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[C-433-502]
Preliminary Affirmative Countervailing Duty Determination; Oil Country Tubular Goods For Austria
Monday, June 3, 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 oil country tubular goods. The estimated net subsidy is 1.82 percent ad valorem.
We have notified the United States International Trade Commission (ITC) of our determination. We are directing the U.S. Customs Service to suspend liquidation of all entries of oil country tubular goods from Austria that are entered or withdrawn from warehouse for consumption, on or after the date of publication of this notice, and to require a cash deposit or bond on entries of these products in the amount equal to the estimated net subsidy.
If this investigation proceeds normally, we will make our final determination by August 7, 1985.
EFFECTIVE DATE: June 3, 1985.
FOR FURTHER INFORMATION CONTACT: Loc Nguyen or Mary Martin, Office of Investigation, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C. 20230; telephone: (202) 377-0167 or 377-3464.
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SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, 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 1980, as amended (the Act), are being provided to manufacturers, producers, or exporters in Austria of oil country tubular goods. For purposes of this investigation, the following programs are found to confer subsidies:
- Equity Infusions.
- Grants to the Austrian Steel Industry.
- Export Financing Under the Kontrollbank Export Credits Program.
- 100,000 Schilling Action Cash Grant Program.
We determine the estimated net subsidy to be 1.82 percent ad valorem.
Case History
On February 28, 1985, we received a petition from the United States Steel Corporation of Pittsburg, Pennsylvania, filed on behalf of the U.S. industry producing oil country tubular goods. In compliance with the filing requirements of section 355.26 of our regulations (19 CFR 355.26), the petition alleged that manufacturers, producers, or exporters in Austria of oil country tubular goods 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.
On March 5, 1985, we received a letter from Lone Star Steel Company of Dallas, Texas, requesting that the company be added as a co-petitioner to the proceeding on oil country tubular goods from Austria, filed by the United States Steel Corporation. The United States Steel Corporation agreed to include Lone Star Steel Company as a co-petitioner in this proceeding. By letter dated March 7, 1985, Lone Star Steel Company amended the petition. On March 26, 1985, CF&I Steel Corporation requested to become a co-petitioner in this proceeding; the request was subsequently granted, after the agreement of the other two petitioners.
We found that the amended petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on March 20, 1985, we initiated such an investigation (50 FR 12065). We stated that we expected to issue a preliminary determination by May 24, 1985.
Since Austria is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. Therefore, we notified the ITC of our intention. On April 17, 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 oil country tubular goods from Austria. (50 FR 16173).
We presented a questionnaire concerning the allegations to the government of Austria in Washington, D.C., on March 21, 1985. The government of Austria and Voest-Alpine AG provided responses to our questionnaire on April 29, 1985.
Scope of the Investigation
The Products covered by this investigation are "oil country tubular goods" (OCTG), which are hollow steel products of circular cross-section intended for use in the drilling of oil or gas. These products include oil well casing, tubing, and drill pipe of carbon or alloy steel, whether welded or seamless, manufactured to either American Petroleum Institute (API) or proprietary specifications. This investigation covers both finished and unfinished oil country tubular goods. The provisions of the Tariff Schedules of the United States, Annotated (TSUSA) covering all steel pipe and tube, including oil country tubular goods, were changed as of April 1, 1984. As a result of the changes mentioned above, oil country tubular goods now comprise TSUSA item numbers 610.3216, 610.3219, 610.3233, 610.3242, 610.3243, 610.3249, 610.3252, 610.3254, 610.3256, 610.3258, 610.3262, 610.3264, 610.3721, 610.3722, 610.3751, 610.3925, 610.3935, 610.4025, 610.4035, 610.4225, 610.4235, 610.4325, 610.4335, 610.4942, 610.4944, 610.4946, 610.4954, 610.4955, 610.4956, 610.4957, 610.4966, 610.4967, 610.4968, 610.4969, 610.4970, 610.5221, 610.5222, 610.5226, 610.5234, 610.5240, 610.5242, 610.5243, and 610.5244.
Analysis of Programs
Thoughout this notice, we refer to certain general principles applied to the facts of the current investigation. These principles are described in the "Subsidies Appendix" attahced to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from 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 is 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 Austrua of oil country tubular goods, Voest-Alpine AG. We have received information from the company and the government of Austria. For purposes of this preliminary determination, the period for which we are measuring subsidization ("the review period") is calendar year 1984.
Petitioners alleged that Voest-Alpine AG has received massive government equity infusions since 1975. Petitioners believe that these 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 commercial 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 are 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 statments from 1971 to 1983 (1984 statements were not provided). In analyzing the financial statements, we considered the information from the viewpoint 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.
