(Cite as: 50 FR 25097)

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

[C-122-404]

Final Affirmative Countervailing Duty Determination; Live Swine and Fresh,

Chilled and Frozen Pork Products from Canada

Monday, June 17, 1985

*25097 AGENCY: Import Administration, International Trade Administration, Commerce.

ACTION: Notice.

SUMMARY: We determine that certain benefits which constitue subsidies within the meaning of the countervailing duty law are being provided to producers or exporters in Canada of live swine and fresh, chilled and frozen pork products. The net subsidy is Can$0.03272/lb. dressed-weight (Can$0.02602/lb. live-weight) and the bonding rate is Can$0.025523lb. dressed-weight (Can$0.04390/lb. live- weight). We have notified the United States International Trade Commission (ITC) of our determination. We are directing the U.S. Customs Service to continue to suspend liquidation of all entries of live swine and fresh, chilled and frozen pork products that are entered, or withdrawn from warehouse, for consumption, after April 3, 1985, and to require a cash deposit or bond on entries of these products.

EFFECTIVE DATE: June 17, 1985.

FOR FURTHER INFORMATION CONTACT:Gary Taverman or Mary Martin, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C. 20230; telephone (202) 377-0161 (Taverman) or (202) 377-3464 (Martin).

SUPPLEMENTARY INFORMATION:

FINAL DETERMINATION

Based upon our investigation, we determine that certain benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to producers or exporters in Canada of live swine and fresh, chilled and frozen pork products. For purposes of this investigation, the following programs are found to confer subsidies:

Federal Program

- Hog Stabilization Payments Provided Under the Agricultural Stabilization Act

Joint Federal/Provincial Program

- Record of Performance Program

Provincial Programs

A. Stabilization Programs

- British Columbia Swine Producers' Farm Income Plan

B. Other programs

- New Brunswick Swine Assistance Program

We determine the net subsidy to be Can$0.03272/lb. dressed-weight (Can $0.02602/lb. live-weight) and the bonding rate to be Can$0.05523/lb. dressed- weight (Can$0.4390/lb. live-weight).

Case History

On November 2, 1984, we received a petition from the National Pork Producers Council (NPPC) on behalf of the domestic pork producers, which include hog producers and packers of unprocessed pork products. Seven domestic pork packers are co-petitioners. In compliance with the filing requirements of s 355.26 of our regulations (19 CFR 355.26), the petition alleged that producers or exporters in Canada of live swine and fresh, chilled and frozen pork products directly or indirectly receive benefits which constitute subsidies within the meaning of section 701 of the Act, and that these imports materially injure or threaten material injury to a U.S. industry. We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on November 23, 1984, we initiated such an investigation (49 FR 47079). We stated that we expected to issue a preliminary determination by January 26, 1985. On January 4, 1985, we determined this investigation to be "extraordinarily complicated" as defined in section 703(c)(1)(B) of the Act. Therefore, we extended the period for making our preliminary determination by 65 days until April 1, 1985 (50 FR 1613).

Since Canada 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 initiation. On December 19, 1984, the ITC determined that there is a reasonable indication that these imports materially injure a U.S. industry (49 FR 50315).

We presented a questionnaire concerning the allegations to the government of Canada in Washington, D.C. on December 11, 1984. On January 29, 1985, we received a response to the questionnaire. We received *25098 supplemental responses on February 19, 20, March 5, 11, and 14, 1985.

Subsequent to our initiation, we received timely requests for exclusion from several Canadian firms. Questionnaires were presented to these firms in order that the Department might determine the extent to which they may have benefitted from the alleged subsidy programs. Responses were received on February 25, 1985. We also received statements from the Canadian federal and provincial governments certifying that no benefits were provided to those Canadian firms requesting exclusion.

On the basis of information contained in these responses, we made a preliminary determination on March 26, 1985 (50 FR 13264). We verified the responses of the federal and provincial governments and the companies requesting exclusion in Ottawa and in the major cities of each province from April 1 to May 7, 1985.

At the request of both the petitioners and respondents, we held a hearing on May 9, 1985, to allow the parties an opportunity to address the issues arising in the investigation. Both petitioners and respondents filed briefs discussing these issues before and after the hearing.

Standing of Petitioner

The petition was filed by the National Pork Producers Council, an association of domestic hog growers, naming imports of live swine, and fresh, chilled and frozen pork products from Canada as the products to be investigated. Because the NPPC is an association of hog growers, respondents challenged its standing to file a petition against fresh, chilled and frozen pork products.

Seven pork packers, including one of the largest in the United States, are now co-petitioners. As producers of fresh, chilled and frozen pork prducts, they produce the product like the pork products under investigation and are therefore domestic interested parties qualified to be petitioners. They properly acquired co-petitioner status by filing pursuant to s 355.7(i) of the Commerce Regulations (19 CFR 355.7(i)). It is the Department's practice to presume industry support for a petition unless producers of a substantial proportion of the product under investigation come forward in opposition. In this case, packers expressed affirmative support for the petition.

Scope of the Investigation

The products covered by this investigation are live swine and fresh, chilled and frozen pork products, as currently provided for in items 100.8500, 106.4020, and 106.4040 of the Tariff Schedules of the United States, Annotated (TSUSA).

Analysis of Programs

Throughout this notice, we refer to certain general principles applied to the facts of the current investigation. These principles are described in the "Subsidies Appendix" attached 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).

There are approximately 36,000 producers and exporters in Canada of live swine and fresh, chilled and frozen pork products. For purposes of this final determination, the period for which we are measuring subsidization ("the review period") is fiscal year 1984--April 1, 1983, to March 31, 1984.

All values referred to are expressed in Canadian dollars.

Upstream Issue

Respondents argue that we must apply the upstream subsidies provision of the Trade and Tariff Act of 1984, section 613, to measure the amount of any benefit received by hog growers which is passed through to pork packers. They claim that section 613 governs the analysis of subsidies on input products, and argue that live swine are an input into the production of unprocessed pork meat. They note that live swine are sold by farmers to unrelated pork packers in arms-length transactions and claim that this supports their argument that live swine is an input into pork meat. Respondents conclude that if we do apply the upstream subsidy analysis, as they claim section 613 requires, we will find that no "competitive benefit" has been bestowed on the production of unprocessed pork.

We disagree with respondents that section 613 governs this case. Before we conduct an upstream subsidy investigation, we must have "reasonable cause to believe or suspect that an upstream subsidy, as defined in section 771(A)(a)(1), is being paid or bestowed." 19 U.S.C. 1671(g), as amended by section 613(b). Section 771A(a)(1) in part defines upstream subsidy as a subsidy paid or bestowed on an "input product" that accordingly bestows a competitive benefit on the product under investigation. As explained more fully below, we do not consider live swine to be an "input" into unprocessed pork. Without cause to believe or suspect that an upstream subsidy was being paid or bestowed with respect to unprocessed pork, we are not mandated by section 613 to conduct an upstream investigation and have not done so.

The Trade and Tariff Act of 1984, which amended the Tariff Act to provide for upstream subsidies, gives little guidance on the meaning of the term "input". The legislative history also does not provide decisive guidance. We believe there are two characteristics which evidence that live swine should not be considered an "input" into fresh, chilled and frozen pork products. These characteristics are level of value added and the role of the producer.

Empirically, one does not consider something as an "input" into something else when there is a low level of value added at a given stage of processing. Take, for example, steel pipe at the threading stage. No one would consider unthreaded pipe as an "input" into threaded pipe. Likewise, no one would consider unsifted iron ore as an "input" into sifted iron ore. This is true even though the products are at different stages of production, and the intervening process does change the form of the product in some way.

Operations such as threading or sifting do not add significantly to the value of the pipe or the iron ore. Thus, a low level of value added at a given level of processing is an indication that the prior stage product entering that level is not an input into the processed product.

The role of the processor at the stage in question is also significant. In each of the examples cited above, the latter processor was merely making the product ready for the next consumer. For example, unsifted iron ore is of little use to anyone but iron ore sifters.

The salient criterion is the degree to which the demand for the prior stage product is dependent on the demand for the latter stage product. For example, steelmakers' demand for sifted iron ore determines the iron ore sifter's demand for mined iron ore. However, it cannot be said that automakers' demand for steel determines the steelmakers' demand for iron. In the first example, the demand for the prior stage good is derived almost exclusively from the demand for the latter stage; in the second example it is not.

The fact that a sale, an arms-length transaction, occurs between these stages of processing does not mean that the prior stage product is an input. To see this, take the example of a trading house that purchases shirts from a clothing manufacturer. The trading house may perform some further processing in the form of packaging the shirts or putting them on hangers or sewing on labels before reselling them. It seems clear to us that although the *25099 trading house may have purchased the shirts at arm's length, a subsidized, unpacked and unlabeled shirt becomes a subsidized packed and labeled shirt.

We have evaluated whether live swine are an input into fresh, chilled and frozen pork products in terms of the characteristics described above. In value-added terms, the packing stage consisting of immobilizing, stunning, dehairing, eviscerating, splitting, etc. does not contribute significantly to the value of the live swine. According to Live Swine and Pork from Canada, Inv. No. 701-TA-224 (Preliminary), USITC Pub. 1625 at 5 (December 1984), the value added at the packing stage is only 10 percent.

Moreover, the packers are merely making the swine ready for the next consumers, consumers of pork meat. The consumers are wholesale purchasers of pork meat for resale as pork, such as grocery chains, and further processors who produce bacon, hams, etc. The demand for the slaughtered and quartered swine is by far the predominant determinant of the demand for live swine.

Therefore, we conclude that live swine are not an input into fresh, chilled and frozen pork products.

In a case concerning an agricultural product such as this, it is particularly inappropriate to term the raw product an "input" into the next-stage or further processed product. In passing the Trade Agreements Act of 1979, Congress gave express recognition to the "special nature of agriculture," foreseeing that the analyses in antidumping and countervailing duty cases involving agricultural products would differ from analyses in cases pertaining to industrial products. See S. Rep. No. 249, 96th Cong., 1st Sess. 88, 91 (1979). As the ITC stated in Lamb Meat from New Zealand,

Although it was discussed under the legislative history of section 771(7), the definition of the term "material injury," it unquestionably evidences congressional awareness of unique problems that could be confronted in providing relief under the statute for certain agricultural commodities.

