[Federal Register Volume 62, Number 149 (Monday, August 4, 1997)]
[Notices]
[Pages 41945-41951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20492]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-428-823]
Preliminary Affirmative Countervailing Duty Determination: Steel
Wire Rod From Germany
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: August 4, 1997.
FOR FURTHER INFORMATION CONTACT: Cindy Thirumalai or Daniel Lessard,
Office of Antidumping/Countervailing
[[Page 41946]]
Duty Enforcement, Group 1, Import Administration, U.S. Department of
Commerce, Room 1874, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone (202) 482-4087 or 482-1778
respectively.
PRELIMINARY DETERMINATION: The Department preliminarily determines that
countervailable subsidies are being provided to Saarstahl AG
(Saarstahl) and Ispat Hamburger Stahlwerke GmbH (IHSW), producers and
exporters of steel wire rod from Germany. We have also preliminarily
determined that Walzdraht Hochfeld GmbH (WHG) received de minimis
subsidies and that we have insufficient information at this time to
make a determination with respect to Brandenburger Elektrostahlwerke
GmbH (BES). 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 countervailing duty questionnaires to
the Government of the Federal Republic of Germany (GOG), the Government
of the Free and Hanseatic City of Hamburg (GOH), the Government of
Saarland (GOS), Saarstahl, BES, IHSW, and WHG. We received responses to
our questionnaires on May 27, 1997. We issued supplemental
questionnaires to parties in June and July for which responses were
receive in the same months. On May 2, 1997, we postponed the
preliminary determination in this investigation until July 28, 1997 (62
FR 25172; May 8, 1997).
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 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 Germany 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 Germany 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 Germany 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 to determine the allocation period for nonrecurring
subsidies. See General Issues Appendix appended to Final Affirmative
Countervailing Duty Determination; Certain Steel Products from Austria
(58 FR 37217, 37226; July 9, 1993) (General Issues Appendix). 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 company-
specific AULs.
Based on information provided by Saarstahl and IHSW regarding the
companies' depreciable assets, the Department has preliminarily
determined that the appropriate allocation period for Saarstahl and
IHSW is 10 years. The calculation of allocation periods for WHG and BES
was unnecessary.
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:
[[Page 41947]]
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
methodology, see, e.g., Final Affirmative Countervailing Duty
Determination: Certain Steel Products from France, 58 FR 37304 (July 9,
1993) or Final Affirmative Countervailing Duty Determination: Certain
Steel Products from the United Kingdom, 58 FR 37393 (July 9, 1993).
Petitioners have alleged that Saarstahl was uncreditworthy in 1989
and between 1993 and 1996. They further allege that Hamburger
Stahlwerke GmbH (HSW) was uncreditworthy in 1984 and 1994. Because
neither company received long-term financing in the relevant years, we
examined other factors to determine the firms' creditworthiness. In
making our determinations, we examined Saarstahl's and HSW's current,
quick, and interest/debt coverage ratios in addition to their net
profit/loss for the three preceding years. Both Saarstahl and HSW
experienced operating losses in those years (except 1988 for
Saarstahl), and the financial ratios demonstrate that both companies
were in poor financial health. The current ratio (current assets
divided by current liabilities) measures the margin of safety available
to cover any drop in the value of current assets, while the quick ratio
(current assets excluding inventory and prepaids divided by current
liabilities) shows the company's ability to pay its short-term
liabilities. For both companies, the ratios were very small,
demonstrating their difficulty in meeting their short-term liabilities
and interest expenses. Furthermore, the interest/debt coverage ratios
(net income plus interest expense plus taxes divided by interest
expense), highlighted the firms' inability to meet existing interest
payments. We preliminarily determine that Saarstahl was uncreditworthy
in 1989 and HSW was uncreditworthy in 1994.
Because Saarstahl did not receive any countervailable benefits from
the GOS or the GOG following its 1993 bankruptcy, we do not reach the
question of Saarstahl's creditworthiness for this period. Moreover,
because IHSW's allocation period is ten years, we are not examining
subsidies received prior to 1987. Therefore, we do not need to analyze
HSW's creditworthiness for that period.
