(Cite as: 54 FR 31991)

NOTICES

DEPARTMENT OF COMMERCE

[C-122-805]

Final Affirmative Countervailing Duty Determination: New Steel Rail, Except

Light Rail, From Canada

Thursday, August 3, 1989

*31991 AGENCY: Import Administration, International Trade Administration, Commerce.

ACTION: Notice.

SUMMARY: We determine that benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to producers, manufacturers or exporters in Canada of new steel rail, except light rail ("steel rail"), as described in the "Scope of Investigation" section of this notice. The estimated net subsidy is 113.56 percent ad valorem for all manufacturers, producers or exporters in Canada of steel rail, except the Algoma Steel Corporation Ltd. (Algoma), which is excluded from this determination. The estimated net subsidy for Algoma is 0.24 percent ad valorem, which is de minimis. We have calculated a separate estimated net subsidy for Algoma because its rate differs significantly from the country-wide rate. (See the "Suspension of Liquidation" section of this notice.)

We have notified the United States International Trade Commission (ITC) of our determination. If the ITC determines that imports of steel rail materially injure, or threaten material injury to a U.S. industry, we will direct the U.S. Customs Service to resume suspension of liquidation of all entries of steel rail from Canada that are entered or withdrawn from warehouse, for consumption on or after the date of publication of our countervailing duty order and to require a cash deposit on entries of steel rail in an amount equal to the estimated net subsidy.

EFFECTIVE DATE: August 3, 1989.

FOR FURTHER INFORMATION CONTACT:Roy A. Malmrose or Margot Paijmans, Office of Countervailing Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone: (202) 377-5414 (Malmrose) or 377-1442 (Paijmans).

SUPPLEMENTARY INFORMATION:

Final Determination

Based on 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 manufacturers, producers or exporters of steel rail in Canada. For purposes of this investigation, the following programs are found to confer subsidies:

Federal Programs

- Debenture Guarantees Provided to Sydney Steel Corporation (Sysco)

- Forgiven Wharf Loan

- Regional Development Incentives Program

- Certain Investment Tax Credits>

Joint Federal-Provincial Programs

- General Development Agreements

- Economic and Regional Development Agreements

- Iron Ore Freight Subsidy to Algoma

Provincial Programs

- Grants for Payment of Principal and Interest on Debentures

- Operating Grants Provided to Sysco

- Long-Term Loan Guarantees Provided to Sysco

- Equity Infusions Provided to Sysco

We determine the estimated net subsidy to be 113.56 percent ad valorem for all manufacturers, producers or exporters in Canada of steel rail, except Algoma, which is excluded from this determination.

Case History

Since the last Federal Register publication pertaining to the substance of this investigation ("Preliminary Affirmative Countervailing Duty Determination: New Steel Rail, Except Light Rail, from Canada," (Preliminary Determination), 54 FR 8784, March 2, 1989, the following events have occurred.

On March 13, 1989, petitioner filed a request for alignment of the countervailing duty and antidumping duty final determinations. On March 16, 1989, respondents filed a request for postponement of the final determination for 60 days. Pursuant to section 705(a)(1) and section 735(a)(2)(A) of the Act, respectively, we aligned the countervailing duty and antidumping duty final determinations and postponed the final determinations to no later than July 26, 1989 (54 FR 14264, April 10, 1989).

On May 18, 1989, we delivered a supplemental/deficiency questionnaire to the Government of Canada (GOC). On May 25, 1989, we received responses to our questionnaire from Algoma, Sydney Steel Corporation (Sysco), Nortrack Ltd. (Nortrack), Grand Valley Steel Limited (Grand Valley) and Sessenwein Inc. (Sessenwein). On May 26, 1989, Sessenwein filed corrections to certain errors contained in its May 25, 1989, submission.

We conducted verification in Canada from May 29 through June 14, 1989, of the questionnaire responses from the GOC, the Provincial Government of Ontario, the Provincial Government of Nova Scotia (GONS), Sysco, Algoma, Grand Valley, Sessenwein, C.P. Rail and Nortrack.

On June 6, 1989, Nortrack submitted corrections to certain clerical errors reported during verification. Also on June 6, 1989, Sysco submitted clarifications to its responses. On June 29, 1989, Algoma submitted clarifications, corrections, and other supplemental information.

On July 6, 1989, in accordance with Article 5, paragraph 3 of the Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the Subsidies Code), we notified U.S. Customs to terminate the suspension of liquidation in this investigation as of July 1, 1989.

On July 10, 1989, GOC submitted supplemental information on the tariff classification of contact or "third" rails. On July 12, 1989, GOC forwarded a report to the Department which was inadvertently omitted at verification.

On July 13, 1989, Algoma filed supplemental information that the Department had requested at verification. On July 14, 1989, Sysco submitted clarification of information on its debentures which the Department had requested at verification.

Petitioner and respondents requested a public hearing in this case on March 8, 1989, which was held on July 18, 1989. Petitioner and Sysco filed case briefs on July 13, 1989, and rebuttal briefs on July 17, 1989. Algoma did not file a case brief but filed a rebuttal brief on July 19, 1989.

Scope of Investigation

The United States has developed a system of tariff classification based on the international harmonized system of Customs nomenclature. On January 1, 1989, the United States fully converted to the Harmonized Tariff Schedule (HTS), as provided for in section 1201 et seq. of the Omnibus Trade and Competitiveness Act of 1988. All merchandise entered or withdrawn from warehouse for consumption on or after this date is now classified solely *31992 according to the appropriate HTS item numbers. The HTS item numbers are provided for convenience and U.S. Customs Service purposes. The written description remains dispositive.

The product covered by this investigation is new steel rail, whether of carbon, high carbon, alloy or other quality steel, includes but is not limited to, standard rails, all main line sections (at least 30 kg. per meter or 60 pounds per yard), heat-treated or head-hardened (premium) rails, transit rails, contact rail(or "third rail") and crane rails. Rails are used by the railroad industry, by rapid transit lines, by subways, in mines and in industrial applications.

Specifically excluded from this investigation are light rails (rails less than 30 kg. per meter or 60 pounds per yard). Also excluded are relay rails which are used rails taken up from primary railroad track and relaid in a railroad yard or on a secondary track.

The product covered by this investigation is currently provided for under the following HTS subheadings: 7302.10.1020, 7302.10.1040, 7302.10.5000 and 8548.00.0000. Prior to January 1, 1989, such merchandise was classifiable under items 610.2010, 610.2025, 610.2100 and 688.4280 of the "Tariff Schedules of the United States Annotated" (TSUSA).

Analysis of Programs

For purposes of this determination, the period for which we are measuring subsidies ("the review period") is calendar year 1987 for Algoma and April 1, 1987-March 31, 1988 for Sysco. These review periods correspond to the respective companies' fiscal years. Normally, we would select the calendar year as the review period for all companies if the companies under investigation had different fiscal years. We have chosen Sysco's fiscal year as that company's review period in order to measure more accurately the subsidies received over time, which have been reported to the Department on a fiscal year basis.

