[Federal Register Volume 63, Number 172 (Friday, September 4, 1998)]
[Notices]
[Pages 47246-47253]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23912]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-823]
Preliminary Affirmative Countervailing Duty Determination and
Alignment of Final Countervailing Duty Determination With Final
Antidumping Duty Determination: Stainless Steel Plate in Coils From
Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: September 4, 1998.
FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai or Craig W. Matney,
Office of AD/CVD Enforcement, Group 1, Office 1, Import Administration,
U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W.,
Washington, D.C. 20230; telephone: (202) 482-4087 or 482-1778,
respectively.
Preliminary Determination
The Department of Commerce (the Department) preliminarily
determines that countervailable subsidies are being provided to
producers and exporters of stainless steel plate in coils from Italy.
For information on the estimated countervailing duty rates, please see
the Suspension of Liquidation section of this notice.
Petitioners
The petition in this investigation was filed by Allegheny Ludlum
Corporation, Armco, Inc., J&L Specialty Steels, Inc., Lukens Inc., AFL-
CIO/CLC (USWA), Butler Armco Independent Union and Zanesville Armco
Independent Organization (the petitioners).
Case History
Since the publication of the notice of initiation in the Federal
Register (see Notice of Initiation of Countervailing Duty
Investigation: Certain Stainless Steel Plate in Coils from Belgium,
Italy, the Republic of Korea, and the Republic of South Africa, 63 FR
23272 (April 28, 1998) (Initiation Notice)), the following events have
occurred. On April 30, 1998, we issued countervailing duty
questionnaires to the Government of Italy (GOI), the European
Commission (EC), and the producers/exporters of the subject
merchandise. On June 1, 1998, we postponed the preliminary
determination of this investigation until August 28, 1998 (see Notice
of Postponement of Time Limit for Countervailing Duty Investigations:
Stainless Steel Plate in Coils from Belgium, Italy, the Republic of
Korea, and the Republic of South Africa, 63 FR 31201 (June 8, 1998)).
We received responses to our initial questionnaires from the GOI,
the EC, and Acciai Speciali Terni S.p.A. (AST) (the sole producer/
exporter of subject merchandise during the POI to the United States)
between June 19 and June 26, 1998. On July 15 and 16, 1998, we issued
supplemental questionnaires to the GOI, the EC and AST. We received
responses to these supplemental questionnaires between July 29 and
August 3, 1998.
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 codified at 19
CFR Part 351 and published in the Federal Register on May 19, 1997 (62
FR 27295).
Scope of Investigation
For purposes of this investigation, the product covered is certain
stainless steel plate in coils. Stainless steel is an alloy steel
containing, by weight, 1.2 percent or less of carbon and 10.5 percent
or more of chromium, with or without other elements. The subject plate
products are flat-rolled products, 254 mm or over in width and 4.75 mm
or more in thickness, in coils, and annealed or otherwise heat treated
and pickled or otherwise descaled. The subject plate may also be
further processed (e.g., cold-rolled, polished, etc.) provided that it
maintains the specified dimensions of plate following such processing.
Excluded from the scope of this investigation are the following: (1)
plate not in coils, (2) plate that is not annealed or otherwise heat
treated and pickled or otherwise descaled, (3) sheet and strip, and (4)
flat bars.
The merchandise subject to this investigation is currently
classifiable in the Harmonized Tariff Schedule of the United States
(HTSUS) at subheadings: 7219.11.00.30, 7219.11.00.60, 7219.12.00.05,
7219.12.00.20, 7219.12.00.25, 7219.12.00.50, 7219.12.00.55,
7219.12.00.65, 7219.12.00.70, 7219.12.00.80, 7219.31.00.10,
7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,
7219.90.00.80, 7220.11.00.00, 7220.20.10.10, 7220.20.10.15,
7220.20.10.60, 7220.20.10.80, 7220.20.60.05, 7220.20.60.10,
7220.20.60.15, 7220.20.60.60, 7220.20.60.80, 7220.90.00.10,
7220.90.00.15, 7220.90.00.60, and 7220.90.00.80. Although the HTSUS
subheadings are provided for convenience and customs purposes, the
written description of the merchandise under investigation is
dispositive.
Injury Test
Because Italy 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 Italy materially injure, or threaten material
injury to, a U.S. industry. On May 28, 1998, the ITC published its
preliminary determination finding that there is a reasonable indication
that an industry in the United States is being materially injured, or
threatened with material injury, by reason of imports from Italy of the
subject merchandise (see Certain Stainless Steel Plate in Coils From
Belgium, Canada, Italy, Korea, South Africa, and Taiwan, 63 FR 29251).
Alignment With Final Antidumping Determination
On May 27, 1998, the petitioners submitted a letter requesting
alignment of the final determination in this investigation with the
final
[[Page 47247]]
determination in the companion antidumping duty investigation. See
Initiation of Antidumping Duty Investigations: Stainless Steel Plate in
Coils from Belgium, Canada, Italy, Republic of South Africa, South
Korea and Taiwan, 63 FR 20580 (April 27, 1998). 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 stainless steel plate in coils.
Period of Investigation
The period for which we are measuring subsidies (the POI) is
calendar year 1997.