- Current ratio.
Based on our review of the financial statements, and responses of the company and government, we preliminarily determine that the government's equity infusions into Voest-Alpine AG between 1978 and 1984 were on terms inconsistent with commercial considerations. In their responses, the government of Austria and Voest-Alpine AG provided data for the applicable period, including
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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 oil country tubular goods under the following programs:
A. Equity Infusions
Petitioners alleged that equity infusions into Voest-Alpine AG by
the government of Austria were on terms inconsistent with
commercial considerations. The responses stated that Voest-Alpine
AG received equity infusions during the period 1975-1984 from
Osterreichische Industrieverwaltungs-Aktiengesellshaft (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 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 the national average rate of return on equity in 1984 to Voest-Alpine AG's rate of return on equity in 1983. During verification, we intend to seek information on Voest- Alpine AG's rate of return on equity in 1984. The national average rate of return on equity was taken from Capital International Perspective. We then allocated the aggregate benefit over the value of total sales of all products produced by Voest-Alpine AG. On this basis we preliminarily determine the subsidy to be 0.08 percent ad valorem.
B. Grants to the Austrian Steel Industry
Under 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 dispersed 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. The other portion was made available to Voest-Alpine AG in the form of grants, approximately three-quarters of which were disbursed in 1983 and 1984. Approximately one-quarter of the grant money, allocated to Voest-Alpine AG under Law 589/1983, was not disbursed as of April 29, 1985.
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 varies. Apparently the amounts and the dates of allocation 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 allocation as the discount rate. The portion of the grant which had not been disbursed as of April 29, 1985, was not included in these benefit calculations. During verification we intend to seek updated information on the standing of this undisbursed portion of the grant.
We allocated the aggregate benefit over the value of total sales of all products produced by Voest-Alpine AG. Based on this methodology we find the subsidy conferred by grants to be 1.60 percent ad valorem.
C. Kontrollbank Export Financing
Petitioners 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 stated 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 by the Austrian government in 1946 to provide
services not normally available from commercial banks. Since 1950
it has served as the official arm of the Federal Ministry of
Finance for administration of the Austrian Export Credit and
Guarantee Scheme. 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 this preliminary determination, we have used 9.25 percent as the benchmark for short-term loans. This is the "Commercial Bank Lending Rate to Prime Borrowers," in Austria 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 commercial 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 0.08 percent ad valorem for the products under investigation.
D. Various Cash Grant Programs
Petitioners alleged that the Federal government provides cash
grants, equal to 100,000 Schillings per job created, to companies
relocating to, or expanding plants in the special development and
coal-mining areas.
The government response stated that a 100,000 Schilling Action program was established by joint resolution between Austria's federal and state governments. Funds from this program are granted (by both the federal and the applicable state government) as a premium in an amount
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no greater than 100,000 Schillings for each newly created job. To receive these cash grants, a company must meet the following requirements: (1) The recipient must have invested at least 400,000 Schillings in a newly estimated plant or 200,000 Schillings in the expansion of an old plant; (2) the character of the investment must be innovative; and (3) the recipient must make an employment guarantee of at least three years.
Under this program, Voest-Alpine AG was awarded a cash grant for the construction of its new seamless tube mill in Kindberg, Styria. Accordingly, 50 percent of any grant awarded is to be paid by the state (Styria) government and 50 percent by the federal government. The grant was approved in 1981 with payment to be made in two equal installments. The first installment was paid in May, 1983; the second installment is still outstanding. We have no information on the record that the rate of federal support does not vary from state to state and/or that the support is available in all parts of Austria. Because this program may be limited to companies located in specific regions, we preliminary determine this grant to be countervailable.
The methodology used to calculate the benefit was similar to the methodology used in the section entitled "Grants to the Austrian Steel Industry." The undisbursed portion of the grant was not included in this benefit calculation.
We allocated the aggregate benefit over the value of total sales of the oil country tubular goods under investigation. Based on this methodology we find the subsidy conferred by this grant to be 0.06 percent ad valorem.
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 oil country tubular goods under the following programs:
A. Osterreichische Investitionskredit TOP-1 and TOP-2 Loans
Petitioners 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 stated that the programs are intended to further
investments which are important for structural change by
providing federal interest rate supporting 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 Subsidies
Petitioners alleged that Voest-Alpine AG has received benefits
from labor programs sponsored by the Austrian government.