Petitioner alleged that Sysco is unequityworthy and uncreditworthy. We have consistently held that the government provision of equity does not per se confer a subsidy. Government equity purchases bestow countervailable benefits only when they occur on terms inconsistent with commercial considerations. When there is no market-determined price for equity, it is necessary to determine whether the company was a reasonable commercial investment or, in other words, whether the company was "equityworthy."

The GONS is the sole owner of Sysco, which it purchased in 1968. Sysco has never issued shares; therefore, we must determine whether Sysco was equityworthy in each instance when the GONS made an equity infusion. We do not reach the question of whether Sysco was equityworthy in 1968. The initial purchase of Sysco by the GONS occurred prior to the 15 year period in which we are examining all the financial assistance received by Sysco which may have benefited the company during the review period. We are using 15 years because it represents the average useful life of assets in the steel industry as determined by the U.S. Internal Revenue Service's 1977 Class Life Asset Depreciation Range System. Use of the IRS tables is in accordance with past practice and is described in detail in the "Subsidies Appendix" attached to the "Final Affirmative Countervailing Duty Determination and Countervailing Duty Order: Cold-Rolled Carbon Steel and Flat-Rolled Products from Argentina," (Subsidies Appendix), 49 FR 18006, April 26, 1984.

Although Sysco's equityworthiness in 1968 and the GONS's equity infusion in 1968 will not be examined, the GONS made additional equity infusions into Sysco in the period 1974 through 1988. Therefore, we have reviewed Sysco's equityworthiness in each of the years in which it received equity capital from the GONS during that period.

A company is considered unequityworthy if it is deemed unable to generate a reasonable rate of return within a reasonable period of time. In making our equityworthiness determinations, we assess the company's current and past financial health, as reflected in various financial indicators taken from its financial statements. The indicators we examine include the following ratios: rate of return on total assets and net equity, profit margin on sales, operating loss to fnancial expense, the current and quick ratios and debt to equity and debt to total assets. We give great weight to the company's recent ability to earn a return on total assets and to generate a profit margin on sales as indications of the company's financial health and prospects. Based on the factors described above, we determine that Sysco was unequityworthy in each year in which it received an equity infusion in the period from 1973 through 1988.

Petitioner additionally alleged that Sysco is uncreditworthy. We consider a company creditworthy if it appears that it will have sufficient revenues or resources to meet its costs and fixed financial obligations, absent government intervention. Like our equityworthiness test, to determine the creditworthiness of a company we analyze the company's past operations, as reflected in various financial indicators calculated from its financial statements. We give great weight to the company's recent past ability to meet its financial cost obligations with its cash flow. Based on an analysis of the factors described above, we determine Sysco to be uncreditworthy for the period from 1973 through 1988.

We determine that Sysco is uncreditworthy despite the fact that it has received financing from private commercial sources. We are discounting the importance of such financing because we have determined that Sysco would not have received this financing but for the guarantees provided by the GOC and the GONS.

All of Sysco's debentures and loans are guaranteed by either the federal or the provincial government. (See sections I.A.1., I.C.3. and II.A.) With respect to the provincial loan guarantees, Sysco has argued that these guarantees are not countervailable. In support of their position, respondents cite s 355.44(c)(1) of the proposed Countervailing Duty regulations, published in the Federal Register on May 31, 1989 (54 FR 23366) (to be codified at 19 CFR Part 355) (proposed regulations), which states "[t]he explicit guarantee by a government of a loan to a firm shall not confer a countervailable benefit if the government is a principal owner or majority shareholder of the firm and it is a normal commercial practice in the country in question for owners or shareholders to provide loan guarantees on comparable terms to their firms."

The statement in the proposed regulations embodies the Department's general policy on loan guarantees as exhibited in previous cases. (See, "Final Affirmative Countervailing Duty Determination on Carbon Steel Wire Rod from Trinidad and Tobago," 49 FR 480, January 4, 1984.) However, we note that our past practice has been limited largely to government guarantees on commercial loans to equityworthy companies or to government guarantees on loans from government sources. When analyzing loan guarantees to companies that may not be reasonable commercial investments, we believe it is appropriate to use the same "reasonable investor" analysis as we would for an equity infusion. Just as a reasonable investor would not purchase stock in an unequityworthy firm, it would not guarantee a loan to a company in such poor financial straits that the guarantor would be bound to lose money. This analysis is consistent with prior cases in *31993 which we considered the government guarantee to be "the action of a major shareholder contributing to its investment in a * * * project." Id. at 485. In such cases, we have evaluated the loan guarantees in terms of whether the investment was inconsistent with commercial considerations. Id. Based on our analysis of Sysco's financial position, as outlined earlier under our equityworthy analysis, we determine that the government's provision of loan guarantees to Sysco is not a reasonable commercial decision. Based on this analysis, and because these guarantees are limited to a specific industry, we determine that the government provision of loan guarantees to Sysco provides a potential countervailable benefit.

Our past practice, described in the "Subsidies Appendix", for measuring the benefit conferred by the provision of a government loan guarantee, is to first compare the cost of the government guarantee to the cost the firm would have paid for a comparable commercial guarantee. If no difference between government and commercial guarantee costs is evident, we then compare the terms of the guaranteed loan to the benchmark financing. We verified that loan guarantees cannot normally be purchased from commercial sources. Consequently, we cannot compare Sysco's treatment against normal commercial practices in Canada. Therefore, for all of Sysco's guaranteed financing we analyzed the extent to which the company received more favorable terms on its financing than the benchmark financing. (See sections I.A.1., I.C.3. and II.A.)

With respect to the calculations of benefits from grants and government debenture and loan guarantees received by Sysco, we used as the discount rate for allocating the benefits over time the benchmark interest rate calculated for purposes of valuing the subsidy provided on Sysco's debentures and loans which were guaranteed by either the federal or provincial government. (See sections I.A.1. and I.C.3.) We were unable to use Sysco's weighted cost of capital, which is our preferred method of deriving the discount rate, for the following reasons. In the years 1973-1976, we do not have information on the national average rate of return on equity. In the years 1977-1988, either Sysco's equity as a percent of total capitalization was negative or Sysco's capitalization in its entirety was negative. Consequently, we could not meaningfully employ our weighted cost of capital formula.