Corporate History of Respondent AST
Prior to 1987, Terni, S.p.A, (Terni), a main operating company of
Finsider, was the sole producer of stainless steel plate in coils
(SSPC) in Italy. Finsider was a holding company that controlled all
state-owned steel companies in Italy. Finsider, in turn, was wholly-
owned by a government holding company, Istituto per la Ricostruzione
Industriale (IRI). As part of a restructuring in 1987, Terni
transferred its assets to a new company, Terni Acciai Speciali (TAS).
In 1988, another restructuring took place in which Finsider and its
main operating companies (TAS, Italsider, and Nuova Deltasider) entered
into liquidation and a new company, ILVA S.p.A. (ILVA) was formed. ILVA
took over some of the assets and liabilities of the liquidating
companies. With respect to TAS, part of its liabilities and the
majority of its viable assets, including all the assets associated with
the production of SSPC, were transferred to ILVA on January 1, 1989.
ILVA itself became operational on the same day. Part of TAS' remaining
assets and liabilities were transferred to ILVA on April 1, 1990. After
that date, TAS no longer had any manufacturing activities. Only certain
non-operating assets remained in TAS.
From 1989 to 1994, ILVA consisted of several operating divisions.
The Specialty Steels Division, located in Terni, produced subject
merchandise. ILVA was also the majority owner of a large number of
separately incorporated subsidiaries. The subsidiaries produced various
types of steel products and also included service centers, trading
companies, and an electric power company, among others. ILVA together
with its subsidiaries constituted the ILVA Group. The ILVA Group was
wholly-owned by IRI. (For purposes of the grant expense test (i.e., 0.5
percent test) and the 1994 change in ownership calculations, we used
ILVA Group's financial information).
In October 1993, ILVA entered into liquidation. On December 31,
1993, two of ILVA Group's divisions were removed and separately
incorporated: AST and ILVA Laminati Piani (ILP). The balance of ILVA's
holdings remained in ILVA Residua. IVLA's Specialty Steels Division was
transferred to AST while its carbon steel flat products operations were
placed in ILP. The remainder of ILVA's assets and liabilities, along
with much of the redundant workforce, were transferred to ILVA Residua.
In December 1994, AST was sold to KAI Italia S.r.L. (KAI), a
privately-held holding company jointly owned by German steelmaker
Hoesch-Krupp (50 percent) and a consortium of private Italian companies
called FAR Acciai (50 percent). Between 1995 and the POI, there were
several restructurings/changes in ownership of AST and its parent
companies. As a result, at the end of the POI, AST was owned 75 percent
by Krupp Thyssen Stainless GmbH and 25 percent by Fintad.
Affiliated Parties
The information presently on the record of this investigation does
not permit us to make a determination as to whether any companies
currently affiliated with AST are sufficiently related to it to warrant
treating them as a single company. As a result, we limited our analysis
to those potential benefits received by AST itself. However, for the
final determination, we will examine this issue more critically.
Change in Ownership
In the 1993 investigations of Certain Steel Products, we developed
a methodology with respect to the treatment of non-recurring subsidies
received prior to the sale of a company. See Final Countervailing Duty
Determination; Certain Steel Products from Austria, et. al., 58 FR
37217 (July 9, 1993) (Certain Steel from Austria). This methodology was
set forth in the General Issues Appendix (GIA) at 37226, appended to
Certain Steel from Austria. The methodology was subsequently upheld by
the Federal Circuit. See Saarstahl AG v. United States, 78 F.3d 1539
(Fed. Cir. 1996); British Steel plc v. United States, 127 F.3d 1471
(Fed. Cir. 1997).
Under the GIA methodology, we estimate the portion of the company's
purchase price which is attributable to prior subsidies. To make this
estimate, we divide the face value of the company's subsidies by the
company's net worth in the years preceding the sale of the company. To
make these calculations, we go back in time to a period corresponding
to the company's allocation period (see below for a discussion of
allocation period). We then take the simple average of these ratios,
which serves as a reasonable surrogate for the percentage that
subsidies constitute of the overall value, i.e., net worth, of the
company. Next, we multiply this average ratio by the purchase price of
the company to derive the portion of the purchase price that we
estimate to be a repayment of prior subsidies. Then, the benefit
streams of the prior subsidies are reduced by the ratio of the
repayment amount to the net present value of all remaining benefits at
the time of the change in ownership.
In the URAA, Congress clarified how the Department should approach
changes in ownership. Section 771(5)(F) of the Act states that:
A change in ownership of all or part of a foreign enterprise or
the productive assets of a foreign enterprise does not by itself
require a determination by the administrating authority that a past
countervailable subsidy received by the enterprise no longer
continues to be countervailable, even if the change in ownership is
accomplished through an arm's length transaction.
The Statement of Administrative Action accompanying the URAA, reprinted
in H.R. Doc. No. 103-316 (1994) (SAA) explains why section 771(5)(F)
was added to the statute. The SAA at page 928 states:
Section 771(5)(F) is being added to clarify that the sale of a
firm at arm's length does not automatically, and in all cases,
extinguish any prior subsidies conferred. Absent this clarification,
some might argue that all that would be required to eliminate any
countervailing duty liability would be to sell subsidized productive
assets to an unrelated party. Consequently, it is imperative that
the implementing bill correct such an extreme interpretation.
