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[C-433-402]

Preliminary Affirmative Countervailing Duty Determinations; Certain Carbon Steel Products From Austria

Wednesday, March 20, 1985

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AGENCY: Import Administration, International Trade Administration, Commerce.

ACTION: Notice.

SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Austria of certain carbon steel products. The estimated net subsidy is 2.08 percent ad valorem.

We have notified the United States International Trade Commission (ITC) of our determinations. We are directing the U.S. Customs Service to suspend liquidation of all entries of certain carbon steel products from Austria that are entered or withdrawn from warehouse for consumption, on or after the date of publication of this notice, and to require a cash deposit or bond on

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entries of these products in the amount equal to the estimated net subsidy.

If these investigations proceed normally, we will make our final determinations by May 28, 1985.

EFFECTIVE DATE: March 20, 1985.

FOR FURTHER INFORMATION CONTACT: Mary Martin, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230; telephone: (202) 377-3464.

SUPPLEMENTARY INFORMATION:

Preliminary Determinations

Based upon our investigations, we preliminarily determine that there is reason to believe or suspect that certain benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Austria of certain carbon steel products. For purposes of these investigations, the following programs are found to confer subsidies:

Equity Infusions;

Grants to the Austrian Steel Industry; and

Export Financing Under the Kontrollbank Export Credits Program.

We determine the estimated net subsidy to be 2.08 percent ad valorem.

Case History

On December 19, 1984, we receive a petition from the United States Steel Corporation of Pittsburgh, Pennsylvania, filed on behalf of the U.S. industry producing certain carbon steel products. In compliance with the filing requirements of s 355.26 of our regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in Austria of certain carbon steel products directly or indirectly receive benefits which constitute subsidies within the meaning of section 701 of the Act, and that these imports materially injure or threaten material injury to a U.S. industry.

We found that the petition contained sufficient grounds upon which to initiate countervailing duty investigations, and on January 8, 1985, we initiated such investigations (50 FR 2318). We stated that we expected to issue preliminary determinations by March 14, 1985.

Since Austria is a "country under the Agreement" within the meaning of section 701(b) of the Act, injury determinations are required for these investigations. Therefore, we notified the ITC of our initiation. On February 4, 1985, the ITC determined that there is a reasonable indication that an industry in the United States is materially injured or threatened with material injury by reason of imports of hot-rolled carbon steel sheet and cold-rolled carbon steel plates and sheets from Austria. The ITC also determined that there is no reasonable indication that an industry in the United States is materially injured or threatened with material injury, or that the establishment of an industry in the United States is materially retarded, by reason of imports of galvanized carbon steel sheets from Austria which are alleged to be subsidized (50 FR 6070).

We presented a questionnaire concerning the allegations to the government of Austria in Washington, D.C. on January 28, 1985. A supplemental questionnaire was presented on February 14, 1985. The government of Austria and Voest-Alpine AG provided responses to our questionnaires on February 28, 1985.

Scope of the Investigations

The products covered by these investigations are certain carbon steel products, which comprise:

Hot-rolled carbon steel sheet; and

Cold-rolled carbon steel sheet.

These products are more fully described in the Appendix to this notice.

Analysis of Programs

Throughout this notice, we refer to certain general principles applied to the facts of the current investigations. These principles are described in the "Subsidies Appendix" attached to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products farom Argentina; Final Affirmative Countervailing Duty Determination and Countervailing Duty Order," which was published in the April 26, 1984 issue of the Federal Register (49 FR 18006).

Consistent with our practice in preliminary determinations, where a response to an allegation denies the existence of a program, receipt of benefits under a program, or eligibility of a company or industry under a program, and the Department has no persuasive evidence showing that the response in incorrect, we accept the response for purposes of the preliminary determination. All such responses, are subject to verification. If the response cannot be supported at verification, and the program is otherwise countervailable, the program will be considered a subsidy in the final determination.

There is only one known producer in Austria of certain carbon steel products, Voest-Alpine AG. We have received information from the company and the government of Austria. For purposes of these preliminary determinations, the period for which we are measuring subsidization ("the review period") is calendar year 1984.

Petitioner alleged that Voest-Alpine AG has received massive government equity infusions have been on terms inconsistent with commercial considerations. We have consistently held that government provision of equity does not per se confer a subsidy. Government equity purchases bestow countervailable benefits only when they occur on terms inconsistent with commerical considerations. When there is no market-determined price for equity, it is necessary to determine whether the company was a reasonable commercial investment. Voest- Alpine AG's shares are not publicly traded and there is no market-determined prices for its shares.

