DEPARTMENT OF COMMERCE
International Trade Administration
[C-122-825]
Preliminary Negative Countervailing Duty Determination: Certain
Laminated Hardwood Trailer Flooring (``LHF'') From Canada
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: November 20, 1996.
FOR FURTHER INFORMATION CONTACT: David Boyland or Daniel Lessard,
Office 1, Group 1, Import Administration, U.S. Department of Commerce,
Room 3099, 14th Street and Constitution Avenue, N.W., Washington, D.C.
20230; telephone (202) 482-4198 or 482-1778, respectively.
Preliminary Determination
The Department preliminarily determines that countervailable
subsidies are not being provided to manufacturers, producers, or
exporters of LHF in Canada.
Case History
Since the publication of the notice of initiation in the Federal
Register (61 FR 15041 (April 4, 1996)), the following events have
occurred:
On April 8, 1996, we issued countervailing duty questionnaires to
the Government of Canada (``GOC''), the Government of Quebec (``GOQ''),
and the companies identified in the petition as exporters of LHF from
Canada concerning petitioner's allegations. We received responses to
our questionnaire on May 16, 1996. We issued supplemental
questionnaires to parties in May, July, and September for which
responses were received in June, July, August, and October.
On June 7, 1996, we inititiated an upstream subsidy investigation
and postponed the preliminary determination (61 FR 29077). We issued a
questionnaire relating to the upstream subsidy allegation to Nilus
Leclerc Inc. and Industries Leclerc Inc. (Leclerc) on June 12, 1996
(see, Related Party section, below). We received Leclerc's response on
June 27, 1996, with additional information submitted on July 11, 1996.
From August 5 through 7, 1996, we conducted verification of the
questionnaire responses relating to the upstream subsidy investigation.
Scope of Investigation
Based on information provided by U.S. Customs, the Department, for
purposes of clarification only, drafted proposed changes to the
original scope language (see May 7, 1996 memo to the file from
analyst). On May 9, 1996, petitioner submitted comments on the
Department's proposed changes. The scope of this investigation as
outlined below reflects the clarification.
The scope of this investigation consists of certain edge-glued
hardwood flooring made of oak, maple, or other hardwood lumber. Edge-
glued
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hardwood flooring is customized for specific dimensions and is provided
to the consumer in ``kits,'' or pre-sorted bundles of component pieces
generally ranging in size from 6'' to 14''x48' to 57'x1'' to 1( 1/2 )''
for trailer flooring, from 6'' to 13''x12' to 28'x1( 1/8 )'' to 1( 1/
2 )'' for vans and truck bodies, from 9'' to 12( 1/2 )''x8' to
10'x1( 7/8 )'' to 2( 1/2 )'' for rail cars, and from 6'' to 14''x19' to
48'x1( 1/8 )'' to 1( 3/8 )'' for containers. The merchandise under
investigation is currently classified, in addition to various other
hardwood products, under subheading 4421.90.98.40 of the Harmonized
Tariff Schedule of the United States (HTSUS). Edge-glued hardwood
flooring is commonly referred to as ``laminated'' hardwood flooring by
buyers and sellers of subject merchandise. Edge-glued hardwood
flooring, however, is not a hardwood laminate for purposes of
classification under HTSUS 4412.14. Although the HTSUS subheading is
provided for convenience and Customs purposes, our written description
of the scope of this proceeding is dispositive.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930 (the ``Act''),
as amended by the Uruguay Round Agreements Act effective January 1,
1995. References to Countervailing Duties: Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989)
(``Proposed Regulations''), which have been withdrawn, are provided
solely for further explanation of the Department's countervailing duty
practice.
Injury Test
Because Canada is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the ITC is required to determine
whether imports of LHF from Canada materially injure, or threaten
material injury to, a U.S. industry. On May 9, 1996, the ITC published
its preliminary determination finding that there is a reasonable
indication that an industry in the United States is being materially
injured or threatened with material injury by reason of imports from
Canada of the subject merchandise (61 FR 21209).
Petitioner
The petition in this investigation was filed by the Ad Hoc
Committee on Laminated Hardwood Trailer Flooring, which is composed of
the Anderson-Tully Company, Havco Wood Products Inc., Industrial
Hardwoods Products Inc., Lewisohn Sales Company Inc., and Cloud
Corporation.
Period of Investigation (``POI'')
The period for which we are measuring subsidies is calendar year
1995.