We have continued to follow the methodology developed in the GIA based
on our determination that this methodology does not conflict with the
change in ownership provision of the URAA. As stated by the Department,
``[t]he URAA is not inconsistent with and does not overturn the
Department's General Issues Appendix Methodology. * * * '' Certain Hot-
Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom;
Final Results of Countervailing Duty Administrative Review, 61 FR
58377, 58379 (Nov. 14, 1996) (UK Lead Bar 94 ). We further clarified in
UK Lead Bar 94 that, ``[t]he language of Sec. 771(5)(F) of the Act
purposely leaves discretion to the Department with regard to the impact
of a change in ownership on the
[[Page 47248]]
countervailability of past subsidies.'' Id. at 58379. AST, the GOI and
the EC have all expressed the opinion that the sale of AST to a private
consortium in an arm's length transaction extinguished all prior
subsidies. However, information on this record provides no basis for
distinguishing the sale of AST from other sales that we have analyzed
under the GIA methodology. See, e.g., Final Affirmative Countervailing
Duty Determination: Steel Wire Rod From Trinidad and Tobago, 62 FR
55003 (October 22, 1997) (Wire Rod from Trinidad and Tobago), Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Canada, 62 FR 54972 (October 22, 1997) and Final Affirmative
Countervailing Duty Determination: Stainless Steel Wire Rod from Italy,
63 FR 40474 (July 29, 1998) (Wire Rod from Italy). Therefore, we have
applied the methodology set forth in the GIA for the 1994
privatization. Furthermore, we note that after the 1994 privatization
of AST, there were numerous changes in the ownership structure of the
company; however, we do not have all the information necessary for the
preliminary determination to determine whether it is appropriate to
apply our change in ownership methodology for these later transactions.
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: Consistent with
the Department's finding in Wire Rod from Italy at 40476-77, we have
based our long-term benchmarks and discount rates on the Italian
Bankers' Association (ABI) rate. Because the ABI rate represents a
long-term interest rate provided to a bank's most preferred customers
with established low-risk credit histories, commercial banks typically
add a spread ranging from 0.55 percent to 4 percent onto the rate for
other customers depending on their financial health.
In years in which AST or its predecessor companies were
creditworthy, we added the average of that spread onto the ABI rate to
calculate a nominal benchmark rate. In years in which AST or its
predecessor companies were uncreditworthy, we calculated the discount
rates according to the methodology described in the GIA at 37227.
Specifically, we added to the ABI rate a spread of 4 percent in order
to reflect the highest commercial interest rate available to companies
in Italy. We then added to this rate a risk premium equal to 12 percent
of the ABI.
Additionally, information on the record of this case indicates that
published ABI rates do not include amounts for fees, commissions and
other borrowing expenses. Since such expenses raise the effective
interest rate that a company would experience and it is the
Department's practice to use effective interest rates, where possible,
we are including an amount for these expenses in the calculation of our
effective benchmark rates. While we do not have information on the
expenses that would be applied to long-term commercial loans,
information on the record shows that borrowing expenses on overdraft
loans range from 6 to 11 percent of interest charged. For purposes of
this preliminary determination, we are assuming that the level of
borrowing expenses on overdraft loans approximates the level on long-
term commercial loans. Accordingly, we are increasing the nominal
benchmark rate by 8.5 percent, representing the average reported level
of borrowing expenses, to arrive at an effective benchmark rate.
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 non-recurring subsidies. See GIA, 58 FR at 37227. However,
in British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995)
(British Steel I), the U.S. Court of International Trade (the Court)
ruled against this allocation methodology. In accordance with the
Court's remand order in that case, the Department calculated a company-
specific allocation period for non-recurring 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. See British
Steel plc v. United States, 929 F. Supp. 426, 439 (CIT 1996) (British
Steel II). As a result of this decision, the Department changed its
policy so that it determines the allocation period for non-recurring
subsidies using company-specific AUL data where reasonable and
practicable. See, e.g., Certain Cut-to-Length Carbon Steel Plate from
Sweden; Final Results of Countervailing Duty Administrative Review, 62
FR 16551 (April 7, 1997).
In this investigation, the Department has followed the Court's
decision in British Steel by examining information submitted by AST
regarding its average useful life of assets. In the course of this
examination, however, the Department has noted several features of
AST's financial records that are incompatible with the use of company-
specific AUL. For instance, the financial statements indicate that the
depreciation schedules for at least some of AST's assets may not
reflect the actual estimated useful life of those assets. Moreover,
information contained in AST's and its predecessors' financial
statements and questionnaire responses suggests that the gross value of
AST's non-renewable physical assets has been written down during the
period upon which AST's AUL calculation is based.
Therefore, for the purposes of this preliminary determination, we
are using an AUL of 15 years, as derived from industry-specific data
from the U.S. Internal Revenue Service. We will, however, seek
additional information regarding the useful life of AST's assets at
verification, and will reconsider this methodology for the final
determination.
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 information available at that time. See GIA at
37244. Our review of the record has not led us to change our finding in
Final Affirmative Countervailing Duty Determination: Grain-Oriented
Electrical Steel from Italy, 59 FR 18357 (April 18, 1994), (Electrical
Steel from Italy), in which we found AST's predecessors unequityworthy
from 1984 through 1988, and from 1991 through 1992.