Inv. No. 701-TA-80 (Preliminary), 46 FR 56677, 56678 n. 18 (1981). The ITC, which has been called upon more often than we to deal with distinctions regarding agricultural products, has developed a two-part test for collapsing producers of a raw agricultural product and producers of a more processed product into a single industry. See, e.g., Frozen Concentrated Orange Juice, Inv. No. 701-TA-184, USITC Pub. No. 1406 (July 1983); Lamb Meat, supra, Sugar From the European Community, Inv. No. 104-TAA-7 (May 1982), Certain Red Raspberries from Canada, Inv. No. 731-TA-135 (April 1984). First, the raw product can be sold in only one market; it enters "a single, continuous line of production resulting in one end product." Frozen Concentrated Orange Juice, at 19; Lamb Meat at 46 FR 56678. Second, the ITC looks for commonality of economic interest. Id. The Court of International Trade recently assented to the first prong of the ITC's test when it upheld the Commission's determination not to combine grape growers and wine producers in a single industry in Certain Table Wines From France and Italy, Inv. No. 701-TA-210 and 211 (Preliminary), USITC Pub. No. 1406 (July 1983). The court stated, "The logic of the legislative concern . . . extends only to agricultural products which are completely devoted to the production of the more advanced product under investigation." American Grape Growers v. United States, 19 Cust. Bull. 57, 58 (March 11, 1985). In each of the cases cited above, the court noted that "substantially all of the raw product was dedicated to the production of the product under investigation." Id. at 59 (emphasis in original).

Live swine and unprocessed pork are closely analogous to sheep and lamb meat or to sugar beet/sugar cane and refined sugar that were the subject of cases cited by the court, and to others, as well, such as fresh whole fish and filleted fish investigated in Fish, Fresh, Chilled or Frozen, Whether or Not Whole, but Not Otherwise Prepared or Preserved, from Canada, Inv. No. 701-TA- 40, USITC Pub. No. 1066 (May 1980). The court did not address the second part of the ITC's test. Nor did the ITC in its preliminary determination in this investigation. It seems, however, that pork packers have expressed their commonality of economic interest with hog growers by joining in or supporting the petition. See the section of this notice "Standing", supra.

The primary, if not the sole, purpose of all segments of the industry in this case is to produce a single end product--pork meat. Substantially all of the raw agricultural product, live swine, is dedicated to the production of unprocessed pork. The fact that beyond this stage many separate processed products can be made, e.g., canned ham and sausage, is irrelevant. The key is that there is a single, continuous line of production from live swine to unprocessed pork.

As the legislative history of the upstream subsidies provision indicates, Congress intended that section 613 generally codify our past practices. In reviewing our own practice, we find two instances where we have investigated subsidies which are bestowed on the production of a raw agricultural product which is then used to produce a next-stage product that was the subject of an investigation; Lamb Meat from New Zealand: Preliminary Affirmative Countervailing Duty Determination, 46 FR 58128 (1981), and Certain Fish from Canada: Final Countervailing Duty Determination, 43 FR 25996 (1978). In the Lamb Meat investigation, we preliminarily determined that subsidies bestowed on lamb provide an equal benefit to packed lamb meat, while in the Fish case we concluded that subsidies bestowed on whole fresh fish provide an equal benefit to filleted but not further processed fish. In both cases, we arrived at the net subsidy by totaling the benefits granted to the producer of the raw agricultural product (lamb and fish) and the producers of the next-stage product (lamb meat and filleted fish). Because Congress intended that section 613 codify our prior practices, we conclude that Congress did not intend that we alter our practices in situations similar to those arising in Lamb Meat and Certain Fish.

Given the congressional mandate to acknowledge the special nature of agriculture, our practice, the ITC's past practice, which is now sanctioned by the Court of International Trade, and the reasonableness of treating the raw and next-stage product together for purposes of subsidy analysis, we do not consider live swine to be an input into unprocessed pork.

Our conclusion that live swine is not an input into pork products is supported by one additional factor--absent such a finding, growers of live swine would be able to circumvent the imposition of countervailing duties. If we are to find that benefits to live swine do not benefit pork meat, and were to impose duties only on live swine, subsidized growers could avoid the imposition of duties on their product by selling through pork packers, who simply slaughter and trim the swine, and then export the product to the U.S. in the form of pork meat.

We recognize that, when we impose countervailing duties on a given product, exporters may be encouraged to shift exports from that product to some form of the same product at a prior or later stage of processing. However, in the case of an agricultural product such as pork, producers can shift very easily to the production of latter-stage products, by making only minor changes to that product. In this case, it is reasonable to assume that if countervailing duties were imposed only on live swine, exports to the U.S. would shift almost *25100 instantaneously to fresh, chilled and frozen pork.

As noted supra, we do not consider one product to be an input into the next- stage product when the value added at that next stage is small. We believe that value added is also an accurate measurement of the relative ability to shift exports to the next stage of production, thereby circumventing the imposition of countervailing duties. In the examples of threaded pipe and iron ore cited above, where the primary product is distinguished from the next-stage product only by minor processing, it would be inappropriate to impose duties only upon the primary product. Producers would sell through next-stage processors, who would add little to the value of the product, but who would then be able to export to the U.S. without the liability of countervailing duties.

An analogous situation is our treatment of goods sold through a trading house. In the past, we have totaled the benefits received by the producers of the good and the benefits received by the trading house to determine the net subsidy for the good. We believe this to be an appropriate approach, since in its absence, producers who receive countervailable benefits would be able to circumvent easily the imposition of countervailing duties by selling through unsubsidized trading houses that obtain exclusions. One should not be able to circumvent an order in such a way.

For all of these reasons we determine that section 613 is not applicable to this case.

In light of this decision, the requests for exclusion by the packers of unprocessed pork will not be considered.

Based upon our analysis of the petition, the responses to our questionnaire, our verification, and comments filed by petitioners and respondents, we determine the following:

I. Programs Determined to Confer Subsidies

We determine that subsidies are provided to producers or exporters in Canada of live swine and fresh, chilled and frozen pork products under the following programs:

A. Federal Programs

1. Hog Stabilization Payments Provided Under the Agricultural Stabilization Act

The Agricultural Stabilization Act (ASA) of 1957-58 was enacted to provide for the stabilization of the prices of certain agricultural commodities. Three groups of commodities are explicitly provided for within the ASA (cattle, hogs and sheep; industrial milk and industrial cream; and corn, soybeans, oats and barley). Other natural or processed agricultural products, with certain exceptions, may be designated by the Governor in Council. Programs of the ASA are administered by the Agricultural Stabilization Board (the Board), whose members are appointed by the Governor in Council.

The Board has the duty to take such action in accordance with the ASA as is necessary to stabilize the prices of the covered agricultural commodities at their prescribed prices, and the power to "pay to producers of an agricultural commodity . . . the amount by which the prescribed price exceeds a price determined by the Board to be the average price by which the commodity is sold . . ." Chapter A-9, section 10(1)(b).

The mechanism by which the stabilization payment is determined is as follows: (1) A "base price," which is the average price of the commodity in representative markets for the 5-year period immediately preceding the year in review, is established; (2) a "prescribed price" is determined by taking a minimum of 90 percent of the base price and adjusting it by an index reflecting changes in production costs; and (3) an "average market return price" for the commodity for the year in review is established. The difference between the prescribed price and the average market return price is the amount of the gross stabilization payment.

In fiscal year 1984, because the average market price for hogs, Can $66.98/cwt., fell short of the prescribed price, Can$71.75 cwt., the federal government authorized a stabilization payment of Can$4.77/cwt. or Can $8.19/hog. This amount was reduced by approximately 20 percent to reflect the proportion of Canadian production which was exported in fiscal year 1984, resulting in a net payment of Can$6.54/hog. All producers who sold hogs of index 80 (a grading factor) or better for slaughter were eligible for benefits under this program provided they submitted an application with appropriate proof of sale and slaughter. For 1983-84, there was a participation ceiling of 12,000 hogs per producer.

To avoid double counting, the federal government deducted the amount of any provincial stabilization payment from the federal stabilization payment before it reimbursed each producer. If the provincial payment was greater than or equal to the federal payment, the federal government made no stabilization payment. If the federal government exceed the provincial payout, the federal government paid the producer the difference between the federal and provincial stabilization payments.

Respondents have claimed that ASA payments are part of a nationwide fabric of programs covering farm products and are not countervailable because they are provided to more than a specific enterprise or industry, or group of enterprises or industries. In support of their claim, they cite several previous Department rulings that the benefits provided to the agricultural sector are not limited in availability within the meaning of section 771(5)(B). See Final Negative Countervailing Duty Determinastion: Fresh Cut Flowers from Mexico (49 FR 15007) and Final Negative Countervailing Duty Determination: Fresh Asparagus from Mexico (48 FR 21618).

We disagree with respondents' claim. Based on the information received, we find that ASA payments are made only to selected agricultural producers and that the level of price stabilization payments varies, at the discretion of the Agricultural Stabilization Board, from commodity to commodity. As such, we cannot conclude that ASA payments are available to more than a specific enterprise or industry, or group of enterprises or industries, for the following reasons:

(a) The legislation establishing the ASA program specifically lists "named products" that are eligible for price support payments: Livestock (cattle, hogs and sheep), certain dairy products (industrial milk and industrial cream), and certain grains (corn, soy beans, oats and barley). The ASA further allows the Governor in Council to designate other agricultural products ("designated products") for coverage.

Thus, three types of products are singled out in the legislation. Each year, prescribed prices are automatically calculated for these named products, and if the prescribed price exceeds the average market price, payments can be authorized. Moreover, the ASA directs that for named products prescribed prices will be calculated as at least 90 percent of the base price (adjusted by a production cost index).

When we compare this treatment of named products to that of designated products, we find that designated products are only considered for ASA payments if the Governor in Council so directs. There is no automatic calculation of a prescribed price and no guaranteed potential for ASA payments, as is the case with named products. Also, there is no legally mandated *25101 coefficient to be applied to the base price of designated products.

(b) A second aspect of the scheme which leads us to conclude that ASA payments benefit a specific enterprise or industry, or group of enterprises or industries, is the lack of neutrality in the formula for calculating the prescribed price. As noted above, there is not a prescribed coefficient for designated products, nor are there guidelines followed by the Board in making this determination. Even among the named products, there is discretion in setting the coefficient to be applied to the base price. Ninety percent only serves as a minimum.