1. Government-Funded Labor Training. The government response stated 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 in training combined with reduced hours of work. Employees whose working hours are reduced receive support payments compensating them for the loss in earning 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 stated 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 limited 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 Assistant Act. The Special Assistant 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 Affairs 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 stated 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 that the company does not receive a subsidy under this program.
C.Interest Subsidy Program
Petitioners alleged that Voest-Alpine AG has received interest
subsidies from the Austrian government. The government of
Austria's response stated 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. Furthermore, the response
stated 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 Program
Petitioners alleged that Voest-Alpine AG has received substantial
loan guarantees from the Austrian government. The Austrian
government's response stated 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 a 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.
E. Local Subsidies To Reduce Moving and Worker Housing
Costs--"Pendlerbeihilfe" Program
Petitioners alleged that enterprises willing to move from
overcrowded industrial areas to development areas may receive
subsidies to reduce moving and worker housing costs. The
government of Austria's response stated
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that their "Pendlerbeihilfe" program was established to cover a portion of the costs incurred by workers, who must commute to a distant new job, due to lay-offs by their prior employer. Workers are only eligible to participate in this program when housing is unavailable in the vicinity of their new job. This program is administered by the state office of the Federal Ministry of Social Affairs and directly benefits the individual worker; benefits do not accrue to the company. Because this program provides assistance to individual workers and not companies, we preliminarily determine that Voest-Alpine AG does not receive a subsidy under this program.
III. Programs Determined Not To Be Used
We preliminarily determine that manufacturers, producers or exporters in Austria of oil country tubular goods did not use the following programs:
A. Income Tax Deferral on Export Sales
Petitioners 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 stated that it does not
benefit from this program
B. Export-Oriented Research Projects
Petitioners alleged that Voest-Alpine AG has received
export-oriented research and development loans on preferential
terms. The government of Austria's response stated that there are
no government programs which promote export- oriented research
projects. However, the response also stated that the Chamber of
Commerce sponsors programs, which are available to a variety of
industries, to promote exports. Since no loans were made to
Voest-Alpine AG under the Chamber of Commerce's loan program, we
preliminarily determine that this program was not used.
IV. Programs For Which Additional Information Is Needed
A. Reduced Tax Liability
Petitioners alleged that companies with new factories can deduct
up to 40 percent of the cost of machinery and equipment from
their quarterly tax liabilities. The response of the government
of Austria stated that the Investment Premium Laws of 1982 and
1984 (Laws 110/82 and 128/84, respectively) allow for cash
payments or income tax deductions for individuals or corporations
that have invested in certain kinds of assets. The goverment of
Austria's response stated that Voest-Alpine received premiums
that are not limited to a specific enterprise or industry, or a
group of enterprises or industries. However, because sections of
the response are unclear, we preliminarily determine that
additional information is needed.
B. Preferred European Recovery Program Loans for Regional
Development
Petitioner alleged that European Recovery Program (ERP) loans are
available on preferential terms in special development areas. The
response of the government of Austria is summarized in section
II.C. of this notice, entitled "Interest Subsidy Program." The
response did not state, however, if preferential ERP loans are
available for regional development on a selective basis.
Therefore, we preliminarily determine that additional information
is needed.
C. Interest Support by the State Government of Styria
Petitioners alleged that a number of local incentives are
available to industries in Austria. Voest-Alpine AG, in its
response, stated that it received interest support under this
program in 1983 and 1984. Although the government's response
stated that this program is not limited to a specific enterprise
or industry, or group of enterprises or industries, the
eligibility criteria may limit this program to a certain group of
enterprises or industries. Therefore, we preliminary determine
that additional information is needed.
V. Program Preliminarily Found Not To Exist
According to the government response, the following program does not exist.
Local Tax Incentives in Coal Mining Areas
Petitioners alleged that coal mining communities reduce local
taxes (i.e., payroll, trade tax and local fees) during the
initial years of a company's operation.
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 oil country tubular goods 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 1.82 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 determination. 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 conforms 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 determination or 45 days after its final affirmative determination, whichever is latest.
Verification
In accordance with section 776(a) of the Act, we will verify the data used in making our final determination. As previously stated, we will not accept any statement in the response that cannot be verified for our final determination.
Public Comment
In accordance with s 355.35 of our regulations, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination at 10:00 a.m. on June 27, 1985, at the U.S. Department of Commerce, Room 3708, 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 June 19, 1985. Oral presentations will be limited to issues raised in the briefs.
In accordance with 19 CFR 355.33(d) and 19 CFR 355.34, written views will be considered if received not less than 30 days before the final determination or, if
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a hearing is held, within 10 days after the hearing transcript is available.
This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: May 24, 1985.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.