In measuring the benefit from a government equity infusion into an
unequityworthy company, the Department compares the price paid by the
government for the equity to a market benchmark, if such a benchmark
exists. In this case, a market benchmark does not exist so we used the
methodology described in the GIA at 37239. See, also, Wire Rod from
Trinidad and Tobago, 62 FR 55004. Following this methodology, equity
infusions made on terms inconsistent with the usual practice of a
private investor are treated as grants. Use of this methodology 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; this determination is based on the information available in that
year.
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. See,
e.g., Final
[[Page 47249]]
Affirmative Countervailing Duty Determinations: Certain Steel Products
from France, 58 FR 37304 (July 9, 1993) (Certain Steel from France);
Final Affirmative Countervailing Duty Determination: Steel Wire Rod
from Venezuela, 62 FR 55014 (Oct. 21, 1997).
Terni, TAS and ILVA were found to be uncreditworthy from 1983
through 1993 in Electrical Steel from Italy at 18358 and Wire Rod from
Italy at 40477. No new information has been presented in this
investigation that would lead us to reconsider these findings.
Therefore, consistent with our past practice, we continue to find
Terni, TAS and ILVA uncreditworthy from 1985 through 1993. See, e.g.,
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Brazil, 58 FR 37295, 37297 (July 9, 1993).
I. Programs Preliminarily Determined To Be Countervailable
Programs of the Government of Italy
A. Equity Infusions to Terni and ILVA
The GOI, through IRI, provided new equity capital to Terni or ILVA
in every year from 1984 through 1992, except in 1989 and 1990. We
preliminarily determine that these equity infusions constitute
countervailable subsidies within the meaning of section 771(5) of the
Act. These equity infusions provide a financial contribution, as
described in section 771(5)(D)(i) of the Act, and these investments
were not consistent with the usual investment practices of private
investors (see the Equityworthiness section above). Because these
equity infusions were limited to Finsider and its operating companies
and ILVA, we preliminarily determine that they are specific within the
meaning of section 771(5A)(D) of the Act.
AST did not report, in its response to our questionnaires, the 1988
equity infusion provided to ILVA. We have public information from
Electrical Steel from Italy on the existence and amount of this
infusion and are including it in our calculations for the preliminary
determination.
We have treated these equity infusions as non-recurring grants
given in the year the infusion was received because each required a
separate authorization. Because Terni and ILVA were uncreditworthy in
the years of receipt, we used discount rates that include a risk
premium to allocate the benefits over time. Additionally, we followed
the methodology described in the Change in Ownership section above to
determine the amount of each equity infusion appropriately allocated to
AST after its privatization. We divided this amount by AST's total
sales during the POI. Accordingly, we preliminarily determine the
countervailable subsidy to be 5.59 percent ad valorem for AST.
B. Benefits From the 1988-90 Restructuring (called Debt Forgiveness:
Finsider-to-ILVA Restructuring in Initiation Notice)
As discussed above in the Corporate History section of this notice,
the GOI liquidated Finsider and its main operating companies in 1988
and assembled the group's most productive assets into a new operating
company, ILVA. In 1990, additional assets and liabilities of TAS,
Italsider and Finsider went to ILVA.
Not all of TAS' liabilities were transferred to ILVA; rather, many
remained with TAS and had to be repaid, assumed or forgiven. In 1989,
Finsider forgave 99,886 million lire of debt owed to it by TAS. Even
with this debt forgiveness, a substantial amount of liabilities left
over from the 1990 transfer of assets and liabilities to ILVA remained
with TAS. In addition, losses associated with the transfer of assets to
ILVA were left behind in TAS. These losses occurred because the value
of the transferred assets had to be written down. As TAS gave up assets
whose book value was higher than their appraised value, it was forced
to absorb the losses. These losses were generated during two transfers
as reflected in: (1) an extraordinary loss in TAS' 1988 Annual Report
and (2) a reserve against anticipated losses posted in 1989 with
respect to the 1990 transfer.
Consistent with our treatment of the 1988-90 restructuring in
Electrical Steel from Italy at 18359, we preliminarily determine that
the debt and loss coverage provided to ILVA constitutes a
countervailable subsidy within the meaning of section 771(5) of the
Act. The debt and loss coverage provide a financial contribution as
described in section 771(5)(D)(i) of the Act. Because this debt and
loss coverage was limited to TAS, AST's predecessor, we preliminarily
determine that it is specific within the meaning of section 771(5A)(D)
of the Act.
In calculating the benefit from this program, we followed our
methodology in Electrical Steel from Italy except for a correction of a
calculation error which had the effect of double-counting the write-
down from the first transfer of assets in 1988 by including it in the
calculations of losses generated upon the second transfer of assets in
1990. We have treated Finsider's 1989 forgiveness of TAS' debt and the
loss resulting from the 1989 write-down as grants received in 1989. The
second asset write down and the debt outstanding after the 1990
transfer were treated as grants received in 1990. We find these
benefits to be non-recurring since AST did not receive them on an on-
going basis. Because ILVA was uncreditworthy in these years, we used
discount rates that include a risk premium to allocate the benefits
over time. In addition, we find the debt and loss coverage to be untied
subsidies which benefit all of ILVA. Finally, we followed the
methodology described in the Change in Ownership section above to
determine the amount of each benefit appropriately allocated to AST
after its privatization. We divided this amount by AST's total sales
during the POI. Accordingly, we preliminarily determine the
countervailable subsidy to be 3.61 percent ad valorem for AST.
