[Federal Register Volume 62, Number 149 (Monday, August 4, 1997)]
[Notices]
[Pages 41939-41945]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20491]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-307-814]
Preliminary Affirmative Countervailing Duty Determination: Steel
Wire Rod From Venezuela
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: August 4, 1997.
FOR FURTHER INFORMATION CONTACT: Christopher Cassel, Robert Copyak, or
Richard Herring, Office of CVD/AD Enforcement VI, Import
Administration, U.S. Department of Commerce, Room 1874, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-
2786.
Preliminary Determination
The Department preliminarily determines that countervailable
subsidies are being provided to CVG-Siderurgica del Orinoco (SIDOR), a
producer and exporter of steel wire rod from Venezuela. For information
on the estimated countervailing duty rates, please see the Suspension
of Liquidation section of this notice.
Case History
Since the publication of the notice of initiation in the Federal
Register (62 FR 13866, March 24, 1997), the following events have
occurred. On April 2, 1997, we issued our initial countervailing duty
questionnaires concerning petitioners' allegations to the Government of
Venezuela (GOV) and SIDOR. On May 2, 1997, we postponed the preliminary
determination of this investigation until July 28, 1997 (62 FR 25172,
May 8, 1997). We received responses to our initial questionnaires from
the GOV and SIDOR on May 28, 1997. On June 18, 1997, we issued
supplemental questionnaires to the parties. Responses to these
supplemental questionnaires were submitted on July 3, 1997, from SIDOR
and on July 9, 1997, from the GOV. Additional information was also
requested from SIDOR and the GOV on July 15, 1997. On July 21, 1997,
SIDOR and the GOV submitted their response to our July 15, 1997,
request for additional information. On July 25, 1997, we issued another
supplemental questionnaire to SIDOR and the GOV.
On June 17, 1997, we initiated an examination of whether
electricity was provided to SIDOR for less than adequate remuneration
during the period of investigation. See Memorandum from The Team to
Jeffrey P. Bialos, dated June 17, 1997, Re: Countervailing Duty
Investigation of Steel Wire Rod from Venezuela: Initiation of New
Subsidy Allegation, which is in the public file of the Central Records
Unit, Room B-099 of the Department of Commerce. Because of the late
date of this initiation, we are still seeking additional information on
whether this program conferred a countervailable subsidy on the
production/exportation of the subject merchandise. Therefore, the
countervailability of this program will be addressed in our final
determination. In addition, during our review of the questionnaire
responses, we discovered that SIDOR may be receiving countervailable
subsidies under the GOV's Exporter Policy program (REFE). However,
additional information is still being sought on this program.
Accordingly, the countervailability of the REFE will be addressed in
our final determination.
Scope of Investigation
The products covered by this investigation are certain hot-rolled
carbon steel and alloy steel products, in coils, of approximately round
cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch),
inclusive, in solid cross-sectional diameter. Specifically excluded are
steel products possessing the above noted physical characteristics and
meeting the Harmonized Tariff Schedule of the United States (HTSUS)
definitions for (a) stainless steel; (b) tool steel; (c) high nickel
steel; (d) ball bearing steel; (e) free machining steel that contains
by weight 0.03 percent or more of lead, 0.05 percent or more of
bismuth, 0.08 percent or more of sulfur, more than 0.4 percent of
phosphorus, more than 0.05 percent of selenium, and/or more than 0.01
percent of tellurium; or f) concrete reinforcing bars and rods.
The following products are also excluded from the scope of this
investigation:
Coiled products 5.50 mm or less in true diameter with an average
partial decarburization per coil of no more than 70 microns in depth,
no inclusions greater than 20 microns, containing by weight the
following: carbon greater
[[Page 41940]]
than or equal to 0.68 percent; aluminum less than or equal to 0.005
percent; phosphorous plus sulfur less than or equal to 0.040 percent;
maximum combined copper, nickel and chromium content of 0.13 percent;
and nitrogen less than or equal to 0.006 percent. This product is
commonly referred to as ``Tire Cord Wire Rod.''
Coiled products 7.9 to 18 mm in diameter, with a partial
decarburization of 75 microns or less in depth and seams no more than
75 microns in depth; containing 0.48 to 0.73 percent carbon by weight.
This product is commonly referred to as ``Valve Spring Quality Wire
Rod.''
The products under investigation are currently classifiable under
subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030,
7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the
HTSUS subheadings are provided for convenience and customs purposes,
our written description of the scope of this investigation is
dispositive.
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 effective January 1, 1995 (the
``Act'').
Injury Test
Because Venezuela is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the ITC is required to determine
whether imports of steel wire rod from Venezuela materially injure, or
threaten material injury to, a U.S. industry. On April 30, 1997, 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 Venezuela of the subject merchandise (62 FR 23485).
