NOTICES
DEPARTMENT OF COMMERCE
[C-517-501]
Carbon Steel Wire Rod From Saudi Arabia; Final Results of Countervailing Duty
Administrative Review
Monday, June 10, 1991
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AGENCY: International Trade Administration/Import Administration
Department of Commerce.
ACTION: Notice of Final Results of Countervailing Duty Administrative Review.
SUMMARY: On December 3, 1990, the Department of Commerce published the
preliminary results of its administrative review of the countervailing duty order on
carbon steel wire rod from Saudi Arabia. We have now completed that review and
determine the total bounty or grant to be 0.43 percent ad valorem for the period January
1, 1987 through December 31, 1987. In accordance with 19 CFR 355.7, any rate less than
0.50 percent ad valorem is de minimis.
EFFECTIVE DATE: June 10, 1991.
FOR FURTHER INFORMATION CONTACT: Philip Pia or Paul McGarr, Office of
Countervailing Compliance, International Trade Administration, U.S. Department
of Commerce, Washington, DC 20230; telephone: (202) 377-2786.
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SUPPLEMENTARY INFORMATION:
Background
On December 3, 1990, the Department of Commerce (the Department) published in the
Federal Register (55 FR 49932) the preliminary results of its administrative review of the
countervailing duty order on carbon steel wire rod from Saudi Arabia (February 3,
1986; 51 FR 4206). The Department has now completed that administrative review in
accordance with section 751 of the Tariff Act of 1930, as amended (the Tariff Act).
Scope of Review
Imports covered by this review are shipments of Saudi carbon steel wire rod. Carbon
steel wire rod is a coiled, semi-finished, hot-rolled carbon steel product of approximately
round solid cross section, not under 0.20 inch nor over 0.74 inch in diameter, tempered
or not tempered, treated or not treated, not manufactured or partly manufactured, and
valued over or under 4 cents per pound. During the review period, such merchandise was
classifiable under item numbers 607.1400, 607.1710, 607.1720, 607.1730, 607.2200
and 607.2300 of the Tariff Schedules of the United States Annotated (TSUSA). Such
merchandise is currently classifiable under item numbers 7213.20.00, 7213.31.30,
7213.31.60, 7213.39.00, 7213.41.30, 7213.41.60, 7213.49.00 and 7213.50.00 of the
Harmonized Tariff Schedule (HTS). The TSUSA and HTS item numbers are provided for
convenience and Customs purposes. The written description remains dispositive.
The review covers the period January I, 1987 through December 31, 1987 and eight
programs: (1) Public Investment Fund loan to HADEED, (2) SABIC's transfer of SULB
shares to HADEED, (3) preferential provision of equipment to HADEED, (4) income tax
holiday for joint venture projects in Saudi Arabia, (5) SABIC loan guarantees, (6)
preferential provision of services by SABIC, (7) government procurement preferences,
and (8) issuance of preferential government bonds.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the preliminary results. We
received comments from the respondent (HADEED), and the petitioners.
Comment 1: The respondent argues that, contrary to the Department's preliminary
results, Public Investment Fund (PIF) loans are not limited to a specific group of
enterprises, and therefore, they are not countervailable. The PIF program was
administered in an even-handed manner, and PIF loans went to virtually the entire
universe of eligible recipients. The essence of specificity is selective treatment, as stated
in the Department's proposed substantive regulations (see, Countervailing Duties;
Notice of Proposed Rulemakinq and Request for Public Comments, 54 FR 23366; May 31,
1989). These proposed regulations say expressly that selective treatment is a prerequisite
for countervailability. Selective treatment, or specificity, is determined in two ways, de
jure specificity, and de facto specificity. The factual record verified in this administrative
review supports neither a finding of de jure specificity, nor a finding of de facto
specificity, in regards to the PIF program.