(c) A third aspect of the scheme which leads us to our conclusion is the way in which the Canadian federal government appropriates funds for stabilization schemes covering named and designated commodities. Funding for named commodities is approved as a "statutory item" in the budget through existing legislation, i.e. the legal authority exists for the Board to support named commodities without the need for additional parliamentary approval. In contrast, funding for designated commodities is considered a "vote item" in the budget, and, as such must be approved by Parliament as a specific appropriation for a specific purpose.

(d) Other aspects of government discretion can be found within the specific stabilization schemes themselves. For example, to qualify for stabilization under the hog program, producers must sell hogs with a minimum grade factor of 80. Thus, all hogs are not eligible for stabilization payments, only those meeting the minimum grading threshold. In addition, the government will establish the maximum number of hogs for which payment can be made. In the 1979 and 1980 hog programs, the maximum was 5,000 per individual of 15,000 per enterprise; this was changed to a maximum of 12,000 per individual or enterprise.

The benefits provided under the ASA are analogous to those provided, and found to be countervailable, under programs such as the EC Common Agricultural Policy (CAP) program in Tomato Products from the European Community (44 FR 15825), and Dextrines and Solubles from Corn Starch from the European Community (45 FR 18414). Like the CAP, the ASA includes numerous programs available for many different agricultural products. Both programs provide payments in specific amounts to producers or processors of selected agricultural commodities in order to ensure that prices or returns are at certain pre-determined levels. Producers or processors of particular agricultural products are eligible to receive payments in amounts established yearly for each particular product found to warrant support.

The payments countervailed in the two cited EC cases and the benefits provided under the ASA are distinguishable from FIRA loans in Flowers and lower prices for water for irrigation in Asparagus. There were no specifically named products in the FIRA loan program or the irrigation program. Loans and water were provided to anyone engaged in agricultural production, regardless of product or level of production. Therefore, unlike the benefits discussed in Flowers and Asparagus, and like the benefits discussed in Tomatoes and Dextrines, we believe (1) that ASA payments are made to selected agricultural products in specific amounts, (2) that the specific rates of support provided depend upon the commodity in question, and (3) that there is governmental discretion in the administration of the various stabilization schemes. Hence, we find the payment provided under the ASA to be countervailable.

Calculation of Benefit

In deciding whether to allocate the benefit arising from stabilization payments to the year of receipt or over time, we have examined whether the program under which the payments are authorized is exceptional; i.e., has the program been established for a period of years, or is it designed as a "one- time, shot-in-the-arm" subsidy program for the live swine industry In the case of recurring programs, we would allocate the benefit to the year of receipt; in non-recurring programs, we would allocate the benefit over time.

The support for this approach derives from the legislative history surrounding the Trade Agreements Act of 1979, where both the House and Senate Reports singled out "non-recurring subsidy grants or loans" for special treatment:

Reasonable methods of allocating the value of such subsidies over the production or exportation of the subsidies benefiting from the subsidy must be used.

S. Rep. No. 249, 96th Cong., 1st Sess. 85 (1979). See also H. Rep. No. 317, 96th Cong., 1st Sess. 75. In this case, we have determined that the Hog Stabilization Program is long-standing. It was established in 1957 by the Agricultural Stabilization Act. Annual market prices and five-year prescribed prices have been calculated for almost 30 years; stabilization payments have been authorized for 3 of the last 5 years. In addition, we have no reason to believe that the program will not continue. For these reasons, we have determined that the benefits provided under this program are not exceptional and should, therefore, be allocated to the year of receipt.

To calculate the benefit, we divided the value of the stabilization payments made during fiscal year 1984 (the period for which we are measuring subsidization) by the dressed-weight equivalent of all hogs marketed in that year. This resulted in a subsidy rate of Can$0.000006/lb. dressed-weight (Can $0.000004/lb.

We have verified, and are now able to quantify, the value of the ASA payments that hog growers received on hogs marketed in fiscal year 1984. We are therefore adjusting those payments. We calculated the adjusted bonding rate by dividing the value of stabilization payments made in fiscal year 1985 ($56,354,583) on the hogs marketed during our period of investigation by the total dressed-weight equivalent of all hogs marketed in fiscal 1984. This calculation resulted in a bonding rate of Can$0.02251/lb. dressed-weight (Can $0.01789/lb. live-weight).

B. Joint Federal/Provincial Program; The Record of Performance Program

The Canadian Swine Record of Performance Program (ROP) is a joint federal and provincial herd testing system designed to assist swine producers in improving breeding stock and to encourage the production of uniform and high quality pork production at lower costs. Similar performance testing program exist for beef, dairy cattle, sheep, poultry and honey bees. (This is unlike the Hog Carcass Grading System, discussed in the 'Programs Found Not to Confer Subsidies' section of this notice, in which a far larger number of commodities were eligible for the service.)

Purebred swine are tested for backfat, growth rate and feed conversion, in accordance with guidelines formulated by the Canadian Swine Record of Performance Advisory Board and Agriculture Canada. Information from the testing program enables within-herd ranking and comparisons of animals for genetic merit. The Canadian federal and provincial governments bear most of the cost of this program. Provincial government publications indicate that these programs have contributed to increased profits for hog producers, as a result of the improved market index of hogs and a decrease in the average age at market.

*25102 Because this program is limited to a specific group of enterprises or industries, we determine it to be countervailable. To calculate the benefit, we divided the total value of the federal and provincial government contributions to the program during the period for which we are measuring subsidization by the dressed-weight equivalent of all hogs marketed in that year. This resulted in a subsidy rate of Can$0.00144/lb. dressed-weight (Can $0.00114/lb live-weight).

C. Provincial Stabilization Programs

1. British Columbia Swine Producers' Farm Income Plan (SPFIP)

Created in 1979 pursuant to British Columbia's Farm Income Insurance Act of 1973, the SPFIP assures hog producers in British Columbia a specified level of return over certain basic production costs. The program is administered by the provincial Ministry of Agriculture and Food, the British Columbia Federation of Agriculture and the British Columbia Pork Producers' Association. The program is funded by contributions, in roughly equal proportions, by the provincial government and participating hog producers.

Participation in the program is voluntary and is open to all producers who are members of the British Columbia Pork Producers' Association and who have an annual production capacity of 300 eligible market hogs. Certain participation ceilings restrict the number of hogs for which the program provides coverage. There are also payment ceilings, above which benefits are reduced.

Participating hog producers receive stabilization payments in calendar quarters during which certain costs of production exceed market returns. Costs of production and market returns are determined monthly by the administering authorities. Stabilization payments are made quarterly and are equal to the difference between costs of production and market return, multiplied by the number of eligible hogs sold, less a discount representing the producer's contribution. Producers make contributions to SPFIP in all quarters, regardless of whether costs of production exceed market returns.

Respondents have claimed that stabilization payments in British Columbia are not countervailable because they are provided to more than a specific enterprise or industry, or group of enterprises or industries, and because the stabilization schemes are operated according to objective economic criteria. We are not persuaded by respondents' argument. At verification we learned that, in addition to swine, nine other agricultural commodities currently have stabilization plans. However, neither the Farm Income Insurance Act nor its implementing regulation and guidelines establish procedures or criteria for when a commodity is to become subject to a stabilization plan. In practice, the British Columbia Federation of Agriculture takes the initiative to propose a stabilization plan to the province's Ministry of Agriculture and Food. The two entities consult together on such a proposal, but it is ultimately at the Ministry's discretion whether to implement a proposal.

There is also room for considerable variance in the treatment of those commodities for which stabilization plans are in place. For parity of benefits among the producers of different commodities to exist, it is essential that the cost of production elements in the stabilization formlulae for the various commodities be comparable to one another. That is, the cost of production model used for the swine program should reflect the actual cost of production experience of swine producers to the same exent that the model for other commodities reflects the actual cost of production experience of producers of those commodities. Yet, both at the inception of a plan and whenever it is up- dated, the cost of production model for each commodity plan is also subject to consultation and negotiation between the Federation of Agriculture and the Ministry of Agriculture and Food. At verification, we learned that cost of production models are not necessarily an accurate reflection of cost of production experience of the relevant producer group. Thus, there exists the possibility that the incomes of producers of certain covered commodities are being stabilized to a significantly greater or lesser extent than those of others.

Even among swine producers, benefits are not available on equal terms, for it is only producers with an annual production capacity of at least 300 eligible market hogs who are eligible to participate.

For the foregoing reasons, we find that benefits provided under this program are limited to a specific group of enterprises or industries, and we determine this program to be countervailable. Dividing the provincial government's share of the fiscal year 1984 stabilization payments by the dressed-weight equivalent of all hogs marketed in that year, we calculated a subsidy rate of Can $0.00060/lb. dressed-weight (Can$0.00048/lb. live-weight).

2. Manitoba Hog Income Stabilization Plan (HISP)

Created in 1983 pursuant to the Farm Income Assurance Plans Act, the HISP provides income support payments to hog producers in Manitoba. The program is administered by the provincial Ministry of Agriculture and the Manitoba Hog Producers' Marketing Board. It is funded by premiums from participating producers and from the government of Manitoba. The government also makes loans to HISP, if needed, during periods when payouts are made to producers. Praticipation in the program is voluntary and is open to all producers registered with the Manitoba Hog Producer's Marketing Board. Coverage is limited to 1,250 hogs per calendar quarter, per producer, with special provision for higher ceilings for multiple family unit producers.

Participating producers receive payments at the end of each quarter in which the market price for hogs falls below an established support level. This price support level is 87 percent of a cost of production model, which is recalculated each quarter. Producer premiums, which currently are 5 percent of thoe settlement price, are deducted from the proceeds realized upon the sale of hogs. The provincial government's contributions are established at 2 percent of the settlement price. When combined producer premiums and government contributions are insufficient to finance stabilization payments, monies have been loaned from the provincial treasury to cover deficits.

The enabling legislation for this program, the Farm Income Assurance Plans Act, permits the Minister of Agriculture to establish income assurance plans for many natural products. However, in addition to swine, there is only one other commodity form which there is a stabilization scheme. Because stabilization benefits are limited to only these two products, we cannot find that stabilization payments in Manitoba are available to more than a specific group of enterprises or industries.

Dividing the provincial government's share of the fiscal year 1984 stabilization payments by the dressed-weight equivalent of all hogs marketed in that year, we calculated a subsidy rate of Con$0.00131/lb. dressed-weight (Can $0.00104/lb. live-weight).