Sysco received grants and/or equity infusions, which we are treating as grants (see section I.C.4.), in every year during the period 1974-1988. In accordance with past practice (see "Final Affirmative Countervailing Duty Determination: Oil Country Tubular Goods from Canada", (OCTG), 51 FR 15037, April 22, 1986), for all the programs which provided non-recurring grants and for all the benefits received by Sysco which we treated as non-recurring grants, we first determined if the benefit amount received by Sysco, in each of the years in which the benefit was received, was more than 0.50 percent of the company's total sales for that year. In every year, the benefit amount exceeded the 0.50 percent rate; therefore, for all of the grants and equity infusions received by Sysco, we allocated the benefit over the average useful life of equipment in the steel industry, which is 15 years. Using the above methodology, we also allocated over 15 years, unless otherwise specified, the benefit from the grants received by Algoma.

As mentioned in the "Case History" section, we verified questionnaire responses from the two producers and four non-producer exporters. We verified that none of the non-producer exporters received any benefits from the programs under investigation with respect to steel rails exported to the United States. Therefore, the steel rail exports of each respondent non-producer exporter will be subject to the estimated net subsidy of the producer from which it purchased the steel rail. As the best information available, we are assigning the estimated net subsidy rate of Sysco to the one non-respondent non-producer exporter, Bernard Railtrack Export Inc.

Based upon our analysis of the petition, the responses to our questionnaires, verfication, and written comments filed by petitioner and respondents, we determine the following.

I. Programs Determined to Confer Subsidies

We determine that subsidies are being provided to manufacturers, producers or exporters in Canada of steel rail under the following programs.

A. Federal Programs

Sysco issued its Series C debenture in 1973 and its Series D debenture in 1975. Series C was denominated in U.S. dollars, issued for 20 years and guaranteed by the GONS. The terms of Series C provided for semi-annual interest payments and annual principal repayments starting in 1979.

Series D was denominated in Canadian dollars, issued for 20 years and guaranteed by the Cape Breton Development Corporation (Devco), a crown corporation of the GOC. The terms of Series D provided for semi-annual interest payments and gradually increasing annual principal repayments. No fee was paid for the GONS or Devco guarantees.

These guarantees were provided to one company. Thus, we determined that their provision was limited to a specific enterprise. Based on the reasons explained in the "Analysis of Programs" section pertaining to the government provision of debenture and loan guarantees, Sysco's debenture guarantees are countervailable to the extent that the terms are more favorable than the benchmark financing.

As described in the "Analysis of Programs" section, we have determined that Sysco has been uncreditworthy throughout the period 1973-1988. In the case of uncreditworthy companies, we assume that private lenders either would not provide loans to such companies or would require a premium interest rate. (See the Subsidies Appendix.) In selecting an appropriate benchmark, we must formulate an approximation of the premium interest rate a commercial source of financing would charge an uncreditworthy company. The first step in the formulation of such an interest rate is to determine the highest long-term fixed interest rate a marginally creditworthy borrower would have to pay in order to receive a loan.

The next step is the calculation of a risk premium. This amount represents the difference in risk between a marginally creditworthy company and an uncreditworthy company. In previous cases (See "Certain Carbon Steel Products from Brazil: Final Results of Countervailing Duty Administrative Review", 52 FR 829, January 9, 1987), we have derived this risk premium by examining the difference between Moody's Aaa and Baa corporate bond rates and calculating the percentage this difference represents of the prime interest rate in the United States. We have found that the risk premium as calculated by this approach is 12 percent. If the financing is not in U.S. currency, this percentage is then applied to the prime interest rate in the country concerned to derive a comparable measure of the risk premium in the local economy. The final step in our calculation of the appropriate benchmark for an uncreditworthy *31994 company is to add the risk premium to the highest long-term fixed interest rate commonly available to a marginally creditworthy company.

For the series D debenture denominated in Canadian dollars, we chose for the highest long-term fixed interest rate commonly available to a marginally creditworthy company the rate on BBB Canadian corporate bonds. To this we added the risk premium, calculated as 12 percent of the Canadian prime rate. We used the resulting interest rate as our benchmark for the debenture denominated in Canadian currency.

With respect to the series C debenture denominated in U.S. dollars, we followed the same general approach described above in constructing a benchmark. We used the rate on Baa U.S. corporate bonds as the highest long- term fixed interest rate commonly available to a marginally creditworthy company and 12 percent of the U.S. prime rate for the calculation of the risk premium. Based on this methodology, we derived a benchmark for the debenture denominated in U.S. dollars. In addition, we calculated an effective interest rate on this debenture to account for the difference in the face value of the issue and the actual amount received by Sysco for the issue.

We compared the two benchmarks formulated above to the interest rates received on the two series of debentures issued by Sysco and found that the interest rates on Sysco's debentures were lower than the respective benchmarks. Therefore, we determine that the guarantees provided to Sysco by the GOC and the GONS are countervailable.

To determine the benefit, we calculated the payment differential between the benchmark financing and the guaranteed debentures using our long-term loan methodology which is described in the "Subsidies Appendix" and has been described in numerous previous cases. (See, for example, "Final Affirmative Countervailing Duty Determination; Certain Granite Products from Spain", 53 FR 24340, June 28, 1988.) We allocated the benefit over 20 years using as the discount rate the benchmark interest rates described above. (We were not able to base the discount rate on Sysco's weighted cost of capital for the reasons discussed in the "Analysis of Programs" section.) We then divided the benefit attributable to the review period by Sysco's total sales and calculated an estimated net subsidy of 1.13 percent ad valorem for Sysco.

In 1972, the federal government provided Sysco with a loan to construct a loading wharf, which was completed in June 1978. Beginning in June 1979, Sysco was to make twenty equal payments to pay off the total advances from the government consisting of principal and interest accrued during the construction of the wharf. The twenty equal payments did not include any additional interest charges beyond 1978. No payments on the loan were made. In May 1981, the federal government announced that the loan would be forgiven. In 1982, Sysco removed the outstanding principal and estimated accrued unpaid interest from its long-term liabilities as shown in its audited financial statement.

We determine that the benefit provided by the loan forgiveness is countervailable because it was provided to a specific enterprise. Furthermore, we determine that for the period 1979 through 1981, the year in which the loan was forgiven, the loan was interest-free. Therefore, we have added to the original balance the interest that would have been paid for the period 1979 through 1981 at the benchmark interest rate, described in the previous section. We treated this entire amount as a grant given in 1981. Using the declining balance methodology and the benchmark rate, we allocated the benefit over 15 years, for reasons explained in the "Analysis of Programs" section of this notice, and divided the benefit attributable to the review period by Sysco's total sales. The calculated estimated net subsidy rate is 2.36 percent ad valorem for Sysco.

The RDIP was administered by the Department of Regional Economic Expansion (DREE) until its replacement with the Industrial Regional Development Program (IRDP) in 1983. It was established in 1969 for the purpose of creating stable employment opportunities in certain regions of Canada where employment and economic opportunities are chronically low, particularly the Atlantic provinces. The DREE offered incentives based on a case-by-case evaluation of capital investment projects. Projects that could proceed without RDIP assistance were ineligible. Assistance was provided in the form of grants or loans guarantees.