C. Debt Forgiveness: ILVA-to-AST (included are the following programs
from the Initiation Notice: Working Capital Grants to ILVA, 1994 Debt
Payment Assistance by IRI, and ILVA Restructuring and Liquidation
Grant)
As of December 31, 1993, the majority of ILVA's manufacturing
activities had been separately incorporated into either AST or ILP,
ILVA Residua was primarily a shell company with liabilities far
exceeding assets. In contrast, AST and ILP, now ready for
privatization, had operating assets and relatively modest debt loads.
The liabilities remaining with ILVA Residua after the spin-off of
AST and ILP had to be repaid, assumed, or forgiven. AST has stated that
IRI, in accordance with Italian Civil Code, bears responsibility for
all liabilities remaining in ILVA Residua. Furthermore, information
submitted by AST indicates that the EC has approved IRI's plan to cover
ILVA Residua's remaining liabilities when its final liquidation occurs.
Although this debt has yet to be eliminated by any specific act of
the GOI or its holding company IRI, we preliminarily determine that AST
(and consequently the subject merchandise) received a countervailable
subsidy in 1993 when the bulk of ILVA's debt was placed in ILVA
Residua, rather than being placed with AST and ILP.
The placing of this debt with ILVA Residua was equivalent to debt
forgiveness for AST. The debt forgiveness provides a financial
contribution, as described in section 771(5)(D)(i) of the Act because,
in relieving AST of a proportional share of ILVA's liabilities, the GOI
eliminated an obligation that AST otherwise would bear. Because the
debt forgiveness was received only by AST and its sister company, ILP,
we preliminarily
[[Page 47250]]
determine that it is specific under section 771(5A)(D) of the Act.
As noted above, certain operating assets and non-operating assets
(e.g., cash, bank deposits) remained in ILVA Residua. Presumedly, these
assets have been or will be used to fund repayment of ILVA Residua's
liabilities. In order to account for the fact that certain assets that
could be liquidated at full value, namely cash and bank deposits, were
left behind in ILVA Residua, we have subtracted this amount from the
liabilities outstanding after the 1993 restructuring. For the final
determination, we intend to examine further the liquidation of ILVA
Residua's assets as well as any liquidation costs not represented on
ILVA Residua's 1993 financial statements. Additionally, we have
subtracted the amount of debt (i.e., 253 billion lire) that was tied to
Cogne Acciai Speciali (CAS), an ILVA subsidiary privatized in 1993,
which was left behind in ILVA. See Wire Rod from Italy at 40478. We
have attributed ILVA Residua's remaining liabilities to AST based on
the proportion of assets assigned to AST to the total assets assigned
to AST and ILP and considered this amount as debt forgiveness.
We treated the debt forgiveness to AST as a non-recurring grant
because it was a one-time, extraordinary event. The discount rate we
used in our grant formula included a risk premium based on our
determination that ILVA was uncreditworthy in 1993. (For purposes of
the final determination we will examine the issue of whether it is more
appropriate to analyze the creditworthiness of AST rather than ILVA in
1993.) We followed the methodology described in the Change in Ownership
section above to determine the amount appropriately allocated to AST
after its privatization. We divided this amount by AST's total sales
during the POI. Accordingly, we determine the estimated net subsidy to
be 4.19 percent ad valorem for AST.
D. Law 796/76: Exchange Rate Guarantees
Law 796/76 established a program to minimize the risk of exchange
rate fluctuations on foreign currency loans. All firms that had
contracted foreign currency loans from the European Coal and Steel
Community (ECSC) or the Council of Europe Resettlement Fund (CER) could
apply to the Ministry of the Treasury (MOT) to obtain an exchange rate
guarantee. The MOT, through the Ufficio Italiano di Cambi (UIC),
calculated loan payments based on the lira-foreign currency exchange
rate in effect at the time the loan was approved. The program
established a floor and ceiling for exchange rate fluctuations,
limiting the maximum fluctuation a borrower would face to 2 percent. If
the lira depreciated against the foreign currency, AST was still able
to purchase foreign currency at the established ceiling rate, and the
UIC would absorb a loss in the amount of the difference between the
ceiling rate and the actual rate. If the lira appreciated against the
foreign currency, the UIC would realize a gain in the amount of the
difference between the floor rate and the actual rate.
This program was terminated effective July 10, 1992 by Decree Law
333/92. However, the exchange rate guarantees continue on any loans
outstanding after that date. AST received benefits from this program on
interest and principal payments for two ECSC loans outstanding during
the POI.
We preliminarily determine that this program constitutes a
countervailable subsidy within the meaning of section 771(5) of the
Act. This program provides a financial contribution, as described in
section 771(5)(D)(i) of the Act, to the extent that the lira
depreciates against the foreign currency beyond the 2 percent band.
