NOTICES
DEPARTMENT OF COMMERCE
(C-122-815)
Final Affirmative Countervailing Duty Determinations: Pure Magnesium and Alloy
Magnesium From Canada
Monday, July 13, 1992
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AGENCY: Import Administration, International Trade Administration, Department of Commerce.
EFFECTIVE DATE: July 13, 1992.
FOR FURTHER INFORMATION CONTACT: Rick Herring or Magd Zalok, Office of Countervailing Investigations, Import Administration, U.S. Department of Commerce, room B099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 377-3530 or 377-4162, respectively.
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FINAL DETERMINATION:
Case History
Since the publication of the preliminary determination (56 FR 63927, December 6, 1991), the following events have occurred. On February 11, 1992, petitioner, the Magnesium Corporation of America (Magcorp), requested that the final determinations of the countervailing duty investigations be extended to coincide with the date of the final determinations in the antidumping duty investigations of pure magnesium and alloy magnesium from Canada. The final determinations in the antidumping investigations were postponded, at the request of respondents, on March 13, 1992 and May 15, 1992 to July 6, 1992 (57 FR 8860 and 57 FR 20809, respectively).
On February 24, 1992, a supplemental questionnaire was issued to the Government of Quebec regarding certain aspects of Hydro-Quebec's Risk and Profit Sharing Program. On April 27, 1992, we divided the subject merchandise into two different classes or kinds of merchandise, pure magnesium and alloy magnesium. (See the "Class or Kind of Merchandise" section of Pure and Alloy Magnesium from Canada: Final Affirmative Determination; Rescission of Investigation and Partial Dismissal of Petition, which is published concurrently with this notice, for a detailed discussion of this issue). At the same time, we also determined that alloy billets are included within the scope of the investigation of alloy magnesium. For the analysis underlying this determination, see the April 27, 1992 Memorandum to Francis J. Sailer, Deputy Assistant Secretary, regarding "Scope Issues" which is on file in the Central Records Unit (Room B-099) of the Main Commerce Building.
"On Behalf Of" Issue
Respondents have challenged petitioner's ability to file the petition and requested that the Department dismiss the petition and terminate these investigations. They argue that these investigations are being conducted in violation of U.S. law since the petitioner is acting alone and not on behalf of the domestic industry. They state that while the Department assumed in the preliminary determination that the petition was filed on behalf of the domestic magnesium industry, the Court of International Trade (CIT) in Suramericana de Aleaciones Laminadas, C.A. v. United States, 746 F. Supp. 139 (CIT 1990), No. 91-1015 (Fed. Cir. Oct. 5, 1990) (Suramerica) has held that an affirmative showing of support by the rest of the domestic industry is a necessary prerequisite for a petitioner to seek relief under U.S. trade laws.
Respondents further state that a presumption of standing violates U.S. obligations under the GATT and the Subsidies Code. They state that a recent GATT panel rejected a finding of standing under very similar circumstances to those present in these investigations. United States--Imposition of Antidumping Duties on Imports of Seamless Stainless Steel Hollow Products from Sweden, ADP/47 (Aug. 20, 1990) at paragraph 5.17. Respondents argue that the GATT Panel determined that the absence of opposition to an investigation by any domestic producer did not satisfy the Antidumping Code's standing requirements, which mirrors those of the Subsidies Code.
We determine that the petitioner does have standing to file these investigations. The Court of Appeals for the Federal Circuit (Federal Circuit) recently reversed the CIT's decision in Suramerica and upheld Commerce's interpretation of the statutory phrase "on behalf of." Suramericana de Aleaciones Laminadas, C.A. v. United States, Slip Op. 91-1015, -1055 (June 11, 1992). The Federal Circuit explained that nothing in the statute or legislative history indicates the degree of support that must be shown before the Department may accept a petition as having been filed "on behalf of" the domestic industry. The court noted that, absent any indication of Congressional intent, there are several possible interpretations of the statute but that the CIT erred in choosing its interpretation over that of the Department (citing Chevron U.S.A. Inc. v. Natural Resources Defense Fund, 467 U.S. 837, 866 (1984)). The Federal Circuit further held that the Department's interpretation of the phrase "on behalf of" is a permissible interpretation of the statute. The Oregon Steel decision, 862 F.2d 1541 (Fed. Cir. 1988), as the Federal Circuit noted, did not address the issue of quantification of support required by the phrase " on behalf of."
The Federal Circuit's decision in Suramerica follows numerous CIT decisions upholding Commerce's interpretation of the phrase "on behalf of." For example, in Citrosuco Paulista v. United States, 704 F. Supp. 1075, 1085 (CIT 1988), the CIT held "(n)either the statute nor Commerce's regulations require a petitioner to establish affirmatively that it has the support of a majority of a particular industry, and the Court declines to impsoe such a requirement." See also, Comeau Seafoods v. United States, 724 F. Supp. 1407, 1411 (CIT 1989); Sandvik AB v. United States, 721 F. Supp. 1322, 1328 (CIT 1989); and Vitro Flex v. United States, 714 F. Supp. 1229, 1235 (CIT 1989). The CIT has suggested that the Department may dismiss petitions that are not actively supported by a majority of the domestic industry, but has found no statutory requirement that it do so. Citrosuco Paulista v. United States, 704 F. Supp. at 1085.
At the outset of these investigations, the petitioner, Magcorp, clearly stated that it had brought its petitions "on behalf of" the domestic producers of pure and alloy magnesium. While the two other domestic producers chose not to support the petition affirmatively, they declined Commerce's published invitation to oppose the investigations. Absent any showing of opposition by domestic producers, the Department properly continued the investigations. The Department's actions in this regard are consistent with the Federal Circuit's opinion in Suramerica.