Although the program was terminated in 1983, RDIP grants were provided to both Sysco and Algoma prior to its termination. We determine that the RDIP grants are countervailable because the benefits are limited to companies located within certain regions of Canada. (See also OCTG and "Final Affirmative Countervailing Duty Determination: Certain Fresh Atlantic Groundfish from Canada" (Groundfish), 51 FR 10041, March 24, 1986.)

Algoma received two RDIP grants; Sysco received four RDIP grants. We verfied that one of the grants received by Algoma was specifically tied to the production of products not under investigation. Therefore, consistent with past practice (see OCTG), we did not include this grant in our calculations. Algoma's other grant was approved in 1972.

To calculate the benefit, we used the declining balance methodology. We used as the discount rate for Algoma the national average long-term interest rate in Canada in 1972. (We were unable to use our weighted cost of capital formula because we do not have information on the national average rate of return on equity in Canada in 1972.) We used as the discount rate for Sysco the interest rate benchmark discussed in section I.A.1. On this basis, we calculated the benefits attributable to the review period and allocated them to the respective total sales of Algoma and Sysco. We calculated the estimated net subsidy to be 0.03 percent ad valorem for Algoma and 1.10 percent ad valorem for Sysco.

There are a number of categories of ITCs in Canada and varying tax credit percentage levels within some of the categories. Based on our previous examination of all the types of ITCs in Canada (See OCTG and Groundfish), we initiated an investigation on the following four types of ITCs: (1) Tax credits of three and 13 percent, above the basic seven percent rate which we have previously found non-specific, for investment in "qualified property" located in certain regions of Canada; (2) tax credits for investment in "certified property"; (3) tax credits for large companies of ten percent above the basic 20 percent for investment in capital equipment used for scientific research; and (4) tax credits for investment in transportation and construction equipment.

Canadian tax law provides that ITCs may be subtracted from taxes owed, but if no taxes are owed (either because a company is initially in a tax loss position or because only some of the ITCs have been used to satisfy all tax liability), those excess ITCs earned after April 19, 1983, have a refundable, one-time cash value equal to 20 percent of *31995 the initial, face value of the ITC (40 percent for small businesses).

We verified that Sysco, as a provincially-owned corporation, is not liable for federal tax. Because the company is not liable for federal taxes, it was not eligible for a refund of taxes under the ITC law.

We verified that Algoma benefited from the three percent tax credit, above the basic rate of seven percent, for investment in "qualified property" because it is located in northern Ontario, and that it did not use the other ITCs under investigation. Furthermore, we verified that Algoma did not owe taxes on the tax return filed in the review period, but that it received a refund under the procedures described above.

We determine that the three percent tax credit, above the basic rate of seven percent, for investment in "qualified property" is countervailable because it is limited to companies located in certain regions of Canada.

To calculate the benefit from the "qualified property" ITC, we followed our standard tax methodology. Under our tax methodology, we allocate an income tax benefit claimed on a tax return to the year in which that tax return was filed. Algoma received a refund on the tax return filed during the review period. Therefore, we consider the amount of the refund attributable to the three percent in excess of the basic rate of seven percent to be the benefit Algoma received during the review period. We divided this benefit amount by Algoma's total sales for the review period and calculated an estimated net subsidy of 0.02 percent ad valorem.

B. Joint Federal-Provincial Programs

GDAs provided the legal basis for various departments of the federal and provincial governments to cooperate in the establishment of economic assistance programs. The GDAs were umbrella agreements which stated general economic development goals. Ten-year GDAs were signed with most provinces in 1974.

Subsidiary agreements were signed pursuant to the GDAs. Subsidiary agreements were generally between particular federal and provincial government departments and addressed certain economic development problems under the jurisdiction of the government agency signatories. These agreements established various individual types of economic development programs, delineated administrative procedures, and set out the relative funding commitments of the federal and provincial governments. Subsidiary agreements were typically directed at establishing traditional government economic assistance programs, developing infrastructure, providing for economic development assistance for certain regions within the province, and providing financial assistance to specific industries or enterprises.

Three such subsidiary agreements were signed between the federal government and the GONS. Two agreements were specifically established to provide assistance to Sysco. We determine that funds provided to Sysco under these agreements are countervailable in their entirety because they provided grants to a specific enterprise.

The third subsidiary agreement primarily provided funds for feasiblity and market studies and funds for the development of industrial parks. In our Preliminary Determination, we determined that only the GOC's portion of funds under this third subsidiary agreement was countervailable because it was limited to companies in a particular region of Canada (i.e., the Province of Nova Scotia). We also stated that the GONS's portion of funding was not countervailable because the assistance was not limited to a specific enterprise or industry or group of enterprises or industries in Nova Scotia. However, we also noted in our Preliminary Determination that, although the agreement provided benefits to a wide range and number of industries, an amendment was made to the agreement, subsequent to its implementation, naming Sysco as the specific recipient of new funds not previously authorized under the agreement. Consequently, we stated that we would examine this amendment in detail to determine whether it constituted a discretionary governmental action which provided a benefit to a specific enterprise.

As noted above, the general purpose of the third subsidiary agreement was for general feasibility and market studies and the development of industrial parks. No specific companies were named in the original agreement. The amendment however specifically permitted the provision of funds to Sysco for capital repair. During verification, federal and provincial agreement officials were unable to provide any specific information concerning the circumstances surrounding this amendment. Therefore, we are assuming, as the best information available, that the amendment to the third subsidiary agreement constituted a discretionary governmental action which provided a benefit to a specific enterprise. Thus, we determine that funds provided to Sysco under the amendment to the third subsidiary agreement are countervailable in their entirety.

No assistance to Algoma was provided under the Canada/Ontario GDA or corresponding subsidiary agreements.

We calculated the benefit conferred by the grants using the discount rate for Sysco referred to above (see section I.A.1.) and our declining balance methodology. We divided the benefit attributable to the review period by Sysco's total sales and calculated an estimated net subsidy of 25.48 percent ad valorem for Sysco.

ERDAs are essentially a continuation of the GDAs. ERDAs were signed with every province and territory in the early 1980's. Similar to GDA subsidiary agreements, ERDA subsidiary agreements establish programs, delineate administrative procedures and set up the relative funding commitments of the federal and provincial governments.

Two subsidiary agreements were signed between the federal government and the province of Nova Scotia which related to Sysco. The first provided for grants to fund the modernization of Sysco's operations. The second provided for the funding of economic planning studies throughout the Province, including three feasibility studies which examined different modernization alternatives for Sysco.

We determine that funds provided to Sysco under the first subsidiary agreement are countervailable in their entirety because the agreement provides grants to a specific enterprise.

