NOTICES DEPARTMENT OF COMMERCE [C-274-002] Carbon Steel Wire Rod From Trinidad and Tobago Final Affirmative Countervailing Duty Determination and Countervailing Duty Order Wednesday, January 4, 1984 *480 AGENCY: International Trade Administration, Commerce. ACTION: Final Affirmative Countervailing Duty Determination and Countervailing Duty Order. SUMMARY: We have determined that certain benefits which constitute bounties or grants within the meaning of the countervailing duty law are being provided to the manufacturers, producers, or exporters in Trinidad and Tobago of carbon steel wire rod, as described in the "Scope of Investigation" section of this notice. The net bounty or grant is indicated under the "Administrative Procedures" section of this notice. EFFECTIVE DATE: January 4, 1984. FOR FURTHER INFORMATION CONTACT:Andrew Debicki, Office of Investigation, Import Administration, International *481 Trade, Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230, telephone (202) 377-5403. SUPPLEMENTARY INFORMATION: Final Determination and Order Based upon our investigation, we determined that certain benefits which constitute bounties or grants within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Trinidad and Tobago of carbon steel wire rod, as described in the "Scope of Investigation" section of this notice. We determine the bounty or grant to be the amount indicated for the Iron and Steel Company of Trinidad and Tobago (ISCOTT) in the "Administrative Procedures" section of this notice. Case History On May 16, 1983, we received a petition from counsel for Atlantic Steel Company, Continental Steel Corporation, Georgetown Steel Corporation, Georgetown Texas Steel Corporation and Raritan River Steel Company on behalf of the U.S. industry producing carbon steel wire rod. The petition alleged that producers, manufacturers, or exporters in Trinidad and Tobago of steel wire rod receive, directly or indirectly, bounties or grants within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act). We found the petition to contain sufficient grounds upon which to initiate a countervailing duty investigation and, on June 6, 1983, we initiated a countervailing duty investigation (48 FR 27415). We stated that we would issue a preliminary determination on or before August 9, 1983. We subsequently determined the investigation to be "extraordinarily complicated," as defined in section 733(c) of the Act, and postponed our preliminary determination until October 13, 1983 (48 FR 43206). Trinidad and Tobago is not a "country under the Agreement" within the meaning of section 701(b) of the Act, and, therefore, section 303 of the Act applies to this investigation. Under this section, since the merchandise being investigated is dutiable, the domestic industry is not required to allege that, and the U.S. International Trade Commission is not required to determine whether, imports of this product cause or threaten material injury to a U.S. industry. On April 18, 1983, we presented questionnaires concerning the allegations in the petition to the government of Trinidad and Tobago and to counsel for the Iron and Steel Company of Trinidad and Tobago (ISCOTT) in Washington, D.C. on August 12, 1983, we received the responses to our questionnaire from the government of Trinidad and Tobago and ISCOTT. On October 13, 1983, we issued our preliminary determination in this investigation (48 FR 48694). We preliminarily determined that benefits which constitute bounties or grants within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Trinidad and Tobago of carbon steel wire rod. The program preliminarily determined to bestow countervailable benefits was the Guarantee of Debt Service by the Government of Trinidad and Tobago (GOTT). We preliminarily determined that the following programs which were listed in the notice of "Initiation of Countervailing Duty Investigation" were not used by the manufacturers, producers or exporters in Trinidad and Tobago of carbon steel wire rod: Tax Benefits. Worker Training. Marketing Assistance. Preferential Export Insurance. Export Shipping Rates. Preferential Loans. We preliminarily determined that we needed additional information about GOTT equity participation in ISCOTT, loss coverage or absorption, Point Lisas Development Estate, import duty exemptions, preferential prices for natural gas and short-term loans. On November 1-5, 1983, we conducted a verification in Trinidad and Tobago of the responses. Our notice of preliminary determination gave interested parties an opportunity to submit oral and written views. We held a public hearing on November 26, 1983, at which counsel for the parties to the investigation and consultants retained by petitioners' counsel participated. Scope of Investigation The product covered by this investigation is carbon steel wire rod, 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, not tempered, not treated, not partly manufactured, and valued over 4 cents per pound. The merchandise is currently classified under item number 607.17 of the Tariff Schedules of the United States. ISCOTT is the sole producer and exporter of carbon steel wire rod from Trinidad and Tobago. The period for which we are measuring bounties or grants is January 1, 1982 to April 30, 1983. Analysis of Programs In their responses, the GOTT and ISCOTT provided data for the applicable period. Based upon our analysis of the petition, the responses to our questionnaire, legal briefs submitted by counsel for ISCOTT and the petitioners, our verification, oral and written comments by interested parties and other information gathered by the Department, we determine the following: I. Programs Determined To Confer Bounties or Grants We determine bounties or grants are being provided to manufacturers, producers, or exporters in Trinidad and Tobago of carbon steel wire rod under the programs listed below: A. ISCOTT Point Lisas Lease The Point Lisas Industrial Port Development Company, Ltd (PLIPDECO) is responsible for managing the Point Lisas Industrial Estate. Majority ownership and effective control are in the hands of the GOTT. The terms of ISCOTT's lease of real estate in the Point Lisas Estate were established through negotiations with PLIPDECO conducted over several years. The final lease agreement between PLIPDECO and ISCOTT was executed in 1983 and made retroactive to 1978. As noted by the Department in Certain Steel Products from Belgium (47 FR 39304), government ownership of separate companies does not necessarily preclude them from conducting some transactions on an arm's-length basis, but our examination should focus on whether prices actually charged were at prevailing market rates. In addition, we have balanced factors