3. New Brunswick Hog Price Stabilization Program

The New Brunswick Hog Price Stabilization Program, a joint program of *25103 the New Brunswick Department of Agriculture and the Hog Marketing Board ("the Board"), was established in 1974. Its purpose is to assure hog producers greater income stability, to enable hog producers to remain in business during periods of low hog prices, and to provide a more uniform volume of pork production for the processing industry. In New Brunswick, all producers who market hogs through the Board are eligible to receive stabilization payments on 7,500 hogs per year. Hogs are the only agricultural commodity that receive stabilization payments in New Brunswick.

The Board establishes a stabilization price that is based on production costs. When the market price exceeds the stabilization price by $5.00, farmers pay into the stabilization fund. Ninety-five percent of this amount is considered to be the farmer's equity in the program. When the average weekly market price falls below the stabilization price, farmers receive payments to make up the difference between the two prices. Half this amount is paid by the government of New Brunswick as an outright grant to the farmer. The other half is drawn from the farmer's equity in the fund. When the farmer has exhausted his equity in the fund, the province assumes the producer's portion of the payment by providing an interest-free loan. This loan is only paid back when the market price exceeds the stabilization price. In fiscal year 1984, the stabilization price exceeded the market price throughout the year, and producers received both loan and grant payments from the program.

Because these grants and interest-free loans are limited to a specific enterprise or industry, or group of enterprises industries, we find them to be countervailable. To calculate the benefit resulting from the grant portion of the payment, we allocated the total grant amount received in fiscal year 1984 over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. We treated the laon portion of the payment as one-year, interest-free loans, rolled over into subsequent years, until the loan amounts are repaid. To calculate the benefit from these loans, we took the difference between the zero interest rate charged on these loans and the national average short-term commercial rate for comparable agricultural loans, and multiplied this interest differential by the total amount of loans outstanding in fiscal year 1983. We allocated the resulting benefit over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. The total benefit from the program, including the grant and loan portions of the payment is Can$0.00068/lb. dressed-weight (Can$0.00054/lb. live-weight).

Newfoundland Hog Price Support Program

In our preliminary determination, we referred to a program of low-interest loans to Newfoundland pork producers. We found at verification that this program, operating during fiscal year 1984, is a price stabilization program which provides pork producers interest-free loans from the provincial government equal to the difference between a stabilization price based on the cost of production and the market price for hogs.

However, that program was terminated and in April 1985 the provincial government set up a new price support program whereby hog producers receive 85 per pound on all market hogs regardless of the prevailing market price. Farmers receive this amount from the Newfoundland Farm Products Corporation, acting on behalf of the provincial government.

Because this program is limited to a specific enterprise or industry, or group of enterprises or industries, we find it to be countervailable. We determine that the benefit from this program is the difference between the 85 per pound that the producers actually received and the market price for hogs. However, since this program became effective only in April 1985, we do not have information on how much money will be spent on price support. As an estimate, we have used information from fiscal year 1984. We feel that the amount paid out in that year in loans under the price stabilization program is the best approximation of what will be paid out in the current fiscal year as grants under the price support program. Based on that information, we determine the benefit from this program to be Can$0.00017/lb. dressed-weight (Can$0.00013/lb. live-weight).

5. Nova Scotia Pork Price Stabilization Program (NSPPSP)

Pursuant to the Nova Scotia Natural Products Act, NSPPSP is administered under the Pork Producers Marketing Plan of August 9, 1983. The purpose of the program is to assure price stability with respect to the production of hogs by compensating farmers for fluctuations in the hog price cycles and by assuring that producers consistently recover direct operating costs. Participation is open to all hog producers who market hogs through the Nova Scotia Pork Price Stabilization Board (the Board). Maximum eligibility is established annual according to the producers' existing production facilities. Hogs are the only agricultural commodity that receive stabilization payments.

The NSPPSP is funded by producer contributions to the Pork Price Stabilization Fund. Each quarter, the Board sets and reviews the stabilization price to reflect current, direct, out-of-pocket operating costs. When the weekly market price exceeds the stabilization price by Can$3.00, the Board deducts the producer contributions from the sale price and deposits them in the Stabilization Fund. During periods of high prices, producers build equity in the fund with these payments. However, when the weekly market price falls below the stabilization price, the producers receive a deficiency payment which equals the difference between the two prices. Half of the payment is a grant to the producer from the province. The other half is drawn from the producer's equity in the fund. When the producer's equity is exhausted, the province assumes the producer's portion of the stabilization payment in the form of an interest-free loan, which is paid back only when the market price exceeds the contribution price. In fiscal year 1984, the stabilization fund was in a deficit position, and, accordingly, producers received both loans and grants from the province to cover their share of the payment.

Because these grants and interest-free loans are limited to a specific enterprise or industry, or group of enterprises of industries, we find them to be countervailable. To calculate the benefit resulting from the grant portion of the payment, we allocated the total grant amount received in fiscal year 1984 over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. We treated the loan portion of the payment as one-year, interest-free loans, rolled over into subsequent years, until the loan amounts are repaid. To calculate the benefit from these loans, we took the difference between the zero interest rate charged on these loans, and the national average short-term commercial rate for comparable agricultural loans, and multiplied this interest differential by the total amount of loans outstanding in fiscal year 1983. We allocated the resulting benefit over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. The total benefit from the program, including the grant and loan portions of the payment is Can$0.00086/lb. dressed-weight (Can$0.00068/lb. live-weight).

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6. Prince Edward Island (PEI) Price Stabilization Program

In accordance with the PEI Natural Products Marketing Act, the PEI Hog Commodity Marketing Board established the PEI Price Stabilization Program in 1973. The purpose of the program is to provide income stability to hog producers by compensating them for fluctuations in prices caused by traditional hog-price cycles. The Stabilization Boad and provincial lending authorities meet quarterly to determine the level of support prices. If the weekly market price of hogs exceeds the support price by Can$3.00, producers contribute to the fund on a sliding scale indexed to the price of hogs. If the weekly market price of hogs falls below the contribution price, no contributions are made. If the weekly price of hogs falls below the stabilization price, the PEI Hog Commodity Marketing Board makes stabilization payments to cover the difference between the two prices. Half the payment is in the form of a grant from the province of PEI, the other half is drawn from the producer's equity in the fund. In the event that the producer's equity is exhausted, the province assumes the producer's portion of the payment by providing an interest-free loan which is then repaid from future producer contributions to the fund. Participation in the program is voluntary; there are no minimum production requirements. However, producers are only eligible to receive stabilization payments on the number of hogs equal to the average number of hogs marketed in the previous quarter, up to a ceiling of 3,400 hogs in four consecutive quarters. In 1984-85, the ceiling was raised to 4,300 hogs per year.

Because these grants and interest-free loans are limited to a specific enterprise or industry, or group or enterprises or industries, we find them to be countervailable. To calculate the benefit resulting from the grant portion of the payment, we allocated the total grant amount received in fiscal year 1984 over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. We treated the loan portion of the payment as one-year, interest-free loans, rolled over into subsequent years, until the loan amounts are repaid. To calculate the benefit from these loans, we took the difference between the zero interest rate charged on these loans, and the national average short-term commercial rate for comparable agricultural loans, and multiplied this interest differential by the total amount of loans outstanding in fiscal year 1983. We allocated the resulting benefit over the dressed-weight equivalent of all hogs marketed in fiscal year 1984. The total benefit from the program, including the grant and loan portions of the payment is Can$0.00057/lb. dressed-weight (Can$0.00045/lb. live-weight).

7. Quebec Farm Income Stabilization Insurance Program

In accordance with the "Loi sur l'assurance-stabilisation des revenue agricoles," the government of Quebec has enacted regulations establishing stabilization schemes for producers of both feeder hogs and weaner pigs. These programs are administered by the Regie des Assurances Agricoles du Quebec (the Regie), a crown corporation that states that it operates on an actuarially-sound basis.

Participation in a stabilization scheme is voluntary; however, once a producer enrolls in a program, the producer must make a 5-year commitment. The farmer must have a minimum production of 100 feeder hogs or own at least 15 sows during the first year of enrollment. The maximum number of feeder hogs on which stabilization payments will be made is 5,000; and for sows it is 400. Funding is provided jointly by producers and the provincial government in the ratio of 1 to 2.

Throughout the production year, the Regie will make cash advances against the year-end stabilization payment. The year-end payment is based on a comparison of average market price with a production model designed to cover fixed and variable costs and producers' remuneration.

Respondents have claimed that stabilization payments in Quebec are not countervailable because they are provided to more than a specific enterprise or industry, or group of enterprises or industries. We disagree with respondents' claim. Based on the information received, we find that Quebec's stabilization payments are made to selected agricultural producers and that the level of price stabilization and the terms of each scheme varies, at the discretion of the Re>=1gie, from commodity to commodity.

While the legislation establishing the Regie contains no limitations on products that might be covered by a scheme, we must look at the de facto application of the law. A product may covered by a scheme only if a specific regulation with respect to that commodity is passed by the provincial government. In fact, only 11 agricultural commodities are covered by stabilization schemes in Quebec--lamb, sugar beets, beef, oats, wheat, barley, grain corn, potatoes, grain-fed veal, and feeder hogs and weaner pigs. Also, while respondents claim that the decision to stabilize particular commodities is based on objective economic criteria, we have not been furnished with any evidence to support this claim. The government of Quebec has not provided any of its Department of Agriculture, Food and Fisheries' briefs describing the general economic situations of the products sectors concerned, its forecasts of the economic evaluation in those sectors, nor Treasury Board recommendations to the Cabinet. There do not appear to be any established procedures or criteria for when a commodity is to become subject to a stabilization scheme.

In addition to the lack of evidence to support the assertion that schemes are based on objective economic criteria, we find that there are limitations on participation within particular schemes. Stabilization payments are not available to all producers of a commodity covered by a scheme, but only those producing at the minimum threshold level. For example, a farmer who produces 99 feeder hogs would be ineligible to participate in the feeder hog scheme, but a farmer with a production of 100 could. Minimum and maximum levels of participation are established at the discretion of the Regie.

As such, we conclude that stabilization payments in Quebec are not available to more than a specific enterprise or industry, or group of enterprises or industries, and are therefore countervailable. We calculated the benefit by dividing the government of Quebec's portion of the payments made to feeder hog and weaner pig producers in fiscal 1984 by the dressed- weight equivalent of all hogs marketed in fiscal year 1984. This resulted in a subsidy rate of Can $0.02133/lb. dressed-weight (Can $0.01696/lb. live-weight).