Therefore, we must determine whether the equity infusions into Voest- Alpine AG were reasonable commercial investments.

To make this determination, we reviewed and assessed financial statements from 1971 to 1983 (1984 statements were not provided). In analyzing the financial statements, we considerd the information from the view point of an investor. Included in this review we analyzed the following data:

Rate of return on sales;

Rate of return from operations;

Rate of return on equity;

Debt to equity ratio; and

Current ratio.

Based on our review of the financial statements, and responses of the company and government, we preliminary determine that the government's equity infusions into Voest-Alpine AG between 1978 and 1984 were on terms inconsistent with commerical considerations. In its response, the government of Austria and Voest-Alpine AG provided data for the applicable period, including financial statements and debt information.

Based upon our analysis of the petition and the responses to our questionnaire, we preliminarily determine the following:

I. Programs Determined To Confer Subsidies

We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Austria of certain carbon steel products under the following programs:

A. Equity InfusionsPetitioner alleged that equity infusions into Voest-Alpine AG by the government of Austria were on terms inconsistent with commercial

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considerations. In a submission dated February 22, 1985, petitioner further alleged that the Austrian government has provided a subsidy to Voest- Alpine AG by waiving its claim to a nominal dividend from Osterreichische Industrieverwaltungs-Aktiengesellshaft (OIAG), the government-owned holding company for nationalized enterprises, inclulding Voest-Alpine AG. Finally, petitioner alleges that Voest-Alpine AG's losses were borne by profitable nationalized firms and industries owned by OIAG.

The responses state that Voest-Alpine AG received equity infusions during the period 1975-1984 from OIAG. Portions of the equity infusions into Voest-Alpine AG have been transferred to an affiliated company, Vereinigte Edelstahlwerke AG (VEW). Under the terms of applicable legislation, Voest-Alpine AG was required to transfer the funds to VEW. VEW does not produce or export any of the merchandise under investigation, and therefore we do not consider equity infusions to VEW to benefit the products under investigation.

As discussed in the "Analysis of Programs" section, we preliminarily determine that Voest-Alpine AG was not a reasonable commercial investment and was unequityworthy from 1978 to 1984, and , thus the government equity infusions between 1978 and 1984 were on terms inconsistent with commercial considerations. Therefore, we preliminarily determine that these equity infusions confer benefits which constitute a subsidy.

Following the methodology contained in the Subsidies Appendix, we have calculated the benefit from these equity infusions by comparing Voest-Alpine AG's rate of return on equity in 1984 to the national average rate of return on equity during the same period. The national average rate of return on equity was taken from Capital International Perspective. On this basis we preliminarily determine the net subsidy to be .08 percent ad valorem.

B.Grants to the Austrian Steel IndustryUnder Law 602/1981, the Austrian government authorized a grant of 2 billion Austrian schillings for the structural improvement of Voest-Alpine AG. These funds were disbursed through OIAG to Voest-Alpine AG in 1981 and 1982.

Law 589/1983 further permitted OIAG to raise new funds beginning in 1983. These funds were to be used for improving the economic structure of nationalized industrial enterprises. Of the funds raised by OIAG pursuant to the 1983 law, a portion went to Voest-Alpine AG in the form of equity infusions. These are discussed above. Another portion was made available to Voest/Alpine AG in the form of Grants, disbursed in 1983 and 1984.

We find these grants to be limited to a specific enterprise or industry or to a specific group of enterprises or industries. Therefore, we preliminarily determine these grants to be countervailable.

To calculate the amount of the benefit we have allocated the grants over 15 years (the average useful life of renewable assets in the steel industry). Discount rates have been developed for the years in which the grants were agreed upon. Therefore, the grants authorized under the 1981 law have been allocated using Voest-Alpine AG's 1981 weighted cost of capital. For the grants authorized by the 1983 law, the date of agreement is not clear. Apparently the amounts and the dates of disbursements are negotiated by OIAG and Voest-Alpine AG. Therefore, for grants received pursuant to the 1983 law we have used Voest/Alpine AG's weighted cost of capital in the year of disbursement as the discount rate. It is also unclear whether the full amount of the grant allotted to 1984 has been disbursed. For purposes of these preliminary determinations, we have treated the entire allocation as having been disbursed, but we intend to seek further clarification during verification.