The monies under the second subsidiary agreement were used to conduct feasibility and market studies for various projects throughout the Province of Nova Scotia. We verified that these funds were provided for such diverse projects as the development and diffusion of communications and information, the identification of a site for a harness racing facility, the assessment of viability of a miniature theme park, and impact studies for rail line abandonment. Therefore, we determine that the portion of funds provided by the GONS is not countervailable because the assistance is not limited to a specific enterprise or industry or group of enterprises or industries. We determine that the portion of funds provided by the GOC *31996 are countervailable because they are limited to companies in a particular region of Canada (i.e, the Province of Nova Scotia).

The only indirect assistance received by Algoma under the Canada/Ontario ERDA is described in the next section.

To calculate the benefit we used the same methodology described in the "GDA" section. We calculated an estimated net subsidy of 6.70 percent ad valorem for Sysco.

Algoma ships sintered iron ore pellets from its mine in Wawa, Ontario to its steel mill at Sault Ste. Marie by rail on the Algoma Central Railway (ACR). The ACR also operates the Agawa Canyon Tour Train which is an important tourist attraction in Northern Ontario.

In 1986, Algoma reconsidered its use of Wawa iron ore because the delivered cost of Wawa ore was not competitive when compared to the delivered cost of ore from alternative sources. We verified that Algoma obtained and analyzed bids from a number of companies capable of trucking its iron ore from the Wawa mine. In order to make the delivered cost of Wawa ore competitive, Algoma sought a reduction in ACR's freight rates.

If ACR did not reduce its freight rate to a competitive level, Algoma was considering closing its Wawa mine. Such an action would have forced ACR to cease all operations, including its tour train operation. To preserve the continued operation of ACR, the federal and the Ontario governments provided grants to ACR. The grants were made under the "Canada-Ontario Subsidiary Agreement for Tourism Development" (COTDA), which is a subsidiary agreement under ERDA. As a result of these grants ACR was able to charge Algoma a lower freight rate.

Because the amount of the grants was calculated to permit ACR to charge the lower freight rate sought by Algoma, we determine that the COTDA grants provided an indirect benefit specifically to Algoma. Thus, we determine that this benefit was limited to a specific enterprise.To calculate the benefit to Algoma we compared the truck rate Algoma would have been charged to the reduced freight rate charged by ACR. We divided the difference by Algoma's total sales and found the estimated net subsidy rate to be 0.19 percent.

C. Provincial Programs--Province of Nova Scotia

The GONS has provided Sysco with grants to cover principal payments and interest payments on its long-term debentures since 1982. Because these grants are limited to a specific enterprise they are countervailable.

Respondents have argued that we should treat these grants as recurring grants. In determining whether grants are recurring or non-recurring, we must consider the following factors: (1) Whether the program providing the benefit is exceptional; (2) whether the program is of longstanding nature; and (3) whether there is any reason to believe that the program will not continue into the future. (See "Final Affirmative Countervailing Duty Determination: Live Swine and Fresh, Chilled and Frozen Pork Products from Canada," 50 FR 25,097, June 15, 1985, and Groundfish.)

In this case, we determine that these grants are non-recurring for the following reasons. First, the government action of providing these grants is exceptional because it is not under any particular established provincial program and because the provincial legislature must approve the funds each year. Moreover, if Sysco had turned a profit, it is unlikely the province would have continued to provide the grants. Second, although these grants have been provided for several years, presumably they will terminate when the debentures are paid off in the near future. Third, if Sysco does become profitable in the future, the grants will probably stop. Therefore, we determine that these grants are non-recurring grants.

To calculate the benefit, we used the same methodology described in the "GDA" section. The estimated net subsidy is 22.73 percent ad valorem for Sysco.

The GONS has provided Sysco with operating grants to cover its general operating expenses and for capital expenditures. We determine that these operating grants are countervailable because they provide funds to a specific enterprise. We further determine that they are non-recurring because they are not provided under any particular provincial program and because they are provided according to the irregular financial needs of Sysco.

To calculate the benefit, we used the same methodology described in the "GDA" section. The estimated net subsidy is 19.34 percent ad valorem for Sysco.

Sysco has a number of five-year loan agreements with several Canadian trust companies. The GONS guarantees all of these loans. Interest rates on these five-year loans are variable according to the prime or banker's acceptance (BA) rates. Interest is payable monthly. The trust companies have the option of demanding repayment, in full, of the outstanding principal with 30 days notice. Sysco also has the option of repaying, in full, the outstanding principal. None of these loans have ever been prepaid, nor have the trust companies ever demanded payment before maturity.

These guarantees were provided to one company. Thus, we determine that their provision was limited to a specific enterprise. For the reasons explained in the "Analysis of Programs" section pertaining to the government provision of debenture and loan guarantees, Sysco's loan guarantees are countervailable to the extent that the terms are more favorable than the benchmark financing.

As described in the "Analysis of Programs" section, we have determined that Sysco has been uncreditworthy throughout the period 1973-1988. In the case of uncreditworthy companies, we assume that private lenders either would not provide loans to such companies or would require a premium interest rate. (See the "Subsidies Appendix".) In selecting an appropriate benchmark, we must formulate an approximation of the premium interest rate a commercial source of financing would charge an uncreditworthy company. Our preferred benchmark for a long-term variable interest rate government guaranteed loan to an uncreditworthy company is the highest long-term variable interest rate commonly available to a marginally creditworthy company in the country in question, plus the risk premium described in section I.1.A. Statistical information concerning the highest long-term variable interest rate in Canada does not exist. Absent such a rate, we have determined that the best alternative benchmark is the highest long-term fixed interest rate commonly available to a marginally creditworthy company in the country in question. Although in prior cases we have used short-term financing as our benchmark, it is more appropriate to use a long-term benchmark when it is available. For long-term projects a company will *31997 typically require long-term financing. Therefore, a company seeking such financing will consider all long-term financing options before turning to short-term financing. And, in the absence of long-term variable rate financing, a company would rely on long-term fixed rate financing. For this reason, we determine that a long-term fixed interest rate is the best alternative benchmark when no variable rate benchmark is available. For this rate, we are using the interest rate on Canadian BBB bonds to which we have added the risk premium, as is our practice in dealing with uncreditworthy companies.

To determine the benefit, we calculated the payment differential between the interest that would have been paid at the benchmark interest rate and the actual interest paid on each of the guaranteed five-year loans during the review period. We then divided the benefit by Sysco's total sales and calculated an estimated net subsidy of 12.83 percent ad valorem for Sysco.

GONS has made a number of equity infusions into Sysco. As noted in the "Analysis of Programs" section, we find Sysco to be unequityworthy. Therefore, we determine the equity infusions made by the GONS to be countervailable.