Petitioners
The petition in this investigation was filed by Connecticut Steel
Corp., Co-Steel Raritan, GS Industries, Inc., Keystone Steel & Wire
Co., North Star Steel Texas, Inc., and Northwestern Steel and Wire (the
petitioners), six U.S. producers of wire rod.
Subsidies Valuation Information
Period of Investigation
The period for which we are measuring subsidies (the ``POI'') is
calendar year 1996.
Allocation Period
In the past, the Department has relied upon information from the
U.S. Internal Revenue Service on the industry-specific average useful
life of assets in determining the allocation period for nonrecurring
subsidies. See General Issues Appendix (GIA), appended to Final
Countervailing Duty Determination; Certain Steel Products from Austria,
58 FR 37217, 37226 (July 9, 1993). However, in British Steel plc. v.
United States, 879 F. Supp. 1254 (CIT 1995) (British Steel), the U.S.
Court of International Trade (the Court) ruled against this allocation
methodology. In accordance with the Court's remand order, the
Department calculated a company-specific allocation period for
nonrecurring subsidies based on the average useful life (AUL) of non-
renewable physical assets. This remand determination was affirmed by
the Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT
1996).
In this investigation, the Department has followed the Court's
decision in British Steel. Therefore, for the purposes of this
preliminary determination, the Department has calculated a company-
specific AUL. Based on information provided by SIDOR regarding the
company's depreciable assets, the Department has preliminarily
determined that the appropriate allocation period for SIDOR is 20
years.
Equityworthiness
In analyzing whether a company is equityworthy, the Department
considers whether or not that company could have attracted investment
capital from a reasonable, private investor in the year of the
government equity infusion based on 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, the Department
examines the following factors, among others:
1. Current and past indicators of a firm's financial condition
calculated from that firm's financial statements and accounts;
2. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals;
3. Rates of return on equity in the three years prior to the
government equity infusion;
4. Equity investment in the firm by private investors; and
5. Prospects in the marketplace for the product under
consideration.
For a more detailed discussion of the Department's equityworthiness
criteria, see the GIA, 58 FR at 37244.
In this case, we initiated an investigation of SIDOR's
equityworthiness for the years 1977 through 1990 and for the year 1992.
See Memorandum from The Team to Jeffrey P. Bialos, dated March 18,
1997, Re: Initiation of Countervailing Duty Investigation: Steel Wire
Rod from Venezuela (Initiation Memo), which is in the public file of
the Central Records Unit, Room B-099 of the Department of Commerce. In
past investigations, the Department preliminarily determined that SIDOR
was equityworthy in 1977, and unequityworthy for the years 1978 through
1984. See Preliminary Affirmative Countervailing Duty Determination;
Certain Steel Products From Venezuela, 50 FR 11230 (March 20, 1985)
(Steel Products from Venezuela); and Preliminary Affirmative
Countervailing Duty Determination; Carbon Steel Wire Rod From
Venezuela, 50 FR 28234 (July 11, 1985) (1985 Wire Rod from Venezuela).
Moreover, the Department initiated an investigation of SIDOR's
equityworthiness for the period 1985 through 1990. See the Initiation
Memo and Final Affirmative Countervailing Duty Determination: Circular
Welded Non-Alloy Pipe from Venezuela, 57 FR 42964 (September 17, 1992)
(Non-Alloy Pipe from Venezuela). The petitioners alleged that SIDOR was
unequityworthy in 1977 and provided an analysis of the company's
financial information for the two years prior to 1977. Based on this
information and the fact that the 1977 equityworthy decision was a
preliminary finding, we initiated an investigation of SIDOR's
equityworthiness in 1977. See Memorandum To Barbara E. Tillman, dated
March 18, 1997, Re: Initiation of Creditworthy/Equityworthy Allegation
(Creditworthy/Equityworthy Memo), which is in the public file of the
Central Records Unit, Room B-099 of the Department of Commerce.
Based on our initiation, we requested financial ratios from SIDOR
for the relevant years for each of the equity infusions. However, in
its questionnaire response SIDOR provided financial ratios only for
1989 through 1992, stating that it could not access the data that would
lead to a reversal of the unequityworthy finding for years prior to
1990. Because SIDOR has not provided any information in this
investigation that calls into question the Department's prior
determinations that the company was unequityworthy for the years 1978
through 1990, we
[[Page 41941]]
preliminarily determine that the GOV equity investments made in those
years were inconsistent with the usual investment practice of private
investors. With respect to the 1977 equity infusions, neither party has
provided any information beyond what the Department examined in the
prior proceeding in which we found the company to be equityworthy for
that year. Therefore, because no new information has been submitted in
this proceeding to indicate that our prior preliminary decision was
incorrect, we find that it is appropriate to follow that earlier
determination, and preliminarily determine SIDOR to be equityworthy in
1977.