PIF loans are not limited as a matter of law to a specific industrial sector; applications are
considered purely on the basis of whether the projects for which loans are requested are
commercially viable. The single eligibility criterion of the PIF program, which is that
participants must be companies in which there is some government equity ownership,
cannot in and of itself make this program specific. On this point the Court of International
Trade has been explicit: "The mere fact that a program contains certain eligibility
requirements for participation does not transform the program into one which has
provided a countervailable benefit." (see, PPG Indus., Inc. v. United States, 662 F. Supp.
258 (C.I.T. 1987)).
In preliminarily determining that PIF loans have been limited de facto to a specific group
of enterprises, the Department advanced the rationale that "(b)ecause only firms with
some direct or indirect government equity participation are eligible for PIF financing,
only a few enterprises have received PIF financing."
This rationale is both contrary to statute and not supported by the factual record of this
review. The identity of the shareholders in the firms borrowing from the PIF is legally
irrelevant to the specificity test. The language of 19 U.S.C. 1677(5)(ii) defines "domestic
subsidies" to include governmental assistance to "a specific enterprise or industry, or
group of enterprises or industries, whether publicly or privately owned." The mere fact of
public ownership does not mean that all such companies constitute a "specific group of
enterprises." The respondent asserts that government ownership and control of the
companies that received PIF loans, of relevance only to the Department's anomalous
rationale, is indirect and passive. The Saudi government has an equity interest in various
companies that are, in turn, partial owners of companies receiving PIF loans. PIF loans
have been made to l8 different companies representing a wide variety of industries and
products. A total of 19 different multinational corporations are principal shareholders in
the companies that have received PIF loans.
Conversely, the petitioners argue that the Department correctly determined that PIF
loans are provided to a specific group of enterprises in Saudi Arabia, and that the PIF
loan is countervailable to the extent that it is given on terms inconsistent with
commercial considerations.
Only firms with government equity participation are eligible for PIF financing. This
requirement has resulted in limiting PIF lending almost exclusively to projects
undertaken by a few indirectly and directly government- owned companies. In fact, PIF
loans are made to projects which are sponsored by, controlled by and basically owned
by, either directly or indirectly, only three companies: Petromin, Saudia Airlines and the
Saudi Basic Industries Corporation (SABIC). Furthermore, in its preliminary results, the
Department stated that "firms receiving PIF financing represent less than one-half of all
large-scale firms, and only a very small portion of all industrial enterprises, in the
Kingdom." Clearly, the PIF program limits benefits to a specific "group of enterprises" in
Saudi Arabia and is, therefore, countervailable on that basis.
Petitioners refute respondent's argument regarding the interpretation of the statutory
language "whether publicly or privately owned" by stating that the intention was to
separate the specificity analysis from the ownership issue. Congress included the phrase
"whether publicly or privately owned" in the statute to ensure that the countervailing
duty law had the widest possible scope.
Department's Position: We disagree with the respondent. At verification, we attempted to
determine the size of the universe of large firms in Saudi Arabia of which those firms
eligible for PIF financing were a subpart. We obtained a listing of licensed factories in
production for the period 1983 through 1987. Because this listing may have excluded
firms in existence from the period 1973 (the year PIF began lending) through 1982 and
nonmanufacturing firms, we can draw no definite conclusions regarding the universe of
large firms in Saudi Arabia. Nevertheless, considering Saudi firms with more than
SR400 million in total investment capital as large firms, we found that from 1983 through
1987 there were, within Saudi
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Arabia, 25 firms large enough to qualify for PIF
loans, if otherwise eligible to do so. However, because PIF by-laws exclude firms or
projects without Saudi government equity from eligibility for PIF financing, only 14 of the
25 firms were eligible for PIF financing. Furthermore, although the PIF has provided
loans to 18 firms from 1973 through the end of the review period, a total of six firms are
majority shareholders, albeit indirect, of the 18 PIF loan recipients. Regardless of
whether specific on a de jure basis, we find it de facto specific. Therefore, we determine
that the PIF program is limited to a specific group of enterprises.
