[Federal Register: February 8, 2002 (Volume 67, Number 27)]
[Page 5984-5991]
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DEPARTMENT OF COMMERCE
International Trade Administration
C-122-841
Preliminary Affirmative Countervailing Duty Determination: Carbon
and Certain Alloy Steel Wire Rod From Canada.
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary affirmative countervailing duty
determination.
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SUMMARY: The Department of Commerce preliminarily determines that
countervailable subsidies are being provided to producers or exporters
of carbon and certain alloy steel wire rod from Canada. For information
on the estimated countervailing duty rates, see infra section on
``Suspension of Liquidation.''
DATES: February 8, 2002.
FOR FURTHER INFORMATION CONTACT: Sally Hastings or Andrew Covington,
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Import
Administration, U.S. Department of Commerce, Room 3099, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-
3464 and (202) 482-3534, respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act (``URAA'') effective January 1, 1995
(``the Act''). In addition, unless otherwise indicated, all citations
to the Department's regulations are to 19 CFR Part 351 (April 2001).
Petitioners
The petitioners in this investigation are Co-Steel Raritan, Inc.,
GS Industries, Keystone Consolidated Industries, Inc., and North Star
Steel Texas, Inc. (collectively, ``petitioners'').
Case History
The following events have occurred since the publication of the
notice of initiation in the Federal Register. See Notice of Initiation
of Countervailing Duty Investigations: Carbon and Certain Alloy Steel
Wire Rod from Brazil, Canada, Germany, Trinidad and Tobago, and Turkey,
66 FR 49931 (October 1, 2001) (``Initiation Notice'').
On October 9, the Department of Commerce (``the Department'')
received a request from the petitioners to amend the scope of this
investigation to exclude certain wire rod. The petitioners submitted
further clarification with respect to their scope amendment request on
November 28, 2001. Also on November 28, 2001, the five largest U.S.
tire manufacturers and the industry trade association, the Rubber
Manufacturers Association, submitted comments on the proposed
exclusion. The tire manufacturers submitted additional comments on
January 28, 2002.
On October 11, 2001, the Department issued countervailing duty
(``CVD'') questionnaires to the Government of Canada (``GOC'') and the
producers/exporters of the subject merchandise. Due to the large number
of producers and exporters of carbon and certain alloy steel wire rod
(``wire rod'' or ``subject merchandise'') in Canada, we decided to
limit the number of responding companies to the three producers/
exporters with the largest volumes of exports to the United States
during the period of investigation: Ispat Sidbec Inc. (``Ispat
Sidbec''), Ivaco Inc. (``Ivaco'') and Stelco Inc. (``Stelco''). See
October 4, 2001 memorandum to Susan Kuhbach, Respondent Selection,
which is on file in the Department's Central
[[Page 5985]]
Records Unit (``CRU'') in Room B-099 of the main Department building.
On October 18, 2001, the petitioners filed letters raising several
concerns with respect to the Department's initiation of this
investigation and the concurrent countervailing duty investigations of
wire rod from Brazil, Germany, and Trinidad and Tobago. The Department
addressed these concerns in the December 4, 2001 memorandum from Susan
Kuhbach to Richard Moreland, entitled ``Petitioners' Objections to
Department's Initiation Determinations,'' which is on file in the
Department's CRU. For Canada, the Department also initiated an
investigation of two alleged subsidies raised in the petitioners'
October 18, 2001 letter. Supplemental questionnaires on these alleged
subsidies were sent to the GOC on December 6, 2001.
On November 14, 2001, we published a postponement of the
preliminary determination of this investigation until February 1, 2002.
See Carbon and Certain Alloy Steel Wire Rod From Brazil, Canada,
Germany, Trinidad and Tobago, and Turkey: Postponement of Preliminary
Determinations of Countervailing Duty Investigations, 66 FR 57036
(November 14, 2001).
The Department received responses to its countervailing duty
questionnaires from the GOC, the Government of Quebec (GOQ), and the
companies from November 19 through December 4, 2001. The GOC and Stelco
responded to the Department's December 6, 2001 questionnaires regarding
the newly initiated subsidies allegations on December 19, 2001.
Comments on these questionnaire responses were received from the
petitioners between December 13, 2001, and January 7, 2002. Included in
the petitioners' December 13, 2001 comments regarding Stelco was a
request that the Department seek more information about ``other
research'' initiatives undertaken by Stelco and, in particular,
Stelco's relationship with the McMaster Steel Research Center. The
petitioners alleged that this Center receives both federal and
provincial funding for its research activities under the Ontario
Research and Development Challenge Fund (``ORDCF'') and the Natural
Sciences and Engineering Research Council of Canada (``NSERC''). Based
on our review of the supporting documentation submitted by the
petitioners regarding ORDCF and NSERC, there is no indication that
funding provided by these organizations is limited to specific
enterprises or industries in Ontario or Canada, respectively, as
required by section 771(5)(A) of the Act. Therefore, we have not
investigated Stelco's involvement with the McMaster Steel Research
Center.