With respect to the 1992 debt to equity conversion on which we
initiated, the agreement between SIDOR and the GOV for this transaction
was signed on May 18, 1993, with the debt conversion being made
retroactive to October 28, 1992. However, in the questionnaire
responses, the GOV stated that the decision to convert 60 percent of
SIDOR's debt into equity was made in October 1991. Therefore, we
consider 1991 to be the relevant year for purposes of determining
whether the conversion of debt to equity was consistent with the usual
investment practices of private investors. Respondents claim that this
conversion of SIDOR's debt for equity by the Ministry of Finance
(Hacienda) was consistent with the usual investment practices of
private investors. SIDOR and the GOV indicate that the company's
financial situation was significantly improved by that time, the result
of a major restructuring process begun in 1989 aimed at improving
profitability and international competitiveness. Prior to 1992, SIDOR
had reduced the number and variety of products it produced by 10
percent, made new investments in technology, lowered per unit costs by
20 percent in constant terms, decreased personnel by 20 percent, and
steadily increased capacity utilization. SIDOR claims that these pre-
1992 improvements formed the basis for the GOV's decision in 1991 to
convert 60 percent of SIDOR's debt into equity. According to the GOV,
this transaction was expected to complete the turnaround of the company
by substantially increasing its cash flow and profits necessary to
support the investment required for SIDOR's continued improvement.
Our analysis of SIDOR's financial information during the three
years prior to 1991 indicates that there was no consistent trend during
that period. SIDOR showed small profits in 1988 and 1989, against a
small loss in 1990. While SIDOR's return on equity also turned negative
in 1990, the company experienced a positive return on equity in 1988
and 1989. Moreover, in each of these years, the operating margin of
profit was positive. Therefore, in light of the steps taken by SIDOR to
enhance its competitiveness, and because the company experienced a
positive return on equity for 1988 and 1989, we preliminarily determine
that SIDOR was equityworthy in 1991. In reaching this determination, we
recognize that there are significant issues which we must continue to
examine. Among these are the effects of inflation on a company's
financial picture, as well as the factors affecting a reasonable
investor's decision to invest in the company during these years.
Additional factors that may affect potential investors include
liquidity issues and the ability of the company to service its long-
term debt, especially in light of SIDOR's debt problems over these
years. We will continue to address these issues and collect additional
information during the course of this proceeding.
In our review of SIDOR's questionnaire response, we found that in
1993 and 1994, CVG transferred land to SIDOR to cancel unpaid capital
subscriptions. Therefore, we analyzed SIDOR's financial performance for
the years 1990 through 1993 to determine whether SIDOR was equityworthy
in the years 1993 and 1994. As stated above, SIDOR experienced losses
in 1990. However, SIDOR's financial performance showed signs of
improvement after 1990--in 1991 and 1992 the company returned to
profitability, and the company's negative equity in 1990 turned
positive in 1991 and in 1992. Moreover, the company's cash flow to debt
also improved in these years, as did the company's current and quick
ratios. In light of SIDOR's generally positive financial performance
over the 1990 through 1993 period, we preliminarily determine that
SIDOR was equityworthy in 1993 and 1994.
Equity Methodology
In measuring the benefit from a government equity infusion to an
unequityworthy company, the Department compares the price paid by the
government for the equity to a market benchmark, if such a benchmark
exists, i.e., the price of publicly traded shares of the company's
stock or an infusion by a private investor at the time of the
government's infusion (the latter may not always constitute a proper
benchmark based on the specific circumstances in a particular case).
Where a market benchmark does not exist, the Department has
determined in this investigation to continue to follow the methodology
described in the GIA, 58 FR at 37239. Following this methodology,
equity infusions made on terms inconsistent with the usual practice of
a private investor are treated as grants. Using the grant methodology
for equity infusions into an unequityworthy company is based on the
premise that an unequityworthiness finding by the Department is
tantamount to saying that the company could not have attracted
investment capital from a reasonable investor in the 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. If a
company receives comparable long-term financing from commercial
sources, that company will normally be considered creditworthy. In the
absence of comparable commercial borrowings, the Department examines
the following factors, among others, to determine whether or not a firm
is creditworthy:
1. Current and past indicators of a firm's financial health
calculated from that firm's financial statements and accounts.
2. The firm's recent past and present ability to meet its costs and
fixed financial obligations with its cash flow.
3. Future financial prospects of the firm including market studies,
economic forecasts, and projects or loan appraisals.
For a more detailed discussion of the Department's creditworthiness
criteria, see, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from France, 58 FR 37304 (July
9, 1993); and Final Affirmative Countervailing Duty Determinations:
Certain Steel Products from the United Kingdom, 58 FR 37393 (July 9,
1993).