In Suramerica, the Federal Circuit also rejected the argument that a presumption that the petitioner is acting on behalf of the domestic industry violates U.S. obligations under the GATT and the Subsidies Code. As the Court noted, the decision in Imposition of Antidumping Duties on Imports of Seamless Stainless Steel Hollow Products from Sweden was limited in scope, by the Panel's express language, to the specific case before it. Furthermore, the Federal Circuit stated that GATT interpretations are not controlling over U.S. law: "If the statutory provisions at issue here are inconsistent with the GATT, it is a matter for Congress and not this court to decide and remedy." Slip Op. at 18.
In sum, Commerce's interpretation of the phrase "on behalf of" in this case is consistent with the Federal Circuit's decision in Suramerica. An affirmative showing of support by the domestic industry was not required in order for the Department to conduct these investigations. The evidence reviewed by the Department supports the determination that Magcorp's petition was brought "on behalf of" the domestic industry.
Scope of Investigations
The products covered by these investigations are pure magnesium and alloy magnesium from Canada. Pure magnesium contains at least 99.8 percent magnesium by weight and is sold in various slab and ingot forms and sizes. Magnesium alloys contain less than 99.8 percent magnesium by weight, with magnesium being the largest
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metallic element in the alloy by weight, and are sold in various ingot and billet forms and sizes. Pure and alloy magnesium are currently provided for in subheadings 8104.11.0000 and 8104.19.0000, respectively, of the Harmonized Tariff Schedule (HTS). Although the HTS subheadings are provided for convenience and customs purposes, our written description of the scope of this proceeding is dispositive.
Secondary and granular magnesium are not included in these investigations. Our reasons for excluding granular magnesium are summarized in the Preliminary Determination of Sales at Less Than Fair Value: Pure and Alloy Magnesium From Canada (57 FR 6094, Feb. 20, 1992).
Analysis of Programs
For purposes of these determinations, the period for which we are measuring subsidies (the period of investigation) is calendar year 1990, which corresponds to the fiscal year of Norsk Hydro Canada Inc. (NHCI) and Timminco Limited.
During the period of investigation, NHCI made sales of magnesium produced by its parent company (Norsk Hydro a.s) in Norway. In order to measure the subsidy conferred upon NHCI, we deducted the value of the Norwegian merchandise from NHCI's total sales value. Since the subsidies provided to NHCI confer benefits on the production of merchandise, we allocated the subsidies only over the value of merchandise manufactured in Canada.
The subsidies provided to respondents benefit the production of both pure magnesium and alloy magnesium and cannot be segregated. Therefore, we have calculated a single estimated net subsidy for both classes or kinds of merchandise. Because there is a significant differential in the estimated net subsidy calculated for the two companies, we have assigned individual company rates for NHCI and Timminco pursuant to 19 CFR 355.20(d) (1991).
Based upon our analysis of the petition, responses to our questionnaires, verification and written comments from respondents, petitioner, and other interested parties, we determine the following:
A. Programs Determined to be Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Canada of pure and alloy magnesium under the following programs:
1. Federal Funding for a Feasibility Study under the Canada-Quebec Subsidiary Agreement on Industrial Development
Under this Subsidiary Agreement, the Governments of Canada and Quebec established a program to provide financial assistance to companies to cover the cost of feasibility studies related to major industrial projects. This Subsidiary Agreement was implemented under the 1984 Canada-Quebec Economic and Regional Development Agreement (ERDA). ERDAs provide the legal basis for various departments of the federal and provincial governments to cooperate in the establishment of economic development programs. Subsidiary agreements, like the Subsidiary Agreement on Industrial Development, establish programs, delineate administrative procedures and set up the relative funding commitments of the federal and provincial governments. This Subsidiary Agreement was signed on January 23, 1985, and terminated on March 31, 1992. The last date for authorizing a project under this Agreement was March 31, 1990.
To qualify for funding under this program, the project to be studied must involve the establishment, expansion or modernization of a manufacturing or advanced processing facility. Maximum funding is 75 percent of the actual cost of the study.
Norsk Hydro a.s, the parent company of NHCI, received a grant to undertake a feasibility study under this program. The grant was funded equally by the Governments of Canada and Quebec. A condition of the grant was that it was to be repaid if the company commenced operations in Quebec.
We determine that the funds provided by the Government of Canada under this Subsidiary Agreement are countervailable because assistance under this Agreement is limited to companies located in a particular region of Canada (i.e., the Province of Quebec). However, we determine that the funds provided by the Government of Quebec under the Subsidiary Agreement are not countervailable because the provincial funds were not limited to a specific enterprise or industry, or group of enterprises or industries.
Since NHCI commenced business operations in Quebec and, as a result, was obligated to repay the funds, we are treating the reimbursable grant as an interest-free, short-term loan rolled over from year to year. To calculate the benefit from the Government of Canada's portion of the funds provided to NHCI under this program, we calculated the amount of interest which should have been paid based on the number of days this "loan" was outstanding during the period of investigation. We used the national average short-term interest rate for 1990, as provided by the Government of Canada, to calculate the amount of interest that would have been paid had this reimbursable grant been in the form of a short-term commercial loan. We then divided this amount by NHCI's total sales of Canadian-produced merchandise for the period of investigation and calculated an estimated net subsidy of 0.10 percent ad valorem for NHCI. Timminco did not receive any benefits from this program.
Since NHCI reimbursed the Government of Canada for the funds received under the Subsidiary Agreement in 1990, and because the company will not receive any more assistance under this Subsidiary Agreement, we are not including the amount of this subsidy in our duty deposit rate.
2. Exemption from Payment of Water Bills
Under an agreement signed between NHCI and Le Societe du Parc Industriel du Centre du Quebec, the company is exempt from paying its water bills. Since no other company receives such an exemption, we determine this program to be countervailable since benefits are limited to a specific enterprise or industry, or a group of enterprises or industries.
To calculate the benefit under this program, we divided the amount NHCI should have paid for industrial water for the period of investigation by NHCI's total sales of Canadian-manufactured products for the period of investigation. On this basis, we calculated an estimated subsidy of 1.43 percent ad valorem for NHCI. Timminco did not receive any benefits from this program.