In their December 20, 2001 comments regarding the GOQ's
questionnaire response, the petitioners raised issues concerning the
sale of Sidbec-Dosco to Ispat Sidbec. On January 17, 2002, the
petitioners alleged that Ispat Sidbec received countervailable
subsidies in conjunction with its purchase of Sidbec-Dosco.
Specifically, the petitioners claimed that a subsidy was conferred in
the amount of the difference between the fair market value of Sidbec-
Dosco and the amount paid for the company by Ispat. The petitioners
alleged additional subsidies arising from the change in ownership that
are proprietary and cannot be summarized in this notice.
Regarding the petitioners' allegation that the price paid for
Sidbec-Dosco did not reflect fair market value, it is the Department's
practice not to conduct an analysis of whether a sales transaction
reflects fair value when a change-in-ownership occurs and we find that
the pre-sale and post-sale entities are the same ``person.'' (See
``Final Results of Redetermination Pursuant to Court Remand'' Acciai
Speciali Terni S.p.A. v. United States, Court No. 99-06-00364, Remand
Order (CIT August 14, 2000).) Because we have determined that Sidbec-
Dosco and Ispat Sidbec were the same ``person'' (see ``Change in
Ownership'' section, infra), we do not reach the issue identified by
the petitioners and have no basis to investigate this transaction as a
possible subsidy. The other issues raised by the petitioners are
addressed in the February 1, 2002 memorandum to the file entitled
``Petitioners' Allegations Regarding Ispat's Purchase of Sidbec
Dosco,'' a public version of which is on file in the Department's CRU.
Supplemental questionnaires were sent to the GOC, the GOQ and the
companies between December 21, 2001 and January 4, 2002. Responses to
these supplemental questionnaires were received between January 4 and
January 15, 2002.
On December 28, 2001, Stelco submitted a letter seeking sanctions
against the petitioners for their alleged failure to serve the
petitioners' October 18 letter on Stelco. On February 1, 2002, the
Department responded to Stelco's complaint finding that the petitioners
had not violated their service obligations.
Period of Investigation (``POI'')
The period for which we are measuring subsidies is calendar year
2000.
Scope of Investigation
The merchandise covered by this investigation is certain hot-rolled
products of carbon steel and alloy steel, in coils, of approximately
round cross section, 5.00 mm or more, but less than 19.0 mm, in solid
cross-sectional diameter.
Specifically excluded are steel products possessing the above-noted
physical characteristics and meeting the Harmonized Tariff Schedule of
the United States (``HTSUS'') definitions for (a) stainless steel; (b)
tool steel; (c) high nickel steel; (d) ball bearing steel; and (e)
concrete reinforcing bars and rods. Also excluded are (f) free
machining steel products (i.e., products that contain by weight one or
more of the following elements: 0.03 percent or more of lead, 0.05
percent or more of bismuth, 0.08 percent or more of sulfur, more than
0.04 percent of phosphorus, more than 0.05 percent of selenium, or more
than 0.01 percent of tellurium). All products meeting the physical
description of subject merchandise that are not specifically excluded
are included in this scope.
The products under investigation are currently classifiable under
subheadings 7213.91.3010, 7213.91.3090, 7213.91.4510, 7213.91.4590,
7213.91.6010, 7213.91.6090, 7213.99.0031, 7213.99.0038, 7213.99.0090,
7227.20.0010, 7227.20.0090, 7227.90.6051 and 7227.90.6058 of the HTSUS.
Although the HTSUS subheadings are provided for convenience and customs
purposes, the written description of the scope of these investigations
is dispositive.
Scope Comments
In the Initiation Notice, we invited comments on the scope of this
proceeding. As noted above, on October 9, 2001, we received a request
from the petitioners to amend the scope of this investigation and the
companion CVD and antidumping duty (``AD'') wire rod investigations.
Specifically, the petitioners requested that the scope be amended to
exclude high carbon, high tensile 1080 grade tire cord and tire bead
quality wire rod actually used in the production of tire cord and bead,
as defined by specific dimensional characteristics and specifications.
On November 28, 2001, the petitioners further clarified and
modified their October 9, request The petitioners suggested the
following five
[[Page 5986]]
modifications and clarifications: (1) Expand the end-use language of
the scope exclusion request to exclude 1080 grade tire cord and tire
bead quality that is used in the production of tire cord, tire bead,
and rubber reinforcement applications; (2) clarify that the scope
exclusion requires a carbon segregation per heat average of 3.0 or
better to comport with recognized industry standards; (3) replace the
surface quality requirement for tire cord and tire bead with simplified
language specifying maximum surface defect length; (4) modify the
maximum soluble aluminum from 0.03 to 0.01 for tire bead wire rod; and
(5) reduce the maximum residual element requirements to 0.15 percent
from 0.18 percent for both tire bead and tire cord wire rod and add an
exception for chromium-added tire bead wire rod to allow a residual of
0.10 percent for copper and nickel and a chromium content of 0.24 to
0.30 percent.
