thickness range that falls within
the scope of these investigations. However, according to ILVA, the
greatest possible width of these long products would only slightly
overlap the narrowest category of width covered by the scope of the
investigations. Finally, ILVA states that these products have different
technological properties and mechanical uses than merchandise covered
by the scope of the investigations and therefore are not covered by the
scope of the investigations.
As ILVA itself acknowledges, the particular products in question
appear to fall within the parameters of the scope and, therefore, we
are treating them as covered merchandise for purposes of these
investigations.
The Applicable Statute and Regulations
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 current regulations as codified at
19 CFR Part 351 (1998) and to the substantive countervailing duty
regulations published in the Federal Register on November 25, 1998 (63
FR 65348) (CVD Regulations).
Injury Test
Because Indonesia 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 Indonesia materially injure, or threaten
material injury to, a U.S. industry. On April 8, 1999, 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 Indonesia of the subject merchandise. See Certain Cut-To-
Length Carbon-Quality Steel Plate from the Czech Republic, France,
India, Indonesia, Italy, Japan, Korea, and Macedonia, 64 FR 17198
(April 8, 1999).
Alignment With Final Antidumping Duty Determination
On July 2, 1999, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final determination in the companion antidumping duty investigation.
See Initiation of Antidumping Duty Investigations: Certain Cut-to-
Length Carbon-Quality Steel Plate from the Czech Republic, France,
India, Indonesia, Italy, Japan, the Republic of Korea, and the Former
Yugoslav Republic of Macedonia, 64 FR 12959 (March 16, 1999).
Therefore, in accordance with section 705(a)(1) of the Act, we are
aligning the final determination in this investigation with the final
determinations in the antidumping investigations of cut-to-length
plate.
Period of Investigation
The period of investigation for which we are measuring subsidies
(the POI) is calendar year 1998.
Attribution of Subsidies
Section 351.525 of the CVD Regulations states that the Department
[[Page 40459]]
will attribute subsidies received by two or more corporations to the
products produced by those corporations where cross ownership exists.
According to Sec. 351.525(b)(6)(vi) of the CVD Regulations, cross-
ownership exists between two or more corporations where one corporation
can use or direct the individual assets of the other corporation in
essentially the same ways it can use its own assets. The regulations
state that this standard will normally be met where there is a majority
voting ownership interest between two corporations. The preamble to the
CVD Regulations, identifies situations where cross ownership may exist
even though there is less than a majority voting interest between two
corporations: ``in certain circumstances, a large minority interest
(for example, 40 percent) or a `golden share' may also result in cross-
ownership.'' See 63 FR 65401.
Because we have preliminarily found both Gunawan and Jaya Pari to
have zero subsidy rates, we do not reach the question of whether the
relationship between the companies satisfies the standard of cross-
ownership. However, if we discover subsidies at verification or
otherwise modify our findings so that one or more of the companies does
have a subsidy rate for the final determination, we will consider
whether there is cross-ownership between Gunawan and Jaya Pari and
thus, whether, for purposes of calculating a countervailing duty rate,
we should attribute any subsidies received by either or both companies
to the products produced by both companies. Accordingly, we invite the
parties to comment on whether the relationship between the firms
satisfies our new cross-ownership standard.
Use of Facts Available
PT Krakatau Steel (Krakatau), a producer of subject merchandise,
failed to respond to the Department's questionnaire. Section 776(a)(2)
of the Act requires the use of facts available when an interested party
withholds information that has been requested by the Department, or
when an interested party fails to provide the information requested in
a timely manner and in the form required. As described in more detail
below, Krakatau has failed to provide information explicitly requested
by the Department; therefore, we must resort to the facts otherwise
available.
In using the facts otherwise available, however, the Department
notes that the GOI has provided some, although not all, of the
information requested about Krakatau. With this information from the
GOI, we find that the administrative record with regard to Krakatau is
not so incomplete that it cannot serve as a reliable basis for reaching
this preliminary determination. In addition, we find that the remainder
of the criteria listed in 782(e) of the Act have been met.
Consequently, we find it unnecessary to resort to total facts available
with respect to Krakatau. Where practicable, we have based our
preliminary determination for this company on information provided by
the GOI. We have only used facts available where specific information
concerning Krakatau, that is necessary for our analysis, is absent from
the record.