3. Article 7 Grants from the Quebec Industrial Development Corporation
The Industrial Development Corporation (Societe de Developpement Industriel du Quebec) (SDI) is a crown corporation which acts as an investment corporation and administers development programs on behalf of the Government of Quebec. Established in 1971 under the Quebec Industrial Development Act, the program has been amended several times. Funding for SDI is obtained through the Quebec National Assembly, through the sale of notes, bonds and other securities, and by an endowment established by the
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Government of Quebec at the time of SDI's formation.
Acting on special mandates from the Government of Quebec, the SDI provides assistance under Article 7 in the form of loans, loan guarantees, grants, assumptions of costs on loans, and equity investments. This assistance is offered to major projects capable of having a major impact upon Quebec's economy. Article 7 assistance greater than 2.5 million dollars must be approved by the Council of Ministers, and assistance over 5 million dollars becomes a separate budget item under Article 7. To be approved for assistance in this amount, the Council of Ministers must determine that the project to be financed is of special economic importance and value to the province. Funding for this type of assistance does not come from the SDI budget, but comes from the budget of the Council of Ministers. After approval from the Council of Ministers, the Treasury Board will authorize release of the funds. This is done on a project-by-project basis.
NHCI received a grant under this program. The amount of the grant was calculated as a percentage of the cost of environmental protection equipment purchased by NHCI. The money was primarily used by NHCI to pay interest on NHCI's outstanding debt.
To determine whether this program is countervailable, we reviewed the number of recipients which received benefits under Article 7 of SDI. We compared the amount of assistance provided to each of the recipients to the amount of assistance provided to NHCI. While a wide variety of firms did receive Article 7 assistance, we determine that NHCI received a disproportionately large share of assistance under the program. Therefore, we determine the program, with respect to the assistance provided to NHCI, to be countervailable. (We note that the number of recipients, the amount of assistance provided to each recipient, and the exact forms of assistance provided under Article 7 is proprietary. Therefore, a complete analysis of this determination of disproportionality is provided in a separate proprietary memorandum which is part of the official record for these investigations. A public summary of this memorandum is available in our Central Records Unit in the main Commerce Building. See, July 6, 1992 Memorandum for Francis J. Sailer, Deputy Assistant Secretary, regarding "Benefits Provided to Norsk Hydro By the Societe de Developpement Industriel du Quebec (SDI)".)
Our policy with respect to grants is (1) to expense recurring benefits to the year of receipt, and (2) to allocate nonrecurring benefits over the average useful life of assets in the industry, unless the sum of grants provided under a particular program is less than 0.5 percent of a firm's total or export sales (depending on whether the program is a domestic or export subsidy). (See, e.g., Final Affirmative Countervailing Duty Determination; Fresh and Chilled Atlantic Salmon from Norway, 56 FR 7678 (February 25, 1991).) We have determined that the Article 7 assistance received by NHCI is nonrecurring, as it was received based on a one-time authorization of funds. Therefore, we have allocated the benefits over 14 years, the average useful life of assets in the magnesium industry.
We calculated the benefit from the grant received by NHCI using the company's cost for long-term, fixed-rate debt as a discount rate and our declining balance methodology as described in the Department's proposed rules (Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989)), and used in prior investigations (see, e.g., Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods From Canada, 51 FR 15037 (April 22, 1986).) We divided that portion of the benefit allocated to the period of investigation by NHCI's total sales of Canadian-manufactured products and calculated an estimated net subsidy of 6.18 percent ad valorem for NHCI. Timminco did not receive any benefits from this program.
4. Preferential Electric Rates
The Risk and Profit Sharing Program is administered by the provincially-owned power company, Hydro-Quebec. Under this program, long-term contracts are signed between Hydro-Quebec and its industrial customers for the provision of electricity. A portion of the rate to be charged under these contracts is based either on the price of the customer's products or the customer's profitability. Therefore, the price paid by each of these customers for electricity varies from year-to-year because of fluctuations in the customer's prices or profits. The Government of Quebec states that the contracts are negotiated with the expectation that over the term of the contract, Hydro- Quebec will earn the full projected revenue that would have been generated under its general rates and programs.
According to Hydro-Quebec, the objective of the Risk and Profit Sharing Program is to strengthen and develop Quebec's industrial sector. Industrial customers which meet the following criteria are eligible to participate in the program:
- A capital-intensive firm;
- A firm requiring a major power demand (at least 5 megawatts);
- A firm where energy costs represent a major factor in production costs (15 percent or more); and
- a firm for which energy rates and availability of electricity in the long term constitute a major factor in the choice of location (in Quebec or elsewhere in the world).
The first contract with features of Risk and Profit Sharing was signed in 1984, although the program was not formalized until 1985. All the remaining contracts were negotiated between 1985 and 1989.
In our preliminary determination, we found the Risk and Profit Sharing Program to be provided to a specific enterprise or industry or group of enterprises or industries because there were only 14 companies with Risk and Profit Sharing contracts while there were over 300 industrial users of electricity in Quebec. Furthermore, we preliminarily found the rates paid by NHCI to be preferential when compared to the weighted-average rate paid by other industrial customers during the review period.
Implicit in the methodology used in the preliminary determination is a finding that electricity contracts that include risk and profit sharing provisions, like those under the Risk and Profit Sharing Program, are preferential, per se. This is because preferential rates will be found to exist whenever the rate paid by a Risk and Profit Sharing customer falls below the benchmark rate. Given the structure of these types of contracts, shortfalls are expected, as are higher payments in those years when the customers' profits are high or when the price for the customers' output is high. For this reason, a year-by-year comparison between rates actually paid and the benchmark, as used in the preliminary determination, is not an appropriate measure of the benefits potentially arising from such contracts, which based on information on the record, are not unusual in the electric power industry. On this basis, we have reconsidered our preliminary determination.