8. Saskatchewan Hog Assured Returns Program (SHARP)

SHARP was established in 1976 pursuant to the Saskatchewan Agricultural Returns Stabilization Act and provides stabilization payments to hog producers in Saskatchewan at times when market prices fall below certain production costs. The program is administered by the Saskatchewan Pork Producers' Marketing Board on behalf of the provincial Department of Agriculture.

Participation in the program is voluntary and is open to all hog producers in the province. Coverage is limited to 1,500 hogs per producer each calendar quarter. During the period we investigated, nearly 75 percent of all *25105 hogs marketed in Saskatchewan were covered by the program.

This program is funded by contributions from participating producers and by matching amounts from the provincial government. Producer contributions range from 1.5 to 4.5 percent of market returns on the sale of hogs which are covered by the program. Whenever the balance in the SHARP account is insufficient to make payments to participants, the provincial government loans the needed funds to the program.

The stabilization price under this program is the total of all cash production costs plus 75 percent of non-cash costs. This price is determined each calendar quarter. Stabilization payments are made at the end of each quarter to each participating producer whose average price for hogs marketed in that quarter is less than the stabilization price. However, in order to make a stabilization payment, the difference between average market price obtained and the stabilization price must be least Can$1.00. For fiscal year 1984, the provincial share of the support payment to hog producers averaged Can$8.09/hog.

Under the Saskatchewan Agricultural Returns Act, the provincial government may establish a stabilization plan for any agricultural commodity. However, in practice, only hogs and beef have such plans. Because stabilization benefits are limited to only these two products, we cannot find that stabilization payments in Saskatchewan are available to more than a specific group of enterprises or industries. By dividing the provincial government's share of the fiscal 1984 stabilization payments by the total dressed-weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy rate of Can $0.00153/lb. dressed-weight (Can$0.00122/lb. live-weight)

D. Other Provincial Programs

1. New Brunswick Swine Assistance Program

This program is administered by the Farm Adjustment Board under the Farm Adjustment Act. The program provides interest subsidies on medium-term loans to hog producers who are having problems with accumulated short-term liabilities or with start-up costs. These loans nominally are given to farmers at the provincial lending rate, but the Board pays an interest subsidy to the farmers equal to the average of the provincial lending rate and 7 percent. For example, a farmers taking out loans at 13 percent will pay an effective rate of 10 percent and the provincial government will make up the rest in the form of an interest subsidy. It is not clear whether a farmer actually pays the full rate for the loan and receives the interest subsidy as a rebate from the Board or that the farmer simply pays the reduced rate of interest.

Because these interest subsidies are limited to a specific enterprise or industry, or group of enterprises or industries, we find them to be countervailable. Since we do not know the amount of loans disbursed or the manner by which the interest subsidies were paid, we used as best information available the Farm Credit Board's figure for the amount of interest subsidy paid in fiscal year 1984 and treated this amount as a grant allocated fully in that year. Dividing that amount by the dressed-weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy of Can$0.000005/lb. dressed-weight (Can$0.000004/lb. live-weight).

2. New Brunswick Loan Guarantees and Grants Under the Livestock Incentives Program

This program assists livestock producers by providing free loan guarantees to farmers purchasing breeder and feeder animals. In addition, at the end of three years, farmers having loans for breeder animals are eligible for grants equal to 20 percent of the principal amount if, by that time, the farmer has successfully implemented a farm improvement plan submitted when the loan was received.

Because these loans and loan guarantees are limited to a specific enterprise or industry, or group of enterprises or industries, we find them to be countervailable. We calculated the benefit from the guarantees to be the difference between the cost of the government guarantees and what it would have cost hog producers to get commercial guarantees on their total outstanding loans. In addition, we treated the 20 percent refund paid to hog producers on breeder loans in fiscal year 1984 as grants allocated to the year of receipt. The benefit from this program, including both loan guarantees and the 20 percent refund on breeder loans, is Can$0.00004/lb. dressed-weight (Can $0.00003/lb. live-weight).

3. New Brunswick Hog Marketing Program

With the closure of slaughterhouses in northern New Brunswick, it became more expensive for farmers in that area to move their hogs to market. The New Brunswick Department of Agriculture established this program to assist in equalizing the cost of moving hogs to market across the Province. Funds are budgeted annually for the program based on the number of hogs marketed in previous years and on predicted expansion within the industry. Currently the provincial government pays $1.25 per hog marketed through the Hog Marketing Board for this program.

Because these grants are limited to a specific enterprise or industry, or group of enterprises or industries, and constitute a government assumption of producers' transportation costs, we find them to be countervailable. Treating the funds paid by the government for this program in fiscal year 1984 as a grant and allocating the amount paid to the year of receipt, we calculated a benefit of Can$0.00008/lb. dressed-weight (Can$0.00006/lb. live-weight).

4. Nova Scotia Swine Herd Health Policy

The Nova Scotia Department of Agriculture and Marketing operates a program whereby it reimburses veterinarians for house calls to enrolled producers. Any hog producer may enroll in the program and must agree to follow specified health practices and to pay the veterinarian a stipulated fee for his services. Because this program is limited to a specific enterprise or industry, or group of enterprises or industries, we find it to be countervailable. Dividing the amount of the government expenditure by the total dressed-weight equivalent of all hogs marketed in fiscal 1984, we calculated a benefit of Can$0.00001/lb. dressed-weight (Can$0.00001/lb. live- weight.)

5. Nova Scotia Transportation Assistance

The Nova Scotia Department of Agriculture and Marketing provides a grant to the Hog Marketing Board to defray the cost of transporting hogs to pork processing facilities. The hog marketing board distributes these funds to each producer based on the number of hogs marketed per year and the distance from the processing facility. Because this grant is limited to a specific enterprise or industry, or group of enterprises or industries, we find it to be countervailable. Dividing the amount of the grant by the total dressed-weight equivalent of all hogs marketed in fiscal 1984, we calculated a benefit of Can $0.00006/lb. dressed-weight (Can$0.00005/lb. live-weight).

6. Ontario Farm Tax Reduction Program

In accordance with Order-in-Council No. 2264/83, this program provides for the rebate of 60 percent of municipal property taxes on farmland to all *25106 eligible farmers in Ontario. For a farm property to be eligible, annual municipal property taxes must be at least Can$20, and it must realize a gross annual production of Can$5,000 if located in eastern or northern Ontario, and Can$8,000 if located elsewhere in the province. In our preliminary determination, we stated that this program appeared to be countervailable as a regional subsidy within the Province, and that we would seek additional information on the benefits received by the producers of live swine and fresh, chilled and frozen pork products.

At verification, we were told that the lower production requirements were established for northern and eastern Ontario because weather conditions in those sections of the province are more severe than in the rest of Ontario, and that the Can$3,000 difference in the minimum production levels was intended to equalize eligibility for all Ontario farmers. Information was unavailable on specific benefits provided to individual commodity groups, or within specific regions of Ontario. Inasmuch as the eligibility criteria for this program vary depending on the region of Ontario where the farm is located, we determine this program to be a regional subsidy within the Province, and therefore countervailable. To calculate the benefit, we used as the best information available, that portion of the total payout under this program in fiscal 1984 that represents the proportion of swine production to total agricultural production in Ontario. By dividing that amount by the dressed-weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy rate of Can$0.00339/lb. dressed-weight (Can$0.00270/lb. live-weight).

7. Ontario (Northern) Livestock Programs

The Northern Ontario Livestock Improvement and Northern Ontario Livestock Transportation Assistance Programs were instituted pursuant to sections 5 and 6 of the Agriculture and Food Act. The improvement program reimburses farmers for 20 percent of the purchase costs of dairy cows, heifers, beef bulls, rams, ewes, and boars up to a maximum of Can$1,500 per applicant whose livestock meet certain performance standards. No more than Can$100 per animal may be paid on boars. The transportation program reimburses 50 percent of transportation costs when dairy animals, beef, sheep and swine meeting certain performance standards are purchased. The maximum amount any farmer may receive in a given year is Can$2,000.

Inasmuch as these programs are limited to livestock producers in Northern Ontario, we determine this program to be both a regional subsidy within the province, and limited to a specific enterprise or industry, or group of enterprises or industries, and therefore, countervailable. By dividing the total amount received by hog producers in fiscal 1984, by the total dressed- weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy rate of Can$0.000001/.lb. dressed-weight (Can$0.0000004/lb. live- weight).

8. Prince Edward Island Hog Marketing and Transportation Subsidies

The Prince Edward Island Department of Agriculture and Marketing provides a grant to the packer in Charlottetown to defray the cost of hog processing and transport. In addition, they provide a grant to producers in the western part of the province to equalize the opportunity cost of producing hogs in distant parts of the province.

Inasmuch as these benefits are both a regional subsidy within the province and limited to a specific enterprise or industry, or group of enterprises or industries, we find them to be countervailable. Dividing the amount of the grants by the total dressed-weight equivalent of all hogs marketed in fiscal 1984, we calculated a benefit of Can$0.00007/lb. dressed-weight (Can $0.00006/lb. live weight).

9. Prince Edward Island Swine Development Program

The Department of Agriculture and Marketing pays each farmer a specified amount of money for each boar or gilt that meets specific quality standards and is sold as breeding stock. Because this grant is limited to a specific enterprise or industry, or group of enterprises or industries, we find it to be countervailable. Dividing the amount of the grants by the total dressed-weight equivalent of all hogs marketed in fiscal 1984, we calculated a benefit of Can $0.00002/lb. dressed-weight (Can$0.00002/lb. live weight).

10. Prince Edward Island Interest Payments on Assembly Yard Loan

The provincial Department of Agriculture and Marketing assumed the interest on a loan to the pork producers, granted for the purpose of constructing a hog assembly yard. The interest payments assumed by the province need never be repaid by the producers. Because the grant was limited to a specific enterprise or industry, or group of enterprises or industries, we find it to be countervailable. We treated the net interest payment due in fiscal year 1984 as a grant and expensed it in the year of receipt. Dividing the amount of the grant by the total dressed-weight equivalent of all hogs marketed in fiscal 1984, we calculated a benefit of Can$0.0000004/lb. dressed-weight (Can $0.0000003/lb. live weight).

11. Quebec Meat Sector Rationalization Program

Between 1975 and 1978, the Quebec Ministry of Agriculture, Fisheries and Food instituted the Meat Sector Rationalization Program. The purposes of the program are: (1) To encourage the development of the Quebec meat sector, (2) to ensure Quebec producers with viable, sustained outlets for their production, (3) to provide the industry with a competitive advantage, and (4) to direct businesses to new markets.