Also on November 28, 2001, the five largest U.S. tire manufacturers
and the industry trade association, the Rubber Manufacturers
Association, (``the tire manufacturers'') submitted a letter to the
Department in response to petitioners' October 9, 2001 submission
regarding the scope exclusion. In this letter, the tire manufacturers
supported the petitioners' request to exclude certain 1080 grade tire
cord and tire bead wire rod used in the production of tire cord and
bead.
Additionally, the tire manufacturers requested clarification from
the Department of whether 1090 grade was covered by the petitioners'
exclusion request. The tire manufacturers further requested an
exclusion from the scope of this investigation for 1070 grade wire rod
and related grades (0.69 percent or more of carbon) because, according
to the tire manufacturers, domestic production cannot meet the
requirements of the tire industry.
The tire manufacturers stated their opposition to defining scope
exclusions on the basis of actual end use of the product. Instead, the
tire manufacturers support excluding the product if it is imported
pursuant to a purchase order from a tire manufacturer or a tire cord
wire manufacturer in the Untied States. Finally, the tire manufacturers
urged the Department to adopt the following specifications to define
the excluded product: A maximum nitrogen content of 0.0008 percent for
tire cord and 0.0004 percent for tire bead; maximum weight for copper,
nickel, and chromium, in the aggregate, of 0.0005 percent for both
types of wire rod. In their view, there should be no additional
specifications and tests, as proposed by the petitioners.
On January 28, 2002, the tire manufacturers responded to the
petitioners' November 28, 2001 letter. The tire manufacturers continue
to have three major concerns about the product exclusion requested by
the petitioners. First, the tire manufacturers urge that 1070 grade
tire cord quality wire rod be excluded (as it was in the 1999 Section
201 investigation). Second, they continue to object to defining the
exclusion by actual end use. Finally, they reiterate their ealier
position on the chemical specifications for the excluded product.
At this point in the proceeding, we recognize that the interested
parties have both advocated excluding tire rod and tire core quality
wire rod. However, the Department continues to examine this issue.
Therefore, for this preliminary determination we have not amended the
scope, and this preliminary determination applies to the scope as
described in the Initiation Notice.
We plan to reach a decision as early as possible in this
proceeding. Interested parties will be advised of our intentions prior
to the final determination and will have the opportunity to comment.
Injury Test
Because Canada is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (``ITC'') is required to determine whether imports of the
subject merchandise from Canada materially injure, or threaten material
injury to, a U.S. industry. On October 15, 2001, the ITC transmitted to
the Department its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being
materially injured by reason of imports from Canada of the subject
merchandise. See Carbon and Certain Alloy Steel Wire Rod From Brazil,
Canada, Egypt, Germany, Indonesia, Mexico, Moldova, South Africa,
Trinidad and Tobago, Turkey, Ukraine, and Venezuela, 66 FR 54539
(October 29, 2001).
Changes in Ownership
On February 2, 2000, the U.S. Court of Appeals for the Federal
Circuit (``CAFC'') in Delverde Srl v. United States, 202 F.3d 1360,
1365 (Fed. Cir. 2000), reh'g en banc denied (June 20, 2000) (``Delverde
III''), rejected the Department's change-in-ownership methodology as
explained in the General Issues Appendix of the Final Affirmative
Countervailing Duty Determination: Certain Steel Products from Austria,
58 FR 37217, 37225 (July 9, 1993). The CAFC held 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.'' Delverde III,
202 F.3d at 1364.
Pursuant to the CAFC finding, the Department developed a new
change-in-ownership methodology following the CAFC's decision in
Delverde III. This new methodology was first announced in a remand
determination on December 4, 2000, and was also applied in Grain-
Oriented Electrical Steel from Italy; Final Results of Countervailing
Duty Administrative Review, 66 FR 2885 (January 12, 2001). Likewise, we
have applied this new methodology in analyzing the changes in ownership
in this preliminary determination.
The first step under this new methodology is to determine whether
the legal person (entity) to which the subsidies were given is, in
fact, distinct from the legal person that produced the subject
merchandise exported to the United States. If we determine the two
persons are distinct, we then analyze whether a subsidy has been
provided to the purchasing entity as a result of the change-in-
ownership transaction. If we find, however, that the original subsidy
recipient and the current producer/exporter are the same person, then
that person benefits from the original subsidies, and its exports are
subject to countervailing duties to offset those subsidies. In other
words, we will determine that a ``financial contribution'' and a
``benefit'' have been received by the ``person'' under investigation.
Assuming that the original subsidy has not been fully amortized under
the Department's normal allocation methodology as of the POI, the
Department would then continue to countervail the remaining benefits of
that subsidy.