Petitioners have alleged that SIDOR was uncreditworthy in each of
the years the company received GOV equity infusions, i.e., 1977 through
1992 (with the exception of 1988). In Non-Alloy Pipe from Venezuela,
the Department initiated an examination of SIDOR's creditworthiness for
the years 1985 through 1990. For all other years, the Department
initiated an examination of SIDOR's creditworthiness based upon an
analysis of SIDOR's cash flow and financial ratios. See 57 FR at 42964,
and the Creditworthy/Equityworthy Memo.
[[Page 41942]]
As outlined above under the ``Equityworthiness'' section, for all the
years except 1989 through 1992, SIDOR did not submit financial data
beyond what was examined in the initiation stage, stating that such
information was inaccessible. Therefore, because SIDOR has not provided
any information that rebuts the Department's initiation analysis, we
preliminarily determine that SIDOR was uncreditworthy in each of the
years for which we have preliminarily determined SIDOR to be
unequityworthy, i.e., 1978 through 1990.
Discount Rates
For uncreditworthy companies, our practice is to use as the
discount rate the highest long-term fixed interest rate commonly
available to firms in the country plus an amount equal to 12 percent of
the prime rate. See Final Affirmative Countervailing Duty
Determination: Grain-Oriented Electrical Steel From Italy, 59 FR 18357,
18358 (April 18, 1994). (GOES). SIDOR did not provide company-specific
long-term debt information because the company has not received any
long-term loans in domestic currency since 1977. However, in the
countervailing duty investigation of carbon steel products from
Venezuela, the Department used, for benchmark purposes, data on long-
term domestic corporate bond yields, published in Morgan Guaranty Trust
Company's World Financial Markets. See Preliminary Affirmative
Countervailing Duty Determinations: Certain Carbon Steel Products from
Venezuela, 54 FR 11227, 11229 (March 20, 1985). This data is available
through 1987 and represents the highest long-term fixed interest rate
for bolivar financing we were able to locate. For the period after
1987, the GOV explained that the primary mechanism for obtaining long-
term domestic currency financing in Venezuela has been through short-
term loans. Such a loan would continually be rolled-over with a new
short-term interest rate applied each year, thus becoming, in effect, a
long-term variable rate loan. We were unable to locate any information
on long-term fixed interest rates in bolivars for these years.
Therefore, to calculate the benefit from non-recurring countervailable
subsidies received by SIDOR through 1987, we have used the long-term
corporate bond rates in Venezuela as the discount rate, published by
Morgan Guaranty Trust Company in World Financial Markets. This conforms
with our practice followed in GOES, 59 FR at 18358. For the years 1988
through 1990, we have used as the discount rate the average short-term
interest rate, provided by the GOV in the questionnaire response and
based on data from the leading commercial banks in Venezuela.
Because we preliminarily determine SIDOR to be uncreditworthy for
the years 1978 through 1990, we added to the discount rates a risk
premium of 12 percent. Moreover, we have adjusted the discount rate to
take into account inflation because Venezuela has experienced
intermittent periods of high inflation over the past twenty years, and
because SIDOR has adjusted its financial statements to take into
account the effects of inflation since 1993. See, e.g., Industrial
Phosphoric Acid from Israel: Final Results of Countervailing Duty
Administrative Review, 61 FR 53351 (October 11, 1996) (IPA from
Israel).
Based upon our analysis of the petition and the responses to our
questionnaires, we preliminary determine the following:
I. Programs Preliminarily Determined to Be Countervailable
A. GOV Equity Infusions into SIDOR
SIDOR received GOV equity infusions in every year from 1977 through
1991, except 1988. SIDOR is a 100-percent government-owned company. Its
parent company is Corporacion Venezolana de Guayana (CVG), a holding
company owned by the GOV charged with promoting industrial development
in the Guayana Region. The majority of the equity infusions were made
by the Fondo de Inversiones de Venezuela (FIV), a Venezuelan investment
fund. The remaining funds were provided by the Ministry of Finance
(Hacienda), primarily as interest payments on loans. According to the
response of the GOV, the government equity infusions into SIDOR were
provided pursuant to specific laws adopted with respect to government-
approved expansion projects of SIDOR. Thus, these equity infusions were
specific under section 771(5A)(D) of the Act.
Equity funds disbursed to SIDOR by the FIV were made pursuant to
special laws passed by the Venezuelan Congress and were not part of any
government program. The first law, published in the Gaceta Oficial No.
