FINAL RESULTS OF REDETERMINATION PURSUANT TO COURT REMAND
Allegheny Ludlum Corp., et al., v. United States
Consol. Court No. 99-09-00566, Remand Order (CIT August 15, 2000)
I. Introduction
The Department of Commerce ("Department") has prepared these final remand results pursuant to an order from the U.S. Court of International Trade ("CIT") in Allegheny Ludlum Corp., et al. v. United States, Consol. Court No. 99-09-00566 (CIT August 15, 2000) (Allegheny Remand).
II. Background
In the Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from France, 64 FR 30774 (June 8, 1999) ("French Sheet and Strip"), the Department determined that countervailable subsidies are being provided to producers and exporters of stainless steel sheet and strip in coils from France. In an amended complaint challenging that determination, Usinor, Ugine S.A., and Uginox Sales Corporation (collectively "Usinor") maintain that the 1995 sale of Usinor shares to new, private owners extinguished all pre-privatization subsidies and that, by finding that the privatized company benefited from these subsidies, the Department acted contrary to law. See Amended Complaint at 6, Count One (Feb 29, 2000). Usinor's motion to amend its complaint was granted by the Court on June 2, 2000.
While the Allegheny case was pending, on February 2, 2000, the Court of Appeals for the Federal Circuit ruled in Delverde, SRL v. United States, 202 F.3d 1360 (Fed. Cir. 2000) reh'g denied, (June 20, 2000) ("Delverde III"), in which the Department applied a change-in-ownership methodology similar to that in French Sheet and Strip, that "the Tariff Act as amended does not allow Commerce to presume conclusively that the subsidies granted to the former owner of Delverde's corporate assets automatically 'passed through' to Delverde following the sale. Rather, the Tariff Act requires that Commerce make such a determination by examining the particular facts and circumstances of the sale and determining whether Delverde directly or indirectly received both a financial contribution and benefit from the government." 202 F.3d at 1364.
On August 15, 2000, the CIT remanded the French Sheet and Strip litigation to the Department with instructions to "issue a determination consistent with United States law, interpreted pursuant to all relevant authority, including the decision of the Court of Appeals for the Federal Circuit in Delverde, SRL v. United States, 202 F.3d 1360 (Fed. Cir. 2000)." Allegheny Remand at 1.
On August 22, 2000, the Department solicited comments from the petitioners, Usinor and the Government of France ("GOF") regarding potential revisions to the Department's change-in-ownership methodology in light of Delverde III. The petitioners and respondents submitted arguments regarding methodology on September 8, 2000.
On September 15, 2000, we sent a questionnaire to Usinor and the GOF soliciting additional information from them regarding Usinor's changes in ownership, followed by supplemental questionnaires on October 16, 2000. On October 6, 2000, Usinor and the GOF submitted their response (Remand Questionnaire Response) to the Department's initial remand questionnaire, followed by their supplemental remand questionnaire response on October 27, 2000 (Remand Supplemental Response). On October 12, 2000, the petitioners submitted comments on the Remand Questionnaire Response, followed on November 8, 2000 with additional comments on the Remand Supplemental Response.
On November 14, 2000, the Department filed a motion with the Court seeking an extension of time until December 20, 2000 to file these final remand results, which was granted by the Court on November 28, 2000. The Department circulated a draft remand determination to the interested parties on November 20, 2000 ("Draft Redetermination"). Timely comments were filed on December 4, 2000, by the European Commission (EC) and on December 5, 2000, by the petitioners, the GOF and Usinor.
III. Analysis
Interpreting Delverde III
In Delverde III, the Federal Circuit first observed that, in order to find a countervailable subsidy on merchandise imported into the United States, the Department must determine that a government "provid{ed}, directly or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of that merchandise." 202 F.3d at 1365, citing 19 U.S.C. § 1671(a)(1). In order to find that a countervailable subsidy had been provided to the "manufacture, production, or export" of the imported merchandise, the Court found that the person who produced or exported that merchandise must have received a financial contribution and enjoyed a benefit from that financial contribution. Id. at 1365, 1366. In the Court's words, a subsidy exists when "an authority provides a financial contribution, . . . to a person and a benefit is thereby conferred." Id., quoting 19 U.S.C. § 1677(5)(B) (emphasis in original). The Court stated that this meant that "{i}n order to conclude that a 'person' received a subsidy, Commerce must determine that a government provided that person with both a 'financial contribution' (or equivalent as described in §§ 1677(5)(B)(ii) and (iii)) and a benefit." 202 F.3d at 1365 (footnote omitted). (1)
TheDelverde III court next turned to the question of whether, once these conditions had been satisfied, a change in the ownership of the subsidy recipient would affect the countervailability of those subsidies. The Court noted that the statute's change-in-ownership provision (§ 771(5)(F)) states that "a subsidy cannot be concluded to have been extinguished solely by an arm's length change of ownership." 202 F.3d at 1366. On the other hand, the Court pointed out that "Congress did not intend the opposite, that a change in ownership always requires a determination that a past countervailable subsidy continues to be countervailable, regardless whether the change in ownership is accomplished by an arm's length transaction or not." Id. (emphasis in original). Instead, the Court stated that the change in ownership provision "simply prohibits a per se rule either way." Id.
TheDelverde III court then considered the change-in-ownership provision in the context of the provisions for determining the existence of a subsidy and concluded that "the statute does not contemplate any exception" to those requirements (of a financial contribution and a benefit) in situations where the person who is the producer/exporter acquired corporate assets from a distinct person who had been subsidized. Id. The Court emphasized that the change-in-ownership provision "does not change the meaning of 'subsidy,'" and therefore "{a} subsidy can only be determined by finding that a person," meaning the producer or exporter of the imports in question, "received a 'financial contribution' and a 'benefit' . . . ." Id.