As a general matter, the first step the Department takes in analyzing the potential preferential provision of electricity--assuming a finding of specificity--is to compare the price charged with the applicable rate on the power company's non-specific rate schedule. If the amount of electricity purchased by a company is so great that
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the rate schedule is not applicable, we will examine whether the price charged is consistent with the power company's standard pricing mechanism applicable to such companies. If the rate charged is consistent with the standard pricing mechanism and the company under investigation is, in all other respects, essentially treated no differently than other industries which purchase comparable amounts of electricity, we would probably not find a countervailable subsidy.
The difficult issue we addressed in the preliminary determination was how to analyze variable rate pricing mechanisms for extremely large purchasers. As mentioned above, we implied in our preliminary determination that variable rate pricing is per se preferential.
In the course of suspension agreement negotiations, NHCI stated that it was in the process of negotiating a letter of intent regarding an amendment to the company's power contract. Subsequently, a letter of intent was signed, and we requested that it be placed on the record. In light of the analysis discussed above, if we were to confront a power contract similar to the one envisioned by the letter of intent between NHCI and Hydro-Quebec, we would not find that it was preferential simply on the basis that the rate varied. Rather, we would likely look to see if, over the life of the contract, one could reasonably expect that the price charged would yield a revenue stream consistent with the power company's standard pricing mechanism for purchasers of comparable quantities of electricity. However, we need not resolve this issue now.
For this final determination, we find that we are able to analyze the contract between NHCI and Hydro-Quebec without reaching the issue of whether its risk and profit sharing aspects confer a subsidy on NHCI. This is because, under the terms of this contract, the risk and profit sharing elements, i.e., those where NHCI's electricity rates depend on its profitability, did not occur until after the period of investigation. During the period of investigation, NHCI simply received discounts from an established standard industrial rate schedule. Therefore, for purposes of this final determination, we are limiting our analysis to whether the same discounts were provided to a specific enterprise or industry, or group of enterprises or industries.
During the period 1983-1991, Hydro-Quebec operated a rate discount program for industrial customers. From 1983 through 1986, qualifying customers were able to obtain a 50 percent discount. Between 1987 and 1991, the discount percentage decreased. During the period of investigation, 1990, qualifying customers were able to obtain a 20 percent discount.
We determine that the discount scheme described above was available to and used by a wide variety of industries in Quebec. However, under the terms of its contract, NHCI, and only NHCI, received a 60 percent discount during the period of investigation. Moreover, the electricity rate against which NHCI's discount was applied was lower than the large power rate in force for other industrial customers. Therefore, we determine that NHCI benefitted from the preferential provision of electricity and that the provision of electricity on these terms was limited to a specific enterprise.
To calculate the benefit to NHCI, we compared the actual amount paid for electricity during the period of investigation under its Risk and Profit Sharing contract to the amount it would have paid under the published tariff schedules of Hydro-Quebec, including all discounts which would have been applicable to NHCI under the tariff schedule. We then divided that difference by NHCI's total sales of Canadian-manufactured products and calculated an estimated net subsidy of 14.00 percent ad valorem for NHCI. Timminco did not receive any benefits from this program.
B. Programs Determined Not to be Countervailable
We determine that subsidies are not being provided to manufacturers, producers, or exporters in Canada of magnesium under the following programs:
1. Research Conducted by the Institute of Magnesium Technology (IMT)
The IMT was incorporated in 1989, as a private, non-profit company. The creation of the IMT was a joint effort by the Governments of Canada and Quebec and the magnesium industry. Its purpose is both to promote the development of the magnesium processing industry and the promote the growth of world markets for magnesium products. The IMT provides magnesium processors with the expertise and equipment necessary for development work, as well as for the improvement of products and processes. In addition, the IMT also offers development of prototypes and pre-production trials.
Currently, the IMT has 30 members from throughout the world, including the United States. These members are magnesium producers, diecasters, and end- users. U.S. producers of magnesium have been invited to join the IMT. Members pay a yearly fee to the IMT to support the operation of the Institute.
The IMT aims to be self-sustaining by 1995, through membership fees and research contracts, but initial funding was provided by the Governments of Canada and Quebec under the Canada-Quebec Subsidiary Agreement on Scientific and Technological Development. Under this Subsidiary Agreement, both governments provided funds for the construction of a research laboratory and the purchase of equipment for the IMT. In addition, both governments provided funds to the IMT to help it launch its research program.
The Department's practice regarding the countervailability of research and development assistance is that when the results of the research are made available to the public, including competitors in the United States, the assistance does not confer a countervailable benefit. (See, e.g., Final Affirmative Countervailing Duty Determination; Fresh and Chilled Atlantic Salmon from Norway, 56 FR 7678 (February 25, 1991).) Using this standard, we determine that research performed by the IMT is not countervailable, because membership is open to all parties, and these parties can obtain research performed by the Institute on equal terms.
2. Manpower Training Program
This program is administered by the Quebec Ministry for Manpower and Income Security. The Province of Quebec offers this program to individuals for manpower training and retraining. To be eligible for training under this program, an individual has to be more than 16 years old, either employed or in the job market, knowledgeable of the area in which training was chosen, and either employed or seeking employment directly related to the training. During the period of investigation, NHCI received payments under this program for teaching materials and teacher services used in the training of employees and non-employees of the company.
We verified that there are no de jure or de facto limitations of any kind pertaining to the enterprise or industrial sector employing the worker or potential hiree. Since the program is offered and provided to individuals employed or seeking employment, and to companies providing such training, within a large number and broad range of industrial sectors in Quebec, we determine that this program is not countervailable.