30,587 on January 2, 1975, authorized SIDOR's 1974-79 ``Plan IV''
expansion. This expansion was aimed at increasing SIDOR's steel
production by 3.6 million tons as well as increasing the company's
rolling capacity for flat and non-flat products. The government equity
infusions under Plan IV were not disbursed in the amounts or at the
time originally projected in this plan. However, the amounts received
by SIDOR were recorded in the company's annual financial statements in
the year they were received. Equity funds also were provided to SIDOR
in accordance with a 1987 law passed by the Venezuelan Congress. This
law was published in the Gaceta Oficial No. 33,771 on December 21,
1987. The FIV received both preferred and common shares for these
equity investments into SIDOR.
As noted above, funds were also provided to SIDOR by the Hacienda.
Funds provided by the Hacienda between 1977 and 1981 were authorized
under Article 11 of a 1976 Special Law for Public Credit and were also
made pursuant to a June 26, 1977, agreement between the Hacienda, FIV,
CVG and SIDOR. Under this agreement, the Hacienda agreed to pay SIDOR's
interest on loans from the FIV in return for shares in the company.
Equity payments made between 1984 and 1986 were provided pursuant to
government Decree 390 of December 1984, authorizing the Haicenda to
help SIDOR service its foreign debt. Finally, a 1987 loan from the
Hacienda to SIDOR was converted into equity, but recorded as an advance
for future capital increase.
SIDOR records all Hacienda equity funds in the years the funds were
received. However, the capital investments appeared in SIDOR's annual
financial statements as ``Advances for Future Capital Increase.'' In
1989, all advances were converted into shares issued to Hacienda, the
delay stemming from a disagreement between the Hacienda and CVG as to
who should take ownership of the shares. The issue was resolved in
1989, and on the same day the shares were issued to Hacienda, they were
transferred to CVG, SIDOR's parent company. We have treated these
Hacienda funds as capital investments in each year in which they were
received by SIDOR. According to the agreement under which the Hacienda
funds were provided, the funds are to be treated as capital infusions.
In 1991, following several years of restructuring by SIDOR, the GOV
agreed to convert 60 percent of SIDOR's debt and the interest accrued
on the debt into equity which was converted into shares provided to
Hacienda. This debt related to SIDOR's pre-1986 foreign currency loans
that had been restructured in accordance with government Decree 1261 of
November 15, 1990. As a result of this conversion, the Hacienda now
holds 39.68 percent of SIDOR's shares. As of December 31, 1996, the
remaining 60.32 percent were held by SIDOR's parent company, CVG.
[[Page 41943]]
In 1993 and 1994, also in connection with SIDOR's Plan IV expansion
project, CVG transferred some of the land on which the company
constructed the Plan IV expansion. The land was used as payment for
unpaid capital subscriptions from CVG. At the time, CVG purchased only
about half of the 1,860,000 shares in SIDOR it had subscribed to. We
consider the land transfers to be capital investments in each year in
which they were received by SIDOR.
We have preliminarily determined that the equity infusions into
SIDOR in the years 1978 through 1990 constitute countervailable
subsidies in accordance with section 771(5)(E)(i) of the Act because
the GOV investments were not consistent with the usual investment
practice of private investors. We have also preliminarily determined
SIDOR to be equityworthy in 1991, 1993 and 1994, and therefore are not
calculating any benefit from the infusions made in these years. See the
discussion on ``Equityworthiness'' above. As explained in the
``Subsidies Valuation Information'' section, we have treated equity
infusions in unequityworthy companies as grants given in the year the
capital was received. We have further determined these infusions to be
non-recurring subsidies. Therefore, for the reasons outlined in the
``Subsidies Valuation Information'' section above, we have allocated
the benefits over 20 years.
Because Venezuela experienced periods of high inflation during the
period 1978 through 1996 (the rates ranged from 7 percent to 103
percent, with an average rate of 34 percent), we must take into account
the effects of inflation to accurately value the benefit from GOV
equity infusions. See, e.g., IPA from Israel 61 FR 53351, and Final
Affirmative Countervailing Duty Determination; Certain Steel Products
from Mexico, 58 FR 37352, 37355 (July 9, 1993). Therefore, we consider
that it is appropriate to adjust the principal and interest amount in
each year for inflation. This approach is also supported by the fact
that Venezuelan companies over the past several years have been
adjusting their financial statements to reflect inflation (including
asset and equity accounts). This methodology is discussed in the
``Calculation Memorandum to the File,'' dated July 28, 1997 (public
version on file in the Central Records Unit of the Department of
Commerce, Room B-099). Information on the discount rates we are using
to calculate the benefit from these equity infusions is discussed in
the ``Discount Rates'' section above.
To calculate the total benefit from the infusions to SIDOR, we
summed the benefit allocated to the POI from each equity infusion. We
then divided that total benefit by SIDOR's total sales of all products
during the POI. On this basis, we preliminarily determine the net
subsidy for this program to be 10.72 percent ad valorem for SIDOR.