TheDelverde III court then held that the methodology Commerce employed to determine whether previously bestowed subsidies continued to be countervailable following a change in ownership was not in accordance with the statute. Id. at 1367. In particular, under the impression that Delverde was a different person from the original subsidy recipient, (2) the Court noted that
{n}owhere following its methodology did Commerce determine whether Delverde directly or indirectly received a financial contribution and benefit from one of the acts enumerated. Rather, Commerce's methodology conclusively presumed that Delverde received a subsidy from the Italian government -- i.e., a financial contribution and a benefit, simply because it bought assets from another person who earlier received subsidies.
Id. In the process of conducting the Delverde remand, however, the Department came to realize that the Delverde transaction did not, in fact, constitute a sale of assets, but was, in essence, a sale of shares.
For purposes of understanding the Delverde III court's holding, however, we must proceed on the basis of the facts as they were understood by the Court. Based on the parties' presentations, the Court understood the facts to be that certain assets of one company had been sold to another company. With this premise, the Court held that the new producer/exporter could not be presumed to have received any part of the original subsidy as a result of this change in ownership. The Court held that, for the new producer/exporter to be liable for countervailing duties following the change in ownership, it must be demonstrated that the new producer/exporter received a financial contribution and a benefit in its own right as a result of the change in ownership (for example, by demonstrating that the purchaser paid the seller less than adequate remuneration). Because the Court understood the original subsidy recipient and the post-change-in-ownership producer/exporter under the Delverde facts to have been distinct persons, it directed the Department to demonstrate that the new producer/exporter had received a financial contribution and a benefit.
In our view, the Delverde III court's holding focused not on the nature of the Delverde transaction, but on the Department's methodological approach to analyzing the transaction. The Court faulted the Department's failure to make specific findings regarding the existence of a subsidy benefitting Delverde, as required by the countervailing duty statute:
Having determined that the meaning of the statute is clear, we need not give Chevron deference to Commerce's interpretation; we need only determine whether Commerce's methodology is in accordance with the statute. We have concluded that it is not. Nowhere following its methodology did Commerce determine whether Delverde directly or indirectly received a financial contribution and benefit from one of the acts enumerated.
Id. at 1367. In other words, the Court was concerned because the Department had not undertaken a review of all of the facts and circumstances of the Delverde transaction. Without prejudging what the outcome would be, the Court indicated that such a review was required before the Department could properly make a determination regarding the existence of a subsidy. In accordance with the Court's pronouncements, that is what we have attempted to do in this remand determination.
In order to determine how the Delverde III court's holding applies to the facts before us, the first requirement is to determine whether the person to which the subsidies were given is, in fact, distinct from the person that produced the subject merchandise exported to the United States. If the two persons are distinct, the original subsidies may not be attributed to the new producer/exporter. The Department would, however, consider whether any subsidy had been bestowed upon that producer/exporter as a result of the change-in-ownership transaction. (3)
On the other hand, if the original subsidy recipient and the current producer/exporter are demonstrated to be the same person, that person benefits from the original subsidies, and its exports are subject to countervailing duties to offset those subsidies. In other words, if the firm under investigation is the same person as the one that received the subsidies, nothing material has changed since the original bestowal of the subsidy, so that the statutory requirements for finding a subsidy are satisfied with regard to that person. In the change-in-ownership context, the existence of a "financial contribution" and a "benefit" (conferred prior to the change in ownership) depends on the "person" requirement and, specifically, whether the firm under investigation is the same person as the original, pre-change-in-ownership subsidy recipient. Where it is demonstrated that those two entities are the same "person," we will determine that all of the elements of a subsidy are established, i.e., we will determine that a "financial contribution" and a "benefit" have been received by the "person" that is the firm under investigation. Assuming that the original subsidy had not been fully amortized under the Department's normal allocation methodology (4)
as of the period of investigation, the Department would then continue to
countervail the remaining benefits of that subsidy. (5)
Although it is not directly relevant here, see Delverde III, 202 F.3d at 1369, we note that the decision of the WTO's Appellate Body in U.K. Lead Bar is consistent with the analysis set forth by the Delverde III Court, as it sets forth essentially the same two-step analysis as the Delverde III Court. Addressing a privatization rather than a purely private transaction, the Appellate Body's first inquiry addressed the identity of the firm under investigation and specifically whether it was the person that had originally received certain pre-privatization subsidies. Then, having found that the two entities were distinct, the Appellate Body inquired into whether a subsidy had been provided through the privatization transaction. (6)
In any event, for purposes of this remand proceeding, the Delverde III Court did not explain how the Department should determine whether the firm under investigation is or is not the same "person" as the one that received the original subsidies. (7)
Presumably, it had understood the issue to be settled that the case before it involved two distinct entities.
In addressing this issue, the Department has sought guidance, in part, from how this type of issue has been handled under U.S. law in the general corporate context. There, a set of principles has been developed regarding whether a legal person (8) is the same or different for the purpose of determining whether it is appropriate to attribute prior liabilities (or assets) to a company once it has undergone a change in ownership.
Under these principles of corporate successorship, a mere change in a company's name does not automatically create a new legal person, nor does a mere change in the owners of a company, without more. Rather, the change in name or the change in the owners may or may not result in a change in the legal person, depending on a number of factors.