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C. Programs Determined Not to be Used
We determine that producers or exporters in Canada of the subject merchandise did not use, or receive benefits under, the following programs during the review period (a description of these programs can be found in the notice of our preliminary determination):
1. St. Lawrence River Environmental Technology Development Program (ETDP)
2. Program for Export Market Development (PEMD)
3. The Export Development Corporation (EDC)
4. Canada-Quebec Subsidiary Agreement on the Economic Development of the Regions of Quebec
5. Opportunities To Stimulate Technology Programs
6. Development Assistance Program
7. Industrial Feasibility Study Assistance Program
8. Export Promotion Assistance Program
9. Creation of Scientific Jobs in Industries
10. Business Investment Assistance Program
11. Business Financing Program
12. Research and Innovation Activities Program
13. Export Assistance Program
14. Energy Technologies Development Program
15. Financial Assistance Program for Research, Formation and for the Improvement of the Recycling Industry
16. Transportation Research and Development Assistance ProgramComments
All written comments submitted by the interested parties in this investigation which have not been previously addressed in this notice are addressed below.
Comment 1
The government of Canada and NHCI state that we should determine the federal portion of the funding for the feasibility study provided to NHCI under the Subsidiary Agreement on Industrial Development not countervailable because the Government of Canada funds feasibility studies through a variety of "integrally linked" initiatives. These initiatives include the Advanced Manufacturing Technologies Application Program (AMTAP) and the Strategic Technologies Program (STP), as well as other subsidiary agreements signed with other provinces in Canada.
DOC Position
If the Department determines that two or more programs are integrally linked, it will examine the beneficiaries under all of the programs to determine whether benefits are being provided to a specific enterprise or industry or group of enterprises or industries. In determining whether programs are integrally linked, we examine, among other factors, the administration of the programs, evidence of a government policy to treat industries equally, the purposes of the programs as stated in their enabling legislation, and the manner of the funding of the programs. (See Final Affirmative Countervailing Duty Determination: Live Swine and Fresh, Chilled, and Frozen Pork Products from Canada, 50 FR 25098 (June 15, 1985).)
Although administered by the same agency and financed by that agency's budget, no evidence has been provided to establish that the three programs are integrally linked.
STP provides funding for feasibility studies and for research and development. Individual recipients can receive no more than C$50,000. AMTAP provides funding for qualified firms to engage outside consultants to conduct feasibility studies on advanced manufacturing technologies applicable to their manufacturing operations. AMTAP contributes no more than C$15,000 for a single applicant. The Subsidiary Agreement on Industrial Development (SAID) has a much broader purpose than the funding of feasibility studies and the hiring of outside consultants. SAID also funds the cost of infrastructure development. SAID also provides financial assistance to Quebec companies in the form of repayable or non-repayable contributions, interest rebates and other forms of assistance. Therefore, the purpose of SAID differs from the two other programs cited by respondents. The level of funding is also much higher for SAID approved projects. In addition, applicants for AMTAP must already be engaged in manufacturing or secondary processing in Canada. Therefore, companies seeking to open a manufacturing operation in Canada could not qualify for assistance under AMTAP, while they could qualify for assistance under SAID. For these reasons, we determine that SAID is not integrally linked with AMTAP and STP.
Respondents' statement that the Government of Canada funds feasibility studies under other subsidiary agreements in other provinces does not warrant an examination of whether the programs are integrally linked, unless such agreements exist between the Government of Canada and each of the provinces. There was no evidence presented that demonstrated that subsidiary agreements for the funding of feasibility studies exist with all provinces. Therefore, we conclude that funding provided by the Government of Canada under the Canada- Quebec Subsidiary Agreement on Industrial Development is countervailable.
Comment 2
In calculating any benefit arising from the funding of NHCI's feasibility study, the Government of Quebec claims that the Department has abandoned its practice for measuring benefits from grants and has created a methodology that has no basis in law. The Government of Quebec states that calling the grant a loan was the only apparent way Commerce could countervail the program and that the Department provided no explanation for its divergence from past practice. The Government of Quebec further states that if Commerce's grant methodology were properly applied, the grant from this program must be expensed in the year of receipt.
DOC Position
Our treatment of this reimbursable grant as a rolled-over short-term loan is consistent with past practice. For example, see our calculation of the benefit provided under the Program for Export Development in the Final Affirmative Countervailing Duty Determination; Certain Fresh Atlantic Groundfish from Canada (Groundfish), 51 FR 10041 (March 24, 1986), and the calculation of tax savings under the Export Tax Reserves Program in the Final Affirmative Countervailing Duty Determination; Certain Stainless Steel Cooking Ware From The Republic of Korea (Cooking Ware), 51 FR 42867 (November 26, 1986). In addition, we believe the methodology is appropriate because if the "grant" were treated under the grant methodology but subsequently repaid, the countervailing duties that would be assessed would be much larger than the actual benefit provided to the company. This would be contrary to the statute, to our regulations, and to our GATT obligations.
Comment 3
The Government of Canada and NHCI argue that the Department used the wrong benchmark in calculating the benefit conferred by government funding of NHCI's feasibility study. They state that a fixed long-term interest rate from the year the funding was received should have been used to calculate the benefit from this program.
DOC Position
Our use of a short-term benchmark is consistent with the Department's policy and practice (see Groundfish). A fixed long-term interest rate would only be an
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appropriate benchmark if the date of repayment was known with certainty and that date was far enough in the future to enable us to characterize the loan as long-term.
Comment 4
The Governments of Canada and Quebec state that the Department incorrectly found that a benefit was conferred by the grant provided for the feasibility study. They state that since the assistance was paid back during the period of investigation, no subsidy was provided. To support this argument they cite the Final Negative Countervailing Duty Determination: Certain Computer Aided Software Engineering Products From Singapore (Software), 55 FR 12248 (April 2, 1990).
DOC Position
The grant provided to NHCI was provided to the company prior to the period of investigation. As previously stated, NHCI was only obligated to repay the grant if it established a magnesium plant in Quebec. During a portion of the period of investigation, the entire amount of the grant was outstanding. Therefore, NHCI benefitted from the use of the entire grant amount for a portion of the period of investigation. When repayment was required, it was done so on an interest-free basis. Moreover, there were no other fees or costs for which NHCI was responsible as a condition for receiving the grant. Furthermore, we have consistently treated benefits which are potentially repayable as short-term interest-free loans. (See Groundfish and Cooking Ware.) For these reason, we find that this case is distinguishable from the Software case. However, since the amount of the assistance was paid back and there is evidence that NHCI cannot use the program again, we did not reflect this subsidy in our calculation of the duty deposit rate.