supporting ISCOTT's negotiating advantages (e.g., it was the first tenant at Point Lisas; it is a major tenant capable of attracting other tenants) against commercial considerations which would argue for a higher rate (e.g., ISCOTT occupies a choice site within the Point Lisas Estate; the Lessor Authority is currently unprofitable; and the terms of ISCOTT's lease resulted in ISCOTT's position having been better than that of other lessees concluding lease agreements in more recent years). Based on our analysis, we determine that any preferential nature of ISCOTT's lease vis-a-vis commercially available leases cannot be ascribed to ISCOTT's *482 apparent negotiating advantages because such advantages are fully counterbalanced by the benefits ISCOTT receives by virtue of its location. Accordingly, we determine ISCOTT received a countervailable benefit. To calculate the existence and extent of any bounty or grant, we compared ISCOTT's payments under its PLIPDECO lease with what it would have paid for the same amount of space under the published tariffs. The published tariffs are our "benchmarks" for comparison purposes because all leases in the Industrial Estate, except for ISCOTT and two others, follow the tariffs. Under the tariffs, a lessee may either (1) sign a 99-year lease by paying a set price for the land and a nominal annual fee for 99 years, or (2) sign a renewable 30-year lease by paying a premium or down payment at the start of the lease period, followed by annual rental payments. The 30-year lease also provides that the annual payments may escalate periodically based on increases in the Index of Retail Prices. The basic unadjusted annual rental amount is calculated such that the stream of annual payments, when discounted to the present at a 6 percent discount rate, will equal the difference between (1) the fixed purchase price of a 99 year lease and (2) the amount of the premium. Thus, the larger the premium, the smaller the annual payments. To calculate the bounty or grant, we computed the present value of the 30 years of payments for each square meter of land, as specified in the ISCOTT lease. We added this to the down payment actually made by ISCOTT and subtracted the total from the tariffed purchase price. In order to compare consistent results, we used the same discount rate which the development authority uses to calculate annual rentals from the purchase price. We ignored unspecified and indeterminable future escalations which may result from rental under the standard tariff because another renter would have the option of making a lump-sum purchase payment, which would preclude those escalations. This also explains why we did not base our calculations on a simple comparison of payments made during the period for which we are measuring bounties or grants. The result is the present value of ISCOTT's rental savings over the life of the lease. We then treated the rental savings as the grant equivalent of the lease benefits using methodology similar to that applied to preferential loans in Appendix 2 of Certain Steel Products from Belgium (47 FR 39,304). Finally, we allocated the grant equivalent over the term of the lease (30 years) in annual amounts using the GOTT's "risk free" 20-year plus borrowing rate for 1978, the year the lease became effective. When allocated over the total value of ISCOTT's 1982 sales, this yields a bounty or grant of 2.246% ad valorem. B. ISCOTT Dock Facility Petitioners allege that a specially designed marine terminal was created for use by ISCOTT at preferential prices. We found that during three quarters of 1982 ISCOTT had the free use of a specialized dock facility owned by GOTT, built with GOTT funds, and constructed for ISCOTT's use. Though the GOTT has indicated its intention to vest ownership of the ISCOTT dock in the National Energy Corporation, a wholly GOTT owned entity, as of the end of 1982 no arrangement regarding leasing or fees for use of the dock was concluded by ISCOTT with either GOTT or the National Energy Corporation. ISCOTT showed no accrual, which might be applied retroactively after a contract is concluded, in its fiscal year 1982 financial statements of estimated rental or use fees for the dock. The dock was put in service in the first quarter of 1982 and was used almost exclusively by ISCOTT during the second, third and fourth quarters of 1982. During this time, ISCOTT did not either pay or accrue any rental fee for the dock. Our investigation established that there was no similar dock facility in Trinidad and Tobago with established rental fees against which to compare the ISCOTT situation. Certain information obtained during verification, however, indicates that any payment for this facility which may ultimately be required of ISCOTT will be based on a present value calculation of its cost. We allocated to ISCOTT the dock's capital cost for 1982 using the grant method described in Certain Steel Products from Belgium (47 FR 39,304). We took the total construction cost of the dock and computed the annual amount whose present value taken over 25 years would give the amount of the construction cost. Following the methodology of the Belgian case, we used the "risk free" interest rate on GOTT bonds in 1982, the year the dock was put into service, as the discount rate; we used 25 years as the estimated useful life of the facility, consistent with ISCOTT depreciation practices. We applied appropriate proportionality factors to account for the fact that the dock was in service for only three quarters of 1982 and that some non-ISCOTT-related ships also used it during this time. We determine that the benefit to ISCOTT from the acquisition and use of dock facilities at no cost amounts to 4.02% ad valorem. As agreements concerning the dock may be concluded in the future, this amount and any subsequent agreements relating to leasing or rental of the dock will be examined in a section 751 administrative review. C. Preferential Prices for Natural Gas The petitioners allege that ISCOTT benefits from the provision of natural gas through government-owned entities at preferential rates, and that this gas is delivered through a specially built pipeline. Petitioners believe that ISCOTT is one of the largest gas consumers in the region. Based upon our investigation, we found that ISCOTT uses gas supplied by the National Gas Company (NATGAS), but is billed for its gas consumption by the National Energy Corporation (NEC). Both entities are wholly owned by the GOTT. NATGAS purchases, processes and meters gas, which it transports through its own pipelines. NATGAS rates throughout the country do not depend on distance from the wellhead. Pipeline transmission costs are implicitly included