B. Dividend Advances from the Hacienda
Between 1977 and 1981, pursuant to a June 26, 1977 agreement among
the Hacienda, FIV, CVG and SIDOR, the Hacienda paid dividends on behalf
of SIDOR on the preferred shares held by FIV. These were recorded in
SIDOR's accounting records as ``Dividend Advances.'' These dividend
advances are still reported in SIDOR's 1996 financial statement.
According to the 1996 financial statement, the final treatment of these
dividend advances has not been decided. Because the payment by the
Hacienda of dividends on behalf of SIDOR is based on an agreement
signed among the Hacienda, FIV, CVG and SIDOR, the payment of dividends
by the Hacienda, a Government agency, is limited to one company, SIDOR,
and is, thus, specific under section 771(5A)(D) of the Act. To
determine whether a benefit has been provided, the Department must
determine whether SIDOR was obligated to pay dividends to FIV on the
preferred shares. If the Hacienda relieved SIDOR of a payment
obligation, then the payment of dividends by the Hacienda on behalf of
SIDOR constitutes a countervailable subsidy.
According to its supplemental questionnaire response, SIDOR had
fiscal losses in the years the dividend payments were made. Therefore,
SIDOR stated that it was not obligated to pay any dividends. To
determine whether SIDOR was obligated to pay the dividends to FIV on
the preferred shares, we also reviewed the 1977 agreement among the
Hacienda, FIV, CVG and SIDOR. According to this agreement, the
preferred shares yielded a fixed yearly dividend equivalent to seven
percent of their nominal value and, therefore, SIDOR was obligated to
pay fixed yearly dividends to FIV. Because the payment of dividends by
the Hacienda to FIV relieved SIDOR of a financial obligation, we
preliminarily determine that the outstanding balance of the ``Dividend
Advances'' provides a countervailable subsidy to SIDOR.
In order to calculate the benefit from this program, we have
preliminarily determined to treat the dividend advances as interest-
free short-term loans because the advances appear to be liabilities of
SIDOR. The 1977 agreement, under which these dividends were paid, does
not state that these are capital infusions into SIDOR by the Hacienda.
In addition, neither the GOV or SIDOR have treated these dividend
advances as capital infusions. Thus, it appears, that SIDOR is still
liable for repayment of the dividend advances.
To calculate the benefit in the POI, we took the amount of the
dividend advances reported in SIDOR's 1996 financial statement and
calculated the amount of interest the company would have paid in 1996
if it had received an interest-free loan equal to the amount of the
dividend advances. We used as our benchmark interest rate the annual
average short-term interest rate reported by the GOV in its
supplemental response. (If available, we intend to use the company's
actual short-term interest rates, in the final determination, and we
are seeking information from SIDOR on the actual interest rates it paid
in 1996 on comparable short-term commercial loans.) The calculated
interest savings was then divided by SIDOR's total sales in the POI. On
this basis, we preliminarily determine the net subsidy for this program
to be less than 0.005 percent ad valorem for SIDOR.
C. Government Provision of Iron Ore
Petitioners have alleged that Ferrominera, a government-owned
company, provided iron ore to SIDOR for less than adequate
remuneration. Iron ore is a bulky, low-priced commodity that is traded
on international markets and is used in the production of steel. SIDOR
purchases all of its iron ore from Ferrominera, the only Venezuelan
producer of iron ore. Like SIDOR, Ferrominera is owned by the
government and is one of the 37 companies in the CVG Group.
SIDOR has a multi-year supply contract with Ferrominera, under
which Ferrominera sets SIDOR's iron ore prices on an annual basis.
According to SIDOR's questionnaire response, no contract existed
between SIDOR and Ferrominera for 1996 because the parties were unable
to agree on the price. When Ferrominera announced a new price for 1996,
SIDOR objected and tried to renegotiate the price. Because of this
objection, Ferrominera did not apply SIDOR's new price immediately.
Rather, it began invoicing at the new price in June 1996. After
negotiations failed, SIDOR and Ferrominera entered into an arbitration
process. Ultimately, the 1996 price originally proposed by Ferrominera
was agreed upon retroactive to January 1, 1996. The unit price (i.e.,
the price per ``metric ton
[[Page 41944]]
natural iron unit'') is set in U.S. dollars, and the terms of sale are
FOB, place of loading. SIDOR is invoiced for its iron ore purchases at
the end of each month, and the price in bolivars on the invoice is
based on the exchange rate in effect on the last working day of the
month.
According to the GOV, iron ore is an internationally traded
commodity, and Ferrominera sets its prices in the domestic market based
on prices in the international market. In Venezuela, Ferrominera is the
only producer of iron ore in the country, and 99 percent of its
domestic sales are to the steel industry. Because the steel industry is
virtually the only user of iron ore, we preliminarily determine that
the provision of iron ore by Ferrominera is specific under section
771(5A)(D) of the Act.