When this occurs, the borrower receives a benefit in the amount of the
difference between the 2 percent floor and the actual exchange rate.
The GOI did not provide information regarding the nature of the
enterprises who have used this program as requested. However, we have
previously found the steel industry to be a dominant user of the
exchange rate guarantees provided under Law 796/76 and, on this basis,
preliminarily determine that the program is specific under section
771(5A)(D) of the Act. See Final Affirmative Countervailing Duty
Determination: Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe From Italy, 60 FR 31996 (June 19,
1995). No new information or evidence of changed circumstances has been
submitted in this proceeding to warrant reconsideration of this
finding.
Once a loan is approved for exchange rate guarantees, access to
foreign exchange at the established rate is automatic and occurs at
regular intervals throughout the life of the loan. Therefore, we have
treated benefits under this program as recurring grants. The benefit
was calculated as the difference between the total payment due (i.e.,
the sum of interest, principal, and any guarantee fees paid by AST) in
foreign currency converted at the current exchange rate minus the total
payment due in foreign currency at the established (ceiling) rate. We
divided this amount by AST's total sales during the POI. Accordingly,
we determine the countervailable subsidy to AST for this program to be
0.86 percent ad valorem.
E. Law 675/77
Law 675/77 was designed to provide GOI assistance in the
restructuring and reconversion of Italian industries. There are six
types of assistance available under this law: (1) Grants to pay
interest on bank loans; (2) mortgage loans provided by the Ministry of
Industry (MOI) at subsidized interest rates; (3) grants to pay interest
on loans financed by IRI bond issues; (4) capital grants for the South;
(5) VAT reductions on capital good purchases for companies in the
South; and (6) personnel retraining grants. During the POI, AST
received assistance under grants to pay interest on loans financed by
IRI bond issues.
Under Law 675/77, IRI issued bonds to finance restructuring
measures of companies within the IRI group. The proceeds from the sale
of the bonds were then re-lent to IRI companies. During the POI, AST
had two outstanding loans financed by IRI bond issues for which the
effective interest rate was reduced by interest contributions made by
the GOI. In addition to interest contributions on these variable rate
long-term loans, the GOI also made other financial contributions
relating to ``expenses'' associated with the loans.
We preliminarily determine that these loans constitute a
countervailable subsidy within the meaning of section 771(5) of the
Act. These loans provide a financial contribution, consistent with
section 771(5)(D)(i) of the Act.
With regard to specificity, a number of different industrial
sectors have received benefits under Law 675/77. However, in Electrical
Steel from Italy, the Department determined that assistance under this
law was specific on the basis of dominant use. This determination was
based on the fact that the steel industry received 34 percent of the
benefits. See Electrical Steel from Italy at 18361. In the instant
proceeding, the GOI submitted additional information regarding the
distribution of benefits under this program. While it is unclear
whether this information reflects the distribution of benefits at the
time the subsidies in question were received, the new information is
nevertheless consistent with the previous finding of specificity.
To measure the benefit from these loans, we compared the benchmark
interest rate to the amounts paid by AST on these loans during the POI.
We divided the resulting difference by AST's total sales during the
POI.
[[Page 47251]]
Accordingly, we determine the estimated net subsidy from this program
to be 0.10 percent ad valorem.
F. Pre-Privatization Employment Benefits (Law 451/94)
Law 451/94 authorized early retirement packages for Italian steel
workers from 1994-1996. The program, as described by the GOI, was
designed to comply with the EC's reorganization of the iron and steel
industry, specifically in regards to reducing productive capacity. The
law entitled men of at least 50 years of age and women of 47 years of
age with at least 15 years of pension contributions to retire early.
AST's employees made use of this program in each year from 1994 through
1996.
In Wire Rod from Italy, we determined that large Italian companies
such as AST cannot simply lay off workers, but instead must use one of
the GOI's special early retirement programs. Hence we reviewed the
early retirement programs that would be widely used by Italian
companies in order to compare those programs to the program established
under Law 451. In Wire Rod from Italy, we determined that the closest
program to that of Law 451 is the Cassa Integrazione Guadagni (CIG)
program. Like Law 451, CIG is available to workers whose companies are
restructuring, reorganizing, and/or downsizing.
Unlike Law 451, the CIG program was not developed for particular
Italian industries and is used by a wide variety of them. Therefore,
CIG serves as a benchmark to determine what costs AST would have
incurred in laying off employees had it not been able to take advantage
of Law 451. Under CIG, a company must pay a small percentage of the
employees' salaries and continue to set aside the mandatory severance
contributions under Article 2120 of the Italian Civil Code for 3 years.
However, under Law 451, the employee/company relationship terminates
immediately, and the company does not have to continue to set aside
these benefits. Consequently, Law 451 relieves steel companies of costs
that otherwise would incur if they participated in more widely
available early retirement programs.
We preliminarily determine that the early retirement benefits
provided under Law 451/94 are a countervailable subsidy under section
771(5) of the Act. We find that this program provides a financial
contribution, as described in section 771(5)(D)(i) of the Act, because
Law 451 relieves the company of costs it would have normally incurred.
Because Law 451 was developed for and exclusively used by the steel
industry, we preliminarily determine that Law 451 is specific within
the meaning of section 771(5A)(D) of the Act.