in NATGAS rates. Although ISCOTT receives gas under a large consumer contract, its gas consumption is relatively small in proportion to that of other large consumers at Point Lisas. During 1982, NATGAS invoiced NEC for ISCOTT's gas usage at a rate which is equal to the average of those of other comparable large users. NEC, however, invoiced ISCOTT at a lower rate. In the absence of an adequate explanation of this differential, we consider this difference to be countervailable subsidy. Because ISCOTT's gas price escalation factor is higher than those of certain other large users, ISCOTT's rate in future years, including the reduction, may become equal to or higher than those of many other consumers and the relationship of rates paid by ISCOTT to NEC to rates of other consumers should be examined in subsequent years as part of section 751 administrative review. We compared the rate charged NEC by NATGAS for ISCOTT's gas consumption with the rate charged ISCOTT by NEC. We multiplied this rate difference by ISCOTT's total 1982 gas consumption. We then allocated this amount over the value of ISCOTT's total 1982 sales. This resulted in a bounty or grant rate of 0.472% ad valorem. *483 II. Programs Determined Not to Confer Bounties or Grants A. Government Equity Participation in ISCOTT ISCOTT was incorporated June 20, 1975 to serve as the vehicle for a joint venture between the Government of Trinidad and Tobago and three private investors--Hoogovens Igmuiden, B.V.; Kawasaki Steel Corporation and Mitsui & Company. As originally conceived, the venture would involve the parties in the ownership and construction of a greenfield steel mill dedicated primarily to billet production. In 1976-77, changing market conditions led to reevaluation of the project. This included redefining the project to envisage construction of a scaled down mini-mill oriented primarily toward finished products, specifically wire rod. The redefined project was unacceptable to GOTT's foreign partners in that it no longer would serve to accommodate their interest in a steady supply of billets to be "off taken" for further processing in their own mills. The GOTT then purchased the equity interest of its co-venturers and commissioned a feasibility study of the redefined project. After further study, the GOTT determined to proceed with the redefined project. A financing package put together by a private concern was proposed and, on December 1, 1978, ISCOTT, the GOTT, Barclays Bank, Ltd. (as Trustee) and several external private and government-sponsored lenders entered into a financing contract, the Completion and Cash Deficiency Agreement (CCDA). Under the terms of the CCDA, the GOTT agreed to provide equity investment in ISCOTT at a level which maintained a 60/40 debt to equity ratio for the company. Completion of construction, as defined in the CCDA, is now scheduled for 1984. In addition to providing seed capital, the GOTT has continued to make equity contributions to ISCOTT in accordance with its obligations under the CCDA. It is well established that government equity participation in a commercial enterprise is not a bounty or grant per se. In assessing whether such participation gives rise to bounties or grants within the meaning of the countervailing duty law, the Department applies the standard of whether a government's investment is not inconsistent with commercial considerations. The issue is whether the investment, analyzed in terms of objective business or investment criteria operative at the time the investment was made, may be deemed commercially reasonable in that, from the perspective of a commercial investor making the same decision in the same circumstances, there is a reasonable expectation of return within an acceptable period of time. The test whether a particular investment is not inconsistent with commercial considerations is based on a case-by-case analysis of the commercial context in which the investment decision is made. In the case of ISCOTT, an assessment of commercial reasonableness must take into account the special circumstances of a start-up project in a developing country. Factors ordinarily applied in the case of investment in an established industry or enterprise in a developed country may require adjustment or prove inappropriate. For example, investments in developing countries pose a variety of special problems which may include scarcity of capital, lack of established financial markets, lack of complementary infrastructure, shortages of skilled labor, insufficient managerial experience and other "learning curve" costs. While these may, in some some senses, increase the element of risk in such investments, the increased risk which may be present does not of itself become dispositive of the issue of whether a particular investment in a developing economy may be viewed as inconsistent with commercial considerations. In citing the special circumstances affecting evaluation of investment in a start-up project in a developing country, we do not, however, seek to imply that we are deviating from or softening the statutory standard of consistency with commercial considerations. We are simply restating our policy that consistency with commercial considerations should be judged in terms of the specific commercial context in which a particular investment decision is being evaluated. On the basis of our analysis, we determine the GOTT's initial decision to proceed with the ISCOTT project was consistent with the requirements of commercial reasonableness. First, as originally conceived and later redefined, the ISCOTT mill was designed to make use of certain natural advantages. Trinidad and Tobago has ample natural gas reserves. The direct reduction of iron (DRI) process employed in ISCOTT's mill is particularly well suited to capitalize on the availability of natural gas. Trinidad and Tobago also enjoys a strategic geographic location close to plentiful sources of iron ore and to potential Caribbean, North American and South American markets. Second, ISCOTT's installation of state of the art technology builds upon natural advantages by providing long-term cost efficiencies and producing consistent qualities of steel. Third, at the time the ISCOTT mini-mill venture was initially conceived, the consensus among steel industry analysts was that projected demand would require installation of considerable new worldwide capacity by 1985. GOTT's commitments to the ISCOTT project were undertaken on the basis of at least three independent feasibility studies prepared by private consultants. The original concept of an integrated mini-mill emerged from both engineering and economic studies. The subsequent adaptation of the project to emphasis wire rod production