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[C-433-806]

Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determinations: Oil Country Tubular Goods ("OCTG") From Austria

Tuesday, January 24, 1995

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AGENCY: Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE: January 24, 1995.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Daniel Lessard, Office of Countervailing Investigations, Import Administration, U.S. Department of Commerce, room 3099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482-0189.

Preliminary Determination

The Department preliminarily determines that 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 of OCTG in Austria. For information on the estimated net subsidies, please see the Suspension of Liquidation section of this notice.

Case History

Since the publication of the notice of initiation in the Federal Register (59 FR 37028, July 20, 1994), the following events have occurred.

On August 1, 1994, we issued a countervailing duty questionnaire to the Government of Austria ("GOA") in Washington, DC, concerning petitioners' allegations. On August 16, 1994, the GOA responded to the first section of our questionnaire informing us that Voest-Alpine Stahlrohr Kindberg ("Kindberg"), an Austrian OCTG producer, accounted for 100 percent of Austrian exports of the subject merchandise to the United States during the POI.

The Department initiated this investigation based in part on an allegation that Kindberg was benefitting from subsidies given to a related party from whom Kindberg purchased inputs for OCTG production ("upstream subsidy allegation"). On August 22, 1994, the GOA and Kindberg submitted information pertaining to the upstream subsidy allegation. On August 29 and 30, 1994, we conducted a verification relating solely to this information. A report was issued concerning this verification on October 13, 1994.

On September 15, 1994, the GOA and Kindberg submitted questionnaire responses. On November 23, 1994, we issued a deficiency questionnaire to Kindberg and the GOA. We received their responses on December 16, 1994. On January 6, 1995, we requested that respondents submit the proprietary versions of certain exhibits from Final Affirmative Countervailing Duty Determination: Certain Steel Products from Austria, 58 FR 37217 (July 9, 1993) ("Certain Steel"). We received this information on January 9, 1995.

On August 24, 1994, we postponed the preliminary determination in this investigation until November 23, 1994, pursuant to section 703(c)(1) of the Act, on the grounds that the case was extraordinarily complicated (59 FR 43554, August 24, 1994). The preliminary determination was again extended until January 17, 1995, pursuant to section 703(g)(1) of the Act (59 FR 60774, November 28, 1994).

On December 5, 1994, we received a request from petitioner to postpone the final determination in this investigation until the date of the final antidumping determination in the companion antidumping investigation of OCTG from Austria, in accordance with 19 CFR 355.20(c)(1).

Scope of Investigation

The products covered by this investigation are OCTG, which are hollow steel products of circular cross-section. These products include oil well casing, tubing, and drill pipe, of iron (other than cast iron) or steel (both carbon and alloy), whether or not conforming to American Petroleum Institute ("API") or non-API specifications, whether finished or unfinished (including green tubes). These investigations do not cover casing, tubing, or drill pipe containing 10.5 percent or more of chromium. The OCTG subject to these investigations are currently classified in the Harmonized Tariff Schedule ("HTS") under these item numbers:

7304.20.10.00 .... 7304.20.40.10 . 7304.20.10.20

7304.20.30.80 .... 7304.20.10.30 . 7304.20.10.40

7304.20.10.50 .... 7304.20.10.60 . 7304.20.10.80

7304.20.20.00 .... 7304.20.20.10 . 7304.20.20.20

7304.20.20.30 .... 7304.20.20.40 . 7304.20.20.50

7304.20.20.60 .... 7304.20.20.80 . 7304.20.30.00

7304.20.30.10 .... 7304.20.30.20 . 7304.20.30.30

7304.20.30.40 .... 7304.20.30.50 . 7304.20.30.60

7304.20.30.80 .... 7304.20.40.00 . 7304.20.40.10

7304.20.40.20 .... 7304.20.40.30 . 7304.20.40.40

7304.20.40.50 .... 7304.20.40.60 . 7304.20.40.80

7304.20.50.10 .... 7304.20.50.15 . 7304.20.50.30

7304.20.50.45 .... 7304.20.50.50 . 7304.20.50.60

7304.20.50.75 .... 7304.20.60.10 . 7304.20.60.15

7304.20.60.30 .... 7304.20.60.45 . 7304.20.60.50

7304.20.60.60 .... 7304.20.60.75 . 7304.20.70.00

7304.20.80.00 .... 7304.20.80.30 . 7304.20.80.45

7304.20.80.60 .... 7305.20.20.00 . 7305.20.40.00

7305.20.60.00 .... 7305.20.80.00 . 7306.20.10.30

7306.20.10.90 .... 7306.20.20.00 . 7306.20.30.00

7306.20.40.00 .... 7306.20.60.10 . 7306.20.60.50

7306.20.80.10 .... 7306.20.80.50 -------------

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Although the HTSUS subheadings are provided for convenience and U.S. Customs purposes, our written description of the scope of this proceeding is dispositive.

Injury Test

Because Austria is a "country under the Agreement" within the meaning of section 701(b) of the Act, the U.S. International Trade Commission ("ITC") is required to determine whether imports of OCTG from Austria materially injure, or threaten material injury to, a U.S. industry. On August 24, 1994, the ITC published its preliminary determination finding that there is a reasonable indication that an industry in the United States is being materially injured or threatened with material injury by reason of imports from Austria of the subject merchandise (59 FR 43591, August 24, 1994).

Petitioners

The petitioners are Koppel Steel Corporation; U.S. Steel Group, a unit of USX Corporation; and USS/Kobe Steel. Co-petitioners in this investigation are IPSCO Steel, Inc.; Maverick Tube Corporation; and North Star Steel Company.

Corporate History of Respondent Kindberg

Prior to 1987, the subject merchandise was produced in the steel division of VAAG, a large conglomerate which also had engineering and finished products divisions. In 1987, VAAG underwent a major restructuring and several new companies were formed from the three major divisions of VAAG. The steel division was incorporated as Voest-Alpine Stahl GmbH, Linz ("VA Linz"). The production facilities at Kindberg and Voest-Alpine Stahl Donawitz GmbH ("Donawitz") were separately incorporated, with Kindberg and Donawitz becoming subsidiaries of VA Linz. VAAG became a holding company for these new companies.

In 1988, VAAG transferred its ownership interest in VA Linz to Voest-Alpine Stahl AG ("VAS"). At the same time, Kindberg became a subsidiary of Donawitz. Donawitz and other companies were owned by VAS, which in turn was owned by VAAG.

In 1989, VAS and all other subholdings of VAAG were transferred to Industrie und Beteiligungsverwaltung GmbH ("IBVG"). In 1990, IBVG, in turn, was renamed Austrian Industries AG ("AI"). VAAG remained in existence, but separate from IBVG and AI, holding only residual liabilities and non-steel assets.

In 1991, as part of the reorganization of the long products operations, Donawitz was split into two companies. The rail division remained with the existing company (i.e., Donawitz), however, the name of the company was changed to Voest-Alpine Schienen GmbH ("Schienen"). In addition to producing rails, Schienen also became the holding company for Kindberg and the other Donawitz subsidiaries. The metallurgical division of the former Donawitz was incorporated as a new company and was named Voest-Alpine Stahl Donawitz ("Donawitz II").

Equityworthiness

As discussed below, we have determined that the GOA provided equity infusions, through O4sterreichische Industrieholding-Aktiengesellschaft ("O4IAG"), to VAAG in the years 1983, 1984, and 1986, and to Kindberg in 1987. In order for the Department to find an equity infusion countervailable, it must be determined that the infusion is provided on terms inconsistent with commercial considerations. Petitioners have alleged that VAAG and Kindberg were unequityworthy in the years in which they received equity infusions and that the equity infusions were, therefore, inconsistent with commercial considerations. According to s355.44(e)(2) of the Department's proposed regulations, for a company to be equityworthy, it must show the ability to generate a reasonable rate of return within a reasonable period of time. A detailed equityworthiness analysis can be found in Appendix I of the Concurrence Memorandum dated January 17, 1995. A summary of that analysis follows.