It is generally accepted that if a change in ownership is accomplished through a simple sale of shares, the purchaser steps into the shoes of the company being sold and becomes legally responsible for all existing and potential liabilities of that company, absent contractual agreement to the contrary. The most obvious example of a change in ownership accomplished through a simple sale of shares would be where a company's shares turn over through public trading on a stock market. In other situations, it is a factual question as to whether the purchaser becomes legally responsible for all existing and potential liabilities of the company or assets being sold. Specifically, it is a question of whether the company carries on substantially the same business after the change in ownership. Here, the factors examined include whether there is a continuation of assets, general business operations, locality, management, personnel, whether the seller exits the business after the transaction, and whether the company after the change in ownership holds itself out to be the effective continuation of the original enterprise. If an examination of these factors shows that the company is carrying on substantially the same business after the change in ownership, it is legally responsible for all existing and potential liabilities. (9)
The Department notes that, in its experience, particularly when dealing with privatizations, it often does not encounter straightforward changes in ownership where the status of the firm under investigation is readily apparent. For example, it is not common for the Department to be confronted with a change in ownership accomplished through a simple sale of shares, which is the type of case that would most readily reveal no change in the legal person. Similarly infrequent are cases where the firm under investigation has simply purchased some but not all of another firm's subsidized assets outright, which, conversely, would normally mean that the firm under investigation was a different legal person from the original subsidy recipient. Rather, in the cases that the Department more usually sees, the transactions are complex and do not lend themselves to such straightforward analysis.
In any event, although the Department is not adopting the test used in the area of corporate successorship, it does consider the principles developed in that area to provide useful guidance to it in its development of an approach for determining whether, in the countervailing duty context, the firm under investigation is the same "person" as the one that received the original subsidies. For one thing, the basic purpose in both contexts is to determine whether there has been any meaningful change in an entity. In addition, although the particular focus in the countervailing duty context is on the attribution of previously bestowed subsidy benefits rather than previously incurred liabilities as in the corporate successorship context, the ultimate question in the countervailing duty context is whether any liability for countervailing duties can be attributed to an entity based on subsidy benefits bestowed prior to a change in ownership. Furthermore, essentially the same principles that govern corporate successor liability also govern how previously obtained rights accrue to the corporate successor, and the nature of those rights is not unlike that of subsidy benefits.
In developing our approach, we have also considered the petitioners' arguments regarding precedent specifically in the countervailing duty context. (10)
In this regard, the petitioners have suggested that we adopt an analysis similar to the successor-in-interest test that the Department uses to assign antidumping duty or countervailing duty cash deposit rates following changes in a company's ownership or structure. Under that test, the Department uses a fact-based approach and attempts to determine whether the successor remains essentially the same entity as the predecessor following a sale or merger so that it is appropriate to impose the existing antidumping or countervailing duty cash deposit rate of the predecessor on the successor. In making this determination, the Department examines a number of factors including, but not limited to, changes in management, production facilities, supplier relationships, and customer base in an attempt to determine how the successor will likely act subsequent to its sale or merger. (11)
We note that the inquiry that we are attempting to follow in the change-in-ownership context is somewhat different from this inquiry. We are not attempting to determine how the entity in question will act subsequent to its change in ownership. Rather, our determination focuses more fundamentally on whether the post-sale entity is the same "person" as the subsidized pre-sale entity. For this reason, in making the "person" determination contemplated by Delverde III, we believe that only limited guidance can be obtained from the Department's successor-in-interest test.
With these various considerations in mind, the Department has developed its own approach for assessing changes in the entity under consideration that relies on a variety of factors, while regarding no single factor or group of factors as dispositive. We have not established an all-inclusive list of factors to be applied in every such analysis to be conducted by the Department. Rather, we recognize that the specific facts and circumstances surrounding each change in ownership will be unique and, therefore, will require a flexible approach. We do anticipate, however, that certain factors will generally be found to be relevant to many or most transactions examined by the Department.
Thus, as part of this approach, where appropriate and applicable, we would analyze factors such as (1) continuity of general business operations, including whether the successor holds itself out as the continuation of the previous enterprise, as may be indicated, for example, by use of the same name, (2) continuity of production facilities, (3) continuity of assets and liabilities, and (4) retention of personnel. No single factor will necessarily provide a dispositive indication of any change in the entity under analysis. Instead, the Department will generally consider the post-sale entity to be the same person as the pre-sale entity if, based on the totality of the factors considered, we determine that the entity sold in the change-in-ownership transaction can be considered a continuous business entity because it was operated in substantially the same manner before and after the change in ownership.
We note that, by taking this more comprehensive approach to analyzing the facts and circumstances surrounding a change-in-ownership transaction, we have attempted to address the concerns previously raised by the Department and the courts regarding restructuring changes, namely, that such changes not permit respondent firms to avoid prior liabilities while retaining the benefits underlying those liabilities. For example, the CIT has noted that while a producer may be incorporated under a different name from the person that was previously identified as the subsidy recipient, the "new" company may be the successor-in-interest of the original subsidy recipient and, thus, constitute "for all intents and purposes the same entity." British Steel plc v. United States, 879 F. Supp. 1254, 1276, 1279, 1283, 1287 (CIT 1995) (British Steel I), rev'd, 127 F.3d 1471 (Fed. Cir. 1997). (12)
As is evident below, when we apply this approach to the facts and circumstances of the Usinor privatization, we find that the pre-sale and post-sale entities are not distinct persons. It is on that basis that we have attributed the GOF subsidies provided prior to the privatization to the post-sale entity,Usinor, and we, therefore, do not reach the question of whether a subsidy has been provided to Usinor as a result of the privatization transaction.