Comment 2: The respondent argues that it is artificial to analyze the specificity of PIF
lending alone. The Saudi Industrial Development Fund (SIDF) and the PIF are
complementary funds and should be examined by the Department as one program. Under
the standards set forth in the Department's proposed regulations, specifically §
355.43(b)(6), the PIF and the SIDF loan programs are integrally linked and, therefore,
should be considered together for purposes of a specificity analysis. According to the
respondent, the proposed regulations set forth standards for determining when programs
are integrally linked, and those standards are fulfilled in this case.
Saudi Arabia has chosen to make long-term loans available through two related funds,
the PIF and the SIDF, which together provide long-term loans to any company that wants
them. The programs are both administered as specialized credit institutions of the Saudi
government, and they have similar requirements and similar purposes. The SIDF
provides loans to small- and medium-sized private industries; the PIF lends to large-scale
projects with government equity participation. The Department verified that virtually all
of the companies that are ineligible for PIF, either because of size or lack of government
equity participation, are eligible for long-term loans through the SIDF. The Government
of Saudi Arabia is not selectively conferring benefits on companies eligible for PIF loans
to the exclusion of all other companies. To the contrary, the PIF loan program is simply
one part of a comprehensive government program to make low-cost loans available to
virtually all companies in Saudi Arabia.
Petitioners claim that the respondent's argument, that the PIF and the SIDF loan
programs are integrally linked and should be considered as one program for the purposes
of determining specificity, is erroneous. The Department should not lump differentiated
government programs together when analyzing specificity. SIDF loans are not an
alternative source of financing to PIF loans. The average maturity of the loans is different,
PIF loans require government equity participation, and the maximum amount one can
borrow from the SIDF is SR400 million while PIF loans are limited only by the size of the
project being funded, i.e., there is no nominal limit.
Department's Position: We disagree with the respondent. Section 355.43(b)(6) of the
Department's proposed regulations specifically states that "in determining whether
programs are integrally linked, the Secretary will examine, among other factors, the
administration of the programs, evidence of a government policy to treat industries
equally, the purposes of the programs as stated in their enabling legislation, and the
manner of funding the programs."
The Government of Saudi Arabia has established five distinct specialized credit
institutions, two of which are the PIF and the SIDF. The Department has previously found
that the five institutions are not linked to an overall government lending policy (see, Final
Affirmative Countervailing Duty Determination and Countervailing Duty Order;
Carbon Steel Wire Rod From Saudi Arabia, 51 FR 4206; February 3, 1986). The factors
established in proposed § 355.43(b)(6) are necessarily general in nature. Any evaluation
of these factors to determine whether the PIF and SIDF are integrally linked would
include, among other methods, a comparison of each programs's by-laws, stated
purposes, sources of funding, accounting systems, administrative personnel, and
treatment and classification by third parties and other institutions. Although the
respondent has argued that these programs complement each other, sufficient relevant
information pertaining to the factors established in proposed § 355.43(b)(6) has not been
demonstrated to exist. Of particular importance is whether PIF loans and SIDF loans are
linked in any way to an overall government lending policy to provide loans on
comparable terms to various groups serviced by these two institutions. Therefore, we
have considered each government lending program separately.
Comment 3: Petitioners argue that the Department erroneously counted HADEED's
interest payment or commission fee made in 1990 when determining the benefit from the
PIF program for the 1987 review period. The Department's practice focuses on the cash
flow effect of subsidies when measuring the countervailability of a benefit. The payment
should be allocated to the year in which it affected HADEED's cash flow--1990. Proposed
Rules § 355.48(a) states:
Ordinarily, the Secretary will deem a countervailable benefit to be received at the time
that there is a cash flow effect on the firm receiving the benefit. The cash flow and
economic effect of a benefit normally occurs when a firm experiences a difference in cash
flows, either in the payments it receives or the outlays it makes, as a result of its receipt of
the benefit.
Thus, the Department should not retroactively allocate payments to nominally- related
time periods. The 1990 PIF loan payment must be ignored for purposes of calculating the
benefit for this administrative review.