Under this program the Quebec Ministry of Agriculture, Fisheries and Food provides technical assistance and grants for the establishment, standardization, expansion, or modernization of slaughterhouses, processing plants, or plants preparing foods containing meat. All businesses operating or wishing to operate such a facility were qualified to participate in this program.

Because benefits under this program are limited to the meat sector, we determine that they are limited to a specific enterprise or industry, or group of enterprises of industries, and are therefore countervailable. The Government of Quebec has reported that three packers currently in operation have received benefits under this program. Dividing the grants received during the period of investigation by the dressed-weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy rate of Can$0.00005/lb. dressed-weight (Can$0.00004/lb. live-weight).

12. Quebec Special Credits for Hog Producers

Under the terms of the "Loi favorisant un credit special pour les producteurs agricoles au cours de periodes critiques," agricultural producers in Quebec may become eligible for low-interest loans, or interest subsidies, during "critical periods." Critical periods are defined as (1) natural disasters which create an emegency (e.g., excessive rain, landslides), (2) an unexpected uncontrollable drop in prices, or (3) the disappearance of a designated level of production in a designated region for reasons beyond the control of producers. Pursuant to the law, two special regulations covering

*25107

hogs were implemented in June of 1980 and 1981 to cover shortfalls arising from the discrepancy between selling prices and costs of production.

Because these are special programs, enacted by regulation only when the government decides that a particular commodity group is in need of special assistance, we determine that these programs are limited to a specific enterprise or industry or group of enterprises or industries, and are countervailable. The government of Quebec reported that it stopped giving interest subsidies to pork producers on March 1, 1983. However, delayed payments were made during fiscal years 1984 (ending March 31, 1984) and 1985 (ending March 31, 1985), and we do not know whether any other delayed payments will be made. In order to calculate the benefit, we are using, as best information available, the total interest subsidy paid in fiscal 1984 ($130,631) as representing the benefit to hog producers. Dividing this amount by the dressed-weight equivalent of all hogs marketed in fiscal year 1984, we calculated a subsidy rate of Can$0.00005/lb. dressed-weight (Can$0.00004/lb. live-weight).

13. Saskatchewan Financial Assistance for Livestock and Irrigation

Under this program, low-interest long-term loans, grants, and loan guarantees are made available to farmers for the acquisition and production of livestock, including swine, and to finance irrigation of farmland. Under the grant component of this program, borrowers were also given conditional grants of up to Can$6,000, with Can$500 of this amount being forgiven in each year in which the borrower remains in production. A borrower who ceases production before the full amount is forgiven must repay the outstanding balance. Most of these loans, grants, and guarantees are made for purposes related to the acquisition and production of livestock. Consequently, we determine that benefits under these programs are limited to a specific enterprise or industry, or group of enterprises or industries, and are countervailable.

The long-term loans are made at interest rates which are preferential. We calculated the benefit conferred by these loans in accordance with our long- term loan methodology. For the benchmark interest rates, we used a weighted average of the interest rates for long-term loans given by commercial banks and the Farm Credit Corporation, the major lenders to agriculture in Canada.

In calculating the benefit for the grant portion of this program, we treated the total amount of the conditional grants not yet forgiven as one-year, interest-free loans, using our short-term loan methodology. We treated the amounts which were forgiven during fiscal year 1984 as grants expensed in the year of receipt.

We calculated the benefit from loan guarantees by assuming, as best information available, that hog producers received the same proportion of all guarantees extended as they did of loans. Because these guarantees are made free of charge, the benefit is equal to what comparable commercial guarantees would have cost.

Dividing the benefits from the loans, grants, and guarantees by the dressed- weight equivalent of all hogs marketed in fiscal 1984, we calculated a subsidy rate of Can$0.00045/lb. dressed-weight (Can$0.00036/lb. live-weight).

II. Programs Determined Not To confer Subsidies

We determine that subsidies are not being provided to producers or exporters in Canada of live swine and fresh, chilled and frozen pork products under the following programs:

A. Federal Programs

1. Financing Programs

(a) Farm Credit Act.--Canada's Farm Credit Act of 1959 provides long-term loans to individual farmers, farming corporations, and cooperative farm associations for the acquisition of farm land and for a broad array of agricultural operations. The program is administered by the Farm Credit Corporation

Loans are for a maximum term of thirty years and must be secured. With two exceptions, these loans are made at a fixed annual rate of interest which is 1 percent above base rate. This base rate is the same as the yield on government of Canada bonds with maturities of five to ten years. The exceptions to the above are (1) loans which were approved between October 18, 1979, and March 31, 1980, at a fixed rate of 12 percent per annum, and (2) a special provision for interest rates on loans approved on or after November 15, 1968, part of the proceeds of which are used to repay prior loans under this program.

(b) Farm Syndicates Credit Act.--The Farm Syndicates Credit Act provides long-term loans to farming corporations, cooperative farm associations and other farm associations for the purchase or improvement of farm buildings and land, and for the acquisition of farm machinery. The program is administered by the Farm Credit Corporation.

Loans are made for up to Can$100,000 on terms which vary according to the use of the proceeds. Interest rates are prescribed by the Farm Credit Corporation and are set at levels which cover the Corporation's cost of money and its administrative expenses.

(c) Special Farm Assistance Programs.--Under this program, long-term loans were available to distressed farming enterprises.

The program ended on June 28, 1984.

Summary of Federal Financing Programs

The enabling federal legislation indicates, and we have verified, that financing under these Federal plans is available without restriction to the producers of any agricultural product in Canada. Because the programs do not designate specific products for receipt of financing or establish differing terms for specified products, we determine that the Federal financing programs for agriculture are available to more than a specific enterprise or industry, or group of enterprises or industries, and hence are not countervailable. See the Final Negative Countervailing Duty Determination: Fresh Cut Flowers from Mexico (49 FR 15007).

2. Federal Hog Carcass Grading System

Hog carcasses in Canada are graded under the Hog Carcass Grading Regulations, pursuant to the federal Livestock Grading Program and the Canada Agricultural Products Standards Act. Hog carcasses receive an index number, based on their backfat in relation to weight. This grading system provides nationally uniform standards for trade in live swine. The cost of the hog market grading program is borne by the federal government.

Provision by the government of this type of service is as beneficial to consumers as to producers; i.e., consumers get a better quality product, and producers receive higher returns for their commodities. At least where, as here, numerous agricultural products are similarly graded and for all such products the government bears the full cost, we cannot say that the practice is one which is countervailable, because the program is available to more than a specific enterprise or industry, or group of enterprises or industries.

Provincial Programs

1. Grant Programs in Quebec

(a) Grants under the Act to Promote the Development of Agricultural Operations.--Under the Act to Promote the Development of Agricultural *25108 Operations, grants are provided to assist farmers in carrying out improvements on their farms.

(b) Grants to Provincial Pork Packers under the Quebec Industrial Assistance Act (IAA).--Pursuant to the IAA, the Societe de developpement industriel du Quebec (SDI) was established in 1971 to promote economic development in Quebec by providing financial incentives. Through it, the government of Quebec may make low-interest loans, grants, loan guarantees, and may purchase shares in manufacturing and commercial operations. Two pork packers received grants from SDI.

The Quebec grant programs do not designate specific products for receipt of funding nor establish differing terms for specified products. We have verified that producers in a wide range of industries in all regions in Quebec have participated in these programs. Therefore, we determine that these Quebec grant programs are available to more than a specific enterprise or industry, or group of enterprises or industries, and are not countervailable.

2. Financing Programs in Quebec

(a) Low-Interest Financing under an Act to Promote Long-Term Farm Credit by Private Institutions--The Office de credit agricole du Quebec (the Office) offers low-cost financing to agricultural producers who maintain profitable farms as their primary occupation and who demonstrate a need for such financing. The Act permits lenders to make variable-interest, low-cost long-term loans to borrowers so that the interest charged does not exceed the prime rate plus 1/2 percent.

In addition, twice a year the Office reimburses a part of the interest, equal to half the difference between 4 percent and the interest charged, to the borrower. On loans granted before November 23, 1983, the Office returns to the producer the portion of the interest exceeding 2 1/2 percent on the first Can $15,000 and the portion exceeding 8 percent on the next Can$135,000 (Can $185,000 for group operations).

(b) Low-Interest Financing under the Farm Credit Act--Under the Farm Credit Act, the Office can make long-term loans on terms similar to those in the Act to Promote Long-Term Farm Credit by Private Institutions. The interest charged is 2.5 percent on the first Can$15,000 and 8 percent on the remaining amount up to Can$150,000 (or Can$200,000 for group operations). Since August 1, 1978, the Office has ceased making loans although it may, under exceptional circumstances, make loans when private lenders are unable to do so. In addition, the Fonds d'assurances-prets agricoles et forestiers gurarantees loans and lines of credit extended to farmers by private constitutions under the Farm Credit Act even though these loans carry no interest subsidy.

(c) Low-Interest Guaranteed Loans under An Act to Promote Farm Improvement-- The Office guarantees medium-term loans of up to Can$200,000, at a variable intererst-rate that may not exceed the prime rate plus 1/2 percent. Twice a year the Office reimburses borrowers a portion of the interest equal to 3 percent of loans on the first Can$15,000. All farmers qualify who maintain profitable farms as their primary occupation, and who demonstrate a need for such financing.

(d) Interest-Free Loans under the Act to Promote the Estabilishment of Young Farmers--The Act to Promote the Establishment of Young Farmers was promulgated on September 1 1982. It permits newly established farmers between the ages of 18 and 49 to receive interest subsidies equal to the net interest payable for five years on the first Can$50,000 of a loan.

(e) Low-Interest Mortgages under the Farm Loan Act--The Farm Act permits the Office to reimburse a portion of the interest on the first Can $15,000 of a mortgage granted by the Farm Credit Corporation of Canada. The Office will reimburse one half of the difference between 4 percent and the rate charged by the Office. On loans granted by the Farm Credit Corporation of Canada (FCC) before November 21, 1981, the Office reimburses the difference between 2 1/2 percent and the rate charged by the FCC on these loans.

(f) Short-term Loans--The Office, in accordance with the "Loi favorisant le credit a la production agricole," offers short-term loans to producers of agricultural products.

The Quebec financing programs do not designate specific products for receipt of funding, nor establish differing terms for specified products. We have verified that producers of a wide range of commodities in all regions in Quebec have received benefits from these programs. Therefore, we determine that the Quebec financing programs for agriculture are available to more than a specific enterprise or industry, or group of enterprises or industries, and hence are not countervailable.