Furthermore, section 776(b) of the Act provides that in selecting
from among the facts available, the Department may use an inference
that is adverse to the interests of a party if it determines that party
has failed to cooperate to the best of its ability. Here, the
Department asked Krakatau to submit the information requested in the
initial countervailing duty questionnaire. Krakatau did not respond to
the questionnaire. The Department then asked Krakatau once again to
respond to the questionnaire, reminding the company that the Department
may have to use facts available if no response was received. However,
Krakatau failed to submit the information that was specifically
requested by the Department on two separate occasions. Krakatau stated
that, due to the recent financial crisis, it does not have the
resources available to participate in the investigation. We note,
however, that Krakatau is participating in the companion antidumping
duty investigation.
The Department finds that by not providing necessary information
specifically requested by the Department and failing to participate in
any respect in this investigation, Krakatau has failed to cooperate to
the best of its ability. Therefore, in selecting partial facts
available, the Department determines that an adverse inference is
warranted.
When employing an adverse inference, the statute indicates that the
Department may rely upon information derived from (1) the petition; (2)
a final determination in a countervailing duty or an antidumping
investigation; (3) any previous administrative review, new shipper
review, expedited antidumping review, section 753 review, or section
762 review; or (4) any other information placed on the record. See also
Sec. 351.308(c) of the CVD Regulations. Due to the absence of any other
relevant information on the record, we consider the petition to be an
appropriate source for the necessary information.
Finally, the Statement of Administrative Action accompanying the
URAA clarifies that information from the petition and prior segments of
the proceeding is ``secondary information.'' See Statement of
Administrative Action, accompanying H.R. 5110 (H.R. Doc. No. 103-316)
(1994) (SAA), at 870. If the Department relies on secondary information
as facts available, section 776(c) of the Act provides that the
Department shall, ``to the extent practicable,'' corroborate such
information using independent sources reasonably at its disposal. The
SAA further provides that to corroborate secondary information means
simply that the Department will satisfy itself that the secondary
information to be used has probative value.
As discussed above, the GOI submitted some information about
Krakatau's use of programs included in this investigation. As discussed
above and in the Analysis Memo for the Preliminary Countervailing Duty
Determination, dated July 16, 1999, public version on file in the CRU
(Analysis Memo), we find that the information submitted by the GOI may
be used in reaching our determination in accordance with section 782(e)
of the Act. Based on this information, we were able to determine that
Krakatau did not use the Bank of Indonesia Rediscount Program with
respect to shipments of subject merchandise and did not use the Tax
Holiday Program. However, we are applying the facts available in
countervailing the 1995 Equity Infusion to Krakatau program including
our analysis of the company's creditworthiness. For a more detailed
description of our treatment of this program, see the program
description in the Program Preliminarily Determined to be
Countervailable section of this notice. We are using information
submitted in the countervailing duty petition, modified by and
corroborated by Krakatau's financial statements which were submitted
for the record by petitioners. See Analysis Memo.
In addition, as noted earlier, on June 7, 1999, petitioners made
new subsidy allegations with respect to Krakatau. The Department has
not had sufficient time to collect information from Krakatau and the
GOI on the use of the Pre-1993 Equity Infusions to Krakatau, P.T. Cold-
Rolled Mill Indonesia (CRMI) Equity Infusions and Two-Step Loan
programs. Thus, we do not have sufficient information to make
determinations with respect to these programs' countervailability.
Because respondents have not had sufficient
[[Page 40460]]
opportunity to provide information about these programs for the record,
the use of the facts available is not warranted at this time. We will
continue to collect information that will enable us to make a
determination about these programs in our final determination.
Subsidies Valuation Information
Allocation Period
Section 351.524(d)(2) of the CVD Regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System and updated by the Department of
Treasury. The presumption will apply unless a party claims and
establishes that these tables do not reasonably reflect the AUL of the
renewable physical assets for the company or industry under
investigation, and the party can establish that the difference between
the company-specific or country-wide AUL for the industry under
investigation is significant.
In this investigation, no party to the proceeding has claimed that
the AUL listed in the IRS tables does not reasonably reflect the AUL of
the renewable physical assets for the firm or industry under
investigation. Therefore, according to Sec. 351.524(d)(2) of the CVD
Regulations, we have allocated Krakatau's non-recurring benefits over
15 years, the AUL listed in the IRS tables for the steel industry.