Comment 5
The Government of Quebec states that the Department's decision to countervail the governmental provision of industrial water contradicts the Department's past policy and practice not to countervail the use of natural resources.
DOC Position
NHCI was exempted from paying its industrial water bills, No other company has received such an exemption. Therefore, we found the program countervailable in accordance with section 771(5) of the Act. There is no precedent to support the Government of Quebec's contention that the provision of water at a preferential rate, which is limited to one company, is not countervailable.
Comment 6
The Government of Quebec and NHCI argue that the Department incorrectly calculated the benefit conferred by NHCI's exemption from the payment of its industrial water bills. They argue that Commerce should look at the actual water consumed by NHCI rather than the projected amount reflected in the water bills issued by Le Societe du Parc Industriel du Centre du Quebec.
DOC Position
At verification, officials of the industrial park stated that all of their water bills are based on forecasted water usage. Absent NHCI's exemption it would have, like all other companies, paid amounts based on projected water usage. The benefit to NHCI is what it would have paid absent the exemption. Therefore, the Department was correct in calculating the subsidy based on projected water usage.
Comment 7
NHCI states that in determining whether assistance provided under Article 7 of SDI is countervailable, the Department should examine the whole universe of SDI funding. In NHCI's view, Article 7 and general assistance under SDI are integrally linked because all SDI funding is provided by the same government pursuant to the same legal authority.
DOC Position
As discussed under Comment 1, in evaluating whether programs are integrally linked, the Department considers, among other factors, the administration of the programs, evidence of a government policy to treat industries equally, the purposes of the programs as stated in their enabling legislation, and the manner of funding the programs. Based on the evidence in these cases, we determine that general SDI assistance and Article 7 assistance are not integrally linked.
Most of the assistance, in monetary terms, provided by the SDI is in the form of venture loans and the creation of Quebec Business Investment Companies (SPEQs). Venture loans are loans where the borrower also pays a "success premium"--either an option to purchase equity in the company or participation in some form of profit sharing. The SPEQs are private companies, whose main operations are to invest capital in small- and medium-size businesses and to enable those who invest to obtain an income tax deduction. While some Article 7 assistance may take these forms, it can also include grants and assumption of interest. Such grants are not provided under general SDI programs, only under Article 7. In addition, in terms of purpose, Article 7 assistance is designed for "important" projects carried out under special mandates from the Government of Quebec, whereas the goals of other SDI- established programs are much broader (business development, export growth, research and development). Therefore, the two programs offer different types of assistance and have been established for different purposes.
Funding for general SDI programs comes from SDI's own budget and the organization aims to achieve self-financing of its operations. A majority of the Article 7 assistance must be approved by the Council of Ministers. In addition, funding for Article 7 assistance approved by the Council of Ministers does not come from the SDI budget, but comes from the Council's own budget. Therefore, the process for approving assistance differs under the general SDI program and Article 7, and the two are funded from different sources.
Finally, even SDI considers its general programs and Article 7 assistance to be separate. Article 7 expenses are segregated from its own expenditures and revenues in SDI's financial statements.
Comment 8
NHCI argues that even if the Department continues to examine Article 7 assistance apart from general SDI assistance, it should not continue the practice adopted in its preliminary determination of looking only at assistance in forms similar to that received by NHCI in determining specificity. Evidence shows that Article 7 assistance, in various forms, went to a wide range of enterprises.
DOC Position
For purposes of these final determinations, we have considered all forms of Article 7 assistance in making our specificity determination. Based on assumptions which are fully supported by the evidence in this record, we have calculated grant equivalents for all the Article 7 projects. While we agree with respondents that Article 7 assistance is available to and used by a wide variety of enterprises and industries, we found that NHCI received a disproportionate share of benefits when compared to other projects funded under Article 7.
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Comment 9
Respondents claim that the Department's preliminary determination incorrectly compares the amount provided to NHCI with the amounts provided to other individual projects. If amounts received by various industries are compared, the base metals industry (including NHCI) did not receive a disproportionate share.
DOC Position
Section 771(5)(A) of the Act directs that a countervailable subsidy is conferred when benefits are provided to a specific enterprise or industry, or group of enterprises or industries. Consistent with this, our analysis focused on funding provided to an individual enterprise, NHCI, as opposed to a group of industries, the base metals industries.
Comment 10
Respondents claim that it is the Department's practice to apply a two-step analysis when considering whether the benefits received by individual firms or industries are disproportionate. First, the Department looks across firms to determine whether some have received a larger share of total funds available than others. Second, they claim that the Department examines "vertical proportionality", i.e., the amount of assistance received by individual firms or industries in relation to the size of the project being funded.
DOC Position
In support of their claim that the Department performs a second step in its analysis of proportionality, respondents cite to the Final Affirmative Countervailing Duty Determination: Certain Fresh Cut Flowers From the Netherlands (Dutch Flowers), 52 FR 3301 (Feb. 3, 1987), and the Final Affirmative Countervailing Duty Determination; Cold-Rolled Carbon Steel Flat- Rolled Products from the Republic of Korea (Korean Steel), 49 FR 47284 (Dec. 3, 1984). In both cited cases, we looked to the share of benefits in relation to the share of production. In Dutch Flowers, we found that horticulture received 50 percent of the funding, although it accounted for only 24 percent of the value of agricultural production. In Korean Steel, we compared the amount of loans made to the basic metals sector with the percentage of GNP accounted for by steel production. Thus, neither precedent directs us to look at the amount of assistance as a percentage of project size, as respondents would have us do.