Ontario Companies
We have preliminarily determined that three producers of the
subject merchandise have received zero or de minimis subsidies. Two
companies, Erie Flooring & Wood Products (Erie) and Industrial Hardwood
Products Ltd. (IHP) formally requested that they be excluded from any
potential countervailing duty order. The other company, Milner Rigsby
Co. (Milner) responded to our questionnaire.
IHP certified that the only subsidy it received during the POI was
consulting services pursuant to the Industrial Research Assistance
Program (IRAP). The GOC and Government of Ontario also certified that
this was the only benefit IHP received. Even assuming this assistance
constituted a countervailable subsidy, the benefit would be de minimis.
Erie certified that it received no countervailable subsidies. The
GOC and the Government of Ontario also certified this. In its
questionnaire response, Milner states that it did not receive benefits
during the POI.
The remainder of this notice deals exclusively with Leclerc.
Related Parties
In the present investigation, we have examined affiliated companies
(within the meaning of section 771(33) of the Act) whose relationship
may be sufficient to warrant treatment as a single company with a
single, combined countervailing duty rate. In the countervailing duty
questionnaire, consistent with our past practice, the Department
defined companies as sufficiently related where one company owns 20
percent or more of the other company, or where companies prepare
consolidated financial statements. The Department also stated that
companies may be considered sufficiently related where there are common
directors or one company performs services for the other company.
According to the questionnaire, where such companies produce the
subject merchandise or where such companies have engaged in certain
financial transactions with the company producing the subject
merchandise, the affiliated parties are required to respond to our
questionnaire.
Nilus Leclerc Inc. was identified in the petition as an exporter of
LHF from Canada. Nilus Leclerc Inc. is part of a consolidated group,
Groups Bois Leclerc. Nilus Leclerc Inc. and Industries Leclerc Inc. are
the only companies in the group directly engaged in the production of
LHF. Because of the extent of common ownership, we find it appropriate
to treat these two LHF producers as a single company (``Leclerc''). As
a consequence, we are calculating a single countervailing duty rate for
both companies by dividing their combined subsidies by their combined
sales.
In addition, certain separately incorporated companies in the group
received subsidies. Where those subsidies were tied to the production
of a corporation that is not directly involved in the production of
LHF, we have not included those subsidies in our calculations. Where
the subsidies were tied to the production of both LHF and other
merchandise, we included those subsidies in our calculations using the
sales of both products in the denominator of the ad valorem
calculations.
Creditworthiness
Petitioner has alleged that Leclerc was uncreditworthy during 1993,
1994, and 1995. In an October 8, 1996 memorandum, we declined to
initiate a creditworthiness investigation because Leclerc had not
experienced losses during the relevant period. Because requiring a
finding of prior losses before determining a company uncreditworthy may
mask situations where it is appropriate to apply an uncreditworthy
benchmark, we have proceeded to analyze Leclerc's creditworthiness
looking at the other factors described in 355.44(b)(6)(i) of the
Proposed Regulations.
Section 355.44(b)(6)(i) of the Proposed Regulations states that the
receipt of comparable long-term commercial loans shall normally
``constitute dispositive evidence that the firm is creditworthy.'' In
1993 and 1994, Leclerc received long-term commercial financing. For
purposes of the preliminary determination we consider this financing to
be comparable to the allegedly subsidized financing received by
Leclerc. In a November 1, 1996 submission, Leclerc reported that it
reached agreement in 1995 to receive comparable long-term commercial
financing. Although the Department intends to examine the 1995
agreement closely at verification to gain a more detailed understanding
of it, we have preliminarily determined that Leclerc was creditworthy
in 1993, 1994, and 1995 on the basis that it secured comparable
commercial financing in those years.
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Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: Leclerc reported
that it had secured long-term, variable-rate, Canadian dollar-
denominated loans during all relevant years. Therefore, we have used
these company-specific interest rates as the benchmark for the company
in those years. For those years in which Leclerc did not provide a
company-specific discount rate, we used the long-term corporate bond
rate in Canada as the discount rate.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets to determine the allocation
period for nonrecurring subsidies. See General Issues Appendix appended
to Final Affirmative Countervailing Duty Determination; Certain Steel
Products from Austria (58 FR 37217, 37226; July 9, 1993) (General
Issues Appendix). However, in British Steel plc. v. United States, 879
F. Supp. 1254 (CIT 1995) (British Steel), the U.S. Court of
International Trade (the Court) ruled against this allocation
methodology. In accordance with the Court's remand order, the
Department calculated a company-specific allocation period for
nonrecurring subsidies based on the average useful life (AUL) of non-
renewable physical assets. This remand determination was affirmed by
the Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT
1996).