Equityworthiness
In analyzing whether a company is equityworthy, the Department
considers whether that company could have attracted investment capital
from a reasonable private investor in the year of the government equity
infusion based on the information available at that time. In this
regard, the Department has consistently stated that a key factor for a
company in attracting investment capital is its ability to generate a
reasonable return on investment within a reasonable period of time. In
making an equityworthiness determination, in accordance with
Sec. 351.507(a)(4) of the CVD Regulations, the Department may examine
the following factors, among others:
A. Objective analyses of the future financial prospects of the
recipient firm or the project as indicated by, inter alia, market
studies, economic forecasts, and project or loan appraisals prepared
prior to the government-provided equity infusion in question;
B. Current and past indicators of the recipient firm's financial
health calculated from the firm's statements and accounts, adjusted, if
appropriate, to conform to generally accepted accounting principles;
C. Rates of return on equity in the three years prior to the
government equity infusion; and
D. Equity investment in the firm by private investors.
The Department has examined Krakatau's equityworthiness for the
year 1995. We are also examining Krakatau's equityworthiness for the
period 1988 through 1992, to the extent equity infusions may have been
received in these years. See June 1, 1999, memorandum to Bernard
Carreau, Deputy Assistant Secretary for AD/CVD Enforcement II, a public
document on file in the CRU. Krakatau did not respond to our first
questionnaire regarding the new allegations pertaining to the period
1988 through 1992, but the company has not yet had the opportunity to
respond to any additional questionnaire on these allegations.
Therefore, we are not addressing Krakatau's equityworthiness in these
years for this preliminary determination.
In considering whether Krakatau was equityworthy in 1995, we
examined information on the above-listed factors. With respect to
factor A, no studies or other relevant data have been submitted to the
record. However, according to press articles submitted by petitioners,
Krakatau was not an attractive investment. In one article, the
Indonesian Minister for the Empowerment of State Enterprises stated,
``[w]hy is Krakatau Steel difficult to sell? Because it has often been
said that the company would go bankrupt and that it needed an
investment of $1.2 billion.'' The Minister also stated in 1998 that
Krakatau had a very low return on equity compared to its international
competitors. Another government official stated that Krakatau would, ``
* * * first have to restructure its subsidiaries, cut costs and reduce
staff,'' in order to complete its proposed privatization. See
Countervailing Duty Petition, public version on file in the CRU.
In addition, according to information submitted by the Petitioners,
the investment climate in Indonesia in 1995 was considered a risky one,
further dampening any potential for private investment. According to
press articles, problems with state-owned firms would have further
deterred private investment in these companies.
To address factors B and C, we examined Krakatau's financial ratios
for the three years prior to each of the infusions based on the
information contained in Krakatau's translated financial statements
that were submitted by petitioners. See Analysis Memo. This data
indicates that Krakatau did report modest profits in the years relevant
to examination. Return on sales was positive, but declined over the
period 1992 through 1994. Return on equity declined from 1992 to 1993,
but recovered in 1994. In all relevant years Krakatau's return on
equity remained less than half of the annual inflation rate; thus the
company was posting negative returns in real terms. Further, Krakatau's
returns during this period were well-below commercial interest rates.
With respect to the final factor, Krakatau has no private
investors. Therefore, there are no private investments that may be used
to evaluate Krakatau's equityworthiness.
In light of Krakatau's unfavorable financial position, anemic
returns and the press reports about the company's dubious financial
health, it seems unlikely that a reasonable private investor would have
made equity investments in the company. On this basis, we preliminarily
determine that Krakatau was unequityworthy in 1995.
Equity Methodology
In measuring the benefit from a government equity infusion, in
accordance with Sec. 351.507(a)(2) of the CVD Regulations, the
Department compares the price paid by the government for the equity to
actual private investor prices, if such prices exist. According to
Sec. 351.507(a)(3) of the CVD Regulations, where actual private
investor prices are unavailable, the Department will determine whether
the firm was unequityworthy at the time of the equity infusion. In this
case, private investor prices were unavailable; thus, we conducted an
equityworthy analysis. As discussed above, we have determined that
Krakatau was unequityworthy in 1995.