3. Financing Programs in Ontario

(a) Ontario Farm Adjustment Assistance Program (OFAAP)--This program, along with its companion OLAP (Operating Loan Assistance Program) was institued in 1982 purusant to section 5 and 6 of the Ontario Agriculture and Food Act. Under OFAAP, the following benefits are provided to Ontario farmers--deferral of interest for 6 months; interest reduction grants of up to 5 percentage points reducing interest to not less than 12 percent; and guaranteed new lines of operating credit. Under OLAP, production and financial management counseling, as well as financial assistance, are provided to Ontario farmers. Where insufficient security exists to obtain the necessary amount of operating loan, the government will complement existing security with a guarantee to the lending bank; the bank will extend the funds at no more than the prime rate plus 1 percent, and the guarantee may last up to 12 months.

(b) Ontario Beginning Farmer Assistance Program--This program was instituted on January 1, 1983, purusant to section 5 of the Agriculture and Food Act. This program provides a rebate of interest charges on loans (up to Can $350,000) from approved lenders to a maximum rebate of 5 percent points, based on the difference between the Farm Credit Corporation rate at the time of entry and 8 percent. Assistance is available to all beginning farmers in Ontario, defined as those who have never owned a viable farm or have never spent a majority of their time or earned a majority of their income from farming assets over which they have had control.

(c) Ontario Young-Farmer Credit Program--This program was instituted in 1975 pursuant to section 5(a) of the Agriculture and Food Act. All young farmers in Ontario who can demonstrate, through a production plan, that they have sufficient experience and ability to conduct a farming operation are eligible for this program. The borrower must be unable to obtain credit through usual lending sources. Assistance comes in the form of lender-guaranteed loans for terms up to 10 years from chartered banks and designated credit agencies at an interest rate not exceeding prime plus 1 percent. These loans are guaranteed by the Ontario Treasury.

These Ontario financing programs do not designate specific products for receipt of funding nor establish differing terms for specified products, or for products grown in specified regions of Ontario. We have verified that producers of a wide range of commodities in all regions in Ontario have received benefits from these programs. Therefore, we determine that these financing programs for agriculture are available to more than a specific industry or enterprises, or group of *25109 industries or enterprises, and hence are not countervailable.

4. New Brunswick Financing Provided Under the Farm Adjustment Act of 1980

In our preliminary notice, we described programs under the Farm Adjustment Acts of 1980 and 1984. During verification we learned that there is actually only one Farm Adjustment Act; the program described as the Farm Adjustment Act of 1984 is simply the most recent retulations under the Act.

The Farm Adjustment Board, created by the Farm Adjustment Act, was established primarily to make loans and loan guarantees for farming operations. The Board also operates a land lease-purchase program. These financing programs are available to and are received by all sectors of agriculture in New Burnswick. Because the programs do not designate specific products for receipt of funding or establish differing terms for specified products, we determine that the New Brunswick financing programs for agriculture are available to more than a specific enterprise or industry, or group of enterprises or industries, and hence are not countervailable.

5. Newfoundland Loans Provided Under the Farm Development Loan Act

During our verification, we found that farmers are eligible for loans at preferential interest rates from the Farm Development Loan Board. This board was established under the Farm Development Loan Act of 1953 to help new farmers establish productive farms, to assist established farmers in expanding or modernizing their farms, and to help those involved in part-time farming operations. The interest rate on Farm Development loans is set at three percent below the prime rate. These loans were available to and were received by all sectors of agriculture in Newfoundland.

Because loans provided under the Farm Development Loan Act are not limited to specific products and there are not differing terms for specific products, we determine that these loans are not limited to a specific enterprise or industry, or group of enterprises or industries, and hence are not countervailable.

6. Nova Scotia Farm Loan Board Programs

The Nova Scotia Farm Loan Board administers a variety of programs to assist entry into agriculture and to help farmers acquire and develop farms. They are: Low-interest loans, interest subsidies, interest forgiveness, and subsidized land leasing and purchase agreements. These programs do not designate specific products for receipt of funding or establish differing terms for specified products. We have verified that producers of a wide range of commodities in all regions in Nova Scotia have received benefits from these programs. Therefore, we determine that the Nova Scotia financing programs for agriculture are available to more than a specific enterprise or industry, or group of enterprises or industries and hence are not countervailable.

7. Prince Edward Island Lending Authority Long- and Short-term Loans

The Prince Edward Island Lending Authority provides long- and short-term agricultural loans for operating credit, livestock, captial equipment and farmland purchases, recapitalization of debt, and land improvement. In addition, the lending authority provides loans to fisheries, tourism and small businesses. The programs do not designate specific recipients of funding or establish differing terms for specified products. We have verified that producers in a wide range of industries in all regions in Prince Edward Island have received benefits from these programs. Therefore, we determine that these programs are available to more than a specific enterprise or industry, or group of enterprises or industries and hence are not countervailable.

8. Alberta Agricultural Development Corporation Low-Interest Loans and Loan Guarantees

The Agricultural Development Corporation provides low-interest loans and loan guarantees to farming operations, including hog producers. The programs do not designate the producers of specific products for receipt of funding or establish differing terms for specified products. We have verified that producers of a wide range of commodities in all regions in Alberta have received benefits from these programs. We determine that the Alberta financing programs for agriculture are available to more than a specific enterprise or industry, or group of enterprises or industries and hence are not countervailable.

9. Financing Programs in British Columbia

(a) Low-Interest Loans and Loan Guarantees by the British Columbia Ministry of Agriculture and Food--Under British Columbia's Agricultural Credit Act, low- interest loans and loan guarantees are provided to eligible farmers. The program does not designate the producers of specific products for receipt of funding or establish differing terms for specified products.

(b) Partial Interest Reimbursement--This program operates to reimburse farmers in British Columbia for part of the interest on loans. It does not designate the producers of specific products for the receipt of interest reimbursements or establish differing terms for specified products.

These British Columbia financing programs do not designate specific products for receipt of funding nor establish differing terms for specified products. We have verified that producers of a wide range of commodities in all regions in British Columbia have received benefits from these programs. Therefore, we determine that these programs are available to more than a specific industry or enterprises, or group of industries or enterprises, and hence are not countervailable.

10. Manitoba Agricultural Credit Corporation Loans and Loan Guarantees

The government of Manitoba, through the Manitoba Agricultural Credit Corporation, provides loans and loan guarantees to farmers. These forms of financial assistance are available to all agricultural producers, and the terms do not vary according to the commodity produced. We have verified that producers of a wide range of commodities in all regions in Manitoba have received benefits from these programs. Therefore, we find that this program is available to more than a specific enterprise or industry, or group of enterprises or industries and is not countervailable.

11. Saskatchewan Economic Development Corporation (SEDCO) Financial Assistance

SEDCO provides various types of financial assistance to further the development in Saskatchewan of industry in general, and of specialized agricultural, horticultural, and livestock operations. At verification, we learned that a pork packer in Saskatchewan had received a long-term loan from SEDCO, for which principal is still outstanding. Because this loan was made on terms that were not inconsistent with commercial considerations, we determine that no countervailable benefits has been bestowed by this program.

III. Programs Determined Not To Be Used

We determine that producers or exporters in Canada of live swine and *25110 fresh, chilled and frozen pork products did not use the following programs:

A. Ontario Red Meat Plan

Under this program, various grants and services are provided by Ontario's Ministry of Agriculture and Food to producers of beef and sheep. Benefits are not available to producers or exporters of live swine and fresh, chilled and frozen pork products.

B. Ontario Swine Sales Assistance Policy

This program is designed to promote the distribution within Ontario of pure- bred animals of superior quality. Grants of Can$2.50 per animal, to a maximum of Can$100 per sale are made to Breeders' Clubs. These grants are to assist in defraying the costs of conducting consignment sales. No payments were made under this program since 1982.

C. New Brunswick Swine Industry Restructuring Program

This program was created under the Swine Industry Restructuring Regulation, a regulation pursuant to the Farm Adjustment Act. The program was established to help hog producers with large debt loads to restructure that debt load so that the debt could be repaid and the farmer could remain in business. Hog farmers are allowed to set aside all debt from provincial and federal farm loans that exceed a standard debt load of Can$18.50 per hog. The amount set aside does not have to be repaid until the standard debt load is repaid and does not accrue interest until that time. Because the government established this program in April 1985, we are unable to measure the potential benefit from the program. We will analyze any potential benefits resulting from this program during an administrative review under section 751 of the Act, if one is requested.

D. Saskatchewan Livestock Investment Tax Credit

Saskatchewan's 1984 Livestock Tax Credit Act provides a tax credit of Can$3.00 per hog for hogs slaughtered between March 22, 1984, and December 31, 1986. Producers and other eligible claimants must own the hogs for a minimum feeding period of 60 days and either slaughter them themselves or market them for immediate slaughter. There is a Can$100 deduction from the credit in each year in which this tax credit is claimed. Any unused portion of the tax credit may be carried forward by the claimant for up to seven years after the year in which not used. These tax credits were not available until the 1984 tax year, and returns will be filed no earlier than 1985. Following our practice of attributing benefits provided under tax programs to the year in which the tax returns are filed, we determine that benefits under this program were not received during the period for which we have measured subsidization.

IV. Programs To Be Terminated

A. Alberta Pork Producers' Market Insurance Program (PPMIP)

Under the authority of the Department of Agriculture Act, this stabilization program was in place from July 1, 1981 through September 30, 1984. Hog producers in Alberta were assured a specified level of return over certain production costs. Support levels were adjusted quarterly to reflect fluctuations in the cost components of hog production. Support payments were calculated weekly, and paid monthly based on the difference between the support level and weekly average market price. The program was funded by grants from the Government of Alberta, by loans secured by the provincial government and by producer premiums.

In our preliminary determination, we recognized that stabilization plans similar to this one may have also been available with respect to other commodities in Alberta. However, because information was not provided on (1) the other commodities receiving stabilization payments, (2) the value of these payments, or (3) the mechanism by which those payments were determined, we found that benefits under this stabilization program were limited to a specific industry, and were countervailable. We based the subsidy rate for this program on the Government of Alberta's share of the payments made to producers during fiscal year 1984.

This program was to have ended on March 31, 1985. However, subsequent to our preliminary determination, we verified that this program had been terminated on September 30, 1984, and that no payments under this program had been made since the end of 1984. Entries into the United States made after our original suspension of liquidation will not receive beenfits under this program.