The Department has decided to acquiesce to the Court's decision
and, as such, we intend to determine the allocation period for
nonrecurring subsidies using company-specific AUL data where reasonable
and practicable. In this case, the Department has preliminarily
determined that it is reasonable and practicable to allocate all
nonrecurring subsidies received prior to or during the POI using
Leclerc's AUL of 18 years.
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I. Analysis of Direct Subsidies
A. Programs Preliminarily Determined to Be Countervailable
1. Canada-Quebec Subsidiary Agreement on Industrial Development
This Subsidiary Agreement, which spans five years, was jointly
funded by the GOC and GOQ on March 27, 1992. Under this agreement, the
GOC and GOQ established a program to improve the competitiveness and
vitality of the Quebec economy by providing financial assistance to
companies for major industrial projects. The following four types of
activities are eligible for contributions: (1) capital investment
projects, (2) product or process development projects involving a major
investment or leading to a capital investment, (3) studies required to
assess the feasibility of an investment project, and (4) municipal
infrastructure required for a major capital investment project. Leclerc
received a long-term interest-free loan under this program.
We analyzed whether the program is specific ``in law or in fact,''
within the meaning of section 771(5A) of the Act. Funds paid out by the
GOC under this program are limited to companies in a particular region
of Canada (i.e., the Province of Quebec) and, hence, regionally
specific under section 771(5A)(D)(iv) of the Act. Because the interest-
free loan provided to Leclerc was financed entirely by the GOC, we
preliminarily determine that the total amount of assistance is
regionally specific.
We also preliminarily determine that the loan received by Leclerc
constitutes a countervailable subsidy within the meaning of section
771(5) of the Act. It is a direct transfer of funds from the GOC
providing a benefit in the amount of the difference between the
benchmark interest rate and the zero interest rate paid by Leclerc.
To calculate the countervailable subsidy for Leclerc, we used as
the benchmark the interest rate on a variable-rate, long-term loan
taken out in 1995 by Leclerc because the company had not taken out
either a fixed-rate, long-term loan or a fixed-rate debt obligation in
that year. Thus, we followed our variable-rate, long-term loan
methodology to calculate the benefit conferred on Leclerc. We then
divided the benefit attributable to the POI by Leclerc's LHF sales in
the POI. On this basis, we determine the countervailable subsidy for
this program to be 0.07 percent ad valorem for Leclerc.
2. Industrial and Regional Development Program (IRDP)
The IRDP was created by the Industrial and Regional Development Act
and Regulations in 1983 and was administered by the Canadian Department
of Regional Industrial Expansion. It was terminated on June 30, 1988.
No new applications for IRDP projects were accepted after that date.
The goals of IRDP were to achieve economic development in all regions
of Canada, promote economic development in those regions in which
opportunities for productive employment are exceptionally inadequate,
and improve the overall economy in Canada. To accomplish these
objectives, financial support in the form of grants, contributions and
loans were provided to companies for four major purposes: (1)
establishing, expanding, modernizing production; (2) promoting the
marketing of products or services; (3) developing new or improved
products or production processes, or carrying on research in respect
thereof; and (4) restructuring so as to continue on a commercially
viable basis.
Under this program, Canada's 260 census districts were classified
into one of four tiers on the basis of the economic development of the
region. The most economically disadvantaged regions were included in
Tier IV; the most advanced regions were classified as Tier I.
Those districts classified as Tiers III and IV were authorized to
receive the highest share of assistance under IRDP (as a percentage of
assistance per approved project); those in Tiers I and II received the
lowest. For example, a grant toward the eligible costs of modernizing
or significantly increasing the production of companies in Tiers I and
II could not exceed 17.5 percent of the capital costs of the project,
while in Tiers III and IV grants could cover up to 25 percent of
eligible costs.
Nilus Leclerc Inc. was located in a Tier III district when it
received three grants under this program. We have preliminarily
determined that the grants received by Leclerc constitute a
countervailable subsidy within the meaning of section 771(5) of the
Act. The grants are direct transfers of funds from the GOC and confer a
benefit in the amount of the portion of the grant that is in excess of
the most favorable, nonspecific level of benefits (i.e., Tiers I and
II). Also, IRDP grants are regionally specific within the meaning of
section 771(5A) of the Act because the preferential levels of benefits
(i.e., contributions to Tiers III and IV) are limited to companies in
particular regions of Canada.