Discount Rates
Saarstahl reported that German banks set interest rates for long-
term, fixed rate commercial loans in reference to the yield earned on
public bonds. The company explained that in establishing the interest
rate for the commercial loans the banks normally add a margin of zero
percent to two percent to the yield on public offerings depending upon
the borrower's creditworthiness. Because neither Saarstahl nor IHSW
provided a company-specific discount rate, we used German public bond
rate plus a spread of two percent as the discount rate for Saarstahl in
1989 and IHSW in 1994. This rate represents the highest long-term
interest rate which we could locate. For Saarstahl in 1989 and IHSW in
1994, we added a risk premium to establish the uncreditworthy discount
rate.
Privatization
In the General Issues Appendix, we applied a new methodology with
respect to the treatment of subsidies received prior to the sale of a
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 1987 for Saarstahl and IHSW) 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 value of all remaining benefits at the time
of privatization.
With respect to spin-offs, consistent with the Department's
position regarding privatization, we analyze the spin-off of productive
units to assess what portion of the sale price of the productive unit
can be attributable to the repayment of prior subsidies. To perform
this calculation, we first determine the amount of 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
going towards repayment of prior subsidies in accordance with the
privatization methodology outlined above.
In the current investigation, we are analyzing the privatization of
Saarstahl in 1989 and subsequent spin-off in 1994. Additionally, we are
investigating the privatization of IHSW in 1994.
Based upon our analysis of the petition and the responses to our
questionnaires, we preliminarily determine the following:
I. Programs Preliminarily Determined To Be Countervailable
A. Saarstahl
1. Forgiveness of Saarstahl's Debt in 1989
During the period 1978 to 1989, Saarstahl and its predecessor
companies received massive amounts of assistance from the GOS and GOG.
Repayment of these funds was contingent upon Saarstahl returning to
profitability and earning a profit above and beyond the losses
accumulated after 1978. This contingent repayment obligation was known
as a Ruckzahlungsverpflichtung or ``RZV.''
In 1989, the GOS reached an agreement with Usinor-Sacilor to
combine Saarstahl with AD der Dillinger Huttenwerke (Dillinger) under a
holding company, DHS-Dillinger Hutte Saarstahl AG (DHS). Pursuant to
the combination agreement and as a condition for sale, in 1989 the GOG
and GOS entered into a debt forgiveness contract (Entschuldungsvertrag,
or ``EV'') which effectively forgave all the outstanding repayment
obligations owed by Saarstahl to the Governments (i.e., a total of DM
3.945 billion in debt was forgiven). The EV specified, however, that if
Saarstahl went bankrupt, the GOG and GOS claims could be revived, but
their claims would be subordinated to those of all other creditors.
After several years of unprofitable operation, Saarstahl filed for
bankruptcy in 1993 under the German Bankruptcy Regulations
(Konkursordnung). In 1994, the GOS bought Saarstahl back from Usinor
Sacilor for DM 1. At the time of its bankruptcy, Saarstahl's
liabilities exceeded its assets by a factor of four, not including its
liabilities to the GOG and GOS. Both Governments filed
[[Page 41948]]
claims against the Saarstahl bankruptcy estate based on the RZV debt
that was conditionally forgiven in 1989. These EV-related claims were
rejected by the bankruptcy trustee as invalid in 1995. The GOG and GOS
chose not to appeal the rejection of their bankruptcy claims, on the
grounds that the subordination of their claims made the likelihood of
recovery very small, and not worth the high cost of litigating the
matter.
In the Final Affirmative Countervailing Duty Determination: Certain
Hot Rolled Lead and Bismuth Carbon Steel Products from Germany, 58 FR
6233, 6234 (January 27, 1993) (Lead and Bismuth), we found that
Saarstahl's RZV and related government debt were effectively forgiven
by the 1989 EV, thus conferring a countervailable benefit on Saarstahl
as of 1989. Respondents have argued that the attempt to revive the RZVs
by the GOG and the GOS disqualifies the signing of the 1989 EV as the
countervailable event. However, as noted above, the EV-related
bankruptcy claims of the GOS and GOG were rejected as invalid by the
bankruptcy trustee. Thus, the 1993 bankruptcy proceeding left
completely undisturbed the provisions of the 1989 EV agreement.