The Usinor Privatization
In Delverde III, the Federal Circuit directed that the Department should specifically consider "the facts and circumstances, including the terms of the transaction" when addressing a change in ownership like the Usinor privatization. 202 F.3d at 1369-1370. In this remand proceeding, the Department has carefully considered the Court's Delverde III opinion and, in particular, its admonition that the Department's inquiry seek to determine whether "an authority provides a financial contribution, . . . to a person and a benefit is thereby conferred." Id. at 1365 (emphasis in original) (citation omitted). To this end, the Department has begun its analysis here by analyzing the transaction at issue here for the purpose of addressing the one subsidy element that it initially places in issue, i.e., the "person" determination. In other words, we are seeking to determine whether the entity under investigation (post-privatization Usinor) itself received a government-provided financial contribution and a benefit.
Concurrently, the Department has undertaken a review of all of the evidence on the record from the underlying investigation concerning the nature of the transaction in question. In addition, for this remand, the Department has sought more specific information as to the nature of the sale by sending questionnaires to Usinor and the GOF. As a result of this more focused inquiry, the Department has found that the transaction at issue was structured as follows.
Up until the time of Usinor's privatization, Usinor was owned (directly or indirectly) by
the GOF. Usinor was privatized beginning in July 1995, when the GOF and Clindus offered the
vast majority of their shares in the company for sale. (13)
Clindus was a subsidiary of Credit
Lyonnais, which at that time was controlled by the GOF. After the privatization and, in
particular, by the end of the POI (calendar year 1997), 82.28 percent of Usinor's shares were held
by private shareholders who could trade them freely. Usinor's employees owned 5.16 percent of
Usinor's shares; Clindus, 2.5 percent; and, the GOF, 0.93 percent. The remaining 14.29 percent
of Usinor's shares were held by the so-called "Stable Shareholders." (14)
In analyzing whether the producer of the merchandise subject to this investigation is the
same business entity as the pre-privatization Usinor, we have examined whether Usinor
continued the same general business operations, and retained production facilities, assets and
liabilities, and personnel of the pre-privatization Usinor. Based on our analysis, we have
concluded that the privatized Usinor is for all intents and purposes the same "person" as the
GOF-owned steel producer of the same name which existed prior to the privatization. Continuity of General Business Operations Based on our review of the record, Usinor has produced the same products and remained
the same corporation at least since the late 1980s. (15) In 1987, Usinor became the holding
company for the French steel groups, Usinor and Sacilor. (The GOF had majority ownership of
both Usinor and Sacilor since 1981.) Usinor's principal businesses covered flat products,
stainless steel and alloys, and specialty products. In 1994, these three product groups were
produced by three subsidiaries: Sollac, Ugine and Aster (respectively). (Prospectus at 6.) This same structure continued after Usinor's privatization in 1995. Usinor's
organizational chart for December 31, 1997, shows the same three major products being
produced by the same three subsidiaries. (GOF's September 15, 1998 Response at Tab 1.) In
1994 (prior to the privatization), flat products contributed 55 percent of consolidated sales, while
stainless and specialty products contributed 20 and 18 percent respectively. (Prospectus at 6.) In
the years following privatization (1995, 1996 and 1997), flat carbon steels continued to
contribute 49 - 53 percent of Usinor's consolidated net sales, while stainless and alloy, and
specialty steel accounted for 23 - 25 percent, and 19 - 21 percent, respectively. (GOF's
September 15, 1998 Response at tab 7, p.6.) We have also examined whether post-privatization Usinor held itself out as the
continuation of the previous enterprise (e.g., retains the same name). In this instance, Usinor
retained its same name and there is no indication that the privatized company held itself out as
anything other than a continuation of pre-privatization Usinor. The continuity of Usinor's business operations is also reflected in Usinor's customer
base. Prior to privatization, the automobile industry was a principal purchaser of Usinor's
output, accounting for approximately 30 percent of Usinor's sales in 1994. In 1997, the
automobile industry was still Usinor's major customer (36 percent of Usinor's sales). The
construction industry was the second largest purchaser in both years, accounting for 26 and 23
percent respectively. (Prospectus at 17 and GOF's September 15, 1998 Response at tab 7, p.8.) Continuity of Production Facilities According to Usinor, neither product lines nor production capacity changed as a result of
the privatization, except those changes that "occurred in an ongoing manner in the ordinary
course of business." (16)
Usinor adds that, "no facilities or production lines were added or
eliminated specifically as a result of the sale." (17)
As is clear from a comparison of the Prospectus
for the 1995 privatization and Usinor's 1997 Annual Report, steel production facilities have
remained intact. The company continues to focus on an "all steel" strategy, in which it engages
in all aspects of the steel production process and produces a wide variety of steel products. (18)
Finally, Usinor's steel production facilities did not change their physical locations. Continuity of Assets and Liabilities Based on our review of the Prospectus describing the sale of Usinor's shares, Usinor was
sold intact, with all of its assets and liabilities. While the GOF continued to own a small
percentage of Usinor's shares, there is no indication that it retained any of Usinor's assets or
liabilities. Retention of Personnel Usinor's Articles of Incorporation changed as a result of the privatization and the new
Articles of Incorporation specified new procedures for electing the Board of Directors. New
directors were elected to the Board under the new procedures. However, Usinor states that its
Chairman and Chief Executive Officer remained the same before and after the privatization. (19)
Similarly, Usinor's workforce did not change. (20) Thus, we determine that post-privatization Usinor is for all intents and purposes the same
"person" as pre-privatization Usinor. IV. Comments Comment 1 Respondents, Usinor and GOF, argue that the Department's new "same person" analysis
ignores the impact of Usinor Sacilor's privatization. They claim that the "same person" approach
ignores the fact that the privatization involved the sale by the GOF of its controlling interest in
the company to private parties through a global share offering and that nearly FF 5 billion in new
private capital was injected into the company as a result. The respondents contend that the Draft
Remand overlooks the dramatic impact of the privatization on the management and market
incentives of the company. The respondents state that a wholly new Board of Directors was
elected by the new shareholders. The respondents suggest that the removal of the "government
safety-net" requires the company to act in accordance with market disciplines. The respondents
further assert that because the privatization "placed the company in the hands of private
investors, who paid full market value for the company, and who expected a return on their
capital", "there is no basis for finding that the company enjoyed any benefit, and hence subsidy,
during the POI." (21) The Department's Position Respondents do not contest the factors examined or the conclusions reached by the
Department regarding whether the post-privatization Usinor is the same entity as the pre-privatization Usinor under the Department's new approach to changes in ownership. Instead,
respondents take issue with the new approach itself, which was developed as a result of the
Delverde III decision. While it is true that as a result of privatization, Usinor had new
shareholders who elected a new Board of Directors, these facts do not change the conclusion that
the business operations of Usinor (including its management) were largely unchanged as a result
of the privatization and that Usinor continues to hold itself out as the same company despite its
new owners. As discussed below, the Department believes its new approach to changes in
ownership to be consistent with Delverde III and, thus, has continued to follow that approach in
this final remand determination. Comment 2 The respondents argue that the Department's Draft Remand cannot be reconciled with
Delverde III or the WTO rulings in UK Lead Bar. They find that Commerce's "person" inquiry
contravenes the URAA, as interpreted in Delverde III, and has already been rejected by the WTO.