In making the ``person'' determination, where appropriate and
applicable, we 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
[[Page 5987]]
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 person to be the same
person as the pre-sale person if, based on the totality of the factors
considered, we determine the entity in question can be considered a
continuous business entity because it was operated in substantially the
same manner before and after the change in ownership.
We have preliminarily determined that Ispat Sidbec is the only
respondent to have undergone a change in ownership and, therefore, have
limited our analysis to this company.
In 1994, Sidbec, a corporation wholly owned by the GOQ, sold all
the shares of its subsidiary, Sidbec-Dosco, to Ispat Mexicana S.A. de
C.V. The company that was purchased is known today as Ispat-Sidbec.
After applying our ``person'' analysis to the facts and
circumstances of the privatization of Sidbec-Dosco, we preliminarily
determine that the pre-sale and post-sale entities are not distinct
persons. Specifically, Ispat Sidbec is still in the same general
business as Sidbec-Dosco, the manufacture of steel products including
steel wire rod. Although Ispat Sidbec has to some extent refocused and
shifted its product line since the privatization, the products are
essentially the same. The Sidbec name has been retained and used
continually since the privatization. After its sale, Sidbec-Dosco Inc.
became Sidbec-Dosco (Ispat) and later, Ispat Sidbec, Inc.
As to the second factor, continuity of production facilities,
although Ispat Sidbec has closed one facility since it purchased
Sidbec-Dosco, it has maintained the facilities at Contrecoeur,
Longueill, and Montreal, Quebec. The volume of steel produced
immediately before and after the privatization has changed only
minimally.
Next, we compared the assets and liabilities of Sidbec-Dosco to
those of Sidbec-Dosco (Ispat), and found them to be approximately the
same. Last, we reviewed information about workforce retention and
concluded that the post-privatization Sidbec-Dosco (Ispat) retained
personnel, including management.
Therefore, we preliminarily determine that the subsidies provided
to Sidbec prior to the privatization of its wholly owned subsidiary
Sidbec-Dosco continued to benefit Sidbec-Dosco (Ispat), later Ispat
Sidbec, during the POI.
Subsidies Valuation Information
Allocation Period
Pursuant to 19 CFR 351.524(b), non-recurring subsidies are
allocated over a period corresponding to the average useful life
(``AUL'') of the renewable physical assets used to produce the subject
merchandise. 19 CFR section 351.524(d)(2) creates a rebuttable
presumption that the AUL will be taken from the U.S. Internal Revenue
Service's 1977 Class Life Asset Depreciation Range System (the ``IRS
Tables''). For wire rod, the IRS Tables prescribe an AUL of 15 years.
In order to rebut the presumption in favor of the IRS tables, the
Department must find that the IRS tables do not reasonably reflect the
company-specific AUL or the country-wide AUL for the industry in
question, and that the difference between the company-specific or
country-wide AUL and the IRS tables is significant. (See 19 CFR
351.524(d)(2)(i).) For this difference to be considered significant, it
must be one year or greater. (See 19 CFR 351.524(d)(2)(ii).)
In this proceeding, the petitioners have claimed that the AULs for
Ispat Sidbec and Ivaco should differ from the presumed 15-year AUL,
based on information from these companies' recent financial statements.
The responding companies do not address this allegation, pointing out
that use of the alternative periods proposed by the petitioners would
make no difference in this investigation because the companies received
no non-recurring subsidies in the period proposed by the petitioners
(Ivaco) or because they received no non-recurring subsidies that are
not captured in the 15-year AUL period from the IRS Tables (Ispat
Sidbec). Regarding Ivaco, we agree and have not addressed the
petitioners' allegation further.
However, regarding Ispat Sidbec, the two non-recurring subsidies
which we have preliminarily determined to be countervailable were
previously allocated in Final Affirmative Countervailing Duty
Determination: Steel Wire Rod from Canada, 62 FR 54972, 54975-76
(October 22, 1997) (``1997 Wire Rod''). The allocation period
calculated for Ispat Sidbec in 1997 Wire Rod was a company-specific
period. The length of the period is proprietary.
For the reasons discussed in the proprietary February 1, 2002
memorandum to the file entitled ``Ispat Sidbec's AUL,'' (to be written)
we have preliminarily determined that the petitioners have not rebutted
the presumption in favor of the IRS tables. (A public version of this
memorandum is available in the Department's CRU.) Therefore, we have
used the 15-year period to allocate Ispat Sidbec's subsidies.
Attribution of Subsidies
19 CFR 351.525(b)(6)(ii)-(v) directs that the Department will
attribute subsidies received by certain affiliated companies to the
combined sales of those companies. Based on our review of the
responses, we find that ``cross-ownership'' exists with respect to
certain companies, as described below, and have attributed the
subsidies received by these companies accordingly.
Ispat Sidbec: Ispat Sidbec has responded on behalf of Ispat Sidbec
Inc. and two of its subsidiaries, Sidbec-Feruni (Ispat) Inc. (100
percent owned) and Deitcher Brothers (1992) Inc. (50 percent owned).