According to section 771(5)(E) of the Act, the adequacy of
remuneration (with respect to a government's provision of a good)
``shall be determined in relation to prevailing market conditions for
the good or service being provided or the goods being purchased in the
country which is subject to the investigation or review. Prevailing
market conditions include price, quality, availability, marketability,
transportation, and other conditions or purchase or sale.''
In circumstances like those presented in this case (i.e., where the
government is the sole provider of a commodity and the commodity is
sold on a non-competitive basis to a limited number of users), the
adequacy of remuneration cannot be determined through an examination of
prices charged by the government provider. In such circumstances, it is
necessary to use another benchmark to determine whether the good is
being provided for less than adequate remuneration. As noted above, the
government is the sole domestic source of iron ore in Venezuela.
Therefore, absent restrictions on imports, the choice to the consumer
of iron ore is the price of the good charged by the government or the
imported price of that good.
We preliminarily determine that the appropriate benchmark is the
alternative price that SIDOR would face in Venezuela if it could not
purchase iron ore from Ferrominera, that is, the price SIDOR would pay
to import iron ore. Although the GOV placed general customs data on the
record which indicates that very small quantities of iron ore were
imported into Venezuela during the POI, we do not have any specific
information about these imports to determine whether they could be used
to determine the benchmark price. We do not know the prices per metric
ton paid because we cannot discern the ``metric ton natural iron unit''
prices, and we do not know whether these imports involved iron ore that
is comparable to the iron ore SIDOR purchased from Ferrominera.
Although the information regarding the imports of iron ore into
Venezuela during the POI cannot be used to determine the benchmark
price, we consider it appropriate to use prices that SIDOR would pay to
import the same type of iron ore that it purchased from Ferrominera
during the POI. Absent prices for actual imports, we consider it
appropriate to calculate a benchmark price based on import prices that
would be available in Venezuela for the same type of iron ore.
Accordingly, we calculated the benchmark price using published price
information on the record for pellet feed, the type of iron ore SIDOR
purchases from Ferrominera.
In order to determine whether iron ore is provided to SIDOR for
less than adequate remuneration, we need to have complete information
on both the prices and delivery terms of the iron ore. This is because
comparison of delivered prices reflects the price alternatives a
company would face in the marketplace.
The price of iron ore charged to SIDOR by Ferrominera is based upon
two separate contracts. The first contract sets the price for the iron
ore, while the second contract establishes the delivery charges for the
iron ore. We have information on the record regarding the price of iron
ore set in the first contract, however, we are lacking complete
information on the terms of the delivery contract. The prices charged
to SIDOR under the first contract by Ferrominera are FOB, place of
loading. According to the GOV's supplemental response, the iron ore is
loaded at Ferrominera's processing facility in Puerto Ordaz and
transported by train directly to SIDOR's factory. SIDOR owns the rail
equipment but Ferrominera provides the transportation service and
maintenance for a fee. Because we did not become aware of this
transportation arrangement until we received the supplemental
questionnaire responses, we were unable to solicit additional
information on this transportation arrangement between Ferrominera and
SIDOR for use in this preliminary determination. We are seeking
additional information on this transportation arrangement which will be
considered in our final determination.
Because we are unable to analyze this transportation arrangement,
we are basing our determination of whether SIDOR has been provided with
iron ore for less than adequate remuneration solely on the FOB, place
of loading prices for iron ore charged to it by Ferrominera rather than
a delivered price to SIDOR. As noted above, the FOB, place of loading
price charged to SIDOR by Ferrominera is based upon SIDOR taking
delivery of the iron ore at Ferrominera's processing facility in Puerta
Ordaz. We have included in the benchmark iron ore price the cost of
ocean freight to Puerta Ordaz. Thus, both the price to SIDOR from
Ferrominera and the benchmark price are on the same basis. To determine
the costs of ocean freight for the import price, we used the
information provided in the questionnaire response from SIDOR. We
compared the prices that SIDOR paid for iron ore from Ferrominera to
the benchmark price and found that the Ferrorminera price was lower
than the benchmark price. Therefore, we preliminarily determine that
Ferrominera's sales of iron ore to SIDOR during the POI were made for
less than adequate remuneration. As noted above, we are still seeking
information on the delivery contract between SIDOR and Ferrominera, and
we are see seeking additional information on delivery costs to use in
our benchmark price. We invited interest parties to comment on this
methodology.