We normally calculate the benefit conferred by government equity infusions inconsistent with commercial considerations by determining the difference between the national average rate of return on equity and the rate of return on equity of the company under investigation. However, Sysco's financial statements indicate that the entire amount of the GONS's equity capital has been consumed. Therefore, the calculation of any rate of return on equity for Sysco would not be a meaningful measure. Furthermore, we believe that even if we could somehow calculate a rate of return on equity for Sysco, the difference between Sysco's rate of return, presumably a negative value, and the national average rate of return would be so great that the "grant cap" would be exceeded. Therefore we treated all the equity infusions received by Sysco as grants.

We calculated the benefit from the equity infusions using the grant methodology described in previous sections (see, for example, section I.B.1.). We divided the benefit attributable to the review period by Sysco's total sales and calculated an estimated net subsidy of 21.89 percent ad valorem for Sysco.

II. Programs Determined Not To Confer Subsidies

We determine that the following programs do not confer subsidies:

The GONS guarantees all of the demand loans, or lines of credit, provided to Sysco by chartered banks. The guarantees on these demand loans were provided to a specific enterprise; however, they are only countervailable to the extent that the terms of the loans are more favorable than the benchmark financing. (See the "Analysis of Programs" section of this notice pertaining to the provision of loan guarantees.)

Our past practice has been to select as the short-term benchmark the interest rate on the predominant source of short-term financing in the country in question. (See "Final Affirmative Countervailing Duty Determination: Certain Electrical Conductor Aluminum Redraw Rod from Venezuela", (Redraw Rod), 53 FR 24, 763, June 30, 1988.) Although we obtained interest rate information on BAs and corporate paper at verification, we established that together these forms of short-term financing only account for twenty percent of total short-term financing. Average interest rate information on the remaining 80 percent of short-term financing in Canada is not available. We did however, verify that Algoma also has short-term financing, which is comparable to Sysco's lines of credit. Therefore, we are using as the best information available in this investigation the interest rate charged Algoma on its short-term financing. We chose this rate primarily because of the close comparability between the two types of financing. When we compare Sysco's rate to this benchmark rate, we find that Sysco's short-term financing is not on terms more favorable than benchmark financing and, therefore, is not countervailable.

At verification, we found that Algoma received a research grant from the GOC under the Industrial Energy Research & Development Program for a project to study sulfur reduction at Algoma's Wawa mine.

Research and development grants are considered to confer a countervailable benefit when they are provided to a specific enterprise or industry or group of enterprises or industries and the results of such research and development are not made available to the public.

An examination of the documentation related to this grant demonstrates that, as a condition of receiving the grant, Algoma was obligated to make the results of this study available to the public and had to show how the findings of the study would be beneficial to energy conservation efforts in Canada. Furthermore, we verified that the results of Algoma's study have been made public. Therefore, we find that the grants under this research program do not confer a countervailable benefit to Algoma.

III. Programs Determined Not To Be Used

We determine, based on verified information, that the following programs were not used by manufacturers, producers or exporters in Canada of steel rail during the review period. For a full description of these programs, see our Preliminary Determination.

A. Federal Programs

1.Defense Industry Productivity Program (DIPP)

Algoma received DIPP grants for the installation of hot metal desulphurization facilities in 1980 and 1981. We examined these grants in OCTG. Consistent with the "Subsidies Appendix", we divide the sum of all grants received in each year by the total sales of the company in the same year. Algoma received no other grants in 1980 and 1981. The calculated benefits in OCTG were de minimis, i.e., less than 0.50 percent. Therefore, as in OCTG, we expensed them in the year of receipt. Because the DIPP grants received by Algoma were expensed prior to the review period and because no DIPP grants were received by Algoma during the review period, we determine that Algoma did not use this program.

2. Industrial and Regional Development Program

6. Community-Based Industrial Adjustment Program Grants
7. Export Credit Financing

B. Joint Federal-Provincial Programs

Mineral Development Agreement Benefits to Algoma

C. Provincial Programs

Comments

All written comments submitted by the interested parties in this investigation which have not previously been addressed in this notice are addressed below.

Comment 1: Sysco argues that the short-term interest rate benchmark should be the interest rate on BAs and commercial paper, which represent the normal type of short-term financing for large companies. Furthermore, Sysco quotes from the Proposed Regulations that a short-term benchmark should be based on an average of the predominant interest rate.

Petitioner contends that the short-term benchmark should be based on the predominant form of short-term financing and the highest short-term rate observable on that form of financing, which would be prime plus three percent. Petitioner maintains that corporate paper and BAs do not constitute the predominant forms of financing because, together, they only account for 20 percent of short-term financing in Canada. Petitioner also argues that there is no justification for a benchmark based on BAs and corporate paper because Sysco does not have the assets of a "large" company as defined by the GOC.

DOC Position

According to past practice, the short-term benchmark is based on the average interest rate on the predominant form of short-term financing. (See Redraw Rod.) Absent information on a single predominant form of short-term financing, we use as the short-term benchmark the weighted-average of the interest rates from two or more sources of short-term financing that together account for at least 50 percent of all short-term financing. We verified that BAs and corporate paper together account for only 20 percent of short-term financing in Canada. Average interest rate information on the remaining 80 percent of short-term financing is not available. Therefore, we chose as the best information available, for purposes of this investigation, the rate charged Algoma on its short-term financing.

Comment 2: Sysco contends that its five-year trust company loans should be considered short-term loans. Sysco's argument is based on the fact that each of the trust companies has the option to demand payment in full of the outstanding principal and interest with 30 days notice. In addition, as is characteristic of short-term loans, these five-year loans have variable interest rates.

Petitioner holds that Sysco's trust company loans should be considered long- term loans because on their face the loans have a term of five years. Furthermore, petitioner argues that Sysco has not demonstrated that the demand option has ever been used or that Sysco has ever prepaid any of these loans. Moreover, petitioner points out that Sysco rolled over several of these loans past their original terms.

DOC Position: We have determined that Sysco's five-year trust company loans should be treated as long-term loans because: (1) They are recorded as long- term loans in the audited financial statements of the company, (2) payment has never been demanded or made before maturity, (3) several of the loans have been rolled-over past their original term, and (4) Sysco has a grossly insufficient amount of liquid assets which could be used to pay these loans if they were demanded before maturity. This last point indicates that Sysco does not anticipate these loans being paid before maturity.

Comment 3: Sysco argues that its five-year trust company loans should be considered short-term loans because for all long-term loan benefits, and other benefits allocated over time, a "grant equivalent" can be calculated and that for a long-term loan with a variable interest rate a grant equivalent cannot be calculated because the total amount of any countervailable benefit is contingent upon future benchmarks. Therefore, according to Sysco, we must treat Sysco's five-year trust company loans as short-term.

DOC Position: It is true that a grant equivalent cannot be calculated for a variable rate loan. However, simply because a grant equivalent cannot be calculated does not prevent the Department from treating the loans in question as long-term for other purposes.