was also based on a study which assessed the potential viability of the redefined project in a changed market. Finally, preparation of the financing package which formed the basis of the CCDA entailed a third, independent assessment of the project's financial prospects, including specific projections of a probable rate of return on investment. All these studies concluded the project was feasible and would be profitable. In our view, the GOTT's decision to supplement its own evaluation of the commercial viability of the ISCOTT project with independent analyses by private consultants indicates a careful approach consistent with a prudent investment policy. Independent confirmation of favorable projections made in the studies noted may be discerned from the decisions of several private commercial lenders to participate in the debt financing of the ISCOTT project. Participants include private lenders in the U.S., Japan, Canada and the Federal Republic of Germany. In addition to reviewing the feasibility studies commissioned by the GOTT, these lenders were also in a position to draw on their own internal resources and experience to assess the project's viability. That they chose to lend to the project is further indication of its commercial reasonableness. Moreover, while we do not question that quarantees provided by the GOTT would be taken into account in a decision by private lenders to finance the ISCOTT project, it is our understanding of commercial banking practice thay any decision to lend would have been based primarily on consideration of the underlying project's viability and potential apart from the presence of governmental guarantees or backing. In these circumstances, the participation of private lenders should not be discounted as having no bearing on the central issue of whether investment in ISCOTT is consistent with *484 commercial considerations. (See section II.C infra). Although the GOTT's decision to commence the ISCOTT mini-mill project apprears to have been carried out on a sound commercial basis, its continued commitment through the period of construction and beginning of commercial production poses somewhat different questions. In this stage, fundamental assumptions supporting the commercial reasonableness of the decision to initiate the project must be measured against actual development and operating experience. The issue is whether that experience raises fundamental questions about the commercial reasonableness of the GOTT's maintaining its commitment to the ISCOTT project. The GOTT has continued to make heavy equity investments in ISCOTT during a period in which the company has encountered significant difficulties associated with construction, start-up and initial commercial operation. Unanticipated construction delays have resulted in substantially higher than projected costs which have been compounded by the effects of inflation. Breakdowns in key plant components and delays in obtaining replacements have also hampered the project. Shortages of adequately trained operations, maintenance and management personnel present continuing problems. The plant has not yet approached full rated capacity, and the engineering performance tests for all production units have not been completed. As a consequence, ISCOTT has not begun to achieve significant production levels or earnings on its products. Its cash flow per-ton of nominal capacity remains negative. All of this has occurred against the background of a severely deteriorated world market for steel. In the latter phase of the investigation, both petitioners and respondents developed and presented financial models which seek to assess the commercial reasonableness of the GOTT's continued investment in ISCOTT, even in the face of the difficulties cited. The focal point of these studies has been the commercial reasonableness of the GOTT's decision in 1982 to make substantial additional equity investiments in the company. The fact construction delays and other difficulties have occurred during the course of ISCOTT's start-up phase does not necessarily lead to the conclusion that the assumptions and expectations which arguably supported the GOTT's decision to embark upon the project are no longer tenable. First, natural advantages such as reliable and plentiful sources of basic inputs and location continue to support ISCOTT's long-term prospects. Second, particularly in a developing country, the learning curve costs associated with the installation of a technologically advanced industrial facility may reasonably be expected to be higher than those in a more developed economy. Similarly, shortages of adequately trained manpower needed for the construction and maintenance of a major industrial plant make it more likely there will be delays in both construction and the achievement of fully operational status. In this respect it is significant that the CCDA made specific allowances for the possibility of delay, and that its final deadline for the certification of completion has not, as yet, been exceeded. Third, while ISCOTT's cash flow per-ton of capacity figures are negative, they nevertheless compare favorably with available estimates of expected per-ton devleopment costs for new steel mills in both developing and developed countries. Fourth, while ISCOTT is not profitable, it has been conducting limited commercial operations for a period of only 26 months. Regardless of location in a developed or developing country, the Department has found no indication in any of the sources available to it that a new industrial facility requiring large capital investment should be expected to show a positive rate of return within so short time from the commencement of production. To the contrary, it appears the reasonable commercial expectation is that the project would normally be expected to operate at a loss for several years before beginning to earn a positive return on the initial investment. Fifth, lenders who participated in ISCOTT's debt financing arrangement have not withdrawn their support and have continued to make funds available to the company. Sixth, despite problems with start-up, ISCOTT has made some shipments to unrelated buyers, thereby demonstrating the existence of at least a potential market for its products. In sum, while ISCOTT may not yet have unquestionably proven itself as a viable, self-sustaining venture, nothing in its experience to date establishes a compelling argument that the considerations or expectations which led the GOTT to begin the project have, in light of subsequent developments, lost all measure of commercial reasonableness. Though difficulties encountered during start-up have led to substantial cost increases not contemplated in the