Respondents argue that an assistance-to-investment comparison is appropriate because it is the best measure of the economic distortion caused by the subsidy. As they put it, the greater the share of government investment, the less likely the investment would have occurred. Conversely, the less the government's share, the less likely the government assistance had much effect. However, it can be argued that the effect (and distortion to the economy) of luring a large investment which would employ thousands of workers is much greater than the effect of luring a small investment employing dozens of workers. Therefore, one dollar of assistance, if that is all it takes to attract a magnesium smelter to your area, can be more distortive than one million dollars to a restaurant employing 20 people. In either case, a distortion has occurred.
Therefore, because there is no precedent to support assistance-to-investment analysis and because no conclusive argument has been put forward as to why this standard should be adopted by the Department, we are rejecting this argument.
Comment 11
NHCI states that the funds provided to the company under Article 7 of SDI should be expensed in the year of receipt. It states that all disbursements made under this program were made in connection with interest payments on NHCI's outstanding loans and that the interest payments are recurring annual charges expensed by NHCI. NHCI also states that the assistance provided under the program was an assumption of interest. Such assistance is similar to an interest-free loan; therefore, the benefit should be expensed in the year of receipt.
DOC Position
While the Department will expense recurring benefits such as a five percent payment received every time a product is exported, we look to the nature of the program to determine whether the benefits are recurring, not to the manner in which the funds are used. The authorization of assistance to NHCI was made by the Government of Quebec in a single act. There is no evidence in the record to support the conclusion that Article 7 assistance to Norsk Hydro will recur. Therefore, these benefits are not considered recurring and are allocated over time. Similarily, we do not look to respondent's accounting treatment of the benefits to determine the appropriate allocation period. Therefore, the fact that NHCI's interest expenses are not amortized is irrelevant to our determination of the proper allocation period.
The second part of respondent's argument for expensing SDI benefits is an attempt to liken interest assumption to an interest-free loan, the benefits of which would be expensed at the time of the interest payment. While the interest assumption could be modeled in many ways, our precedent is to treat such assistance as grants. (See our treatment of "Grants for Payment of Principal and Interest on Debentures" in the Final Affirmative Countervailing Duty Determination: New Steel Rail, Except Light Rail, from Canada, 54 FR 31991 (August 3, 1989).)
Comment 12
NHCI states that if the Department decides not to expense the Article 7 grant in the year of receipt, then the Department should allocate the benefits over the useful life of the company's assets as determined by its depreciation schedule, rather than the 14-year amortization schedule used in the preliminary determination. In support of its argument, NHCI cites to IPSCO, Inc. v. United States (701 F. Supp. 236, 238-240 (CIT 1988)) in which the CIT remanded a determination in which the Department amortized certain grants according to the same IRS schedules used in these investigations.
DOC Position
It is the Department's practice to use the IRS schedules in determining the length of time over which it will allocate benefits provided in the form of nonrecurring grants. (See, e.g., Groundfish.) We believe that use of a firm's estimation of useful life, as reflected in its accounting records, suffers from the fact that a firm may select a useful life for a variety of reasons, such as tax liability or to qualify for a tax subsidy. Thus, to use a firm's accounting useful life could result in drastically different benefit amounts, even though firms might be receiving identical subsidies and might be otherwise identically situated. For these reasons, we continue to believe that the IRS schedule is the most appropriate source with respect to determining the period over which benefits are to be allocated.
We were ordered to use company-specific experience in IPSCO, Inc. v. United States 701 F. Supp. 236 (CIT 1988), because our regulations did not provide for the use of IRS tables. In partial response to IPSCO, we have now issued proposed substantive regulations which would require us to use the IRS tables. See, Notice of Proposed
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Rulemaking, 54 FR 23366, 23384 (May 31, 1989).
Comment 13
Timminco requests that the Department exclude its specialized product, MAG- CAL, from this investigation. MAG-CAL is used for the specialized purpose of removing bismuth from lead as part of the lead refining process. Typically, MAG-CAL combines 70 percent magnesium and 30 percent calcium. Timminco is the only company producing this product.
DOC Position
This issue is moot since Timminco is the only company which produces this product and the company received a zero rate. Therefore, Timminco will be excluded from the countervailing duty orders on pure and alloy magnesium from Canada.
Comment 14
Respondents argue that no government action was involved in the sale of electricity to NHCI under the Risk and Profit Sharing Program (RPSP), and where there is no government action there can be no countervailable subsidy.
DOC Position
Hydro-Quebec is wholly-owned by the Government of Quebec. All contracts under the RPSP must be individually approved by the Government of Quebec. Government officials also sit on Hydro-Quebec's Board of Directors. In addition, the utilization of the province's hydro-electric resources plays a central role in the Government of Quebec's development policies. Therefore, we believe it is correct to treat Hydro-Quebec as a government entity capable of conferring subsidies through its actions.
We note that this determination is consistent with the Department's practice. See, Dutch Flowers. In that case, we found that a utility company owned 40 percent by the Government of the Netherlands acted on behalf of the government because the Netherlands Minister of Economic Affairs reserved the right to approve selling prices and contracts.
Comment 15
Respondents argue that the companies which have RPSP contracts do not comprise a specific group of enterprises or industries. They state that participants in the RPSP represent a wide range of industries. They also state that the eligibility criteria for the RPSP were neutral and objective.
DOC Position
For purposes of these final determinations, we have not examined whether RPSP customers comprise a specific enterprise or industry, or group of enterprises or industries. Instead, we examined recipients of non-reimbursable discounts and found that only NHCI received excessive discounts during the period of investigation.
Comment 16
Respondents argue that Hydro-Quebec acted in a commercially reasonable manner in negotiating its electricity contract with NHCI. They also state that at the time of the negotiations with NHCI, Hydro-Quebec was anticipating energy surpluses. Thus, water behind the dams would either be used to generate electricity or be wasted. Respondents state that as long as the sales price of electricity to NHCI exceeded Hydro-Quebec's short-term marginal cost, it was commercially sound to enter into the contract. Respondents further argue that commercially justified price differentials do not constitute preferential pricing. To support this argument they cite Dutch Flowers and the Final Affirmative Countervailing Duty Determination and Countervailing Duty Order: Certain Steel Wire Nails from New Zealand, 52 FR 37196 (Oct. 5, 1987).