In Certain Steel, the Department determined VAAG to be unequityworthy for the years 1978-84 and 1986. Respondents have not questioned this determination and no additional information concerning that period has come to light. Therefore, we preliminarily determine VAAG to be unequityworthy during the period 1978-84, and for 1986.

With respect to the equityworthiness of Kindberg in 1987, the Department would normally analyze financial statements of the company in question for three years prior to the infusion and also consider any outside studies. In this case, however, since Kindberg was incorporated effective 1987, its performance before that year is included in the financial statements of VAAG. An in-depth analysis of VAAG's financial ratios in the three years prior to the restructuring was undertaken in Certain Steel. In that case, the Department concluded that VAAG's financial statements showed poor results during the relevant period (see the Department's Final Concurrence Memorandum in Certain Steel, at Appendix 2).

Respondents have submitted information pertaining to the expected results of the 1987 restructuring to be considered in making our equityworthiness determination for Kindberg in 1987. Specifically, they have provided a one page excerpt from a study titled "VA Neu" and a profit and loss forecast. However, the VA Neu study is not translated, and neither document contains any narrative description or analysis of the figures contained within it. Moreover, it is not clear from the responses when these plans were developed or what conclusions they contain. Absent this information, we are unable to conclude that a reasonable private investor would be able to properly analyze the significance of these figures. Therefore, the information contained in these documents has not been considered in the Department's analysis.

Because we are not able to take this information into account, we are basing our preliminary equityworthy finding for Kindberg on VAAG's financial history. While we recognize that VAAG's financial data includes companies other than Kindberg, without any additional information we are compelled to rely on the unequityworthiness of VAAG alone. This is consistent with the analysis in Certain Steel, where the 1987 equityworthiness determination for another VAAG subsidiary was based on the past performance of VAAG. Therefore, we preliminarily determine Kindberg to be unequityworthy in 1987.

Allocation of Non-Recurring Benefits

As discussed below, we found that countervailable equity infusions and grants have benefited the production of the subject merchandise. Moreover, we found these benefits to be non-recurring because the benefits are exceptional and the recipient could not expect to receive them on an ongoing basis (see, GIA, at 37226).

The Proposed Regulations require us to allocate non-recurring grants and equity infusions over a period equal to the average useful life of assets in the

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industry, unless the sum of grants and equity infusions provided under a program in a particular year is less than 0.50 percent of a firm's total sales in that year. If the sum of grants and equity infusions is less than 0.50 percent, the benefit is expensed in the year of receipt. See s 355.49(a) of the Proposed Regulations and the General Issues Appendix to the Final Countervailing Duty Determination: Certain Steel Products from Austria ("GIA"), 58 FR 37225, 37217 (July 9, 1993).

For those grants and equity infusions which must be allocated over time, the Proposed Regulations require the Department to use as a discount rate a company-specific cost of long-term, fixed-rate debt or, absent such a rate, the average cost of long-term, fixed-rate debt in the country in question (see s 355.49(b)(2) of Countervailing Duties: Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) ("Proposed Regulations"). Because a company-specific rate was not available, we have used the bond rate designated as being for "Industry and other Austrian Issuers" by the Austrian National Bank Annual Report. In Certain Steel, the Department determined that these bond rates provide an accurate measure of what it would cost a large company to raise capital in a given year. The discount rate provided by respondents was determined in Certain Steel to be dominated by GOA bonds. Because governments often do not borrow at the same rate as private companies, we prefer to use a rate which is reflective of commercial, rather than government, borrowing (see, Certain Steel, at 37223). Therefore, for purposes of this preliminary determination, we have used the discount rates applied in Certain Steel.