original projections, the GOTT's continuing commitment to the project, a commitment seconded by independent lenders, does not at this juncture appear inconsistent with commercial considerations. We stress that this determination is not based on judgment that one of the financial models analyzing the GOTT's 1982 equity investments in ISCOTT is superior to another. The analyses submitted by both respondents and petitioners employed the same basic operational methodology and factored in essentially the same raw data. The pronounced differences in their respective results stem primarily from financial assumptions built into the models. While these assumptions may in either case be presumed arguable, they are not, in the strict sense of the word, "wrong." Rather, the divergence in results is inherent in the analytical process. Certain assumptions involved necessarily speculative attempts to predict events. Others require a substantial element of subjectivity. In our view, this divergence bears on the issue of the consistency with commercial considerations of the GOTT's 1982 equity infusions by highlighting the complexities involved in applying the standard to investments of this kind. Sophisticated models applied to the same basic data and employing the same methodology achieve very different results, supporting the conclusion that, in this instance at least, there is no unanimity or consensus as to what constitutes consistency with commercial considerations. When this additional element of uncertainty is factored into other arguments for or against the GOTT's 1982 decision to continue investing in ISCOTT, we believe it reinforces our determination that, absent a convincing showing the project has lost virtually all reasonable measure of commercial viability, the GOTT's decision may properly be viewed as not inconsistent with commercial considerations. B. Loss Coverage or Absorption Petitioners allege that at least a portion of the funds which the GOTT has committed to the ISCOTT project since the commencement of commercial operations should be treated as loss coverage or absorption. In effect, they maintain that ISCOTT has been the beneficiary of substantial operating subsidies without which the company could not reamain viable. As discussed in the section of this notice titled "Equity Participation by the Government", the GOTT's continued commitment to getting ISCOTT off the ground does not represent an investment *485 inconsistent with commercial considerations as we view them within the context of the start-up of a new industry in a developing country. While ISCOTT has begun to market its products on an intermittent basis, it is not yet a fully operational enterprise. From this perspective, equity infusions by the GOTT which may in some instances serve to offset initial operating losses may still be viewed primarily as investments in the capitalization and establishment of ISCOTT rather than as loss coverage per se. As such, they remain within the realm of commercial reasonableness which governs with respect to investment in the start-up of an enterprise. C. Government Guarantees of Debt Service Section 401, Article I of the Completion and Cash Deficiency Agreement (CCDA) states: "if, for any reason whatsoever, ISCOTT shall fail to pay or to pay in full any debt service amount on any debt service date with respect thereto, the Government, in consideration for the loans made by the lenders to ISCOTT, shall, and hereby covenants and agrees with each of the lenders to, pay to the lenders or the lenders entitled to such debt service amount the cash deficiency in respect thereof . . . within 10 days after the applicable debt service date, unless prior thereto ISCOTT shall have paid such cash deficiency in full." During the period 1978-1981, ISCOTT obtained several medium-term loans from private lenders and other government loan agencies in the United States and elsewhere. Petitioners allege the guarantees provided for in Article IV of the CCDA enabled ISCOTT to obtain financing at interest rates several points below those charged for comparable commercial loans. They contend that ISCOTT would have had to pay a substantial premium over the commercial rate charged (estimated by petitioners as 5 percent), if the loan financing had not been backed by a government guarantee. In support of these arguments, petitioners cited banking authorities to the effect that a project of ISCOTT's magnitude would not have received debt financing without the government's guarantee. Respondents argued the GOTT guarantee was part of a larger financing package and was given because banks, as a standard practice, often require principal shareholders in a project to guarantee loans to the project. They also contend it would be commercially irrational for a lender not to require such a guarantee of a majority shareholder in a new enterprise in a developing country. Respondents cited examples of other projects in Trinidad and Tobago for which guarantees have been provided by private shareholders at no charge. Finally, they asserted it is not standard commercial practice for principal shareholders to charge a fee to their corporations for loan guarantees which they provide. In our preliminary determination, we concluded there was a subsidy from the GOTT to ISCOTT based on our estimate of the fee which ISCOTT would have been required to pay in the absence of such a guarantee. The value of this fee was 1.5 percent per year, an amount derived from information gathered by the Department. Our assumption was that the GOTT's guarantee of ISCOTT's debt service provided a benefit to the company for which it had made no payment. After additional review, we conclude the method followed in the preliminary determination was not appropriate to this situation. Specifically, we have found that standard international banking practice in comparable transactions in Trinidad and Tobago does not involve a charge to the borrower by the shareholder guarantor for a guarantee. We consulted banking experts in the area of international project financing regarding guarantee requirements and their relationship to the creditworthiness or commercial feasibility of a project. They indicated the usual practice in deciding on credits for start-up projects in developing countries is first to evaluate the commercial viability of each project, before taking into account any guarantees. If the project is not considered creditworthy on this basis, it will generally not be extended credit, regardless of any guarantee. Once the creditworthiness of a project is established, if it is a greenfield project in a less developed country (LDC), such as Trinidad and Tobago, a guarantee would normally be required. It