The respondents suggest that because the Department had no basis for finding that Usinor
Sacilor's privatization was not at arm's length, it looked for an "out" in the "person" inquiry set
forth in the Draft Remand. The respondents claim that the new "person" inquiry ignores the
purchaser and the terms of the change in ownership transaction and, therefore, contravenes
Delverde III. The respondents maintain that Delverde III requires the Department to ascertain
whether or not the purchaser of the corporate assets received a financial contribution and benefit
before concluding that a purchaser indirectly received subsidies. The respondents insist that
Delverde III requires the Department to find that the privatized Usinor must be shown to have
received a financial contribution and a benefit. The respondents also maintain that Delverde III requires the Department to examine the
terms of the transaction, specifically whether or not the purchasers of Usinor "paid full value for
the assets and thus received no benefit from the prior owner's subsidies." Delverde at 1368.
According to respondents, the Department ignored this requirement. In addition, the respondents
suggest that the Department has based its "same person" analysis on a fundamentally flawed
premise, that the purchase of an entity through the sale of shares is materially different from the
purchase of an entity through the sale of assets. The respondents refer to the Department's
disagreement with the Court in British Steel, where the Department argued that the form of the
transaction should not have a bearing on whether or not the privatized entity continues to benefit
from prior subsidies. The respondents conclude that the "same person" analysis falsely assumes
the receipt of financial contribution, benefit, and assignment of countervailing duties to the new
owners. The respondents maintain that "the receipt of a subsidy by the seller cannot be
substituted for a finding that the purchaser benefited, such as by paying less than fair market
value for the company." (22) The respondents insist that the Department has concerned itself with
the wrong facts and circumstances in the Delverde remand. Had the Department adopted
respondents' analysis, i.e., the FMV analysis, no subsidies could have been attributed to Usinor. (23) Finally, the respondents argue that the "person" inquiry has already been rejected by the
WTO. The respondents contend that the case of UK Lead Bar is similar to that of Usinor. In UK
Lead Bar, according to the respondents, the Department concluded that there was no need to
investigate whether there was a benefit to the post-sale entities because the entities were
"essentially the same" as the operations before the change in ownership. In the resulting Panel
decision, the WTO found that the pertinent issue was not whether the entity was "essentially" or
"substantially" the same, but rather, whether the entity received a financial contribution and
benefit. The respondents suggest that the case of Usinor is not distinguishable from that of UK
Lead Bar. According to respondents, because Usinor's privatization also involved a public
offering of shares for fair market value, the WTO panel finding equally applies to Usinor.
Respondents urge the Department to act in accordance with the United States' international
obligations under the Agreement on Subsidies and Countervailing Measures ("SCM
Agreement"). The E.C. agrees with Usinor that the Draft Remand is inconsistent with U.K. Lead Bar.
Stating that the SCM Agreement requires a finding that the producer of the imported goods
received a benefit during the period of investigation, the E.C. argues that the Department cannot
ignore the possibility that when a producer pays for the productive assets of a previously state-owned, subsidized company, the original benefit determination is no longer valid. In particular,
according to the E.C., U.K. Lead Bar found that where fair market value is paid for the
productive assets, the private producer no longer benefits from the prior subsidies. According to the E.C., the Department's entity test completely ignores this determination
and views the payment of fair market value as completely irrelevant to the issue of benefit.