We have treated these grants as ``non-recurring'' grants based on
the analysis set forth in the Allocation section of the General Issues
Appendix in Final Affirmative Countervailing Duty Determination:
Certain Steel Products from Austria (58 FR 37217, 37226, July 9, 1993).
In accordance with our past practice, we have allocated those grants
which exceeded 0.5 percent of a company's sales in the year of receipt
over time.
To calculate the countervailable subsidy, we used our standard
grant
---- page 59082 ----
methodology. For those grants which were tied to the production of both
LHF and residential flooring, we divided the benefit attributable to
the POI by the total sales of Leclerc and Planchers Leclerc (the
company in the Leclerc group that produces residential flooring) during
the same period. Otherwise, for those grants which benefited only the
production of LHF, we divided the benefit attributable to the POI by
Leclerc's LHF sales during the same period. On this basis, we determine
the countervailable subsidy for this program to be 0.04 percent ad
valorem for Leclerc.
3. Societe de Developpement industriel du Quebec (SDI): Expansion and
Modernization program and ``Programme d'appui a la reprise'' (PREP)
Program
Leclerc obtained loans under SDI's Expansion and Modernization
program and loan guarantees under SDI's PREP program. These loans and
loan guarantees were part of a larger package of commercial and
government financing used to increase Leclerc's productive capacity.
Firms in Quebec can participate in Expansion and Modernization and PREP
by meeting a requirement that ``the project for which financing is
requested is aimed at markets outside Quebec.'' An alternative
requirement for receiving assistance is that the market in Quebec is
inadequately served by businesses in Quebec and that the supported
production is expected to replace imported goods into Quebec. Under
either requirement, the market for the products to be supported must
have an expected growth rate that is above the average for the
manufacturing sector in Canada. In addition to these requirements,
which are contained in the regulations governing Expansion and
Modernization and PREP, the GOQ has stated that commercial financing
must accompany the SDI loans in all cases. Also, certain general
requirements must be met regarding the length of the project and the
financial structure of the company involved.
With respect to whether this program can be considered an export
subsidy, section 771(5A)(B) of the Act states that an export subsidy is
``a subsidy that is, in law or in fact, contingent upon export
performance, alone or as one of two or more conditions.'' Article
3.1(a) and note 4 of the Agreement on Subsidies and Countervailing
Measures clarifies that the ``in fact'' standard ``is met when the
facts demonstrate that the granting of a subsidy, without having been
made legally contingent upon export performance, is in fact tied to
actual or anticipated exportation or export earnings . . . However, t
he mere fact that a subsidy is accorded to enterprises which export
shall not for that reason alone be considered to be an export subsidy
within the meaning of this provision.''
We recognize that the projects for which Leclerc sought financing
were largely aimed at the U.S. market in the sense that the company
expected to sell most of its increased production to the United States.
However, there is no evidence to support a finding that Leclerc's
receipt of the loans and guarantees was contingent upon or tied to
actual or anticipated exportation to the United States. Although the
granting authority was aware of the anticipated destination of the
output, this fact alone does not render the program a de facto export
subsidy. Specifically, we do not believe that the assistance awarded
Leclerc was contingent upon the company exporting outside of Canada.
Indeed, Leclerc could have qualified for assistance by ``exporting'' to
another province in Canada. Therefore, we have preliminarily determined
that the loans and guarantees given under the Export and Modernization
and PREP programs are not export subsidies.
The situation we are addressing here can be contrasted with other
situations that might give rise to possible de facto export subsidies.
For example, a loan program might be structured to require repayment in
U.S. dollars rather than local currency. If currency restrictions make
it impossible to obtain U.S. dollars in that country except through
exportation, then the requirement to repay the loan in U.S. dollars
could lead to the finding of a de facto export subsidy.
We intend to review the Export and Modernization and PREP programs
closely at verification. In particular, we will examine the bases upon
which the granting authority approved assistance to Leclerc. If the
prospect of future exports outside of Canada--beyond a normal
commercial analysis of whether a viable market, domestic or export,
existed for the anticipated production--was one of the bases for
granting assistance, we will likely find these programs to be export
subsidies in the final determination.