Respondents further argue that the RZVs were worthless at the time of
the EV. However, this argument was rejected in Lead and Bismuth (58 FR
6233, 6237) and the Final Affirmative Countervailing Duty
Determination: Certain Steel Products from Germany, 58 FR 37315, 37323
(July 9, 1993) (Certain Steel) and the attendant litigation. See
Saarstahl AG v. United States, 1997 CIT LEXIS 62, slip op. 97-67 (CIT
1997) and British Steel plc v. United States, 936 F. Supp. 1053, 1069-
70 (CIT 1996).
Therefore, we preliminarily determine that the debt forgiveness
constitutes a financial contribution in 1989 within the meaning of
section 771(5) of the Act. It is a direct transfer of funds from the
GOG and GOS providing a benefit in the amount of the debt forgiveness,
DM 3.945 billion. Because it was a one time event, we consider it to be
a non-recurring grant. Additionally, we analyzed whether the debt
forgiveness provided to Saarstahl was specific ``in law or in fact,''
within the meaning of section 771(5A) of the Act. Consistent with Lead
and Bismuth (58 FR 6233) and Certain Steel (58 FR 37315), we find that
the debt forgiveness provided to Saarstahl was limited to a specific
enterprise or industry because it was provided to one company.
To calculate the countervailable subsidy, we used our standard
declining balance grant methodology. The amount of subsidy allocated to
the POI was adjusted in accordance with our privatization methodology
(described above) to reflect the privatization of Saarstahl in 1989 and
the spin-off of Saarstahl from DHS 1994. We then divided the portion of
the benefit attributable to the POI by the total sales of Saarstahl
during the same period. On this basis, we determine the countervailable
subsidy for this program to be 16.92 percent ad valorem for Saarstahl.
2. Assurance of Liquidity Provided to Private Banks by the GOS
Toward the end of 1985, the GOS presented a long-term restructuring
plan for Saarstahl to Saarstahl's creditors and requested that they
forgive loans in the amount of DM 350 million. In a February 20, 1986
letter from the banks to the GOS, the banks agreed to forgive DM 217.33
million of debt owed to them by Saarstahl (DM 216.82 of which was
forgiven in 1989), if the GOG and GOS fulfilled certain prerequisites.
Two of the prerequisites were that the Governments forgive all debt
owed to them by Saarstahl and that the GOS secure the future liquidity
of Saarstahl. In an April 4, 1986 letter from the Governor of Saarland
responding to the banks, the GOS agreed to forgive all debts owed to it
by Saarstahl and to secure the liquidity of Saarstahl as it had in the
past.
We preliminarily determine that in assuring the future liquidity of
Saarstahl the GOS provided a financial contribution to Saarstahl.
Specifically, this assurance granted a ``potential direct transfer of
funds'' within the meaning of section 771(5). By assuring the future
liquidity of Saarstahl, the GOS effectively guaranteed that Saarstahl
would have the funds to satisfy its future obligations, which included
the outstanding debt owed to the banks. This assurance was consistent
with the GOS's long history of supporting Saarstahl. We also
preliminarily determine that the assurance was provided to a specific
enterprise or industry, Saarstahl.
While the GOS's assurance of future liquidity resembled a loan
guarantee, it differed in certain important aspects from loan
guarantees typically examined by the Department. First, the GOS did not
promise to take responsibility for payment of the debt owed to the
banks if Saarstahl failed to perform. Rather, the GOS reached an
agreement with the private banks whereby the GOS would maintain
Saarstahl's liquidity (i.e., Saarstahl's ability to service its
outstanding debts). Additionally, other characteristics of a typical
loan guarantee which potentially confer a benefit were not manifested
in the liquidity assurance. For example, the assurance did not
necessarily affect the amount that Saarstahl paid on the outstanding
loans in the form of fees and interest costs--the typical indicators of
the benefit from a loan guarantee. Rather, the consequence of the
assurance was that Saarstahl received partial debt forgiveness from the
banks. Because of this, we are calculating the benefit conferred by the
liquidity assurance as the amount of debt forgiven.