I. Analysis of Direct Subsidies

Calculation Methodology

For purposes of this preliminary determination, the period for which we are measuring subsidies (the POI) is calendar year 1993. In determining the benefits received under the various programs described below, we used the following calculation methodology. We first calculated the benefit attributable to the POI for each countervailable program, using the methodologies described in each program section below. For each program, we then divided the benefit attributable to Kindberg in the POI by Kindberg's total sales revenue, as none of the programs was limited to either certain subsidiaries or certain products of Kindberg. Next, we added the benefits for all programs to arrive at Kindberg's total subsidy rate. Because Kindberg is the only respondent company in this investigation, this rate is also the country-wide rate.

Consistent with our practice in preliminary determinations, when 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, however, 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.

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

A. Programs Preliminarily Determined To Be Countervailable

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

1. Equity Infusions to Voest-Alpine AG (VAAG):1983, 1984 and 1986. The GOA provided equity infusions through O4IAG to VAAG in 1983, 1984 and 1986, while VAAG owned the facilities which became Kindberg, the producer of the subject merchandise. The 1983 and 1984 infusions were given by O4IAG pursuant to Law 589/1983. The 1986 equity infusion was given as an advance payment for funds to be provided under Law 298/1987 (the O4IAG Financing Act). Law 589/1983 and Law 298/1987 provide authority for disbursement of funds solely to companies of O4IAG, of which VAAG is one.

In Certain Steel, the Department determined these equity infusions to be de jure specific. Respondents did not provide any information disputing these findings in this proceeding. Moreover, since we have determined that VAAG was unequityworthy in these years, we preliminarily determine that these infusions were provided to VAAG on terms inconsistent with commercial considerations.

We have also preliminarily determined that the subsidies provided to VAAG prior to the 1987 restructuring continue to benefit Kindberg's production of OCTG, in accordance with the restructuring methodology discussed in the GIA, at 37265-8. We have applied the following methodology:

We divided Kindberg's asset value on January 1, 1987, by VAAG's total asset value on December 31, 1986 (i.e., pre-restructuring). This ratio best reflects the proportion of VAAG's total 1986 assets that became Kindberg in 1987.

We applied this ratio to VAAG's subsidy amount to calculate the portion of these infusions allocable to Kindberg. To calculate the benefit for the POI, we treated each of the equity amounts as a grant and allocated the benefits over a 15 year period (our treatment of equity as grants and our choice of allocation period is discussed in the GIA, at 37239 and 37225, respectively). We then divided the benefit by total sales of Kindberg during the POI. On this basis, we determine the net subsidies for these equity infusions to be 1.37 percent ad valorem.

2. Grants Provided to VAAG: 1981-86.The GOA provided grants to VAAG through O4IAG pursuant to Law 602/1981, Law 589/1983, and Law 298/1987. In Certain Steel, the Department found grants disbursed under Law 602/1981, Law 589/1983 and Law 298/1987 to be provided specifically to the steel industry and, hence, countervailable (58 FR 37221). Respondents have not challenged the countervailability of these grants in this proceeding.

In accordance with the Allocation of Non-recurring Benefits section, above, we have expensed the grant received in 1981 in that year. To calculate the benefit from the other grants, we used the methodology described in Equity Infusions to VAAG: 1983-84, 1986 section, above. On this basis, we determine the net subsidies for this program to be 3.68 percent ad valorem.

3. Assumption of Losses at Restructuring by VAAG on Behalf of Kindberg. In Certain Steel, we determined that, in connection with the 1987 restructuring, VAAG retained all the losses carried forward on its balance sheet and that no losses were assigned to its newly created subsidiaries. VAAG later received funds from the GOA under Law 298/1987 to offset these losses. We found that VAAG's subsidiaries benefitted because a portion of the losses should have been allocated to them. In the present investigation, petitioners allege that this assumption of losses provided a countervailable subsidy to Kindberg, a subsidiary of VAAG.