Both of these subsidiaries provide processed scrap to Ispat Sidbec Inc.
for use in the production of slabs and billets which, in turn, are used
in the production of the subject merchandise.
Although Ispat Sidbec has responded on behalf of Deitcher Brothers
(1992) Inc. (Deitcher Brothers), Ispat Sidbec argues that cross-
ownership does not exist between these two companies because Ispat
Sidbec Inc. does not have majority voting ownership and does not direct
the operations of Deitcher Brothers. Based on Ispat Sidbec's
description of the voting rights of the owners (which is proprietary),
we preliminarily determine that cross-ownership does not exist between
Ispat Sidbec Inc. and Deitcher Brothers (see 19 CFR 351.525(b)(6)(vi)).
Thus, according to 19 CFR 351.525(b)(6)(i), we should not include
Deitcher Brothers' sales in the denominator used to calculate the ad
valorem subsidy rate for Ispat Sidbec. However, for purposes of this
preliminary determination, we do not have sufficient information to
remove these sales.
Also, based on Ispat Sidbec's supplemental questionnaire response,
it appears that Ispat Sidbec should also have responded on behalf of
the Canadian holding company that owns all the outstanding shares of
Ispat Sidbec Inc., Ispat Canada.
For our final determination, we intend to gather information
regarding the value of Deitcher Brothers' sales that are included in
the financial results for Ispat Sidbec Inc. and to investigate any
subsidies received by Ispat Canada.
For this preliminary determination, we find that cross-ownership
within the meaning of 19 CFR 351.525(b)(6)(vi) exists between Ispat
Sidbec Inc. and
[[Page 5988]]
Sidbec-Feruni (Ispat) Inc., and the subsidies received by them have
been attributed to their combined sales.
Ivaco: Ivaco has responded on behalf of Ivaco, Inc. (including its
divisions) and Ivaco Rolling Mills Limited Partnership (``IRM''). IRM
is virtually 100 percent owned by Ivaco, Inc. and produces unprocessed
wire rod which it sells in processed and unprocessed forms. For sales
of processed wire rod, the processing is done by Sivaco Ontario
Processing Division (``Sivaco Ontario'') or Sivaco Quebec, both
divisions of Ivaco, Inc. Sivaco Ontario also sells processed wire rod
using inputs supplied by IRM and others. Sivaco Quebec occasionally
sells the subject merchandise. Based on the extent of the relationship
between Ivaco, Inc. and IRM, we preliminarily determine that cross-
ownership within the meaning of 19 CFR 351.525(b)(6)(vi) exists.
Ivaco also reported that Bakermet, Inc., a company that was 50
percent owned by Ivaco, Inc. until November 23, 2000, supplied IRM with
a small amount of scrap that was used by IRM to produce billets, an
input into the subject merchandise. Ivaco claims that it cannot report
more information about Bakermet, beyond the 1998 and 1999 financial
statements it has submitted, pointing to the fact that Bakermet's
financial results were never combined with those of Ivaco, Inc.
Based on the record of this proceeding, we find no evidence that
Bakermet received any subsidies. Thus, even if we were to combine
Bakermet with Ivaco due to cross-ownership during a portion of the POI,
it would not change our preliminary results. Therefore, we are not
addressing the issue of whether cross-ownership existed between these
companies through November 2000.
Stelco: Stelco has responded on behalf of Stelco Inc., Stelco-
McMaster Ltee. Quebec (Stelco-McMaster), Wabush Mines Nfld and Quebec
(Wabush Mines), Fers et Metaux Recycles Ltee. (Fers et Metaux), and
Stelwire Ltd. (Stelwire). Stelco Inc. produces the subject merchandise,
using inputs from Stelco-McMaster (billets) and Wabush Mines (iron
ore). Additionally, Fers et Metaux supplies recycled scrap to Stelco-
McMaster. Stelwire sold some subject merchandise to the United States
and Canada. Stelco-McMaster and Stelwire are 100 percent owned by
Stelco Inc. Stelco-McMaster owns 50 percent of Fers et Metaux. Stelco
Inc. owns 37. 87 percent of Wabush Mines.
Although Stelco has responded on behalf of Wabush Mines and Fers et
Metaux, saying that neither received the subsidies being investigated
in this proceeding, it disputes that cross- ownership exists between
these companies and Stelco Inc. Regarding Wabush Mines, Stelco points
to the fact that another shareholder of that company also owns 37.87
percent of Wabush Mines' shares. Hence, Stelco claims that it does not
control Wabush mines. Regarding Fers at Metaux, Stelco claims that
because it has no direct ownership interest in Fers et Metaux, cross-
ownership cannot be considered to exist.
For purposes of the preliminary determination, we agree that cross-
ownership does not exist between Stelco Inc. and Wabush Mines because
of the lack of majority voting ownership. (See 19 CFR 351.525(b)(6)(vi)
and February 1, 2001 memorandum to the file entitled ``Stelco's
Affiliation with Wabush Lake Railway Company, Ltd. and Arnaud Railway
Company,'' a public version of which is on file in the Department's
CRU. ). However, we disagree with Stelco that we cannot find cross-
ownership with Fers et Metaux because the ownership is indirect.