Section 351.507(a)(3) of the CVD Regulations provides that a
determination that a firm is unequityworthy constitutes a determination
that the equity infusion was inconsistent with the usual investment
practices of private investors. The Department will then apply the
methodology described in Sec. 351.507(a)(6) of the regulations, and
treat the equity infusion as a grant. Use of the grant methodology for
equity infusions into an unequityworthy company is based on the premise
that an unequityworthiness finding by the Department is tantamount to
saying that
[[Page 40461]]
the company could not have attracted investment capital from a
reasonable investor in the infusion year based on the available
information.
Creditworthiness
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. To do
so, the Department examines whether the company received long-term
commercial loans in the year in question, and, if necessary, the
overall financial health and future prospects of the company. If a
company not owned by the government receives long-term financing from
commercial sources without government guarantees, that company will
normally be considered creditworthy. In the absence of commercial
borrowings, in accordance with Sec. 351.505(a)(4) of the CVD
Regulations, the Department examines the following factors, among
others, to determine whether or not a firm is creditworthy:
A. The receipt by the firm of comparable commercial long-term
loans;
B. The present and past financial health of the firm, as reflected
in various financial indicators calculated from the firm's financial
statements and accounts;
C. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow; and
D. Evidence of the firm's future financial position, such as market
studies, country and industry economic forecasts, and project and loan
appraisals prepared prior to the agreement between the lender and the
firm on the terms of the loan.
With respect to the first factor, Krakatau received one long-term
commercial loan in 1995 amounting to approximately 3 billion Rupiah.
However, because Krakatau is owned by the government, this loan may not
be considered dispositive as to the company's creditworthiness. See
Sec. 351.505(a)(4)(ii) of the CVD Regulations.
Therefore, to determine whether Krakatau was creditworthy in 1995,
in accordance with the Department's past practice, we analyzed
financial ratios for each of the three years prior to the year under
examination to address factors B and C. In examining these ratios,
however, because tKrakatau failed to respond to our questionnaires (as
discussed in the ``Facts Available'' section of this notice), we do not
have the company's financial statements for 1992 and 1993. The only
financial information for the years 1992 and 1993 on the record of this
investigation is taken from data from the Indonesian Commercial
Newsletter submitted by petitioners. Thus, we are not able to evaluate
whether this data is supported by the financial statements and whether
there may be any notes to the financial statements that would call the
data into question.
Using the only information available on the record, we found that,
as discussed above, Krakatau had positive returns on sales and equity
during the relevant years, but these rates were lower than commercial
interest rates and lower than the level of inflation. Krakatau's
current ratio remained relatively strong during this period, ranging
from 3.86 to 6.51, showing a fairly strong degree of short-term
protection for creditors and no indication of difficulty in covering
short-term liabilities.
The Department normally examines other financial ratios including
the quick ratio and times-interest-earned ratio; however, data on the
record is incomplete, allowing us only to examine the company's
position in 1994. Both of these ratios indicate that the company
probably did not have difficulties managing its debt obligations in
1994, but we are unable to examine the company's ratios for the other
relevant years.
With respect to the final factor, there are no studies or analyses
submitted to the record that may be used to evaluate Krakatau's
financial position.
While the data we have indicates that Krakatau may not have had any
difficulty obtaining financing at commercial interest rates, again, we
note that the record evidence is incomplete. In addition, other
financial data and press reports, as discussed in the
``Equityworthiness'' section above, indicate that Krakatau had
financial difficulties. Therefore, as adverse facts available we
preliminarily find that Krakatau was uncreditworthy in 1995.