To calculate the countervailable subsidy, we followed the
methodology described in the Forgiveness of Saarstahl's Debt in 1989
section, above. We then divided the portion of the benefit attributable
to the POI by the total sales of Saarstahl during the same period. On
this basis, we determine the countervailable subsidy for this program
to be 0.93 percent ad valorem for Saarstahl.
B. IHSW
994 IHSW Debt Forgiveness
In 1984, Hamburgische Landesbank Girozentrale (HLB), a bank wholly
owned by the GOH, provided HSW with a line of credit in the amount of
DM 130 million. The line of credit was granted for a period of one year
and was renewed every year until 1994. Pursuant to a Kreditauftrag
between the GOH and HLB, in the event that HSW failed to service this
debt, the GOH was obligated to compensate the HLB for 60 percent of the
credit line (i.e., DM 78 million). In 1992 and 1993, HSW suffered
significant losses, and the HLB refused to extend the credit line. At
that point, the GOH instructed the HLB to extend HSW's line of credit,
and the GOH and HLB entered into an agreement extending the
Kreditauftrag so that the GOH assumed responsibility for the total
amount loaned to HSW under the line of credit. At the beginning of
1994, the line of credit totaled approximately DM 174 million. While
the Department will not consider a loan provided by a government-owned
bank to be a loan provided by the government, per se, the actions taken
by the GOH in 1984, 1992, and 1993 pursuant to the Kreditauftrag
clearly demonstrate that the HLB (a bank wholly-owned by the GOH) was
acting on behalf of the GOH in this instance.
In 1994, HSW was sold to Venuda Investments B.V. (Venuda), IHSW's
parent company. At the time of privatization, the line of credit
totaled DM 167.5. Under the terms of the sale, Venuda paid DM 10
million for HSW.
[[Page 41949]]
With respect to the line of credit, DM 154 million of the total was
sold to Venuda for approximately DM 60 million according to a formula
based on the net current asset value of HSW in 1994 (i.e., the
difference between current assets and liabilities (less the debt owed
to HLB)). Although the sale of HSW was structured to have two
components, the sale of shares and the sale of debt, we have treated
this as a single transaction and we consider the payments made by
Venuda (i.e., DM 10 million and DM 60 million) to represent the price
paid for HSW. The remainder of the credit line, DM 13.4 million
representing ``non-cash'' deposits (e.g., LCs, drafts, etc.), was
repaid to HLB by HSW in early 1995.
Based on our view of the sale of HSW, i.e., that the proceeds from
both the share and debt purchase comprise the sale price, we
preliminarily determine that in the year that HSW was sold the DM 154
million owed by HSW under the line of credit was forgiven. This debt
forgiveness constitutes a financial contribution in the form of a
direct transfer of funds from the GOH providing a benefit in the amount
of DM 154 million in 1994. Moreover, we analyzed whether the program is
specific ``in law or in fact,'' within the meaning of section 771(5)(A)
of the Act. Since the debt forgiveness was only provided to one
company, we preliminarily determine that it is limited to a specific
enterprise.
To calculate the countervailable subsidy, we used our standard
grant methodology. Although HSW was sold in 1994, the company received
no nonrecurring subsidies prior to the year of privatization and within
its allocation period (i.e., during the period 1987 through 1993).
Consequently, under our privatization methodology none of the purchase
price paid to the GOH constitutes repayment of prior subsidies. Thus,
we allocated the subsidy according to our grant methodology and divided
the benefit attributable to the POI by the total sales of IHSW during
the same period. On this basis, we determine the countervailable
subsidy for this program to be 5.54 percent ad valorem for IHSW.
