(Cite as: 61 FR 11186)
NOTICES
DEPARTMENT OF COMMERCE
[C-122-815]
Preliminary Results of First Countervailing Duty Administrative Reviews: Pure
Magnesium and Alloy Magnesium From Canada
Tuesday, March 19, 1996
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(Cite as: 61 FR 11186, *11186)
AGENCY: Import Administration, International Trade Administration, Department of Commerce.
EFFECTIVE DATE: March 19, 1996.
FOR FURTHER INFORMATION CONTACT: David Boyland or Sue Strumbel, Office of Countervailing Investigations, Import
Administration, International Trade
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Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230;
telephone: (202) 482-4198 or (202) 482- 1442, respectively.
Case History
On August 3, 1993, the Department published in the Federal Register a notice of "Opportunity to Request an Administrative
Review" (58 FR 41239) of the countervailing duty orders on pure and alloy magnesium from Canada (57 FR
39392 (August 31, 1992)). On August 3 and 24, 1993, Norsk Hydro Canada Inc. (NHCI) and the Magnesium
Corporation of America (Magcorp) requested that the Department conduct administrative reviews of the countervailing
duty orders. We initiated the reviews for the period December 6, 1991 through December 31, 1992, on September 30, 1993
(58 FR 51053). (See also Period of Review section below). The Department is conducting this review in accordance with
section 751 of the Tariff Act of 1930, as amended (the Act).
On December 17, 1993, the Department issued questionnaires to NHCI, the Government of Canada (GOC), and the
Government of Quebec (GOQ). The Department received questionnaire responses from NHCI, GOC, and GOQ on February 22,
1994.
On January 31, 1994, Magcorp alleged that NHCI was receiving subsidized electricity. On February 18, 1994, Magcorp was
notified by the Department that
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its allegation could not be considered because it was filed 120 days after the initiation of this review (see 19 CFR
353.31(c)(1)).
Applicable Statute
The Department is conducting these administrative reviews in accordance with section 751(a) of the Tariff Act of 1930, as
amended (the Act). Unless otherwise indicated, all citations to the statute and to the Department's regulations are references
to the provisions as they existed on December 31, 1994. However, references to the Department's Countervailing Duties
; Notice of Proposed Rulemaking and Request for Public Comments, (May 31, 1989) (Proposed Regulations), are provided
solely for further explanation of the Department's countervailing duty practice. Although the Department has
withdrawn the particular rulemaking proceeding pursuant to which the Proposed Regulations were issued, the *11187
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subject matter of these regulations is being considered in connection with an ongoing rulemaking proceeding which, among
other things, is intended to conform the Department's regulations to the Uruguay Round Agreements Act (see 60 FR 80,
January 3, 1995).
Scope of Review
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The products covered by these reviews are pure 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
metallic element in the alloy by weight, and are sold in various ingot and billet forms and sizes. Secondary and granular
magnesium are not included. 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 descriptions of the scopes of these proceedings is dispositive.
Period of Review
For purposes of calculating the net subsidy, the period of review (POR) is January 1, 1992 through December 31, 1992. The
subject merchandise covered by this review, however, includes all entries made on or after December 6, 1991 and on or
before December 31, 1992. (See April 28, 1994 memorandum to Susan H. Kuhbach, Director, Office of Countervailing
Investigations, for a further explanation.) NHCI accounted for all exports of subject merchandise during the period of review.
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Analysis of Programs
Programs Previously Determined to Confer Subsidies
1. Exemption From Payment of Water Bills
Pursuant to a December 15, 1988 agreement between NHCI and Le Societe du Parc Industriel et Portuaire de Becancour
(Industrial Park), NHCI is exempt from payment of its water bills. Except for the taxes associated with its bills, NHCI does not
pay the invoiced amounts of its water bills.
In the Final Affirmative Countervailing Duty Determinations: Pure Magnesium and Alloy Magnesium from
Canada (Magnesium from Canada) 57 FR 30948 (July 13, 1992), the Department determined that the exemption
received by NHCI was limited to a specific enterprise or industry, or group of enterprises or industries because no other
company receives such an exemption. In this review, neither the GOQ nor NHCI provided new information which would
warrant reconsideration of this determination. Additionally, in Magnesium from Canada the Department
determined the countervailable benefit to be the money NHCI would have paid absent the exemption. During the course of
this review, NHCI argued that, even though their water bills were based, in part, on forecasted water consumption, the
countervailable benefit should be confined solely to the
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unpaid POR water bills as they relate to actual water consumption.
For reasons which cannot be disclosed in this notice due to the business proprietary status assigned to certain information,
the Department preliminarily determines, as it did in Magnesium from Canada, that the countervailable benefit of
this program is the sum of the POR water bills-- which are partially based on forecasted consumption--that NHCI would have
paid absent the exemption it received. (See also June 28, 1995 memorandum to Paul L. Joffe, Deputy Assistant Secretary for
Import Administration.)