Respondents argue that, had the losses been allocated, Kindberg could have used them to offset income taxes from future profits. Under those circumstances, the allocation of the losses would provide a countervailable

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benefit to Kindberg. Therefore, the assumption of losses by VAAG did not provide a benefit to Kindberg.

While respondents may be correct that in certain circumstances losses have value, we concluded in Certain Steel that, "if VAAG had assigned these losses to its new companies, then each of the new companies would have been in a * * * precarious financial position" (Certain Steel, 37221). Respondents' claim does not refute this; it merely posits that losses could be used to offset future tax liabilities (if any) of the VAAG subsidiaries. While we will review this argument further for the final determination, respondents' assertion is not sufficient to reverse the decision we reached in Certain Steel. Therefore, we have preliminarily determined that Kindberg benefitted by not assuming any losses.

We calculated the benefit by treating the losses not distributed to Kindberg as a grant in 1987. Kindberg's share of the losses was determined by reference to its asset value relative to total VAAG assets.

To allocate the benefit, we used the methodology described in Equity Infusions to VAAG: 1983-84, 1986 section, above. On this basis, we determine the net subsidies for this program to be 1.26 percent ad valorem.

4. Equity Infusion to Kindberg: 1987.A direct equity infusion from O4IAG to Kindberg was made on January 1, 1987, pursuant to Law 298/1987. As under Law 589/1983, funds under Law 298/1987 were provided solely to the steel industry. Therefore, we preliminarily find this infusion to be specific. Moreover, since we have preliminarily determined that Kindberg was unequityworthy in 1987, these infusions were made on terms inconsistent with commercial considerations. Thus, we preliminarily determine this infusion to be countervailable.

To calculate the benefit for the POI, we treated the equity amount as a grant and allocated the benefit over 15 years (our treatment of equity as grants and our choice of allocation period is discussed in the GIA, at 37239 and 37225, respectively). Because the equity investment was made directly in Kindberg, and because Kindberg was separately incorporated as of that year, the entire benefit has been attributed to Kindberg. The portion allocated to the POI was divided by total sales of Kindberg during the POI to determine the ad valorem benefit. On this basis, we determine the net subsidies for this program to be 5.13 percent ad valorem.

B. Programs Preliminarily Determined Not To Benefit the Subject Merchandise

We initiated an investigation of subsidies provided after 1987 to VA Linz, VAAG and VAS based on petitioners' allegation that subsidies to these companies benefitted Kindberg. Based on information provided in the responses, we preliminarily determine that the following programs did not bestow a benefit on Kindberg. (See January 17, 1995, Concurrence Memorandum for a further discussion of this issue.)

1. 1987 Equity Infusion to VA Linz2. Post-Restructuring Equity Infusions to VAAG3. Post-Restructuring Grants to VAAG4. Post-Restructuring Grants to VAS

II. Analysis of Upstream Subsidies

The petitioners have alleged that Kindberg receives benefits in the form of upstream subsidies through its purchase of steel blooms from Donawitz II. [FN1] Section 771A(a) of the Tariff Act of 1930, as amended (the Act), defines upstream subsidies as follows:

FN1 Petitioners originally alleged that the corporate interaction between Kindberg and Donawitz II is such that subsidies received by either company would benefit the production of the subject merchandise. Based on this analysis, petitioners continue to argue that these companies should be treated as a single entity. Both approaches are discussed in our January 17, 1995, Concurrence Memorandum.

The term "upstream subsidy" means any subsidy * * * by the government of a country that:

(1) Is paid or bestowed by that government with respect to a product (hereinafter referred to as an "input product") that is used in the manufacture or production in that country of merchandise which is the subject of a countervailing duty proceeding;

(2) In the judgment of the administering authority bestows a competitive benefit on the merchandise; and

(3) Has a significant effect on the cost of manufacturing or producing the merchandise.