While we do not consider Expansion and Modernization and PREP to be
export subsidies for purposes of the preliminary determination, we have
considered whether these programs may be specific domestic subsidies
within the meaning of Section 771(5A)(D)(i) of the Act. (For our
analysis of PREP, please see the section entitled Programs
Preliminarily Determined To Be Not Countervailable.)
Expansion and Modernization program
Loans under the Expansion and Modernization program can be provided
to companies involved in: manufacturing, recycling, computer services,
software or software package design and publishing, contaminated soils
remediation, the operation of a research laboratory, and the production
of technical services for clients outside of Quebec. The regulations
for this program further indicate that businesses in other categories
may be considered ``in exceptional cases.'' The assistance may be used
to cover the following types of expenditures: (1) capital investments;
(2) the purchase and introduction of a new technology; (3) the
acquisition of information production or management equipment; (4)
investments for project-related training; and (5) other training
investments related to project start-up. Based on our review of the
eligibility criteria, we preliminarily determine that the program is
not de jure specific.
Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de
facto specific if one or more of the following factors exists: (1) the
number of enterprises, industries or groups thereof which use a subsidy
is limited; 2) there is predominant use of a subsidy by an enterprise,
industry, or group; (3) there is disproportionate use of a subsidy by
an enterprise, industry, or group; or (4) the manner in which the
authority providing a subsidy has exercised discretion indicates that
an enterprise or industry is favored over others.
During the period 1990 through 1995, assistance under this program
was distributed to a large number and wide variety of users. Therefore,
the program is not limited based on the number of users. During this
same period, the level of financing obtained by the wood products
industry and by Leclerc varied. In 1993, 1994, and 1995, the wood
products industry was consistently among the largest beneficiaries
under the program. Leclerc's share of financing as a percentage of
total authorized financing was also large relative to the shares
received by other users. Taking these two findings together, we
preliminarily determine that the assistance received by Leclerc was
disproportionate in 1993, 1994, and 1995 and, therefore, the subsidy is
specific.
In order to calculate the benefit from long-term variable rate
loans, the Department normally calculates the difference during the POI
between the amount of interest paid on the
---- page 59083 ----
subsidized loan and the amount of interest that would have been paid
using a benchmark interest rate that reflects what the company would
pay to obtain a comparable commercial loan. In this case, the loans
given under the Expansion and Modernization program include premia and
stock options. In addition, the SDI loans have variable repayment
schedules. In order to account for the value of the premia and the
variable repayment schedule, we have estimated a repayment schedule for
the SDI loan and compared the amount Leclerc would repay under that
schedule with the amount Leclerc would repay under a comparable
commercial loan. For purposes of the preliminary determination, we have
not determined the value of the stock option. We note, however, that we
are considering methods to do so for the final determination.
We next determined the grant equivalent of these loans, i.e., the
present value of the difference between what would be paid under the
commercial loan and the SDI loan, using the discount rates described in
the Subsidies Valuation Information section above. If the grant
equivalent calculated under this methodology was less than .5 percent
of Leclerc's sales of subject merchandise, the benefit was expensed. If
the grant equivalent was greater than .5 percent, we allocated the
benefit over the life of the benchmark loan using the grant allocation
formula outlined in section 355.49 (b)(4)(3) of the Department's
Proposed Regulation. We used the life of the benchmark loan as the
allocation period because of the variable repayment schedule on the SDI
loans. We would, however, welcome comments on the appropriate
allocation period for our final determination. The benefit allocated to
the POI was then divided by Leclerc's total sales of subject
merchandise during the POI. Using this methodology, we determine the
countervailable subsidy from the Expansion and Modernization program to
be 0.20 percent ad valorem.
B. Programs Preliminarily Determined to Be Not Countervailable
1. Export Development Corporation (EDC)
The EDC was established by the Export Development Act in 1969 to
support and develop Canada's export trade. One of its services is the
provision of insurance to exporters of Canadian goods. The insurance
policies protect exporters against losses due to non-payment relating
to commercial and political risks. Nilus Leclerc Inc. and Industries
Leclerc Inc. purchased export credit insurance from the EDC during the
POI which covered sales of the subject merchandise. No claims were made
or payouts received by Leclerc during this period.