Nothing in 19 CFR 351.525(b)(6)(vi) indicates that the ownership must
be direct in order for cross-ownership to exist. Moreover, we note that
Fers et Metaux is 100 percent owned by Stelco-McMaster, whose subsidies
and sales are properly combined with those of Stelco Inc. under our
cross ownership rules. Therefore, lacking other evidence to indicate
that Stelco Inc.'s 50 percent ownership does not confer majority voting
ownership, we find that cross-ownership exists between Stelco Inc. and
Fers et Metaux.
Consequently, for these preliminary results, we are combining
Stelco Inc., Stelco-McMaster, Fers et Metaux, and Stelwire for
attribution purposes. However, we do not have sufficient information to
include 100 percent of Fers et Metaux sales; nor do we have the
information to exclude Wabush Mines' sales. We intend to seek this
information for our final determination.
Creditworthiness
In the Initiation Notice, we stated that the Department had found
Ispat Sidbec's predecessor company, Sidbec Dosco, to be uncreditworthy
between 1983 and 1992 in 1997 Wire Rod. Ispat Sidbec and the GOQ have
correctly noted that the Department found Sidbec, Sidbec-Dosco's owner,
and not Sidbec-Dosco to be uncreditworthy. It was Sidbec that received
grants from the GOQ during the period 1984 - 1992, and it was Sidbec's
debt that was converted to equity in 1988.
In the instant investigation, the GOQ has provided financial
information regarding Sidbec-Dosco's creditworthiness. However, we have
not analyzed that information. Instead, following the approach adopted
by the Department in 1997 Wire Rod, we believe that Sidbec is the
proper focus of our creditworthiness analysis. (See 62 FR 54972,
54987).
Because we have received no new information regarding Sidbec's
creditworthiness, we preliminarily determine that Sidbec was
uncreditworthy from 1983 - 1992.
Equityworthiness
In 1997 Wire Rod, we determined that Sidbec was unequityworthy in
1988 and that the 1988 conversion of Sidbec's debt to equity was a
countervailable subsidy. In the instant investigation, the GOQ has
provided financial information regarding Sidbec-Dosco's
equityworthiness. However, we have not analyzed that information.
Instead, following the approach adopted by the Department in 1997 Wire
Rod, we believe that Sidbec is the proper focus of our equityworthiness
analysis. (See 62 FR 54972, 54983 - 84).
Because we have received no new information regarding Sidbec's
equityworthiness, we preliminarily determine that Sidbec was
unequityworthy at the time of the 1988 debt-to-equity conversion.
Discount Rates
The only non-recurring, allocable subsidies in this preliminary
determination are the 1988 conversion of Sidbec's debt to equity and
grants received by Sidbec between 1984 and 1992. As discussed above, we
have preliminarily found Sidbec to be uncreditworthy in those years.
In accordance with 19 CFR 351.524(d)(3)(ii), the discount rate for
companies considered uncreditworthy is the rate described in 19 CFR
351.505(a)(3)(iii). To calculate that rate, the Department must specify
values for four variables: (1) the probability of default by an
uncreditworthy company; (2) the probability of default by a
creditworthy company; (3) the long-term interest rate for creditworthy
borrowers; and (4) the term of the debt.
For the probability of default by an uncreditworthy company, we
have used the average cumulative default rates reported for the Caa- to
C-rated category of companies as published in Moody's Investors
Service, ``Historical Default Rates of Corporate Bond Issuers, 1920-
1997'' (February 1998). For the probability of default by a
creditworthy company, we used the cumulative
[[Page 5989]]
default rates for investment grade bonds as published in Moody's
Investor Services: ``Statistical Tables of Default Rates and Recovery
Rates'' (February 1998). For the commercial interest rate charged to
creditworthy borrowers, we used the ``Average Weighted Yield
(ScotiaMcLeod ) - All Corporate Long-Term'' from the Bank of Canada's
website. For the term of the debt, we used the AUL period for Ispat
Sidbec, as the grants and equity benefits are being allocated over that
period.
Denominator
Ispat Sidbec reported two values for total sales. The first
includes merchandise produced in whole or in part in Canada, while the
second excludes merchandise that undergoes substantial transformation
outside of Canada. For purposes of this preliminary determination, we
have used the second amount. Given that this merchandise is
substantially transformed outside of Canada, we are assuming that much
of its value is non-Canadian. Therefore, use of this sales value better
reflects the Department's policy of attributing subsidies only to
merchandise produced in the jurisdiction of the subsidizing country.
See 19 CFR 351.525(b)(7).
We intend to seek clarification of two sales values for our final
determination.