Discount Rates
We calculated the discount rates in accordance with the formula for
constructing a long-term interest rate benchmark for uncreditworthy
companies as stated in the Department's new regulations. See
Sec. 351.505 (a)(3)(iii) of the CVD Regulations. This formula requires
values for the probability of default by uncreditworthy and
creditworthy companies. For the probability of default by an
uncreditworthy company, we relied on the average cumulative default
rated reported for the Caa to C-rated category of companies as
published in Moody's Investors Service, ``Historical Default Rates of
Corporate Bond Issuers, 1920-1997,'' (February 1998). For the
probability of default by a creditworthy company we used the average
cumulative default rates reported for the Aaa to Baa.1 For
the period before 1998, we used the average cost of long-term fixed-
rate loans in Indonesia in 1995 as the interest rate that would be paid
by a creditworthy company, specifically the investment rate offered by
commercial banks in Indonesia as reported in the Indonesian Financial
Statistics of February 1999, attached to the GOI's April 29, 1999,
questionnaire response, a public document on file in the CRU. For this
period, we used the average cumulative default rates for both
uncreditworthy and creditworthy companies that were based on a 15 year
term, since Krakatau's allocable subsidy was based on this allocation
period. For 1998, since Indonesia experienced high inflation during
this year, we converted the subsidy into U.S. dollars and then applied
a long-term dollar rate as the discount rate, specifically, the average
yield to maturity on selected long-term Baa-rated bonds. See Analysis
Memo. This conforms with our practice in Final Affirmative
Countervailing Duty Determination: Steel Wire Rod from Venezuela, 62 FR
55014, 55019 (October 22, 1997). In calculating the uncreditworthy rate
for 1998, we used the average cumulative default rates for both
uncreditworthy and creditworthy companies based on a 12 year term,
since that period remained on Krakatau's allocated subsidy.
---------------------------------------------------------------------------
\1\ We note that since publication of the CVD Regulations,
Moody's Investors Service no longer reports default rates for Caa to
C-rated category of companies. Therefore for the calculation of
uncreditworthy interest rates, we will continue to rely on the
default rates as reported in Moody Investor Service's publication
dated February 1998 (see Exhibit 28).
---------------------------------------------------------------------------
I. Program Preliminarily Determined To Be Countervailable
1995 Equity Infusion Into Krakatau
Because Krakatau did not respond to this allegation, we used the
information and data provided in the petition as adverse facts
available, in accordance with section 776(b) of the Act (See ``Facts
Available'' discussion above). According to both the Countervailing
Duty Petition and Krakatau's financial statements, the GOI provided
Krakatau with equity in the form of debt-to-equity conversions in 1995.
See Analysis Memo. In 1995, the GOI converted subordinated loans into
equity. The conversion was authorized by the
[[Page 40462]]
Minister of Finance in decree number S-44/MK016/1995 dated July 25,
1995. According to Krakatau's financial statement, provided in the
petition, on April 29, 1996, through decree of the Minister of Finance
S-240/MK016/1996, the conversion was approved at a slightly lower
amount than originally authorized. The excess amount has not yet been
converted into capital and has been recorded as a loan in the financial
statement, with interest still due.
We preliminarily determine that under section 771(5)(E)(i) of the
Act, the equity conversion into Krakatau was not consistent with the
usual investment practice of a private investor and confers a benefit
in the amount of each infusion (see ``Equityworthiness'' section
above). The equity conversion is specific within the meaning of section
771(5A)(D) of the Act because it was limited to Krakatau. Accordingly,
we preliminarily find that the 1995 debt-to-equity conversion is a
countervailable subsidy within the meaning of section 771(5) of the
Act.
As explained in the ``Equity Methodology'' section above, we have
treated equity infusions into unequityworthy companies as grants given
in the year the infusion was received because no market benchmark
exists. In accordance with Sec. 351.507(c) of the CVD Regulations, the
equity conversion is allocated as a non-recurring subsidy. We allocated
the subsidy and converted the remaining face value of the infusion in
1998 into U.S. dollars using the average 1997 rupiah/dollar exchange
rate and applied the long-term U.S. dollar uncreditworthy interest rate
described in the ``Discount Rate'' section of this notice. We then
divided the benefit amount allocable to the POI by Krakatau's estimated
1998 U.S. dollar total sales figure, which was calculated based on the
facts available in the petitioner's submission. See Analysis Memo. On
this basis, we preliminarily determine the net countervailable subsidy
to be 17.38 percent ad valorem for Krakatau.
II. Program Preliminarily Determined To Be Not Countervailable
Reduction in Electricity Tariffs
Petitioners alleged that discounts on electricity rates were
provided to the steel industry during the POI; they alleged that after
the GOI increased electricity rates in 1998, the GOI decreased rates
for the steel industry. According to the questionnaire response, in
1998, the GOI instituted a substantial increase in electricity tariff
rates for electricity supplied by the state-owned electricity company,
PT Perusahaan Listrik Negara, known as Persero. In accordance with
Presidential Decree No. 70/1998 of May 4, 1998, rates were scheduled to
increase periodically throughout the year, in May, August, and
November. The May 1998 increase was implemented as discussed in the
Announcement of the Minister of Mines and Energy, No. Pm/40/MPE/1998
dated May 4, 1998, submitted in the June 23, 1999, questionnaire
response. Subsequently, the August and November increases were
retroactively postponed, by Presidential Decree No. 1/1999 of January
7, 1999, submitted in the June 1, 1999, questionnaire response.