is standard banking practice to require a guarantee for any new project in an LDC. If a countervailable subsidy were ruled on the basis of such a guarantee being given, then all guaranteed projects in LDC's, which require guarantees for bank financing, would be considered to have received prima facie countervailable subsidies. Viewed in this context, the requirement for a guarantee does not in itself indicate the ISCOTT project was not creditworthy. To further clarify the issue, we sought to determine whether a guarantee was reflected in interest rates, and whether private shareholders in similar venture would charge a guarantee fee. We examined agreements for U.S. dollar loans made by international lenders to similar projects in Trinidad and Tobago. These were joint ventures between U.S. companies and the GOTT and involved loan agreements entered into at approximately the same time as the ISCOTT financing agreements. We found that these loans were made at rates comparable to those for the ISCOTT loans; that they were guaranteed by private U.S. companies and by GOTT in proportion to their respective share ownership and that no guarantee fees were charged by the guarantors. Thus, the GOTT guarantee did not give ISCOTT access to rates of interest which were below those obtainable by enterprises guaranteed by private U.S. investors. Furthermore, GOTT's action in not charging ISCOTT a guarantee fee was not inconsistent with that of a private major shareholder. The results of our investigation indicate the GOTT guarantee should be viewed as the action of a major shareholder contributing to its investment in a new project. Thus, the loans taken by ISCOTT and the associated guarantees should be evaluated as part of the overall project financing package of equity and debt and considered in terms of the project's commercial viability at the time the financing was arranged. As the determination regarding the equity investment (see section of this notice titled "Government Equity Participation in ISCOTT") finds the GOTT's investment in the ISCOTT project was not inconsistent with commercial considerations, we determine there was no countervailable bounty or grant to ISCOTT resulting from loan guarantees given by GOTT. D. Point Lisas Development Estate Petitioners allege the Point Lisas Development Estate (the Estate), in which ISCOTT's steel mill is located, represents the GOTT's effort to establish an infrastructure specifically designed to support the company's operations, and that this infrastructure is not generally available to all companies in Trinidad and Tobago. As noted previously, the Point Lisas Industrial Port Development Company, Ltd. (PLIPDECO), which is responsible for development of services in the Estate, is a corporation whose majority ownership and almost total control is in the hands of the GOTT. We have determined the Estate does not exist as a means for the GOTT to provide *486 subsidies based on regional preference. Companies which locate there derive no special benefits as a result of their location. Though the Estate provides infrastructure and services not available elsewhere in Trinidad and Tobago, there are no restrictions on eligibility to become a tenant, nor is the ability to locate in the estate dependent on export performance or objectives. With certain exceptions applicable to ISCOTT treated elsewhere in this notice, all lessees in the Estate are subject to the same schedules of fees and charges for use of the infrastructure and services. We have no evidence on the record to indicate that fees charged are not reflective of the long-term true cost of the facilities and services provided by the Estate. Finally, there are over twenty-five other tenants in the Estate, an indication its facilities are not dedicated to the sole use of ISCOTT. We determine, therefore, that ISCOTT receives no countervailable benefits by virtue of locating at Point Lisas. E. Port Facilities Petitioners allege that ISCOTT received subsidized stevedoring and other port services from a GOTT controlled development authority. Based on our investigation, we found that port services provided to ISCOTT by the Point Lisas Development Estate authority are also available to other users at the same rates and do not represent a countervailable subsidy to ISCOTT. There are three docks at the Point Lisas Estate: ISCOTT Dock, specialized for, used and operated by ISCOTT (see separate section of this notice titled "ISCOTT Dock Facility"); Savonetta Pier, with specialized facilities for another company; PLIPDECO Dock, for general users. Charges for all services provided to users of Port Point Lisas follow a standard schedule of tariffs. We verified that ISCOTT pays these tariffs at the same rates as for all other users. Stevedoring on the ISCOTT Dock is provided by ISCOTT. We determine, therefore, that port services provided by the Development Estate authority do not constitute countervailable bounties or grants. E. Worker Training-Management Development Center (MDC) Though petitioners did not specifically allege ISCOTT has benefitted from worker training subsidies provided through the MDC, the questionnaire responses of both the GOTT and ISCOTT indicated that certain of the company's employees had participated in MDC programs. The MDC is a government corporation founded in 1965 under joint sponsorship with the International Labor Organization (ILO). Its purpose is to provide improved management knowledge. In 1973 the MDC became independent of the ILO. The MDC is active in five areas: (1) Training courses, (2) Consultancy, (3) Research, (4) Publications and (5) Promotion of scientific management in the media. Any company in Trinidad and Tobago may subscribe to courses offered by the MDC. Fees are charged for courses offered. Some ISCOTT workers were enrolled in MDC courses during 1982, and the fees paid by the company for this training were comparable to those charged other companies enrolling their personnel in similar courses. Since MDC courses are available without restriction to all industries in Trinidad and Tobago, and the fees paid by ISCOTT for MDC training are comparable to those charged other companies, we determine the company receives no countervailable benefits as a result of this program. F. Import Duty Exemptions Under the laws of Trinidad & Tobago imports may or may not be subject to duties under any one of three tariff schedules. Products on the First Schedule, which is established by treaty and identical for all countries in the Caribbean Common Market, are assigned duties ranging from zero to some percentage of value. Those on the Second Schedule benefit a general exemption. The Third Schedule establishes conditional exemptions