Instead, the Department's methodology presumes that a state-owned firm and a privatized firm
are the same based on some "ad-hoc list of factors." As a result, the E.C. concludes, the new
"entity" approach put forth in the Draft Remand is even more extreme than the Department's
previous change-in-ownership methodology, resulting in even higher countervailing duty rates. The petitioners argue that the reasoning and the conclusion of the Draft Remand are
consistent with the reasoning in Delverde III, in accordance with the Act, and supported by the
facts and circumstances surrounding the change in ownership of Usinor. (24) The petitioners assert
that the Delverde III decision is sound and accurate. In determining how to apply Delverde III,
the Department has correctly determined that it must first focus on the question of whether or not
the original subsidy recipient and the current producer/exporter can be considered the same
"person." The petitioners defend the Department's approach and find that it is sound and well-reasoned. The petitioners support the Department's decision to follow a flexible approach,
where the Department considers a number of factors in determining whether or not the entity is
the same "person" before and after the change in ownership. Finally, the petitioners suggest that
the Department's actual examination of the Usinor change in ownership is "rigorous and leads to
a conclusion that is well supported by the record on remand." (25) The Department's Position We disagree with respondents' contention that the Department's new approach to changes in
ownership cannot be reconciled with the holding of Delverde III. As we explained above, in
Delverde III, when it discussed how the Department should handle changes in ownership, the
Federal Circuit emphasized the "person" requirement that appeared in the countervailing duty
statute for the first time following enactment of the URAA. In Delverde III itself, however, the
Federal Circuit did not treat this matter as in dispute, given its understanding of the facts. In
particular, it understood the facts to be that the Delverde change-in-ownership transaction
involved nothing more than a sale of certain subsidized assets of one company to another
company, and it was in that situation that it considered the pre-sale entity to be a person distinct
from the post-sale entity. Nevertheless, the Federal Circuit did not explain what criteria it used
to reached this conclusion, and it is for that reason that the Department has developed criteria for
deciding whether or not the firm under investigation is the same person as the original subsidy
recipient. Consistent with Delverde III, we first examined the facts and circumstances, including the
terms of the transaction, to determine whether privatized Usinor, the firm under investigation,
was the same person as the original subsidy recipient, pre-privatization Usinor. Because the
Department found that they were the same person, it was then able to determine that all of the
elements of a subsidy were established with regard to post-privatization Usinor, and its analysis
of the transaction necessarily ended. Essentially, respondents argue that the Department should skip this first step in its
analysis of the change-in-ownership transaction and should examine only whether or not a
subsidy could be considered provided to the privatized company on the basis that the purchase
price was too low (e.g., less than adequate remuneration). We do not believe that Delverde III
stands for such a limited proposition. Although the Federal Circuit did not seem to view the
application of the "person" requirement as in dispute under the facts before it, it is still clear from
the Federal Circuit's opinion that it was the first inquiry that must be made by the Department
when confronting a change in ownership. Usinor also argues that the Department's new approach to changes in ownership is based
on a fundamentally flawed premise - that the purchase of an entity through the sale of shares is
materially different from the purchase of an entity through the sale of assets. In fact, however, as
can be seen from the discussion in Part III above, the distinction between a sale of shares and a
sale of assets is not crucial to the "person" determination. It is not one of the factors the
Department examines under its new "person" analysis. Rather, it becomes relevant principally to
the extent that it helps to clarify the analysis of one of those factors, namely, the continuity of
assets and liabilities. We also disagree with Usinor and the E.C. that the Department's Draft Remand is
inconsistent with the WTO Appellate Body's decision in U.K. Lead Bar. The Department's
Draft Remand is consistent with the U.K. Lead Bar decision, just as it is consistent with the
analysis set forth by the Delverde III court. In U.K. Lead Bar, in construing the SCM Agreement, the Appellate Body first asked
whether the firm under investigation (the privatized company) was the "natural or legal person"
that had received the subsidies investigated by the Department (grants and equity infusions
provided by the U.K. government years prior to the privatization). U.K. Lead Bar, para. 58.
Finding that the firm under investigation was not the same legal person as the one that had
received those subsidies, the Appellate Body ruled that the Department could only have imposed
countervailing duties on the entity under investigation if the Department had found that that legal
person had itself received a subsidy. Id., paras. 58, 62. The Appellate Body then examined the
privatization transaction in question in order to determine if the entity under investigation had
received a subsidy. The Appellate Body determined that the entity under investigation had
received no benefit and, therefore, no subsidy through this transaction because a fair market
value purchase price had been paid. Id., paras. 67-68. As can be seen, the Appellate Body set forth essentially the same two-step analysis as the
Delverde III Court. The first inquiry addressed the identity of the firm under investigation and
specifically whether it was the "natural or legal person" that had originally received certain pre-privatization subsidies. Then, having found that the two entities were distinct, the Appellate
Body inquired into whether a subsidy had been provided through the privatization transaction.