Comment 4: Petitioner argues that the benchmark for the long-term variable interest rate loans guaranteed by the GONS should be eight percent over prime, plus a risk premium.

Sysco argues that petitioner's suggested benchmark should not be used because it was a "guesstimate" by a Canadian banking official. Sysco also points out that the Department in Groundfish stated that there was "no comparable long- term variable or fixed interest rate commonly available to Canadian firms" and that, as a result, "a short-term benchmark interest rate was used to calculate the benefit from long-term variable rate loans."

DOC Position: We have explained our choice of a benchmark for Sysco's long- term variable rate loans in Section I.C.3. Petitioner's suggested benchmark is based on a statement made by a Canadian banking official, which we have determined to be too speculative for use. With respect to Sysco's comment, regarding Groundfish, in this investigation we were able to obtain information on a comparable long-term fixed interest rate; therefore, we did not use a short-term benchmark.

Comment 5: Sysco argues that if the debenture guarantees are considered countervailable, the benefit is equal to an annual fee of one percent which is charged under other government loan guarantee programs.

DOC Position: We have determined that the most appropriate method of measuring the benefit from a government loan guarantee is to compare the terms of the guaranteed financing to the benchmark financing. (See the "Analysis of Programs" section.)

Comment 6: Sysco argues that a "put" option on its debenture effectively lowered the risk on the debenture issue and, therefore, lowered the interest rate. Respondent refers to the "Final Affirmative Antidumping Determination: Generic Cephalexin Capsules from Canada" (Cephalexin), 54 FR 26,820, June 26, 1989, in which the Department made the following statement regarding the treatment of a stock convertibility option: "this option represents a real * * * cost to respondent over and above the cost of the interest payments to the debenture holders." Sysco also submitted with its case brief two debenture prospectuses, one with a "put" option and the other without, and calculated the value of the option at 1.375 percent.

Petitioner first points out that Sysco never provided information concerning the "put" option in its questionnaire responses. Petitioner further argues that Sysco has not adequately stated how the two debenture prospectuses submitted are comparable to Sysco's debentures. Moreover, petitioner states that Sysco mischaracterizes its option as *31999 one of convertibility rather than redemption and that Sysco omitted a key portion of the quote from Cephalexin, which reads in full "[t]his represents a real, though unquantifiable cost to respondent over and above the cost of the interest payments to the debenture holders."

DOC Position: This issue was not raised in any of the questionnaire responses of Sysco. It was first raised during verification. Thus, this information was submitted too late for the Department to analyze prior to verification and for the petitioner to meaningfully comment upon. (See s 353.31(a) of the Department's regulations published in the Federal Register on December 27, 1988 (53 FR 52306) (to be codified at 19 CFR 353.31(a).)

Comment 7: Sysco argues that, because the interest rates on its debentures are at market rates, an appropriate benchmark for the U.S. dollar denominated debenture would be rates on comparable debentures issued in 1973. Respondents submitted prospectuses for two debenture issues for use as possible benchmarks.

Petitioner refutes respondent's suggested benchmarks by stating that they do not represent a national average, do not follow the hierarchy of benchmarks for long-term loans outlined in the Proposed Regulations and do not include the risk premium calculated for an uncreditworthy company.

DOC Position: According to our standard practice, our benchmark in the case of long-term fixed rate financing provided to an uncreditworthy company is the highest long-term fixed interest rate commercially available to a marginally creditworthy company plus the risk premium. (See the "Subsidies Appendix" and the "Analysis of Programs" section.) We are using the rate on U.S. Baa corporate bonds as the highest long-term fixed interest rate.

Comment 8: Respondent contends that for the final determination the effective interest rate on the Series C debenture should take into account exchange rate fluctuations between the Canadian and U.S. dollars. Respondent argues that the fluctuations between the Canadian and U.S. dollars have increased the effective interest rate to Sysco of its Series C financing.

Petitioner argues that the Department's use of effective interest rates is to ensure that, when a potentially preferential interest rate is compared to a benchmark, both rates reflect the full cost of the loan to the borrower. Petitioner then lists other aspects of a loan, such as the prepayment of interest, which can change the actual cost to the borrower. Petitioner concludes by stating that the declining value of the Canadian dollar is irrelevant and that the only question is whether the debenture guarantee permitted Sysco to pay an interest rate lower than it would have otherwise.

DOC Position: The benefit from the debenture guarantee is one that arises from issuing the debenture on terms that were more favorable than those commercially available. The currency in which the company chooses to issue the debenture is immaterial; this represents a risk chosen by the company which is irrelevant to the terms and conditions of the issue.

Comment 9: Sysco states that the Department erred in applying the specificity test to the individual subsidiary agreements and not to the general agreements under the GDA and ERDA programs. Because GDA and ERDA agreements cover all areas of Canada, these programs do not meet the specificity test and, as such, are not countervailable. Finally, Sysco argues that any government assistance program if broken down into sufficiently small subparts can be found to meet the specificity test.

Petitioner argues that GDA and ERDA benefits are specific and, thus, are countervailable. Monies provided to Sysco were at the discretion of the governments and were provided to Sysco specifically. Lastly, petitioner states that under Sysco's analysis, governments could avoid the imposition of countervailing duties by lumping all of their subidy programs into a single overall program.

DOC Position: We have found in our past cases that GDAs and ERDAs do not actually establish any government programs but instead ar merely legal agreements which, dual or conflicting jurisdictions, provide a framework to permit departments of the federal and provincial governments to cooperate in establishing and administering traditional government assistance programs. The implementation, administration and funding of industry- and regional-specific programs occur exclusively through subsidiary agreements. Therefore, we have decided that in determining whether subsidiary agreement programs are limited to a specific enterprise or industry or group thereof, the proper level of analysis is the subsidiary agreement. (See also Groundfish and "Final Negative Countervailing Duty Determination: Certain Softwood Products from Canada," 48 FR 24,159, May 31, 1983.)

Comment 10: Petitioner states that the basic seven percent tax credit should be countervailed since it is provided only to specific investments, i.e., to "qualified property." Petitioner also states that the Department erred in relying on past Department cases on this issue and not verifying the program in this investigation. Petitioner states that an amendment to the Act made by the Omnibus Trade and Competitiveness Act of 1988 now requires the Department to investigate whether a program is in fact provided to specific industries or groups of industries.

DOC Position: The 1988 Act provision referred to clarified that in all cases the Department must examine the availability and use of alleged subsidy programs on a de facto as well as a de jure basis. Our prior investigations of the basic seven percent tax credit have satisfied us that this credit is not limited to a specific enterprise or industry or group thereof on either a de facto or de jure basis. Because the seven percent tax credit ws previously found not countervailable, and petitioner did not provide the Department with a sufficient basis to reexamine it, we did not include the program in this investigation. (See OCTG and Groundfish.)