The Department's standard methodology for examining government
export credit insurance programs (as outlined in section 355.44(d) of
the Proposed Regulations) is to determine whether the premium rates
charged by the government entity are adequate to cover the long-term
operating costs and losses of the program. Under this approach, the
Department analyzes the financial results of the department responsible
for administering the program during the POI and the four previous
years. According to EDC Annual Reports, the EDC and the EDC's insurance
program, in particular, have reported profits during each of the years
from 1991 to 1995.
Given that the premium rates charged by the EDC have been more than
adequate to cover the operating costs and losses of its export
insurance program, we preliminarily determine that this program does
not confer a countervailable subsidy.
2. Hydro-Quebec Electrotechnology Implementation Program
The Electrotechnology Implementation Assistance Program is
administered by Hydro-Quebec, a public utility wholly-owned by the GOQ.
The program was first available in 1985 and has been implemented in
three phases, the most recent of which has been extended until December
31, 1996. Phases I and II of this program were designed to reduce
dependence on fossil fuels by increasing the consumption of
hydroelectric power. Phase III was created to promote research and
development on more efficient uses of energy and to contribute toward
industrial development in Quebec. It is primarily intended for Quebec
industries seeking to improve their overall productivity. To be
eligible for this program, the company must: (1) be subject to
electricity rates G, G-9, M or L and (2) consume electrical power to
manufacture, assemble, or process merchandise, or to extract raw
materials.
With respect to the grants received by Leclerc under this program,
we analyzed whether the program is specific ``in law or in fact,''
within the meaning of section 771(5A)(D) (i) and (iii). Based on our
review of the eligibility criteria, we preliminarily determine that
this program is not de jure specific.
Section 771(5A)(D)(iii) of the Act provides that a subsidy is de
facto specific if one or more of the following factors exists: (1) the
number of enterprises, industries or groups thereof which use a subsidy
is limited; (2) there is predominant use of a subsidy by an enterprise,
industry, or group; (3) there is disproportionate use of a subsidy by
an enterprise, industry, or group; or (4) the manner in which the
authority providing a subsidy has exercised discretion indicates that
an enterprise or industry is favored over others.
Regarding de facto specificity, during the period 1985 through
1992, assistance under this program was distributed over a large number
and wide variety of users, representing a wide cross-section of the
Quebec economy. Thus, the program is not specific based on the number
of users. We also examined evidence regarding the usage of the program
to determine whether Leclerc or the wood products industry was a
predominant user or received disproportionately large amounts of the
subsidies. We preliminarily determine that neither Leclerc nor the wood
products industry received a dominant or disproportionate share of the
benefits distributed under this program. As explained in the Statement
of Administrative Action (SAA) (H.R. Doc. No. 316, Vol. 1, 103d Cong.,
2d Session (1994) at 931), where the number of users is large and there
is no dominant or disproportionate use of the program by Leclerc, we do
not reach the issue of whether administrators of the program exercised
discretion in awarding benefits. Therefore, we preliminarily determine
that this program is not specific and has not conferred countervailable
subsidies on Leclerc.
3. Decentralized Fund for Job Creation Program (DFJC) of the Societe
Quebecoise de Developpement de la Main-d'Oeuvre (SQDM)
The Decentralized Fund for Job Creation Program (DFJC) was created
by the Societe Quebecoise de Developpement de la Main-d'Oeuvre (SQDM),
an agency of the GOQ, in 1994 for the purpose of increasing employment
and reducing public expenditures for the unemployed. By providing a
one-time cash grant to qualifying enterprises, the program aims to
induce private enterprises to develop projects to hire the unemployed.
The GOQ reported that all commercial enterprises, except retail
businesses, all nonprofit incorporated entities, and local and regional
municipalities, are eligible for the grants. The criteria for selection
include: (1) the number and type of jobs created; (2) whether the
project is consistent with regional
---- page 59084 ----
objectives; (3) whether the project is likely to be self-supporting in
a reasonable period of time; and (4) whether financing from other
sources is available.
With respect to the grants received by Leclerc under this program,
we analyzed whether the program is specific ``in law or in fact,''
within the meaning of section 771(5A)(D) (i) and (iii). Based on our
review of the eligibility criteria, we preliminarily determine that
this program is not de jure specific. Regarding de facto specificity,
during the period of February 1994 to March 1996, assistance under the
program was distributed to many sectors representing virtually every
industry and commercial sector found in Quebec. On this basis, we
preliminarily conclude that the program is not specific based on the
number of users.