for approved industries. The First and Second Schedules are general enactments applicable to all industries in Trinidad and Tobago. Section 49A of the Customs Act of 1973 empowers the Government to grant duty exemptions on any merchandise imported by a company which is within the approved industry list of the Third Schedule. ISCOTT has applied for and received exemptions under this provision. Examination of the Third Schedule shows that at least 76 industries in Trinidad and Tobago are specifically listed as qualifying for a Third Schedule exemption. Furthermore, the criteria for granting a concession under section 49A are not industry specific or related to exports, and the Third Schedule exemption is effectively available to any company which meets them, regardless of whether it falls within the list of approved industries. A review of concessions actually granted under Section 49a shows that the vast majority of applications are approved without any discernible degree of preference for any industry or specific group of industries. Finally a substantial portion of the items subject to a conditional exemption under the Third Schedule may already qualify for a general Second Schedule exemption. Other items are assessed a duty free rate under the First Schedule. Since Third Schedule exemptions are not made available on the basis of preference for any specific industry or group of industries, we determine ISCOTT receives no countervailable benefits as a result of its participation in this program. G. Short Term Loans ISCOTT indicates the receipt of several short-term loans from private sources during the period for which we are measuring bounties or grants. Some of these loans have been repaid and others have been rolled-over. There is no evidence these loans were made to ISCOTT on preferential terms. Consequently we determine ISCOTT received no countervailable benefits as a result of these short-term loans. H. Export Shipping Rates Petitioners allege ISCOTT has benefitted from preferential shipping rates provided at government direction or with government financial assistance. The Shipping Corporation of Trinidad and Tobago (SCOTT) acts as a broker for ISCOTT in locating private vessel owners and negotiating shipping fees. As such, SCOTT is not responsible for setting rates, nor does it own any vessels. It is reimbursed for its services on a commission basis. The commission fees charged ISCOTT by SCOTT are in line with those charged throughout the industry. During the period for which we are measuring benefits, ISCOTT has used both SCOTT and a private concern based in New York as its agents for locating vessels and negotiating shipping rates. Rates have varied with each shipment, and ISCOTT has received no direct assistance from the GOTT for purposes fo paying export freight charges. Consequently, we have determined ISCOTT has not benefitted from preferential shipping rates as the result of direct or indirect action by the GOTT. III. Programs Determined Not To Be Used We determine that the following programs have not been used by *487 producers or exporters in Trinidad and Tobago of carbon steel wire rod: A. Tax Benefits Petitioners allege ISCOTT benefits from preferential tax treatment accorded under the Fiscal Incentives Act and other provisions of the tax laws of Trinidad and Tobago. Since ISCOTT has not to date been profitable, it has not been in a position to take advantage of any preferential tax benefits which might otherwise be available to it under the laws of Trinidad and Tobago. We note, however, that certain preferential carryover benefits which may accrue to ISCOTT should be examined in the appropriate administrative review period under section 751 of the Act. B. Worker Training--Industrial Development Corporation Petitioners allege ISCOTT has benefitted from worker training subsidies provided through the Industrial Development Corporation (IDC). The IDC's activities are limited to the support of training through grants to small businesses with assets of less than TT $250,000. On the basis of its size, ISCOTT is ineligible for IDC grants. We verified that ISCOTT received no training grants from the IDC during the period for which we are measuring bounties or grants. C. Marketing Assistance Petitioners allege ISCOTT has benefitted from marketing assistance provided by the GOTT through the International Marketing Company (IMC). The IMC was established in 1979 as a GOTT owned non-revenue company for export promotion. In late 1982, the GOTT made the decision to terminate the IMC and ordered it to disband. We verified that the IMC's records showed no disbursements on behalf of ISCOTT or for activities related to the promotion of steel exports. D. Preferential Export Insurance Petitioners allege ISCOTT has benefitted from preferential export insurance provided through the Trinidad and Tobago Export Credit Insurance Company, Ltd. (EXICO). EXICO is a GOTT-owned company founded in 1974 to provide insurance to exporters against the risks involved in exporting goods on credit. Due to limitations on the amount of risk it can assume, EXICO deals only with small and medium-sized companies. The limit on EXICO's assumable risk is far too small to allow for insuring ISCOTT shipments. We verified EXICO had no dealings with ISCOTT during the period for which we are measuring bounties or grants. E. Preferential Loans In our initiation notice, we stated we would investigate the allegation ISCOTT received loans from the GOTT at preferential interest rates. Since foreign lending institutions served as the sources of ISCOTT's debt financing, the issue is moot. Comments Petitioners' Comments Comment 1 Petitioners contend the Department should find the GOTT's initial decision to invest in ISCOTT countervailable as inconsistent with commercial considerations. In making this contention they cite the existence of studies other than those commissioned by the GOTT which cast doubt on the commercial reasonableness of its investment and failure to explain adequately the withdrawal of foreign co-venturers initially involved in the project. DOC Position For reasons set forth in the section of this notice titled "Government Equity Participation in ISCOTT," we have determined the GOTT's initial decision to invest in ISCOTT was not inconsistent with commercial considerations. In our view, the issue is not whether there are studies available which contradict those commissioned by the GOTT, but whether the GOTT acted in a commercially reasonable manner when it made the decision to commerce the ISCOTT project. The important fact is that the GOTT did seek independent evaluations of the project's feasibility. Nor was it commercially unreasonable to rely on