To calculate the benefit, we first multiplied the quantity of iron
ore that SIDOR purchased during the POI by the benchmark price. We then
subtracted from this total the amount SIDOR actually paid in order to
derive the aggregate amount of benefit. Because iron ore is an input
used for all of SIDOR's production, we divided this amount by the
company's total sales. On this basis, we preliminarily determine the
net subsidy for this program to be 2.34 percent ad valorem for SIDOR.
II. Programs Preliminarily Determined To Be Not Countervailable
A. GOV Loan to SIDOR in 1990
We initiated on this program based upon petitioners' allegation
that the GOV replaced a $1,507 million commercial loan to SIDOR with a
15-year loan from the government. In its response to our questionnaire,
the GOV submitted information demonstrating that this 1990 GOV loan to
SIDOR was part of a debt restructuring program which was examined and
found not countervailable in the Final Affirmative Countervailing Duty
Determination: Ferrosilicon From Venezuela; and Countervailing Duty
Order for Ferrosilicon From Venezuela, 58 FR 27539 (May 10, 1993).
Because petitioners have provided no new information or evidence of
changed circumstances to warrant a
[[Page 41945]]
reconsideration of that determination, we continue to find this GOV
debt restructuring program, under which this 1990 loan was received,
not countervailable.
III. Programs Preliminarily Determined To Be Not Used
A. Government Guarantees of SIDOR's Private Debt in 1987 and 1988
In 1987 and 1988, the GOV guaranteed loans provided to SIDOR by
Credito Italiano and Kreditanstalt Fuer Wiederaufbau (KfW),
respectively. Both of these loans were Deutschmark (DM) denominated
loans linked to the London Interbank Offering Rate (LIBOR).
According to SIDOR's and the GOV responses, the 1987 and 1988 loans
were specifically applied for and authorized as part of a program to
finance the expansion of SIDOR's pipe mill. The approval documents
specify that the loans were for the expansion of SIDOR's pipe mill, in
particular for purchasing equipment. These were authorized under the
December 10, 1987, ``Law for the Contracting and Financing of the First
Stage of the Project to Expand and Modernize SIDOR's Pipe Mill.''
Because the information submitted in the company and government
responses states that the KfW and Credito Italiano loans were tied to
financing the expansion of SIDOR's pipe mill, we preliminarily
determine that the loans and the government guarantees of the loans are
tied to non-subject merchandise and, thus, do not provide a benefit to
wire rod. Therefore, we preliminarily determine that the GOV loan
guarantees did not confer countervailable benefits on the production
and/or exportation of subject merchandise, and that this program was
not used during the POI.
B. Preferential Tax Incentives Under Decree 1477
Petitioners alleged that Decree 1477 provides partial or total
income tax exemptions and other tax credits to companies in
disadvantaged regions, including Bolivar, where SIDOR is located.
According to petitioners, companies that relocated or commenced an
expansion after March 23, 1976, qualify for tax incentives. In its
response to our questionnaire, SIDOR stated that the company never
applied for or received benefits under this program. Therefore, we
preliminarily determine that this program was not used by SIDOR during
the POI.
Verification
In accordance with section 782(i) of the Act, we will verify the
information submitted by respondents prior to making a final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated a subsidy rate for SIDOR, the one company under
investigation. We also are applying SIDOR's rate to any companies not
investigated or any new companies exporting the subject merchandise.
In accordance with section 703(d) of the Act, we are directing the
U.S. Customs Service to suspend liquidation of all entries of steel
wire rod from Venezuela 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 below. This
suspension will remain in effect until further notice.
------------------------------------------------------------------------
Ad
Company valorem
rate
------------------------------------------------------------------------
SIDOR........................................................ 13.06
All Others................................................... 13.06
------------------------------------------------------------------------
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.
If our final determination is affirmative, the ITC will make its
final determination within 45 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 355.38, we will hold a public hearing, if
requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing will be held on September
22, 1997, at the U.S. Department of Commerce, Room 3708, 14th Street
and Constitution Avenue, N.W., Washington, D.C. 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 1874, 14th Street and Constitution Avenue, N.W.,
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; (3) the
reason for attending; and (4) a list of the issues to be discussed. In
addition, eight copies of the business proprietary version and three
copies of the nonproprietary version of the case briefs must be
submitted to the Assistant Secretary no later than September 8, 1997.
Eight copies of the business proprietary version and three copies of
the nonproprietary version of the rebuttal briefs must be submitted to
the Assistant Secretary no later than September 15, 1997. 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 355.38 and will be considered if
received within the time limits specified above. Parties who submit
argument in this proceeding are requested to submit with the argument
(1) a statement of the issue and (2) a brief summary of the argument.
If this investigation proceeds normally, we will make our final
determination by October 14, 1997.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
Dated: July 28, 1997.
Jeffrey P. Bialos,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-20491 Filed 8-1-97; 8:45 am]
BILLING CODE 3510-DS-P