The respondent argues that the Department adhered to the plain language of § 355.48 and
properly deemed the cash flow effect of HADEED's late payment to occur in 1987. Section
355.48(b) expressly provides: "(f)or purposes of (355.48(a))" the Secretary will "deem the
cash flow effect to occur * * * at the time a firm is due to make a payment on the loan." The
Department necessarily and correctly applied this policy in determining a methodology
to valuate the benefits and then allocate those benefits to the 1987 review period.
Department's Position: We disagree with the petitioner. As the respondent has correctly
argued, § 355.48(b)(3) of the Department's Proposed Rules states that, in the case of a
loan, the cash flow effect on the firm receiving the benefit occurs at the time a firm is due
to make a payment on the loan. We use the due date to determine both the amount
payable at the preferential rate and the amount that would be due at the benchmark rate.
Otherwise, without reference to a due date, we would have no basis for determining when
a preferential loan confers a countervailable benefit. Furthermore, since each
administrative review deals with a finite time period, a delay in payment, whether
deliberate or inadvertent, could result in distorting the results of that review.
In this case, HADEED was required by contract to make a payment on its PIF loan only if
it recorded a profit in the fiscal period preceding August 1987. The PIF and HADEED
disagreed on the appropriateness of a tax deduction claimed by HADEED that reduced
HADEED's profitability to zero. The dispute was duly referred to the Saudi
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General Auditing Bureau and resolved in 1990. We verified the nature and settlement of
the dispute between the PIF and HADEED. We find no reason to conclude that the
payment in question would not have been made when due in 1987, save for the dispute.
Therefore, we have calculated the benefit from this payment during the 1987 review
period.
Comment 4: Petitioners argue that the Department's discounting methodology used in
allocating the 1990 PIF loan payment to 1987 is flawed in that it fails to include a penalty
for late payment. It is common commercial practice to require such a penalty in the form
of a higher interest rate or related fee for the period of late payment.
The respondent argues that, by discounting the value of the payment HADEED made in
1990, the Department has already imposed a penalty for late payment. This discounting
reflected the Department's usual practice, which is designed to account for the time value
of money. Inherent in the concept of "time value of money" is an assumption of interest.
As a result, the Department has already imposed an adjustment that effectively penalizes
HADEED for having made its 1987 commission payment late.
Department's Position: We agree with respondent. In order to determine the value in
1987 of the service charge on HADEED's PIF loan, we discounted the nominal amount of
the service charge that HADEED paid by three percent per annum for the period between
August 1987 and January 1990. We then compared the amount of the discounted service
charge with the amount of service charge that would have been due in August 1987 based
on our benchmark interest rate.
Comment 5: Petitioners argue that the Department erroneously included the SIDF
interest rate as part of the commercial benchmark. The benchmark should have been
calculated solely from HADEED's long-term commercial borrowings. SIDF loans are not
consistent with loans made on commercial terms, which are usually freely available and
at market-determined rates. Should the Department persist in using SIDF interest rates
for its benchmark, it should recognize the SR400 million loan cap on SIDF loans. The
appropriate benchmark should be calculated by restricting the SIDF portion to reflect the
SR400 million limit.
The remaining portion of the benchmark should be comprised of the 1987 interest rate
assessed HADEED by Saudi commercial banks.
Conversely, the respondent argues that the Department's use of an SIDF loan rate as the
predominant element of the benchmark is consistent with Department precedent. The
only loan reasonably comparable to a PIF loan and the closest alternative to a PIF loan
would have been an SIDF loan. As previously stated, PIF and SIDF loans share a number
of key characteristics, none of which are found in private bank loans. Furthermore, the
Department adopted an SIDF-based composite in the original investigation, and its
decision to do so was upheld by the Court of International Trade. (See, Saudi Iron & Steel
Co. (HADEED) v. United States, 675 F. Supp. 1362, (C.I.T. 1987)).