those studies as a basis for the decision to go forward. Finally, as to the issue of the withdrawal of the GOTT's original co-venturers, we are satisfied that their decision was based primarily on the fact the redefined project would not meet their interest in an "off-take" arrangement for billets and not on any reservations as to its commercial feasibility. Comment 2 Petitioners contend that, even if for purposes of argument the GOTT's initial investment in ISCOTT is determined to be consistent with commercial considerations, the GOTT's decision to continue its commitment by making additional large equity infusions in 1982 was, in light of actual experience, not consistent with commercial considerations. They also argue that, faced with the choice of continuing the project or shutting it down, a reasonable investor would opt for the latter as the less costly alternative to a massive commitment in a project which had demonstrated no reasonable prospect of return. DOC Position We do not agree. See the section of this notice titled "Government Equity Participation in ISCOTT." Regarding the issue of whether a shut-down of ISCOTT represents a less costly and, therefore, more reasonable option than continued operation, we find no evidence in the record which makes a compelling case for the former over the latter. Though shut-down is an option, it is not, on the basis of all the information available to us, the only commercially reasonable option open to an investor in ISCOTT. Comment 3 Petitioners contend the GOTT's 1982 infusion of funds conveyed a countervailable benefit for the further reason that at least a portion of the infusion constituted a grant of funds to cover operating losses. DOC Position We do not agree. See the section of this notice titled "Loss Coverage or Absorption." Comment 4 Petitioners contend the GOTT's guarantee of ISCOTT's debt service constitutes a countervailable benefit. DOC Position For reasons set forth in the section of this notice titled "Government Guarantees of Debt Service", we have altered our preliminary determination and now determine ISCOTT has received no countervailable benefits as a result of the GOTT's guarantee. Respondents Comments Comment 1 Respondents contend the Department erred in determining the GOTT's guarantees of ISCOTT's debt service constituted a countervailable benefit. DOC Position As discussed in the section of this notice titled "Government Guarantees of Debt Service", we now agree. *488 Comment 2 Respondents contend it is contrary to law and policy to countervail against loan guarantees required by the Export-Import Bank and other export credit agencies. DOC Position In view of our final determination that the GOTT's guarantees of ISCOTT's debt service do not give rise to countervailable benefits, this issue is moot. Comment 3 Respondents contend the Department's imputed 1.5 percent guarantee fee applied in the preliminary determination is overstated. DOC Position In view of our final determination that ISCOTT does not receive countervailable benefits as the result of the GOTT's guarantee of its debt, the issue is moot. Comment 4 Respondents contend the Department should not have based its calculations of the benefit from the GOTT's loan guarantees on the total amount of the loan commitment by the lender but only on the amounts actually drawn down. DOC Position In view of our final determination regarding the GOTT's loan guarantees, the issue is moot. Comment 5 Respondents contend that, despite acknowledged difficulties in achieving fully operational status, the ISCOTT project remains feasible and retains its potential for a reasonable rate of return. Consequently, the GOTT's 1982 equity infusions are consistent with commercial considerations and do not represent countervailable bounties or grants. DOC Position We agree. See the section of this notice titled "Government Equity Participation in ISCOTT." Comment 6 Respondents contend the denominator used in the Department's subsidy calculations should include the total value of ISCOTT's sales during the appropriate period and not only wire rod and billet sales. DOC Position We agree. However, the figures for ISCOTT's total sales were not made available to us in time for use in the preliminary determination. We have adjusted our calculations in this determination to take account of these sales. Comment 7 Respondents contend that, since ISCOTT is in a start-up mode, the denominator in our subsidy calculations should employ an extrapolated sales figure reflective of total sales for a fully operational plant. This would be consistent with the Department's recognition that ISCOTT is suffering from under-utilization and avoid overstatement of the ad valorem rate merely because of ISCOTT's start-up status. DOC Position There is no guarantee that, even if ISCOTT were capable of operating at full capacity, its would actually be selling its full production. Rather than speculating as to what might be, we prefer to base our calculations on actual sales. Increases in ISCOTT's production capability and sales are properly addressed in a section 751 review. Verification In accordance with section 776(a) of the Act, we verified the information used in making our final determination. During this verification, we followed normal procedures, including meetings and inspection of documents with government officials and on-site inspection of the records and operation of the companies exporting the merchandise under investigation to the United States. Administrative Procedures The Department has afforded interested parties an opportunity to present oral views in accordance with its regulations (19 CFR 355.34(a)). Oral and written views have been received and considered. The suspension of liquidation ordered in our preliminary affirmative determination shall remain in effect until further notice. The net bounty or grant for duty deposit purposes for ISCOTT is 6.738 percent ad valorem. As required by section 706(a)(3) of the Act, we are directing the United States Customs Service to require a cash deposit in the amount indicated above for each entry of the subject merchandise entered or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register, and to assess countervailing duties in accordance with sections 706(a)(1) and 751 of the Act. The Department intends to conduct an administrative review within 12 months of publication of this determination as provided in section 751 of the Act. This notice is published pursuant to sections 303 and 706 of the Act (19 U.S.C. 1303, 1671e). Dated: December 27, 1983. William T. Archey, Acting Assistant Secretary for International Trade Administration. [FR Doc. 84-78 Filed 1-3-84; 8:45 am] BILLING CODE 3510-DS-M