According to this decree, the rate increase was postponed for all
electricity customers, with the exception of large residential
households.
The postponement of the rate increase applied broadly throughout
the economy, with only large residential households excepted from the
new rate. According to the GOI, all ``[i]ndustrial customers pay
electricity rate solely according to the tariff and time of use.''
Thus, contrary to petitioners' allegation, there is no basis for
concluding that the steel industry received a special electricity
discount. Based on the record evidence, the electricity discount was
not limited to a specific enterprise, industry or group thereof, but
was available to all industrial users in the country. Therefore, we
preliminarily determine that the electricity discount program is not
countervailable.
III. Programs Preliminarily Determined To Be Not Used
Based on the information provided by respondents and the GOI, we
determine that Gunawan, Jaya Pari, and Krakatau did not apply for or
receive benefits under the following programs during the POI:
A. Bank of Indonesia Rediscount Loans
B. Corporate Income Tax Holidays
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated individual rates for each of the companies under
investigation.
According to section 705(5)(A)(i) of the Act, the all others rate
is, ``an amount equal to the weighted average countervailable subsidy
rates established for exporters and producers individually
investigated, excluding any zero and de minimis countervailable subsidy
rates and any rates determined entirely under section 776.'' Thus, in
accordance with section 705(5)(A)(i) of the Act, we are excluding the
rates calculated for Gunawan and Jaya Pari because they are zero rates.
Although the subsidy rate calculated for Krakatau is based in part on
facts available, section 705(5)(A)(i) specifies that only those rates
calculated entirely under section 776 (facts available) are excluded;
thus, we are including the subsidy rate calculated for Krakatau in the
all others rate.
------------------------------------------------------------------------
Producer/exporter Net subsidy rate
------------------------------------------------------------------------
P.T. Krakatau Steel................. 17.38% ad valorem.
P.T. Gunawan Steel.................. 0.00% ad valorem.
P.T. Jaya Pari...................... 0.00% ad valorem.
All Others Rate..................... 17.38% ad valorem.
------------------------------------------------------------------------
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of cut-to-
length plate from Indonesia, except with respect to Gunawan and Jaya
Pari as discussed above, which are entered or withdrawn from warehouse,
for consumption on or after the date of the publication of this notice
in the Federal Register, and to require a cash deposit or bond for such
entries of the merchandise in the amounts indicated above. Since the
estimated preliminary net countervailing duty rates for Gunawan and
Jaya Pari are zero, these two companies will be excluded from the
suspension of liquidation. This suspension will remain in effect until
further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
[[Page 40463]]
Public Comment
In accordance with 19 CFR 351.310, we will hold a public hearing,
if requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing is tentatively scheduled to
be held 57 days from the date of publication of the preliminary
determination at the U.S. Department of Commerce, 14th Street and
Constitution Avenue, NW, Washington, DC 20230. Individuals who wish to
request a hearing must submit a written request within 30 days of the
publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, 14th Street and Constitution Avenue, NW, Washington, DC 20230.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; and, (3)
to the extent practicable, an identification of the arguments to be
raised at the hearing. In addition, six copies of the business
proprietary version and six copies of the non-proprietary version of
the case briefs must be submitted to the Assistant Secretary no later
than 50 days from the date of publication of the preliminary
determination. As part of the case brief, parties are encouraged to
provide a summary of the arguments not to exceed five pages and a table
of statutes, regulations, and cases cited. Six copies of the business
proprietary version and six copies of the non-proprietary version of
the rebuttal briefs must be submitted to the Assistant Secretary no
later than 5 days from the date of filing of the case briefs. An
interested party may make an affirmative presentation only on arguments
included in that party's case or rebuttal briefs. Written arguments
should be submitted in accordance with 19 CFR 351.309 and will be
considered if received within the time limits specified above.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: July 16, 1999.
Richard W. Moreland,
Acting Assistant Secretary for Import Administration.
[FR Doc. 99-18858 Filed 7-23-99; 8:45 am]
BILLING CODE 3510-DS-P