II. Programs Preliminarily Determined To Be Not Countervailable
A. Saarstahl
Worker Assistance Under Article 56(2)(b)
Under Article 56(2)(b) of the ECSC Treaty, persons employed in the
iron, steel and coal industries who lose their jobs may receive
assistance for social adjustment. This assistance is provided to
workers affected by restructuring measures, particularly workers
withdrawing from the labor market into early retirement and workers
forced into unemployment. The ECSC disburses assistance under this
program on the condition that the affected country makes an equivalent
contribution. In 1993 through 1995, a supplementary assistance program
was available to help displaced steel workers affected by massive
restructuring in the industry. The supplementary program provided
additional payments for early retirement (max. ECU 5,000/worker),
redeployment measures (max. ECU 4,000/worker), and unemployment
measures (max. 2,000 ECU/worker).
During the POI, Saarstahl received payments for its workers under
Article 56(2)(b). These payments reimbursed Saarstahl for payments it
had made to its workers.
When analyzing programs which provide assistance to the workers of
a company, the Department examines whether the program in question
relieves the company of an obligation it normally would otherwise
incur. As we noted in Certain Steel (58 FR 37315, 37320), German
companies have no legal obligations to compensate severed employees,
except to the extent that they assume obligations under a social plan.
Because Saarstahl had no social plan in effect during the POI, the ECSC
assistance did not relieve Saarstahl of an obligation it otherwise
would have had. Thus, we preliminarily determine that the ECSC benefits
provided to Saarstahl are not countervailable.
B. IHSW
Provision of Land Lease
Pursuant to a 1986 lease agreement between HSW and the GOH, IHSW
leases land located in the port of Hamburg from the GOH. The GOH owns
approximately one third of the commercial and industrial land in the
port area and leases that land under approximately 500 different lease
agreements. The GOH lease rates in the port area are established by the
Office of the Appraisal Committee for Property Values (Appraisal
Committee), an autonomous body which records and analyzes agreements
relating to the purchase and sale of land in Hamburg. According to the
GOH questionnaire response, the lease rates are set according to such
factors as: (1) Market value of property, (2) potential for use and
facilities available in specific areas, (3) rentals for comparable
areas being used, and (4) terms and conditions being paid in other
Northern ports.
The GOH uses a standard lease for all enterprises in the port area.
The lease has four rate categories which are based on the size and
location of the property (e.g., land-locked vs. direct water access).
Thus, IHSW's lease contains the same terms as all other lease
agreements signed with enterprises in the port area.
Because IHSW pays a standard rate charged by the GOH to all
enterprises leasing land similar to IHSW's and because these prices
appear to be set in reference to market conditions, we preliminarily
determine that IHSW's lease rate provides adequate remuneration to the
GOH and, thus, is not countervailable. Prior to our final
determination, we will attempt to obtain further information with
respect to the number and diversity of industries to which the GOH
leases land in the port of Hamburg and private lease rates for land
comparable to that of IHSW in the port area.
III. Programs for Which Additional Information Is Required
BES has claimed that each of the programs under which it received
government assistance is a noncountervailable subsidy to a
disadvantaged region in accordance with section 771(5B)(C) of the Act.
For purposes of the final determination, we will be seeking more
information and giving further consideration to whether
noncountervailable subsidies are being provided to BES under the
following programs:
1. Improvement of the Regional Economies Act Investment Grants.
2. Investment Allowance Act Grants.
3. Special Depreciation Pursuant to Section Four of the Regional
Development Law.
We are also seeking additional information as to any subsidies
which BES may have received during the period 1990 through 1992 and the
circumstances surrounding the sale of the plant which effectively
became BES.
IV. Programs Preliminarily Determined To Be Not Used
A. Saarstahl
Post-Bankruptcy Subsidies to Saarstahl
B. IHSW
In 1984, HSW emerged from bankruptcy proceedings and was taken over
by a limited partnership called Protei Produktionsbeteiligungen GmbH &
Co. KG (Protei). Because Protei was financially unable to provide New
HSW with equity, the HLB ``loaned'' DM 20 million to Protei. The DM 20
million financing was provided to HLB by the GOH. HSW used this capital
to purchase
[[Page 41950]]
the assets and business of Old HSW from its receiver.