DOC Position
In these final determinations we do not reach the issue of whether the RPSP contract negotiated between NHCI and Hydro-Quebec is preferential because we looked only at the non-reimbursable discounts received by NHCI during the period of investigation. However, respondents' arguments are equally applicable to those discounts as they claim that the marginal cost of providing electricity at the time of the discounts was near zero.
Section 771(5)(A) defines as a subsidy the preferential provision of goods and services (when provided to a specific enterprise or industry, or group of enterprises or industries). The Department has consistently taken the position that preference results when different prices are charged to different customers. Regardless of whether price discrimination is considered commercially reasonable in any given circumstance, it still constitutes the preferential provision of the good or service.
The Department's definition of preference does not require that all users pay identical prices. In the case of electricity, where users can be categorized according to different use characteristics, a finding of no preference requires that similarly situated users pay the same rate. In these investigations, no evidence was provided to demonstrate that all customers similar to NHCI received discounts of the same magnitude.
The position taken by Commerce in Dutch Flowers supports this position. In Dutch Flowers, natural gas prices were broken down into five categories or zones, designated "a" through "e". Zone "a" users were small gas consumers, while zone "e" users were the largest consumers of natural gas. Zone "a" users paid the highest price, while zone "e" users paid the lowest. The price charged for natural gas within each of the zones was based on world market prices for light and heavy fuel oil with an adjustment based on the readiness of various buyers to switch to, and maintain usage of, the substitute fuel. Under a separate contract negotiated with the utility company, the greenhouse growers paid the rates applicable to zone "d" users. Individually, these growers would have fallen in zones "a", "b" or "c". Their collective consumption would have made them eligible for the lowest rates provided in zone "e".
Thus, in Dutch Flowers, a consistent rate-making "philosophy" was applied to each customer category--each group was charged the rate necessary to prevent them from switching to alternative fuel sources. Because this same philosophy was applied to each group, the Department was able to find that no preference was exhibited towards users in any group.
In these investigations, Hydro-Quebec offered non-reimbursable discounts to a large group of industrial users in order to sell its surplus electricity. The same discount formula applied to all, except NHCI which received a 60 percent discount.
Comment 17
Respondents argue that fixed-discount provisions are a normal commercial practice and an integral part of RPSP-type contracts.
DOC Position
See Comment 18, below, with respect to fixed discounts generally. We disagree with respondents' statement that such discounts are common in RPSP-type contracts. Respondents have provided no evidence to support this statement. Of the 14 RPSP contracts negotiated by Hydro-Quebec, only three incorporated these types of discounts. Therefore, the practice is not even a common practice with Hydro-Quebec.
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Comment 18
The Government of Quebec states, that during the period of investigation, NHCI benefitted from a rate discount widely advertised and generally available. The Government of Quebec states that it was that particular discount, not a feature of the Risk and Profit Sharing Program, that was countervailed in the preliminary determination. They further state that NHCI was enrolled in the surplus power program. The Government of Quebec certifies that for the period of investigation, NHCI's rate for electricity was not based on a formula for a group of 14 companies. Instead, they argue, it was one of a number of companies that received discounts for increasing electricity consumption. The Government of Quebec states that these companies do not constitute a specific group of enterprises or industries.
DOC Position
The Government of Quebec's assertion is not supported by evidence on the administrative record. The program referred to by the Government of Quebec was a 1983 industrial discount program for companies which expaned capacity and, thus, increased electricity usage. According to information collected at verification, the Department found that NHCI did not apply for, was not enrolled in, nor was it even eligible to participate in the program. The fact that NHCI received special discounts not available to other firms supports the Department's determination that NHCI received preferential benefits.
Comment 19
Reynolds Metals Company states that in order to determine whether the NHCI contract provides a preferential benefit to the company, the Department must analyze the prices to be paid by NHCI over the life of the contract.
DOC Position
The methodology employed in our preliminary determination implicitly required that the benchmark rate be obtained in each year of the life of NHCI's contract. We agree with Reynolds that this is not necessary.
Verification
In accordance with section 776(b) of the Act, we verified the information used in making our final determination. We followed standard verification procedures, including meeting with government and company officials, examination of relevant accounting records, and examination of original source documents. Our verification results are outlined in detail in the public versions of the verification reports, which are on file in the Central Records Unit (Room B-099) of the Main Commerce Building.
Suspension of Liquidation
In accordance with our affirmative preliminary determination, we instructed the U.S. Customs Service to suspend liquidation of all entries of pure and alloy magnesium from Canada which were entered, or withdrawn from warehouse, for consumption, on or after December 6, 1991, the date of publication of our preliminary determination in the Federal Register. These final countervailing duty determinations were extended to coincide with the final antidumping duty determinations on pure magnesium and alloy magnesium from Canada and Norway, 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 April 4, 1992, but to continue the suspension of liquidation of all entries, or withdrawals from warehouse, for consumption of the subject merchandise entered between December 6, 1991 and April 3, 1992. We will reinstate suspension of liquidation under section 703(d) of the Act, if the International Trade Commission (ITC) issues a final affirmative injury determination, and will require a cash deposit equal to 21.61 percent ad valorem for all entries of magnesium produced and exported by Norsk Hydro Canada Inc., and all other manufacturers, producers and exporters in Canada of pure and alloy magnesium, except for Timminco which, because its estimated net subsidy is zero, is exempt from the suspension of liquidation.
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 these investigations. We will allow the ITC access to all privileged and business proprietary information in our files provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Investigations, Import Administration.
If the ITC determines that material injury, or the threat of material injury, does not exist, these proceedings 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 entries of pure magnesium and alloy magnesium 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. 1671d(d)).
Dated: July 6, 1992.
Alan M. Dunn,
Assistant Secretary for Import Administration.
(FR Doc. 92-16382 Filed 7-10-92; 8:45 a.m.)
BILLING CODE 3510-DS-M
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