Analysis of Programs
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I. Programs Preliminarily Determined To Be Countervailable
A. 1988 Debt-to-Equity Conversion
In 1988, the GOQ began exploring options for increasing the value
of its investment in Sidbec. To improve the company's debt-to-equity
ratio, the GOQ decided to convert four Sidbec debt instruments it held
into equity. According to the GOQ, converting Sidbec's debt allowed
Sidbec to invest in Sidbec-Dosco, thereby increasing the value of that
company and the likelihood that Sidbec-Dosco could be successfully
privatized. The amount of debt converted totaled Cdn$81,559,630,
reflecting the principal and interest outstanding on the debt as of
December 23, 1988.
We preliminarily determine that this debt-to-equity conversion is a
countervailable subsidy. The investment was a direct transfer of funds
from the GOQ to Sidbec within the meaning of section 771(5)(D)(i) of
the Act. As discussed above, we have determined that Sidbec was
unequityworthy. Consequently, the debt-to-equity conversion was
inconsistent with the usual investment practice of private investors,
including the practice regarding the provision of risk capital, in
Quebec and conferred a benefit in the amount of the conversion. See
section 771(5)(E)(i) of the Act and 19 CFR 351.507(a)(6). Finally, the
debt-to-equity conversion was limited to Sidbec and, hence, specific
within the meaning of 771(5A).
To calculate the benefit, we have allocated the amount of debt and
accumulated interest that was converted over Ispat-Sidbec's AUL (as
computed in 1997 Wire Rod). We divided the amount attributed to the POI
by Ispat Sidbec's total sales (excluding goods which undergo
substantial transformation outside Canada). On this basis, we
preliminarily determine the net countervailable subsidy during the POI
to be 0.78 percent ad valorem.
B. GOQ Grants to Sidbec Between 1986 and 1992
In 1976, Sidbec entered into a joint venture, Normines JV, to mine
iron ore. By 1983, the losses of the Normines JV were such that Sidbec
was forced to borrow money to finance the JV's operations. Sidbec
borrowed additional funds in 1984 in connection with the Normines JV.
Between 1984 and 1992, the GOQ reimbursed Sidbec for all payments of
principal and interest on these loans.
We preliminarily determine that these grants reimbursing Sidbec for
the loan costs associated with the Normines JV are countervailable
subsidies. The grants were a direct transfer of funds from the GOQ to
Sidbec within the meaning of section 771(5)(D)(i) of the Act, providing
a benefit in the amount of the grants (see 19 CFR 351.504(a)). Also,
the grants were limited to Sidbec and, hence, specific within the
meaning of 771(5A).
To calculate the benefit, we have allocated the grants over Ispat-
Sidbec's AUL (as computed in 1997 Wire Rod). We divided the amount for
the POI by Ispat Sidbec's total sales (excluding goods which undergo
substantial transformation outside Canada). On this basis, we
preliminarily determine the net countervailable subsidy during the POI
to be 5.59 percent ad valorem.
II. Programs Preliminarily Determined to Be Not Countervailable
A. Tax Credit for Mining Incentives for Stelco
Under Canada's federal corporate income tax, companies are
permitted to take a resource allowance. This allowance is provided in
lieu of deductions for Crown royalties, provincial mining taxes and
other charges related to oil and gas or mining production. The
allowance equals 25 percent of a taxpayer's annual resource profits,
computed after operating costs, but before the deduction of exploration
expenses, development expense, earned depletion and interest expenses.
Resource allowances are also deductible from income for purposes of
calculating income taxes owed in certain provinces.
According to Stelco, the resource allowance represents the
reduction in the mineral contents of the reserves from which the
mineral is taken. Therefore, Stelco claims, the resource allowance is
equivalent to a depletion allowance.
Stelco points to Final Affirmative Countervailing Duty
Determination; Iron Ore Pellets from Brazil, 51 FR 21961 (June 17,
1986) (Iron Ore Pellets), arguing that the resource allowance in not
countervailable. Stelco also states that even if the resource allowance
were found to be countervailable, the benefit to Stelco from the
federal and provincial tax savings would be a de minimis 0.07 percent.
(See Stelco's December 3, 2001 Questionnaire Response, at page IV-28)
In Iron Ore Pellets, the Department stated, ``In the past, we have
found that depreciation allowances, per se, are not countervailable.
Because the depletion allowance, which is comparable to a depreciation
allowance on minerals, is part of the normal tax practice in Brazil and
because there is no indication that it favors exports over domestic
products, we determine the program not to be countervailable.'' Id at
21963. In the instant proceeding, we find that the federal resource
allowance is a normal tax practice in Canada because: (1) it is
available to all resource-based companies in Canada; (2) the method for
claiming the allowance is a standard schedule to the federal corporate
tax form, Schedule 51; and (3) the allowance has been in place since
1976 (when it replaced an earlier resource tax abatement). Also, the
resource tax allowance does not favor export over domestic sales.