To calculate the benefit under this program, we divided the amount NHCI would have paid for water during the POR by
NHCI's total POR sales of Canadian- manufactured products. On this basis, we preliminarily determine that the net subsidy
provided by this program is 1.31 percent ad valorem.
2. Article 7 Grants From the Quebec Industrial Development Corporation
The Societe de Developpement Industriel du Quebec (SDI) administers development programs on behalf of the GOQ. SDI
provides assistance under Article 7 of the SDI Act in the form of loans, loan guarantees, grants, assumptions of costs
associated with loans, and equity investments. This assistance involves projects capable of having a major impact upon the
economy of Quebec. Article 7 assistance greater than 2.5 million dollars must be
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approved by the Council of Ministers, and assistance over 5 million dollars becomes a separate budget item under Article 7.
Assistance provided in such amounts must be of "special economic importance and value to the province." (See
Magnesium from Canada, 57 FR 30949 (July 13, 1992)).
In 1988, NHCI was awarded a grant under Article 7 to cover a large percentage of the cost of certain environmental
protection equipment. In Magnesium from Canada, we determined that NHCI received a disproportionately large
share of assistance under Article 7. On this basis, we determined that the Article 7 grant was limited to a specific enterprise
or industry, or group of enterprises or industries. In this review, neither the GOQ nor NHCI provided new information which
would warrant reconsideration of this determination.
In Magnesium from Canada, the Department found that the grant provided under Article 7 was nonrecurring
because it represented a one-time provision of funds. Before a Binational panel the Department also argued that Article 7 was
a nonrecurring grant because it was authorized in a single act and completely disbursed within a relatively short period of
time. The Binational review panel upheld the Department's decision that the grant was nonrecurring.
Principles enunciated in the General Issues Appendix to the Certain Steel investigations support the Department's finding that
Article 7 assistance represents a nonrecurring grant. (See General Issues Appendix (GIA), 58 FR
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37226 (July 9, 1993)). The GIA modified the test used to make the determination as to whether a grant is recurring or
nonrecurring. Under the current test, a grant is generally considered nonrecurring if: (1) the benefit provided is exceptional,
(2) the recipient cannot expect to receive benefits under the program on an ongoing basis from review period to review
period, or (3) the provision of funds by the government must be approved every year.
The Article 7 grant received by NHCI was exceptional in the sense that it was a one-time grant authorized by a single act of
the GOQ. Additionally, NHCI cannot expect to receive Article 7 grants on an ongoing basis from review period to review
period. Finally, in order for NHCI to receive additional Article 7 benefits in the future, additional government approval
would be required. Therefore, applying the current recurring/nonrecurring test, the Article 7 grant received by NHCI should
be considered nonrecurring.
The GIA also lists benefits which the Department generally considers nonrecurring. This list includes "grants for the purchase
of fixed assets." As noted above, NHCI's Article 7 grant was for the purchase of fixed assets (i.e., environmental protection
equipment). Therefore, based on the reasons discussed above, we preliminarily determine that the Article 7 grant received
by NHCI was nonrecurring.
We calculated the benefit from the grant received by NHCI using the *11188
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company's cost of long-term, fixed-rate debt as a discount rate and our
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declining balance methodology as described in section 355.49(b) of the Department's Proposed Regulations. We used 14
years as our allocation period, which is the average useful life of the assets in the magnesium industry. We divided that
portion of the benefit allocated to the period of investigation by NHCI's total sales of Canadian manufactured products and
preliminarily calculated a net subsidy of 8.55 percent ad valorem for NHCI.
Because the Article 7 grant was disbursed in the form of interest rebates respondent argues that the Department should
employ the interest rebate methodology articulated in the Certain Steel investigations (see e.g., Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from Italy, 58 FR 37327 (July 9, 1993)). In Certain Steel
and subsequent investigations, the Department's practice has been to analyze the benefit from an interest rebate in either of
two ways. If the borrower knows that an interest rebate will be provided prior to taking on the debt, the Department employs
its loan methodology and reduces the interest rate charged by the amount of interest rebated. If the borrower does not know
of the interest rebate prior to taking on the debt, the Department treats the interest rebate as a grant.
In this administrative review, respondent has provided additional information showing that the majority of Article 7
assistance took the form of interest rebates on loans taken out after the Article 7 assistance was awarded.
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Respondent asserts that, since it knew it would be receiving Article 7 assistance prior to taking out these loans, the
Department should employ its loan methodology and reduce the interest paid by the amount of the Article 7 assistance
received. Moreover, according to respondent, because these loans were not outstanding during the POR and the Department
confines the allocation period of a subsidized loan to the life of the loan, the majority of benefits from Article 7 assistance are
no longer countervailable (see section 353.49(c)(1) of the Proposed Regulations).
In addressing respondent's argument, we note that there are significant differences between the Article 7 assistance provided
to NHCI and the interest rebate programs that the Department has encountered in the past and for which the
above-referenced Certain Steel methodology provides guidance.