We also examined evidence regarding the usage of the program and
found that neither Leclerc nor the wood products industry was a
dominant or disproportionate user of this program. Because the number
of users is large and there is no dominant or disproportionate use of
the program by producers under investigation, we do not reach the issue
of whether administrators of the program exercised discretion in
awarding benefits. Thus, we preliminarily determine that this program
is not specific and has not conferred a countervailable subsidy on
Leclerc.
4. Societe de placement dans l'enterprise quebecoise (SPEQ)
The SPEQ program is administered by the SDI to encourage equity
investments into Quebec companies. It provides a tax incentive for
owners of business investment companies to make equity investments in
eligible, small-to-medium sized Quebec companies.
With respect to assistance received by Leclerc under this program,
we analyzed whether the program is specific ``in law or in fact,''
within the meaning of section 771(5A)(D) (i) and (iii). Any enterprise
which has gross assets of less than $25 million or net shareholders''
equity equal to or less than $10 million, and which has engaged in
manufacturing, recycling, tourism, research and development,
environmental, exporting, cinematography production, ``industriel
culture,'' or aquaculture/incubator activities is eligible to apply for
assistance under this program. Based on our review of the eligibility
criteria, we preliminarily determine that this program is not de jure
specific. Regarding de facto specificity, during 1988 through 1993,
assistance under this program was distributed over a large number and
wide variety of users, representing a wide cross-section of the Quebec
economy. Thus, the program is not specific based on the number of
users.
We also examined evidence regarding the usage of the program and
determined that neither Leclerc nor the wood products industry was a
dominant or disproportionate user of this program. Therefore, we do not
reach the issue of whether administrators of the program exercised
discretion in awarding benefits. Thus, we preliminarily determine that
this program is not specific and has not conferred a countervailable
subsidy on Leclerc.
5. Societe de Developpement Industriel du Quebec (SDI): ``Programme
d'appui a la reprise'' (PREP) Program
PREP was a temporary program under which SDI provided loan
guarantees on commercial bank loans. The program was active between
1992 and 1995 and was designed to assist small-to-medium sized firms in
Quebec experiencing liquidity problems as a result of the recession of
the early 1990s. Among other things, PREP financing was provided for
production expansion.
The GOQ has stated that the same general eligibility criteria apply
to PREP and Expansion and Modernization. Therefore, consistent with our
analysis of the Expansion and Modernization program, we preliminarily
determine that assistance under PREP is not de jure specific.
Regarding de facto specificity, the companies that obtained loan
guarantees under PREP represented a large number of different
industries. Based on the broad mix of industries using the program,
PREP is not limited in terms of the number of users.
We also examined evidence regarding the usage of the program and
determined that neither Leclerc nor the wood products industry was a
dominant or disproportionate user of this program. Therefore, we do not
reach the issue of whether administrators of the program exercised
discretion in awarding benefits. Thus, we preliminarily determine that
this program is not specific and has not conferred countervailable
subsidies on Leclerc.
C. Programs Preliminarily Determined To Be Not Used
The following programs were not used:
1. Capital Gains Exemptions
2. Investment Tax Credits
3. Performance Security Services through the Export Development Corporation
4. Program for Export Market Development
5. Working Capital for Growth from BDBC
6. St. Lawrence Environmental Technology Development Program (ETDP)
7. Canada-Quebec Subsidiary Agreement on the Economic Development of Quebec
8. Quebec Stumpage Program
9. Programs Provided by the Industrial Development Corporation (SDI)
Article 7 Assistance
Export Assistance Program
Business Financing Program
Research and Innovation Activities Program
10. Export Promotion Assistance Program (APEX)
11. Private Forest Development Program (PFDP)
D. Program for Which Additional Information Is Required
On November 1, 1996, the GOQ submitted information regarding a
program operated by SQDM entitled
Program for the Development of Human
Resources. This information was received too late to be taken into
account for purposes of this preliminary determination.
II. Analysis of Upstream Subsidies
The petitioner alleged that Leclerc receives upstream subsidies
through its purchase of lumber from suppliers which harvest stumpage
from Quebec's public forest (``allegedly subsidized'' suppliers).
Section 771A(a) of the Act, defines upstream subsidies as follows:
The term ``upstream subsidy'' means any subsidy . . . by the
government of a country that:
(1) Is paid or bestowed by that government with respect to a
product (hereinafter referred to as an ``input product'') that is
used in the manufacture or production in that country of merchandise
which is the subject of a countervailing duty proceeding;
(2) In the judgment of the administering authority bestows a
competitive benefit on the merchandise; and
(3) Has a significant effect on the cost of manufacturing or
producing the merchandise.