Each of the three elements listed above must be satisfied in order for the Department to find that an upstream subsidy exists. The absence of any one element precludes the finding of an upstream subsidy. As discussed below, respondents have been able to show that a competitive benefit does not exist. Therefore, we have not addressed the first and third criteria.

Competitive Benefit

In determining whether subsidies to the upstream supplier(s) confer a competitive benefit within the meaning of section 771A(a)(2) on the producer of the subject merchandise, section 771A(b) directs that:

* * * a competitive benefit has been bestowed when the price for the input product * * * is lower than the price that the manufacturer or producer of merchandise which is the subject of a countervailing duty proceeding would otherwise pay for the product in obtaining it from another seller in an arms- length transaction.

The Department's proposed regulations (Countervailing Duties: Notice of Proposed Rulemaking and Request for Public Comment, 54 FR 23366 (May 31, 1989)) offer the following hierarchy of benchmarks for determining whether a competitive benefit exists:

* * * In evaluating whether a competitive benefit exists pursuant to paragraph (a)(2) of this section, the Secretary will determine whether the price for the input product is lower than:

(1) The price which the producer of the merchandise otherwise would pay for the input product, produced in the same country, in obtaining it from another unsubsidized seller in an arm's length transaction; or

(2) a world market price for the input product.

In this instance, Donawitz II is the sole supplier in Austria of the input product, steel blooms. However, Kindberg does purchase the input product from an unrelated foreign supplier. Therefore, we have used the prices charged to Kindberg by the foreign supplier as the benchmark world market price.

Because the foreign supplier's prices are delivered, we made an upward adjustment to the domestic supplier's ex-factory prices to account for the cost of freight between Kindberg and that supplier. Based on our comparison of these delivered prices for identical grades of steel blooms, we found no competitive benefit was bestowed on Kindberg during the POI. Therefore, we preliminarily determine that Kindberg did not receive an upstream subsidy.

Verification

In accordance with section 776(b) of the Act, we will verify the information submitted by respondents prior to making our final determination.

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 OCTG from Austria, which are entered or withdrawn from warehouse, for consumption on or after the date of the publication of this notice in the Federal Register, and to require a cash deposit or bond for such entries of the merchandise in the amounts indicated below. This suspension will remain in effect until further notice.

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OCTG

Country-Wide Ad Valorem Rate--11.44 percent

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 nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary 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 Investigations, Import Administration.

If our final determination is affirmative, the ITC will make its final determination within 45 days after the Department makes its final determination.

Alignment With Companion Antidumping Investigation

Pursuant to petitioners' request for an alignment with the companion antidumping investigation, in accordance with 19 CFR 355.20(c)(1), we are postponing the final countervailing duty determination in this investigation until April 11, 1995, the date of the final antidumping duty determination in the companion antidumping investigation of OCTG from Austria.

Public Comment

In accordance with 19 CFR 355.38, we will hold a public hearing, if requested, to afford interested parties an opportunity to comment on this preliminary determination. The hearing will be held on March 31, 1995, at the U.S. Department of Commerce, Room 3708, 14th Street and Constitution Avenue, NW., Washington, DC. 20230. Individuals who wish to request a hearing must submit a written request within ten days of the publication of this notice in the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue, NW., Washington, DC 20230. Parties should confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.

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, ten copies of the business proprietary version and five copies of the nonproprietary version of the case briefs must be submitted to the Assistant Secretary no later than March 23, 1995. Ten copies of the business proprietary version and five copies of the nonproprietary version of the rebuttal briefs must be submitted to the Assistant Secretary no later than March 29, 1995. An interested party may make an affirmative presentation only on arguments included in that party's case or rebuttal briefs. Written arguments should be submitted in accordance with s 355.38 of the Commerce Department's regulations and will be considered if received within the time limits specified above.

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

Dated: January 17, 1995.

Susan G. Esserman,

Assistant Secretary for Import Administration.