Based on this methodology we find the net subsidy conferred by grants to be 1.95 percent ad valorem.

C. Kontrollbank Export FinancingPetitioners alleged that Voest-Alpine AG has received preferential export financing from the Austrian government in the form of loans at below-market interest rates. The government of Austria's response states that it does not extend export financing credits, but that such credits are extended by commercial banks through various programs. The most important of such programs is the Statutory Export Financing Scheme operated by Osterreichische Kontrollbank Aktiengesellschaft (OKB). The OKB was founded in 1946 to provide services not normally available from commercial banks. It has administered the official Austrian Export Credit and Guarantee Scheme of behalf of the Federal Ministry of Finance since 1950. OKB's twelve shareholders are exclusively Austrian credit institutions of which two are large nationalized banks.

Voest-Alpine AG received export financing through this program at interest rates lower than the National average short-term interest rate in Austria during 1984. For purposes of these preliminary determinations, we have used 9.25 percent as the benchmark for short-term loans. This is the "Commercial Bank Lending Rate to Prime Borrowers," as reported in World Financial Markets. Since Kontrollbank export financing is only available for use by exporters and the rates of interest charged are less than commerical interest rates on comparable loans, we preliminarily determine that the provision of such financing constitutes a countervailable benefit.

The benefit provided under this program was determined by applying the interest rate differential between the short-term benchmark and the interest rates paid by Voest-Alpine AG on the principal amount of all loans received by the company for the number of days the loans were outstanding. We then allocated the aggregate benefit over the value of exports of all products produced by Voest/Alpine AG. On this basis, we calculated a subsidy in the amount of 0.05 percent ad valorem for the products under investigation.

II. Programs determined not to confer a subsidy

We preliminarily determine that subsidies are not being provided to manufacturers, producers, or exporters in Austria of certian carbon steel products under the following programs:

A. Osterreichische Investitionskredit TOP-1 and TOP-2 LoansPetitioner alleged that Voest-Alpine AG has received preferential export financing from the government of Austria through TOP-1 and TOP-2 loans. The government of Austria's response states that the programs are intended to further investments which are important for structural change by providing federal interest rate supports for credits given by Austrian banks. These credits are refinanced on the Austrian capital market by the Investitionskredit AG.

According to the government's response, the TOP-1 and TOP-2 programs are not limited to export promotion nor are they limited to a specific industry or group of industries. Therefore, we preliminarily determine that the program does not constitute a subsidy.

B. Labor SubsidiesPetitioner alleges that Voest-Alpine AG has received benefits from labor programs provided by the Austrian government.

1. Government-Funded Labor Training. The government response

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states that under the Labor Market Promotion Act, Law No. 31/1969, companies in Austria may receive funds from the Austrian government for the establishment of in-house training programs to improve worker skills or to teach workers new vocations. In addition, under this law companies in Austria with low levels of capacity utilization may receive funds to be paid to the workers involved for training combined with reduced hours of work. Employees whose working hours are reduced receive support payments compensating them for the loss in earnings sustained. Workers receiving benefits under this program spend the difference between their reduced working hours and their normal working hours in training programs. The government's response states that funding for these labor training programs is available to all sectors of Austrian industry and not just to the iron and steel industry or to export-related industries. Because this program is not related to a specific enterprise or industry, or group of enterprises or industries, we preliminarily determine that the program does not constitute a subsidy.

2. Special Assistance Act.The Special Assistance Act of 1973, Law No. 642/1973, provides enhanced unemployment benefits for former employees of sectors of the economy hit by the downturn which have been let go and are at least 55 years old for men or 50 years old for women. The Federal Minister of Social Affaires is empowered to determine by decree which sectors of the economy warrant application of the provisions of the law. In a decree issued on March 21, 1983, the iron and steel industry was included within the provisions of this law. The government of Austria's response states that payments under this law are made directly to the workers who have been laid off by an employer. The employer itself is not entitled to any support or subsidies under this law and is not relieved from payment of any expenses otherwise the obligation of such employer. Because this program provides assistance to workers and does not relieve Voest-Alpine AG of any expenses or obligations, we preliminarily determine the company does not receive any subsidy under this program.