Comment 11: Sysco states that the Department erroneously treated grants for repayment of principal on its debentures as equity infusions. Petitioner states that the Department should countervail the equity infusions made by GONS and use the grant methodology as it did in the preliminary determination.

DOC Position: As noted in the "Analysis of Programs" section and section I.C.4., the Department was not able to use its standard method of calculating the benefit from an equity infusion but had to treat all equity infusions as grants. As such, this issue is moot.

Comment 12: Petitioner states that in analyzing the freight rate issue the Department should not consider Algoma's ability to transport iron ore by truck or buy iron ore from other sources. Petitioner argues that the proper test is whether the freight service was provided at a preferential rate. In support of its position, petitioner cites the "Final Negative Countervailing Duty Determination: Granite from Italy" (Granite), 43 FR 27,197, July 19, 1988. Petitioner states that the reductions in freight rates was a direct result of government action so that it constituted the provision of a service on preferential terms, within the meaning of the statue.

Algoma argues that the grants to ACR did not benefit Algoma because (1) the ACR freight rates were the result of arm's length negotiations and were not *32000 set by government intervention, (2) the ACR tour grants were tied to ACR's tour operations, and (3) even if the tour grants resulted in lower freight rate to Algoma, they have provided no commerical benefits to the company and have had an insignificant impact on its cost of production.

DOC Position: We verified that the lowering of Algoma's freight rates was part of a four party arrangement, which included the federal and provincial governments, ACR and Algoma, the result of which was the reduction in the freight rate paid by Algoma. Therefore, we have determined that the provision of grants to ACR provided an indirect subsidy to Algoma in the form of reduced freight rates.

We calculated the benefit by comparing the difference between the lowered freight rates and the available trucking rates. This case is distinguishable from Granite because unlike Granite it does not involve a government-owned railway. Therefore, the issue is not the preferential provision of a good or service by a government.

Comment 13: Petitioner states that the Department erred in not initiating an investigation on the alleged special tax subsidy to Algoma. Petitioner alleges that Algoma has accumulated ITCs which it was unable to use because it was in a loss position. In an attempt to utilize these credits and complete construction of a seamless tube mill, Algoma formed a partnership with its parent, the Canadian Pacific Railroad (CP). According to petitioner, CP was able to reduce its tax liability by using the accrued ITCs of Algoma, which had been transferred to the partnership. Later, Algoma purchased CP's partnership units, thereby dissolving the partnership.

Algoma argues that petitioner did not allege in a timely manner facts sufficient to establish a prima facie case that warranted an investigation and that, even if petitioner did make a timely allegation, the ITCs are tied to the production of seamless tube mill and, thus, do not provide any benefit to Algoma's steel rail production.

DOC Position: Our position concerning the alleged special tax subsidy has not changed since the beginning of this investigation. As we have stated previously in two memoranda to the file, we did not include this program in the investigation because the alleged benefit received by Algoma is tied to a product not under investigation. All the information submitted by petitioner clearly indicates that the specific purpose of the Algoma/CP partnership, and the attendant tax and financial transactions, was to complete the construction of a seamless tube mill. Thus, any benefit is tied to a product other than the merchandise under investigation. Nothing in the information submitted by petitioner indicates that any of the alleged benefits can be tied to the production of the subject merchandise. Therefore, we did not include the alleged special tax subsidy in the investigation.

Comment 14: Sysco maintains that the treatment of the wharf loan should be the same as at the preliminary determination. Sysco argues that only the principal amount of $7,734,483, uncollectible as of June 1978 and forgiven in 1981, should be considered a grant and allocated over 20 years.

DOC Position: The wharf was completed in June 1978, and Sysco was to make payments beginning in June 1979. Sysco made no payments on the principal and interest outstanding. The total outstanding was effectively an interest-free loan for the period 1979 through 1981. Therefore, we have added to the total original balance of $7,734,483, the interest that would have been paid on the principal outstanding at the benchmark rate and treated this total amount as a grant given in 1981.

Comment 15: The GOC raises the issue of whether HTS item number 8548.00.0000 is properly included within the scope of this investigation.

DOC Position: The HTS item number referred to by the GOC includes contact rail or "third rail" and, therefore, is properly included within the scope.

Verification

In accordance with section 776(b) of the Act, we verified the information used in making our final determination. As mentioned previously, when we could not verify the information, we used the best information available. During verification, we followed standard verification procedures, including meeting with government and company officials; inspecting internal documents and ledgers; tracing information in the responses to source documents, accounting ledgers and financial statements; and collecting additional information that we deemed necessary for making our final determination.

Suspension of Liquidation

In accordance with our preliminary affirmative countervailing duty determination published on March 2, 1989, we directed the U.S. Customs Service to suspend liquidation on the products under investigation and to require that a cash deposit or bond be posted equal to the estimated bonding rate. The instant final countervailing duty determination was extended to coincide with the final antidumping duty determination on the same product from Canada, pursuant to section 606 of the Trade and Tariff Act of 1984 (section 705(a)(1) of the Act).

Under Article 5, paragraph 3 of the Subsidies Code, provisional measures cannot be imposed for more than 120 days without final affirmative determinations of subsidization and injury. Therefore, we instructed the U.S. Customs Service to discontinue the suspension of liquidation on the subject merchandise entered on or after July 1, 1989, but to continue the suspension of liquidation of all entries, or withdrawals from warehouse, for consumption of the subject merchandise entered between March 2, 1989, and June 30, 1989. We will reinstate suspension of liquidation under section 703(d) of the Act, if the ITC issues a final affirmative injury determination, and will require a cash deposit on all entries of the subject merchandise from producer exporters, except entries by Algoma, in an amount equal to 113.56 percent ad valorem. Algoma is excluded from this final determination.

If we reinstate suspension of liquidation and require a cash deposit, entries of the subject merchandise by Grand Valley, Sessenwein, C.P. Rail and Nortrack (all of whom are non-producer exporters) will not be subject to suspension of liquidation and a cash deposit equal to the estimated net subsidy if it can be demonstrated to the U.S. Customs Service that the entries of the subject merchandise were produced by and purchased from Algoma.

Entries made by Bernard Railtrack Export Inc. and new non-producer exporters will be subject to suspension of liquidation and a cash deposit or bond equal to the estimated net subsidy shown of 113.56 percent ad valorem.

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 nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary information in our files provided the ITC confirms that it will not disclose such information, either publicly or under administrative protective order, without the written consent of the Assistant Secretary for Import Administration.

If the ITC determines that material injury, or the threat of material injury, *32001 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 countervailing duties on all entries of steel rail from Canada entered, or withdrawn from warehouse, for consumption, as described in the "Suspension of Liquidation" section of this notice.

This determination is published pursuant to section 705(d) of the Act (19 U.S.C. 1671(d)).

Dated: July 26, 1989.

Eric I. Garfinkel,

Assistant Secretary for Import Administration.