Consistent with the Department's practice, we have treated benefits
to AST under Law 451 as recurring grants expensed in the year of
receipt. See GIA at 37226 and Wire Rod from Italy at 40480. To
calculate the benefit received by AST, we found the difference between
the costs AST would have incurred during the POI had it used the CIG
program and the costs it did incur under Law 451. We divided this
benefit by AST's total sales during the POI. Accordingly, we determine
the countervailable subsidy for this program to be 0.23 percent ad
valorem for AST.
Programs of the European Union
G. ECSC Article 54 Loans
Article 54 of the 1951 ECSC Treaty established a program to provide
industrial investment loans directly to the iron and steel industries
to finance modernization and the purchase of new equipment. Eligible
companies apply directly to the EU for up to 50 percent of the cost of
an industrial investment project. The Article 54 loan program is
financed by loans taken out by the European Union (EU), which are then
refinanced at slightly higher interest rates than those at which the EU
obtained them. AST had two long-term, fixed-rate loans outstanding
during the POI under this program.
We preliminarily determine that these loans constitute a
countervailable subsidy within the meaning of section 771(5) of the
Act. This program provides a financial contribution, as described in
section 771(5)(D)(i) of the Act. The Department has found Article 54
loans to be specific in several proceedings, including Electrical Steel
from Italy at 18362 and Certain Steel from Italy at 37335 because loans
under this program are provided only to iron and steel companies. The
EU has also indicated on the record of this investigation that Article
54 ECSC loans are for steel undertakings. Thus, no new information or
evidence of changed circumstances has been submitted in this proceeding
to warrant reconsideration of our previous finding that this program is
specific.
AST had two long-term, fixed-rate loans outstanding during the POI,
each one denominated in a foreign currency. Consistent with Electrical
Steel from Italy at 18362, we have used the lira-denominated interest
rate discussed in the Subsidies Valuation Information section of this
notice as our benchmark interest rate. The interest rate charged on one
of AST's two ECSC loans was lowered part way through the life of the
loan. Therefore, for the purpose of calculating the benefit, we have
treated this loan as if it were contracted on the date of this rate
adjustment. We used the outstanding principal as of that date as the
new principal amount, to which the new, lower interest rate applied. As
our interest rate benchmark, we used the long-term, lira-based rate in
effect on the date of the downward rate adjustment.
To calculate the benefit under this program, we employed the
Department's standard long-term loan methodology. We calculated the
grant equivalent and allocated it over the life of each loan. We
followed the methodology described in the Change in Ownership section
above to determine the amount appropriately allocated to AST after its
privatization. We divided this benefit by AST's total sales during the
POI. Accordingly, we determine the countervailable subsidy to AST for
these to loans together to be 0.13 percent ad valorem.
H. European Social Fund
The European Social Fund (ESF), one of the Structural Funds
operated by the EU, was established to improve workers' opportunities
through training and to raise their standards of living throughout the
community by increasing their employability. Like other EU structural
funds, there are five different Objectives (sub-programs) identified
under ESF: Objective 1 covers projects located in underdeveloped
regions, Objective 2 addresses areas in industrial decline, Objective 3
relates to the employment of persons under 25, Objective 4 funds
training for employees in companies undergoing restructuring, and
Objective 5 pertains to agricultural areas.
During the POI, AST received ESF assistance under Objectives 2 and
4. The Objective 2 funding was to retrain production, mechanical,
electrical maintenance, and technical workers. The Objective 4 funding
was to train AST's workers to increase their productivity.
The Department considers training programs to provide a
countervailable benefit to a company when the company is relieved of an
obligation it would have otherwise incurred. See Final Affirmative
Countervailing Duty Determination: Certain Pasta (``Pasta'') From
Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Since
companies normally incur the costs of training to enhance the job-
related skills of their own employees, and we have no information on
the record to indicate that this training was not for this
[[Page 47252]]
purpose, we preliminarily determine that ESF funding under both
Objectives relieves AST of an obligation it would have otherwise
incurred.
Therefore, we preliminarily determine that the ESF grants received
by AST are countervailable within the meaning of section 771(5) of the
Act. The ESF grants are a financial contribution as described in
section 771(5)(D)(i) of the Act which provide a benefit to the
recipient in the amount of the grant.
Consistent with prior cases, we have examined the specificity of
the funding under each Objective separately. See Wire Rod from Italy at
40487. In Pasta From Italy at 30291, the Department determined that
Objective 2 funds provided by the EU and the GOI were regionally
specific because they were limited to areas within Italy which are in
industrial decline. No new information or evidence of changed
circumstances has been submitted in this proceeding to warrant
reconsideration of this finding. In this case, the Objective 2 grant
received by AST was funded by the EU, the GOI, and the regional
government of Umbria acting through the provincial government of Terni.
Because we have not been provided with information from the regional
government as to the distribution of grants it has provided under
Objective 2, we are assuming for purposes of this preliminary
determination, as adverse facts available under section 776(b) of the
Act, that the funds provided by the provincial government of Terni are
also specific.
In the case of Objective 4 funding, the Department has determined
in past cases that the EU portion is de jure specific because its
availability is limited on a regional basis within the EU. The GOI
funding was also determined to be de jure specific because eligibility
is limited to the center and north of Italy (non-Objective 1 regions).