According to the terms of the contract which provided these funds,
repayment became due from the profits of Protei which, in turn, were
derived from HSW's profits. The contract also provided that Protei
could not liquidate HSW without the approval of HLB and HLB reserved
rights regarding the appointment of management and members of the
supervisory committee. Between 1987 and 1988, DM 2.8 million in
``principal'' payments and DM 2.7 million in ``interest'' were paid by
HSW leaving an unpaid balance of DM 17.2 million.
We have preliminarily determined that the DM 20 million ``loan'' to
Protei should be treated as equity received in 1984 in light of the
terms of the financing. Although the money was given in the form of a
loan to Protei, the circumstances of the loan indicate that the funds
were more in the nature of equity. First, as noted above, payments on
the loan were contingent on HSW being profitable: So, if the company
never became profitable, there was no obligation for the loan to be
repaid. Second, under the terms of the loan, Protei relinquished pro
rata its share of profits from HSW based on the ratio between the DM 20
million loan and the total share capital of HSW. Hence, HLB's share of
any future profits generated by HSW would be calculated as if the loan
were paid-in capital. Third, although the loan was made to Protei,
neither of the partners in the limited partnership was liable for the
loan, suggesting that the Protei served as a mechanism for the GOH to
invest in HSW. Fourth, as noted above, the lender, HLB, imposed
numerous conditions on Protei which served to insert HLB into important
management decisions affecting HSW. Finally, when this loan was
examined by the Commission of the European Communities (the Commission)
to determine whether it constituted state aid, the Commission
determined that the loan should be considered as risk capital. Among
the data developed by the Commission was a statement by the German
government that the GOH ``was exposed to financial risk fully
comparable to the risk a shareholder injecting risk capital has to bear
without becoming owner of the company.'' (The Commission's decision is
printed in the Official Journal of the European Communities, No L 78,
Vol 39, March 28, 1996, at pp. 31 ff.) While the Commission's
characterization of this loan as equity is not dispositive, their
reasoning in this instance is consistent with our preliminary analysis.
Given our preliminary determination that the DM 20 million loan in
1984 should be treated as equity and, in light of HSW's AUL of 10
years, this 1984 equity infusion would not give rise to benefits in the
POI even if the infusion were a countervailable subsidy. Therefore, we
are treating this equity as well as two other programs as ``not used':
1. 1984 Equity Infusion Through Protei.
2. 1984 Steel Investment Allowance Grant.
3. 1984 Federal Ministry for Research and Technology (BMFT) Grant.
Other programs that were not used by IHSW:
4. 1984 Structural Improvement Assistance Grant.
5. 1984 Loan Guarantee to HSW.
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 individual rates for each of the companies under
investigation. WHG reported that the only subsidy it received was
research and development assistance pursuant to the Industrial
Technology Program of the State of North-Rhine/Westphalia. Even
assuming this assistance constituted a countervailable subsidy, the
benefit would be de minimis. Therefore, we preliminarily determine that
WHG would be excluded from any potential countervailing duty order with
respect to merchandise produced and exported by WHG.
To calculate the all others rate, we weight-averaged the individual
company rates by each company's exports of the subject merchandise to
the United States. We did not include in the weighted-average rate the
companies with zero or de minimis subsidy rates.
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 Germany, except those of BES and WHG, 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 Valorem Rate
Saarstahl 17.85 percent
IHSW 5.54 percent
All Others 11.13 percent
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 non-privileged 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 is tentatively scheduled
for 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
[[Page 41951]]
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
on October 14, 1997.
This determination is published pursuant to sections 703(f) and
771(i) of the Act.
Dated: July 28, 1997.
Jeffrey P. Bialos,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-20492 Filed 8-1-97; 8:45 am]
BILLING CODE 3510-DS-U