Thus, the initial "person" inquiry the Department has undertaken in this remand is the same type
of initial inquiry contemplated by the Appellate Body in its U.K. Lead Bar decision. There is no indication or guidance in the Appellate Body's decision as to how the "natural
or legal person" determinations were made. Thus, the Appellate Body did not rule specifically
on the United States' argument regarding the criteria that could be used to determine legal
successorship. We also disagree with the E.C. that the Department's approach to changes in ownership is
based on an "ad hoc list of factors" which results in a presumption that a state-owned firm and a
privatized firm are the same. The criteria were carefully selected to enable the Department to
make as meaningful a comparison as possible between the nature of the pre-sale entity, upon
which the subsidies were originally bestowed, and the post-sale entity, the current producer or
exporter of the subject merchandise. This inquiry does not lend itself to a bright-line test because
of the multi-faceted makeup of a legal person (as opposed to a natural person). Accordingly, the
Department selected those factors which it believed would provide it with a meaningful basis for
distinguishing or not between a pre-sale entity and a post-sale entity in the countervailing duty
context. With this goal in mind, the Department identified four basic factors which it believed
would be flexible enough to be applicable to a wide variety of business configurations. As we
have explained, no one of these factors will necessarily provide a dispositive indication of any
change in the legal person under analysis; the totality of the factors will be considered. Other
factors may also be considered as circumstances warrant, but it was felt that these particular
factors are generally common to the types of business configurations the Department normally
encounters. Consequently, no single factor, nor all of the factors taken together, presages any
particular outcome as the E.C. contends. Whatever the outcome, it is entirely case-specific,
depending solely upon the facts and circumstances surrounding the specific change-in-ownership
transaction under investigation. The E.C. hypothesizes that a new entity would have to undergo a total make-over in order
for the Department to consider it to be a new person. Until the Department is confronted with a
specific fact pattern, we cannot speculate as to what the result might be. Nevertheless, it is our
general view that the more an analysis of the identified factors points to continuity in a particular
case (as in this case), the more likely it will be that the Department will find no change in the
person. Conversely, the more an analysis of the identified factors does not point to continuity,
the more likely it will be that the Department will find a change in the person. For example, if
assets but no liabilities were passed on to the post-sale entity, or the pre-sale entity remained in
the same line of business, or the post-sale entity did not use the pre-sale entity's production
facilities, these types of circumstances would evidence a lack of continuity, and they therefore
would weigh in support of a finding of a change in the person. In the case of Usinor, the Department applied its "legal person" factors to the facts and
circumstances of the change in ownership of Usinor and determined that the legal person in the
form of pre-sale Usinor was the same legal person in the form of post-sale Usinor. Because
Usinor was found to be one and the same before and after the privatization transaction, all of the
criteria for finding a subsidy were met. That is, post-sale Usinor is the same legal person upon
which the original financial contributions were bestowed and therefore enjoys the benefit from
those financial contributions. Consequently, because the Department's person inquiry, the first
step contemplated by both Delverde III and U.K. Lead Bar, led to a finding that post-sale Usinor
was not a different legal person from pre-sale Usinor, there was no need to conduct an analysis of
the fair market value nature of the privatization transaction. Only when it is determined that the
post-sale firm is different from the pre-sale firm is that type of analysis warranted. Lastly, we disagree with a notion that is implicit in the arguments of both Usinor and the
E.C., namely, that a mere change in the owners of a company, without more, is sufficient to give
rise to a new person. As should be evident, this type of approach would result in a per se rule
that a new person is created whenever a sale occurs between two unrelated parties, or in other
words, whenever there is a change in ownership. At the very least, we do not interpret the
countervailing duty statute as requiring the Department to base its "person" determination solely
and dispositively on this criterion. We also consider such an approach to be ill-advised. It would mean, for example, that a
new "person" is created even when a company's shares simply turn over through public trading
on a stock market. Although we have not adopted the test used under general corporate
successorship law, we note that a mere change in owners in that context is not dispositive of
whether a new person exists for liability purposes. In addition, in the countervailing duty
context, as a policy matter, we view the analysis that we have developed in this case to be more
consistent with the remedial goals of the countervailing duty statute, namely, to "level the
playing field" by offsetting the benefit conferred by a subsidy. Comment 3 The respondents argue that the Department lacks the authority to increase the subsidy rate
in its remand redetermination. The Department's Position We disagree with respondents. The Remand Order in this case directed the Department
to "issue a determination consistent with United States law, interpreted pursuant to all relevant
authority, including the decision of the Court of Appeals for the Federal Circuit in Delverde, SRL
v. United States, 202 F.3d 1360 (Fed. Cir. 2000)." Allegheny Remand at 1. It did not state that
the Department could not increase the subsidy rate if implementation of the Delverde III decision
led to that result. As a general matter, agencies have a significant amount of discretion in
conducting a remand proceeding. See e.g., Ford Motor Co. v. NLRB, 305 U.S. 364, 373-75, 59
S.Ct. 301, 83 L.Ed. 221 (1939); United States et al. v. United States Smelting Refining & Mining
Co. et al., 339 U.S. 186, 70 S.Ct. 537, 94 L.Ed. 750 (1950); PPG Indus. Inc. v. United States, 52
F.3d 363 (D.C. Cir. 1995); Win-Tex Prods., Inc. v. United States, 843 F. Supp. 709, 712 (CIT
1994). Hence, Commerce had full authority to change the subsidy rate, including raising that
rate. Comment 4 The petitioners request that the Department clarify its statement regarding the GOF's
ownership of Usinor shares after the privatization. The petitioners note that the Department's
statement that the GOF owned 0.93 percent of Usinor after the privatization refers to only the
GOF's direct ownership of Usinor and does not take into account ownership through "stable
shareholders." The petitioners propose that the GOF controlled a portion of the stable
shareholders, which would increase the GOF's total ownership interest in Usinor to roughly 10
percent. The Department's Position We agree with the petitioners that there was GOF indirect ownership of Usinor through
stable shareholders, as is noted in Usinor's June 1995 Prospectus, page 24. (26) However, we do
not have record evidence, at this time, to ascertain the exact percentage of indirect ownership of
Usinor by the GOF at the time of privatization because we do not know the GOF's percentage of
ownership in each of the stable shareholders. V. Conclusion We have recalculated the net subsidy rate applicable to Usinor as shown in a separate
memorandum to the file. The new, recalculated net subsidy rate is 7.72 percent ad valorem. ___________________ Troy H. Cribb Assistant Secretary for Import Administration ___________________ Date 1. 1 The term "person" appeared in the countervailing duty statute for the first time
following the amendments made by the Uruguay Round Agreements Act ("URAA") effective
January 1, 1995. In its decision, the Court distinguished earlier Federal Circuit decisions
addressing the Department's privatization methodology on the basis that "we were interpreting
Commerce's methodology under the earlier statute, which we had already held was ambiguous."
202 F.3d at 1369. The language in the new statute was described by the Court as clear. Id. at
1366.
4. 4 Normally, in the absence of any changes in ownership, the Department allocates the measured subsidy benefit over time to the subsidy recipient's future production pursuant to a standard declining balance formula that generates a net present value equal to the amount of the subsidy. The period of time selected for this allocation is based on the subsidy recipient's average useful life of assets. See Countervailing Duties; Final Rule, 63 FR 65348, 65415-17 (Nov. 25, 1998) (§§ 351.524 and 525).