We first note the attenuated relationship between the Article 7 assistance and the group of loans subsequently taken out by
NHCI. This is in contrast with the direct and tangible relationship that the Department typically observes when examining
interest rebate programs and the underlying loans whose interest is being rebated (see e.g. Final Affirmative
Countervailing Duty Determination; Certain Steel Products from the United Kingdom (58 FR 37393, 37397 (July 9,
1993)).
The agreement NHCI signed with the GOQ primarily conditions the disbursement of funds upon the achievement by NHCI of
pre-established targets related to the
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purchase of specific fixed assets. The requirement to accumulate interest costs prior to the disbursement of the grant was
clearly secondary and far less specific. The disbursement of the grant was not tied to the amount borrowed, the number of
loans taken out, the interest rate charged on those loans or the specific dates on which interest payments were made. Once
NHCI was able to demonstrate that certain costs had been incurred in purchasing specific fixed assets, it was only required to
show that an equivalent amount of interest expense had been paid to receive the next disbursement. No evidence was
provided to show a link between the loans and the Article 7 assistance.
Secondly, the interest rebate programs in Certain Steel and subsequent cases for which the Department employed its loan
methodology, operated to lower the financing cost of purchasing particular fixed assets. The subsidy recipients in these
programs obtained financing to make an investment and a portion of the interest incurred in financing the investment was
rebated by the government. In contrast, the Article 7 assistance received by NHCI actually lowered the cost of the fixed
assets themselves, not simply the cost of financing the purchase of those assets.
The Article 7 assistance received by NHCI effectively reimbursed a large percentage of the price of certain fixed assets. As
noted above, the Article 7 payments were primarily conditioned upon NHCI meeting pre-established targets related to the
purchase and installation of fixed assets. While the payments
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could not be more than the amount of interest incurred, the overall cap on the payments received was not limited to the
interest on loans taken out to finance the acquisition of the fixed assets in question. Instead, the cap included all interest on
loans taken out by NHCI. As a result, the Article 7 payments covered more than the cost of financing the purchase of fixed
assets, they covered the cost of the equipment itself.
For the reasons outlined above, in this preliminary determination, we disagree with respondent's contention that the
Department should treat Article 7 assistance as a series of interest rebates rather than a nonrecurring grant. (See also June
28, 1995 memorandum to Paul L. Joffe, Deputy Assistant Secretary for Import Administration.)
Programs Preliminarily Found Not to be Used
We preliminarily find that NHCI did not apply for or receive benefits under the following programs during the period of
review: St. Lawrence River Environmental Technology Development Program, Program for Export Market Development, the
Export Development Corporation, Canada-Quebec Subsidiary Agreement on the Economic Development of the Regions
of Quebec, Opportunities to Stimulate Technology Programs, the Development Assistance Program, the Industrial Feasibility
Study Assistance Program, the Export Promotion
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Assistance Program, the Creation of Scientific Jobs in Industries, the Business Investment Assistance Program, the Business
Financing Program, the Research and Innovation Activities Program, Export Technologies Development Program, the
Financial Assistance Program for Research Formation and for the Improvement of the Recycling Industry, the
Transportation Research and Development Assistance Program.
Preliminary Results of Review
We preliminarily determine the net subsidy for the period January 1, 1992 through December 31, 1992, to be 9.87 percent. If
the final results of this review remain the same as these preliminary results, the Department intends to instruct the Customs
Service to assess countervailing duties at 9.87 percent of the F.O.B. invoice price on all shipments of the subject
merchandise, except Timminco Limited (which was excluded from the order during the original investigation), exported on
or after December 6, 1992 and on or before December 31, 1992. The Department also intends to instruct the Customs Service
to collect a cash deposit of 9.87 percent on all shipments of the subject merchandise entered, or withdrawn from warehouse,
for consumption on or after the date of publication of the final results of this administrative review.
Parties to the proceeding may request disclosure of the calculation
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methodology and interested parties may request a hearing not later than 10 days *11189
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after the date of publication of this notice. Interested parties may submit written arguments in case briefs on these
preliminary results within 30 days of the date of publication. Rebuttal briefs, limited to arguments raised in case briefs, may
be submitted seven days after the time limit for filing the case brief. Parties who submit argument in this proceeding are
requested to submit with the argument (1) a statement of the issue, and (2) a brief summary of the argument. Any hearing, if
requested, will be held seven days after the scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal
briefs must be served on interested parties in accordance with 19 CFR §355.38(e).
Representatives of parties to the proceeding may request disclosure of proprietary information under administrative
protective order up until 10 days after the representative's client or employer becomes a party to the proceeding, but in no
event later than the date the case briefs are due under 19 CFR 355.38(c).
The Department will publish the final results of this administrative review, including the results of its analysis of issues raised
in any case or rebuttal briefs.
This administrative review and notice are in accordance with section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)) and 19 CFR
355.22.
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Dated: March 12, 1996.
Paul L. Joffe,
Deputy Assistant Secretary for Import Administration.
[FR Doc. 96-6571 Filed 3-18-96; 8:45 am]
BILLING CODE 3510-DS-P