Each of the three elements listed above must be satisfied in order
for the Department to find that an upstream subsidy exists. The absence
of any one element precludes the finding of an upstream subsidy. As
discussed below, we preliminarily determine that a competitive benefit
is not bestowed on Leclerc through its purchases of
---- page 59085 ----
allegedly subsidized lumber. Therefore, we have not addressed the first
and third criteria.
Competitive Benefit
In determining whether subsidies to the upstream supplier(s) confer
a competitive benefit within the meaning of section 771A(a)(2) on the
producer of the subject merchandise, section 771A(b) directs that:
...a competitive benefit has been bestowed when the price for the
input product...is lower than the price that the manufacturer or
producer of merchandise which is the subject of a countervailing
duty proceeding would otherwise pay for the product in obtaining it
from another seller in an arms-length transaction.
The Department's Proposed Regulations offer the following hierarchy
of benchmarks for determining whether a competitive benefit exists:
...In evaluating whether a competitive benefit exists pursuant
to paragraph (a)(2) of this section, the Secretary will determine
whether the price for the input product is lower than:
(1) The price which the producer of the merchandise otherwise
would pay for the input product, produced in the same country, in
obtaining it from another unsubsidized seller in an arm's length
transaction; or
(2) A world market price for the input product.
In this instance, Leclerc purchases the input product, lumber, from
numerous unsubsidized, unrelated suppliers in Canada. Therefore, we
have used the prices charged to Leclerc by these suppliers as the
benchmark.
We compared the prices paid by Leclerc to its ``allegedly
subsidized'' suppliers with the prices paid to unsubsidized suppliers
on a product-by-product and aggregate basis (see, October 10 and
November 6, 1996, Memoranda from Team to Susan H. Kuhbach, Acting
Deputy Assistant Secretary). Based on our comparison of these prices,
we found that the price of allegedly subsidized lumber was generally
equal to or exceeded the price of unsubsidized lumber. Therefore, we
preliminarily determine that Leclerc did not receive an upstream
subsidy.
Summary
The total estimated preliminary net countervailable subsidy rate
for Leclerc is 0.31 percent, which is de minimis. As noted above, the
rates for IHP, Erie and Milner are either zero or de minimis.
Therefore, we preliminarily determine that countervailable subsidies
are not being provided to manufacturers, producers, or exporters of LHF
in Canada.
Verification
In accordance with section 782(i) of the Act, we will verify the
information submitted by respondents prior to making our final
determination.
Critical Circumstances
The petitioner alleged that critical circumstances exist with
respect to imports of subject merchandise. Because we have reached a
negative preliminary determination, this issue is moot.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Deputy Assistant Secretary, Import Administration.
If our final determination is affirmative, the ITC will make its
final determination within 45 days after the Department makes its final
determination.
Public Comment
In accordance with 19 CFR 355.38, we will hold a public hearing, if
requested, to afford interested parties an opportunity to comment on
this preliminary determination. The hearing will be held on January 3,
1997, at the U.S. Department of Commerce, Room 3708, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230. Individuals who wish
to request a hearing must submit a written request within 10 days of
the publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
B099, 14th Street and Constitution Avenue, N.W., Washington, DC 20230.
Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) the party's name,
address, and telephone number; (2) the number of participants; (3) the
reason for attending; and (4) a list of the issues to be discussed. In
addition, 10 copies of the business proprietary version and five copies
of the nonproprietary version of the case briefs must be submitted to
the Assistant Secretary no later than December 17, 1996. Ten copies of
the business proprietary version and five copies of the nonproprietary
version of the rebuttal briefs must be submitted to the Assistant
Secretary no later than December 23, 1996. An interested party may make
an affirmative presentation only on arguments included in that party's
case or rebuttal briefs. Written arguments should be submitted in
accordance with 19 CFR 355.38 and will be considered if received within
the time limits specified above. This determination is published
pursuant to section 703(f) of the Act.
Dated: November 12, 1996.
Robert S. LaRussa,
Acting Assistant Secretary for Import Administration.
[FR Doc. 96-29661 Filed 11-19-96; 8:45 am]
BILLING CODE 3510-DS-P
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Countervailing duties:
Laminated hardwood-trailer flooring from--
Canada, 59079