B. Ontario Weaner Pig Stabilization Plan

Pursuant to the Farm Income Stabilization Act (FISA), the Government of Ontario operated a weaner pig stabilization program from April 1, 1980, through March 31, 1985. The intent of the program was to provide producers of weaner pigs with support payments in any production period in which the average market price for that period fell below a certain support price. The market and support prices were based on data used by the Federal government for its ASA slaughter hog program. Participation in the Ontario program was voluntary and funding for the program was provided by the provincial government and the participating producers in the ratio of 2 to 1.

In our preliminary determination, we recognized the fact that stabilization plans similar to this one may have also been available with respect to other commodities in Ontario. However, because information was not provided on (1) the other commodities receiving stabilization payments, (2) the value of these payments, or (3) the mechanism by which those payments were determined, we found that benefits under the weaner pig stabilization program were limited to a specific industry, and were countervailable. We based the subsidy rate for this program on the Government of Ontario's share of the payments made to producers during fiscal year 1984.

We verified that this program had been statutorily terminated on March 31, 1985, and that no payments under this program have been made since mid- 1984. Entries into the United States made after our original suspension of liquidation will not receive beenfits under this program.

V. Program Determined Not To Exist

A. Proposed Tripartite Red Meat Stabilization Program

A proposal exists for the introduction of stabilization programs for five sectors of red meat production in Canada, including one for hog producers. These would provide national uniformity in support levels within each sector and would replace the existing federal and provincial programs. Legislation on this matter is pending, and thus the program has yet to be implemented. Accordingly, we determine that this program does not yet exist, but we will re- examine its status in a 751 administrative review, if one is requested.

Respondents' Comments

1. The Canadian Meat Council argues that section 613 of the Trade and Tariff Act of 1984, the upstream subsidies provision, governs the analysis of subsidies on all input products. The Meat Council maintains that the Department erred when it concluded in its preliminary determination that live swine are not an input product into pork products, and that if section 613 had been applied, we would find that no *25111 competitive benefit is bestowed on pork products as a result of benefits provided to producers of live swine. It contends that the factors cited by the Department in support of its preliminary finding--an absence of substantial transformation, the continuous line of production, the single end product, and the definition of industry by the ITC, appear nowhere in section 613 or its legislative history. The Meat Council further contends that, while the competitive benefit test of section 613 is conclusive, economic analysis will also demonstrate that payments to Canadian swine growers confer no benefit on pork packers.

DOC Position

We disagree. See the section of this notice entitled "Upstream Issue".

2. The Canadian Pork Council contends that federal and provincial stabilization payments are part of a nationwide fabric of programs covering farm products and are not countervailable because they are not limited to a specific enterprise or industry, or group of enterprises or industries. Following the same reasoning, they also argue that benefits provided under the Swine Record of Performance Program and the Hog Carcass Grading System are not countervailable.

DOC Position

We have determined that the Hog Carcass Grading System is not, and the federal and provincial stabilization programs and the Swine Record of performance Program are, countervailable. See the discussion for each program, and particularly that for the federal stabilization program, in the "Programs Determined to Confer Subsidies"section of this notice.

3. The Canadian Pork Council, citing the Final Affirmative Countervailing Duty Detrermination: Certain Textile Mill Products and Apparel from Peru (50 F.R. 9871), maintains that the Department's final determination should be based on the most recent verified information, and accordingly should take into account the terminations of the Alberta and Ontario hog stabilization programs, and the announcement by the federal government that there will be no ASA payments made on hogs marketed in fiscal year 1985.

DOC Position

We recognize the termination of the Ontario and Alberta stabilization programs, and have adjusted the bonding rate accordingly. With regard to the federal stabilization program, the announcement that hogs marketed in fiscal year 1985 will not be eligible for payments was made on May 2, 1985, well after the Department's preliminary determination and after the verification of the federal programs was completed. It has long been the Department's policy not to account for program changes after a preliminary determination. Also, the suspension of payments has not been verified. This treatment is consistent with our final determination in Certain Textile Mill Products and Apparel from Peru.

There are two other factors weiging in our decision not to reduce the bonding rate attributable to this program. Due to the open-ended time frame for receiving applications, we cannot be sure that the agricultural Stabilization Board will not still be making payments this year on 1984 hog marketings. Furthermore, it is unclear what effect a proposed amendment to the Agricultural Stabilization Act will have on the time periods for which stabilization determinations are made.

4. The Canadian Pork Council suggests that the Department treat government contributions to the various provincial stabilization funds as the measure of any subsidy, and not the governments' shares of any stabilization payments paid to the producers of live swine. The Pork Council also contends that the stabilization funds are actually insurance funds operating on an actuarially sound basis.

DOC Position

We disagree. We measure the value of a subsidy using the "cash flow" approach; i.e., we find that a benefit is bestowed when the producer or enterprise acutally receives a government payment. If we were to follow respondent's approach, the situation might arise where we would countervail government contributions into a stabilization fund even during periods when no payments were made to the producers of live swine. Regarding its contention that stabilization funds are really insurance funds operating on actuarially sound bases, we have seen no evidence of that.

5. The Canadian Meat Council contends that the National Pork Producers Council lacks standing to petition with respect to fresh, chilled and frozen pork products. The request of Wilson Foods to join as co-petitioner should be denied, and the Department should recognize that the expression of support for the petition by other packers is insufficient to establish standing.

DOC Position

We disagree. See the discussion under the section of this notice entitled "Standing of Petitioners".

6. Both the Canadian Pork Council and the Canadian Meat Council argue that the Department relied upon an incorrect dressed weight factor when converting the total number of hogs marketed to a dressed weight equivalent. They claim that the correct dressed weight factor is 0.79-0.80, rather than the 0.71 factor used for the preliminary determination. The Canadian Meat Council further argues that approximately 95 percent of the total weight of live hog is used for some commercial purpose and, therefore, a more appropriate conversion factor of 0.95 should be used.

DOC Position

At the time of the preliminary determination, we believed that 0.71 represented the factor used in Canada to convert a hog's live weight to a dressed-weight equivalent. We subsequently learned that that factor represented the conversion factor used by the domestic U.S. industry. We now have verified information, obtained from the Canadian federal and provincial governments, indicating that the actual factor used ranges from 0.79-0.80. Therefore, for purposes of this final determination, we are using a factor of 0.795.

We disagree with the Canadian meat Council's argument that a more appropriate factor of 0.95 should be used. Live swine are raised for the primary purpose of producing pork meat. Any commercial value resulting from the by-products is secondary to the production of pork meat. In fact, information from the U.S. Department of Agriculture indicates that the commercial value of the by- products is approximately 5 percent of the value of the hog. In our Preliminary Affirmative Countervailing Duty Determination: Lamb Meat from New Zealand (46 Fed. Reg. 58128), we examined benefits on lamb prooduction without making any adjustment for the commercial value of by-products. In that case, the commercial value of the by-products was even higher than in the case of swine. We have followed that precedent in this case.

7. The Canadian Pork Council contends that when converting the total number of hogs marketed to a dressed weight equivalent, the Department should not use a live weight of 243 pounds as it did in its preliminary determination, but instead use a live weight of 248 pounds (represented by U.S. import statistics as the average weight of all hogs imported from Canada in 1984).

*25112 DOC Position

We disagree. See our response to Petitioners' comment 2.

Petitioners' Comments

1. Petitioners argue that the subsidy rate for live swine should be stated on a per hog basis and should thus be calculated by dividing the total amount of subsidies paid by the number of hogs marketed during the period for which subsidization has been measured.

DOC Position

We disagree. We use the Tariff Schedules of the United States Annotated (TSUSA) as a guide when determining whether to base a subsidy or bonding rate on an ad valorem, per pound, per animal, or other basis. In the case of live swine, the TSUSA indicates a rate of duty on a per pound basis. We have no reason to deviate from the standard set out in the TSUSA.

2. Petitioners argue that the subsidy rate calculation for pork products should be based on an average live weight of 217 pounds (represented by Canadian government statistics as the average weight of slaughter hogs marketed), and a dressed-weight factor of 0.52. They contend that primal cuts represent the most commercially significant pork products exported to the United States and account for 52 percent of the weight of live hog.

DOC Position

With respect to petitioners; contention that the Department use a live weight of 217 pounds, we agree. This information is based on official Canadian government statistics and has been verified. However, we disagree with their argument that the Department use a factor converting total live weight to primal cuts. It may be true that the majority of exports from Canada may enter the United States in the form of primal cuts. However, because we are looking at domestic subsidies, we must allocate benefits over the total domestic production using a factor that accurately reflects the conversion from live- to dressed-weight for all products, and not just those exported to the United States. Accordingly, we are using a factor of 0.795.

Verification

In accordance with section 776(a) of the Act, we verified the information used in making our final determination. Commerce officials spent from April 1 to May 7, 1985, verifying the information submitted by the Canadian federal and provincial governments, and gathering additional information to be used in this determination. During this verification, we followed normal verification procedures including inspection of documents and ledgers, and tracing the information in the response to source documents, accounting ledgers, and to financial statements.

Suspension of Liquidation

In accordance with section 703(d) of the Act, on April 3, 1985, we instructed the U.S. Customs Service to suspend liquidation of all entries of live swine and fresh, chilled and frozen pork products from Canada (50 FR 13264). As of the date of publication of this notice in the Federal Register, the liquidation of all entries, or withdrawals from warehouse, for consumption of this merchandise will continue to be suspended and the Customs Service shall require a cash deposit or bond for each such entry of this merchandise as follows:

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             All producers and exporters                     Bonding rate

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Live Weight (Live Swine) ............................. Can $0.04390/lb.

Dressed Weight (Fresh, Chilled and Frozen Pork

  Products) .......................................... Can $0.05523/lb.

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This suspension will remain in effect until further notice.

ITC Notification

In accordance with section 705(d) 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 this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.

The ITC will determine whether these imports materially injure, or threaten material injury to, a U.S. industry 45 days of the publication of this notice.

If the ITC determines that material injury or the threat of material injury does not exist, this proceeding will be terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, we will issue a countervailing duty order, directing Customs officers to assess a countervailing duty on live swine and fresh, chilled and frozen pork products from Canada entered, or withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the net subsidy amount indicated in the "Suspension of Liquidation" section of this notice.

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

William T. Archey,

Acting Assistant Secretary for Trade Administration.

June 10, 1985.