5. 5 Delverde III does not directly address this point because the Federal Circuit understood that the Delverde change in ownership involved a simple sale of some of one firm's subsidized assets to another firm, with the result that those subsidized assets became part of a person that was not the original subsidy recipient. The Department notes that the WTO Appellate Body's recent decision in United States - Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R (May 10, 2000) ("U.K. Lead Bar"), in which the Department's methodology was under review in the privatization context, does address this point. It indicates that, where there has been no change in the person that received the original subsidy, the investigating authorities may continue to apply a presumption that the subsidy benefit continues. See id. at para. 62.
6. 6 In U.K. Lead Bar, the Department's methodology was under review in the privatization context. In construing the Agreement on Subsidies and Countervailing Measures, the Appellate Body first asked whether the firm under investigation (the privatized company) was the "legal or natural person" that had received the subsidies investigated by the Department (grants and equity infusions provided by the U.K. government years prior to the privatization). U.K. Lead Bar, para. 58. Finding that the firm under investigation was not the same person as the one that had received those subsidies, the Appellate Body ruled that the Department could only have imposed countervailing duties on the entity under investigation if the Department had found that that person had itself received a subsidy. Id., paras. 58, 62. The Appellate Body then examined the privatization transaction in question in order to determine if the entity under investigation had received a subsidy. The Appellate Body determined that the entity under investigation had received no benefit and therefore no subsidy through this transaction because a fair market value purchase price had been paid. Id., paras. 67-68.
7. 7 The countervailing duty statute itself does not illuminate this issue either. According to 1 U.S.C. § 1, which applies to all laws set forth in the United States Code, including the countervailing duty statute, 19 U.S.C. §§ 1671 et seq., the term "person" includes "corporations, companies, associations, firms, partnerships, societies, and joint stock companies, as well as individuals," unless the context indicates otherwise. However, there is no further statutory illumination of this issue.
8. 8 The term "legal person" refers to an entity such as a corporation rather than an individual.
9. 9 See, e.g., Corporation Practice Guide, para. 2710 (Aspen Law & Business 1997). In other countries, similar factors govern the determination of whether the new owner is legally responsible for the liabilities of the company. In the European Union, for example, the factors include whether the company under the new owner "continued to manufacture the same product at the same place with the same staff." It is not enough that the company "merely changed its name." SCA Holding Ltd. v. Commission of the European Communities, Case T-327/94, 1998 ECJ CELEX LEXIS 1139 (Ct. First Instance 1998).
10. See Letter to the Secretary of Commerce from Collier Shannon Scott regarding Remand Case Brief in Allegheny Ludlum v. United States, CIT Ct. No. 99-09-00566 (Stainless Steel Sheet and Strip in Coils from France), dated September 8, 2000.
11. See, e.g., Certain Welded Stainless Steel Pipe from Korea; Final Results of Antidumping Duty Changed Circumstances Review, 63 FR 16979 (April 7, 1998); Certain Welded Stainless Steel Pipe from Taiwan; Final Results of Changed Circumstances Antidumping Duty Administrative Review, 63 FR 34147 (June 23, 1998); Certain Welded Stainless Steel Pipe from Taiwan; Preliminary Results of Changed Circumstances Antidumping Duty Administrative Review, 63 FR 16982, 16983-84 (April 7, 1998); Brass Sheet and Strip from Canada; Final Results of Antidumping Duty Administrative Review, 57 FR 20460 (May 13, 1992).
12. Although the Department in the past disagreed with the CIT's British Steel I decision, the Federal Circuit in Delverde III has made clear that the countervailing duty statute was subsequently amended in a material way by the URAA, and it has emphasized the new language regarding receipt of a subsidy by a "person." This new language provides a firmer statutory basis for an approach similar to the one suggested by British Steel I. While the Department was also concerned that the British Steel I approach would permit countries to structure privatizations in such a way as to circumvent the countervailing duty law, we now believe that we have developed a sufficiently flexible approach to address that concern.
13. See the May 19, 1999 Final Determination Calculations Memorandum at Appendix 3: Shares of Usinor as Privatized.
14. The GOF also has an additional amount of indirect ownership of Usinor as a result of its ownership of part of certain Stable Shareholders.
15. See GOF September 15, 1998 Questionnaire Response pages 2-1 through 2-5 and Exhibit 1 and the February 19, 1999 Usinor Verification Report at 1-2.
16. See Usinor/GOF October 6, 2000 Remand Response at 27.
17. Id. at 25.
18. See Usinor 1997 Annual Report at 3 (GOF September 15, 1998 Questionnaire Response, Exhibit 7); see also Usinor Valuation Report at 13 (GOF October 27, 2000 Remand Response, Exhibit 2).
19. See Usinor/GOF October 27, 2000 Remand Response at 10-12 and Exhibit 4 at Article 9; see also, Usinor's financial statements, as contained on the record.
20. According to Usinor, "the privatization did not result in the termination of employees or the creation of new positions other than in the ordinary course of business." See Usinor/GOF October 6, 2000 Remand Response at 27.
21. See Respondents' December 5, 2000 Draft Remand Comments, page 5.
22. 22 See Respondent's December 5, 2000 Draft Remand Comments, page 10.
23. 23 See Respondent's December 5, 2000, Draft Remand Comments, page11.
24. 24 See Respondents' December 5, 2000 Draft Remand Comments, page 5.
25. 25 See Petitioners' December 5, 20000 Draft Remand comments, page 4.
26. See Usinor's December 2, 1998 Verification Exhibits, Exhibit 9A.