See Wire Rod from Italy at 40487. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding.
The Department normally considers the benefits from worker training
programs to be recurring. See GIA at 37255. However, consistent with
the Department's past practice and our understanding that these grants
relate to specific, individual projects which require separate
government approval, we are treating these benefits as non-recurring
grants. See Wire Rod from Italy at 40488 and Pasta from Italy at 30295.
Because the benefits received under both Objectives 2 and 4 are less
than 0.5 percent of AST's sales during the relevant years, we have
expensed these grants in the year of receipt. Two of these grants were
received during the POI. For these grants, we divided this benefit by
AST's total sales during the POI. Accordingly, we determine the
countervailable subsidy to be 0.01 percent ad valorem for ESF Objective
2 and 0.03 percent ad valorem for ESF Objective 4.
II. Programs Preliminarily Determined To Be Not Used
Based on the information provided in the responses, we determine
that the company under investigation did not apply for or receive
benefits under the following programs during the POI:
A. Benefits from the 1982 Transfer of Lovere and Trieste to Terni
(called Benefits Associated With the 1988-90 Restructuring in the
Initiation Notice)
B. Decree Law 120/89: Recovery Plan for the Steel Industry
C. Law 181/89: Worker Adjustment and Redevelopment Assistance
D. Law 345/92: Benefits for Early Retirement
E. Law 706/85: Grants for Capacity Reduction
F. Law 488/92: Aid to Depressed Areas
G. Law 46/82: Assistance for Capacity Reduction
H. Loan to KAI for Purchase of AST
I. Debt Forgiveness: 1981 Restructuring Plan
J. Law 675/77: Mortgage Loans, Personnel Retraining Aid and VAT
Reductions
K. Law 193/84: Interest Payments, Closure Assistance and Early
Retirement Benefits
L. Law 394/81: Export Marketing Grants and Loans
M. Law 341/95 and Circolare 50175/95
N. ECSC Article 56 Conversion Loans, Interest Rebates and Redeployment
Aid
O. European Regional Development Fund
P. Resider II Program and Successors
Q. Law 227/77: Export Financing and Remission of Taxes
III. Programs For Which We Need More Information
AST Participation in the THERMIE Program
The EU provided funds to AST for the development of a demonstration
project (pilot plant) through an EU program promoting research and
development in the field of non-nuclear energy (THERMIE). The objective
of the THERMIE program is to design and demonstrate more efficient,
cleaner, and safer technologies for energy production and use. The
THERMIE program is part of a larger program categorized under the EU's
Fourth Framework Programme which covers activities in research and
technological development from 1994-1998.
The objective of AST's demonstration plant is to reduce energy
consumption in the production of stainless steel by eliminating some of
the traditional production steps through the adoption of ``strip
casting'' technology. The EU has requested noncountervailable (green
light) treatment for this project as a research and development subsidy
under section 771(5B)(B)(ii)(II) of the Act.
In evaluating this request, the statute requires the Department to
make a finding that all five specifically enumerated conditions of
section 771(5B)(B)(i) of the Act have been met before according green
light status to a research subsidy. One of these criteria specifies
that the instruments, equipment, land, or buildings must be used
exclusively and permanently (except when disposed of on a commercial
basis) for the research activity.
Information contained on the record of this proceeding indicates
that the Terni project can be converted to commercial use. Furthermore,
there is no provision in the program mandating that the demonstration
plant be ``disposed of on a commercial basis'' if it is to be used for
commercial production. Therefore, we preliminarily determine that the
EU's funding of the Terni project does not meet all of the criteria for
a noncountervailable research subsidy as mandated by the Act and is not
entitled to green light treatment.
However, it is not clear from the current record if this program
benefits the production of the subject merchandise. The Terni project
description indicates that the funds will cover the design,
construction, and operation of a pilot plant which would demonstrate
the commercial viability of strip casting technology. We do not have
sufficient information at this time to determine if this technology and
the demonstration plant could benefit subject merchandise. After we
collect additional information and conduct verification, we will
prepare an analysis memorandum addressing the countervailability of
this program, and provide all parties an opportunity to comment on our
analysis.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondent prior to making our final
determination.
[[Page 47253]]
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have
calculated an individual subsidy rate for AST. Since AST is the only
respondent in this investigation, we have also used its rate as the
all-others rate. In accordance with section 703(d) of the Act, we are
directing the U.S. Customs Service to suspend liquidation of all
entries of stainless steel plate in coils from Italy.
Company Ad Valorem Rate
AST-14.75 percent
All Others-14.75 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 non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
If 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 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 this preliminary
determination, at the U.S. Department of Commerce, 14th Street and
Constitution Avenue N.W., 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; (3) the
reason for attending; and (4) a list of the issues to be discussed. In
addition, six copies of the business proprietary version and six copies
of the nonproprietary version of the case briefs must be submitted to
the Assistant Secretary no later than 50 days from the publication of
this notice. 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 nonproprietary version of the
rebuttal briefs must be submitted to the Assistant Secretary no later
than 55 days from the publication of this notice. 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; August 28, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-23912 Filed 9-3-98; 8:45 am]
BILLING CODE 3510-DS-P