Department's Position: We disagree with the petitioner. We constructed a composite
benchmark consisting of the flat two percent rate of interest applied to SIDF loans
through 1987 and HADEED's average commercial borrowing rate in 1987. In countries
where government institutions are the predominant source of long-term lending, it has
been the Department's practice to use interest rates on nonspecific direct government
loans as benchmarks. Such benchmarks are the best measure of the benefit to the
recipient of the subsidized loan because they reflect what the recipient would otherwise
have paid for a comparable loan. Saudi commercial banks do very little long-term
lending, primarily because there is no long-term source of capital available to the banks
themselves and, given that the payment of interest is unenforceable in a Saudi court of
Islamic law, they tend to restrict their lending to small amounts to a few borrowers. Thus,
such lending cannot be considered an alternative to a PIF loan. As for the SR400 million
cap on SIDF loans, we verified that the SIDF, in fact, often lent combined amounts greater
than the cap to a single company. For these reasons, we believe that the interest rate of
nonspecific SIDF loans is appropriate for use in our composite benchmark.
Comment 6: The respondent argues that the Department incorrectly determined that the
income tax holiday is limited to a specific group of enterprises, and is therefore
countervailable. The statutory standard that the Department must apply in determining
whether Saudi Arabia's income tax holiday constitutes a countervailable subsidy is
whether its benefits are limited to a "specific enterprise or industry, or group of
enterprises or industries." (See, 19 U.S.C. 1677(5)(A)(ii) (1988)). The income tax holiday
is not directed toward any specific sector, industry, or group of enterprises. Rather, it is
open to any licensed foreign investment in which Saudis have a 25 percent or greater
equity share. Furthermore, the size and diversity of the universe of companies that
qualify for the tax holiday are themselves dramatic evidence that it is not restricted or
targeted to specific industries or companies.
Petitioners argue that the Department correctly determined that the benefits from the
income tax holiday are specifically provided and, therefore, constitute a countervailable
benefit. The program's eligibility requirements are restrictive and the most dominant
industry (petroleum) is excluded. The only critical issue for the Department is whether an
advantage in international commerce has been bestowed on a discrete class of grantees.
Such an advantage was conferred on HADEED by virtue of the income tax holiday in this
review period.
Department's Position: We disagree with the respondent. We have little evidence of the
size and diversity of the universe of companies that qualify for the tax holiday. The
information in the record of this review, with respect to the size of the eligible universe, is
limited to two publications of the Statistics Department of the Saudi Arabian Monetary
Agency (SAMA). According to SAMA, companies with foreign capital comprised less than
one- fourth of all companies operating in the Kingdom during the review period, of which
those companies in nonpetroleum-related industries are a subgroup. Within this
subgroup, the application of the remaining criterion, that foreign technical know-how and
expertise must accompany the original investment, further limits benefits under this
program. Therefore, we determine that it is specific and countervailable.
Final Results of Review
After reviewing all of the comments received, we determine the total bounty or grant to
be 0.43 percent ad valorem for the period January 1, 1987 through December 31, 1987.
In accordance with 19 CFR 355.7, any rate less than 0.50 percent ad valorem is de
minimis.
Therefore, the Department will instruct the Customs Service to liquidate, without regard
to countervailing duties, all shipments of this merchandise exported on or after
January 1, 1987 and exported on or before December 31, 1987.
The Department will also instruct the Customs Service to waive cash deposits of estimated
countervailing duties on all shipments of this merchandise entered, or withdrawn
from warehouse, for consumption, on or after the date of publication of these final results
of
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administrative review. The waiving of cash deposits of estimated
countervailing duties shall remain in effect until publication of the final results of the
next administrative review.
This administrative review and notice are in accordance with section 751(a)(1) of the
Tariff Act (19 U.S.C. 1675(a)(1)) and 19 CFR 355.22.
Dated May 31, 1991.
Eric I. Garfinkel,
Assistant Secretary for Import Administration.
[FR Doc. 91-13709 Filed 6-7-91; 8:45 am]
BILLING CODE 3510-05-M