Consequently, consistent with our determination in Iron Ore
Pellets, we preliminarily determine that the resource allowance taken
by Stelco on its federal corporate income tax does not confer a
countervailable subsidy.
Regarding the resource allowances taken on provincial corporate
income taxes, Stelco has shown that the same allowance taken on its
federal tax return is apportioned between the three provinces with tax
authority over the
[[Page 5990]]
company based on Stelco's allocation of business activity between the
three provinces. Stelco has also submitted its tax returns for two of
these three provinces, Ontario and Quebec. Those returns indicate that
the resource allowance is a standard deduction, i.e., may be claimed on
the standard corporate tax return for the province.
Therefore, we preliminarily determine that the resource allowances
offered by Ontario and Quebec do not confer countervailable subsidies
because they are part of the normal tax practice of these provinces and
do not favor export over domestic sales.
B. Government Support for Projet Bessemer
In 1989, Stelco and Sidbec-Dosco (among other Canadian steel
producers) entered into a joint venture to develop a commercial scale
strip caster. Co-financing for this R&D initiative was sought from
several federal and provincial government sources, and initial approval
was given by the governments. However, the original approach to the
project was abandoned and the funding agencies suspended, then withdrew
their support.
Therefore, we preliminarily determine that there was no financial
contribution by the GOC or the provincial governments in Projet
Bessemer and, consequently, no subsidy. See section 771(5)(B)(i) of the
Act.
We further note that Stelco responded that direct casting for the
manufacture of hot-rolled strip was not related to the production of
the subject merchandise (which is produced from billets). Thus, had any
subsidies been received for R&D on direct casting those subsidies would
not be attributed to the products covered by this proceeding. (See 19
CFR 351.525(b)(5).)
C. Government Support for Stelco's Energy Projects
In a 1999 report issued by Stelco, Industrial Energy Innovators
Action Plan Report, the company stated that it had used incentives
provided by the government for many of its energy projects. In response
to our questionnaires, Stelco has explained that the ``incentive'' it
was describing was its honorary designation as an ``Industrial Energy
Innovator.'' It received this designation because it was successful in
lowering its energy usage and increasing its efficiency.
Therefore, we preliminarily determine that there was no financial
contribution by the GOC in support of Stelco's energy projects and,
consequently, no subsidy. See section 771(5)(B)(i) of the Act.
III. Programs Preliminarily Determined to Be Not Used During the POI
A. Resource Allowance for Newfoundland
As discussed above under ``Tax Credits for Mining Incentives,''
Stelco was subject to taxes in three provinces during the POI. For the
third province, Newfoundland, the amount of tax savings generated by
the resource allowance is so small that it yields no measurable
benefit. Given the insignificance of any benefit under this program, we
are not planning to seek further information to determine whether the
resource allowance in Newfoundland is a countervailable subsidy.
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated an individual rate for each manufacturer of the subject
merchandise. We preliminarily determine the total estimated net
countervailable subsidy rates to be:
------------------------------------------------------------------------
Producer/Exporter Net Subsidy Rate
------------------------------------------------------------------------
Ispat Sidbec Inc..................................... 6.37 %
Ivaco Inc............................................ 0 %
Stelco Inc........................................... 0 %
All Others........................................... 6.37 %
------------------------------------------------------------------------
In accordance with sections 777A(e)(2)(B) and 705(c)(5)(A), we have
set the ``all others'' rate as Ispat Sidbec's rate because the rates
for all other investigated companies are zero.
In accordance with section 703(d) of the Act, we are directing the
Customs Service to suspend liquidation of all entries of wire rod from
Canada 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 above, except for entries from
Ivaco Inc. and Stelco Inc. This suspension will remain in effect until
further notice. Entries from Ivaco Inc. and Stelco Inc. are not subject
to this suspension of liquidation because we have preliminarily
determined their rates to be zero.
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 Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
Case briefs for this investigation must be submitted no later than
one week after the issuance of the last verification report. Rebuttal
briefs must be filed within five days after the deadline for submission
of case briefs. A list of authorities relied upon, a table of contents,
and an executive summary of issues should accompany any briefs
submitted to the Department. Executive summaries should be limited to
five pages total, including footnotes.
Section 774 of the Act provides that the Department will hold a
public hearing to afford interested parties an opportunity to comment
on arguments raised in case or rebuttal briefs, provided that such a
hearing is requested by an interested party. If a request for a hearing
is made in this investigation, the hearing will tentatively be held two
days after the deadline for submission of the rebuttal briefs at the
U.S. Department of Commerce, 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.
Interested parties who wish to request a hearing, or to participate
if one is requested, must submit a written request to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, within 30 days of the publication of this notice. Requests should
contain: (1) the party's name, address, and telephone number; (2) the
number of participants; and
(3) a list of the issues to be discussed. Oral presentations will
be limited to issues raised in the briefs.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
[[Page 5991]]
February 2, 2002
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-3120 Filed 2-7-02; 8:45 am]
BILLING CODE 3510-DS-S