C. Interest Subsidy ProgramPetitioner alleged in a submission dated January 31, 1985, that Voest-Alpine AG has received interest subsidies from the Austrian government. The government of Austria's response states that the European Recovery Program Fund of Austria administered a program from 1978-1981 aimed at encouraging industrial projects in Austria. Under this program, qualifying investments were eligible for interest support reducing the amount of interest payable on commercial loans obtained to finance such investments. Further, the response states that all companies in Austria were eligible for this program and it was not confined to export-related projects. Because this program is not related to a specific enterprise or industry, or group of enterprises or industries, we preliminarily determine that this program does not constitute a subsidy.

D. Loan Guaranty ProgramPetitioner alleged in a submission dated January 31, 1985, that Voest-Alpine AG has received substantial loan guarantees from the Austrian government. The Austrian government's response states that loans issued by insurance companies in Austria must meet certain strict requirements for investment security according to section 77 of the Insurance Supervisory Law of October 18, 1976. Because of these requirements, commercial loans by insurance companies must be guaranteed by the government or secured by a pledge of real estate. The government guarantees insurance company loans to Voest-Alpine AG to enable the insurance companies to find larger-scale legally eligible investments for placement of their investment portfolios, rather than to enable Voest-Alpine AG to raise funds, which it is able to do through other sources. Accordingly, we preliminarily determine that this program does not provide subsidies to Voest- Alpine AG.

III. Programs Determined Not To Be Used

We preliminarily determine that manufacturers, producers or exporters in Austria of certain carbon steel products did not use the following programs:

A. Local IncentivesPetitioner alleges that Voest-Alpine AG may have received benefits from a number of local investment incentives that are available to industries in Austria. The responses state that for the period 1968-1984, no local incentives were applicable to the production of the merchandise under investigation.

B. Income Tax Deferral on Export SalesIn a submission dated January 31, 1985, petitioner alleged that the Austrian government provides an export subsidy by permitting exporters to deduct from their taxable income fifteen percent of receivables originating from exports. The response of Voest-Alpine AG states that Voest-Alpine AG does not benefit from this program.

Suspension of Liquidation

In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of certain carbon steel products from Austria which are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register and to require an ad valorem cash deposit or bond for each such entry of this merchandise at 2.08 percent ad valorem. This suspension will remain in effect until further notice.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the ITC of our determinations. In addition, we are making available to the ITC all non- privileged and non-confidential information relating to these investigations. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.

The ITC will determine whether these imports materially injure or threaten material injury to a U.S. industry 120 days after the Department makes its preliminary affirmative determinations or 45 days after its final affirmative determinations, whichever is latest.

Public Comment

In accordance with s 355.35 of our rgulations, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on these preliminary determinations at 10:00 a.m. on April 17, 1984, at the U.S. Department of Commerce, room 1851, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, room B-099, at the above address within 10 days of the publication of this notice.

Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In addition, at least 10 copies of pre-hearing briefs must be submitted to the Deputy Assistant Secretary by April 10, 1985. Oral presentations will be limited

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to issues raised in the briefs. All written views should be filed in accordance with 19 CFR 355.34, within 30 days of the publication of this notice, at the above address and in at lest 10 copies.

This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).

Dated: March 14, 1985.

C. Christopher Parlin,

Acting Deputy Assistant Secretary for Import Administration.

Appendix.--Description of Products

Austria

1. The term "hot-rolled carbon steel flat-rolled products" covers hot-rolled carbon steel products, whether or not corrugated, or crimped; not cold- rolled; not cut, not pressed, and not stamped to non-rectangular shape; not coated or plated with metal and not clad; 0.1875 inch or more in thickness and over 8 inches in width and pickled, as currently provided for in item 607.8320 of the TSUSA; and not pickled and in coils; as currently provided in item 607.6610, or under 0.1875 inch in thickness and over 12 inches in width, whether or not pickled, whether or not in coils, as currently provided for in items 607.6710, 607.6720, 607.6730, 607.6740, or 607.8342 of the TSUSA.

2. The term "cold-rolled carbon steel flat-rolled products" covers cold-rolled carbon steel products, whether or not corrugated or crimped; whether or not painted or varnished and whether or not pickled; not cut, nor pressed, and not stamped to non-rectangular shape; not coated or plated with metal and not clad; over 12 inches in width and 0.1875 or more in thickness, as currently provided for in item 607.8320 of the TSUSA; or over 12 inches in width and under 0.1875 inch in thickness, whether or not in coils as currently provided for in items 607.8350, 607.8355, or 607.8360 of the TSUSA.