NOTICES
DEPARTMENT OF COMMERCE
Preliminary Affirmative Countervailing Duty Determination; Prestressed
Concrete Steel Wire Strand From France
Friday, August 6, 1982
*34173
AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary Affirmative Countervailing Duty Determination.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies
within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in France of prestressed concrete steel wire
strand ("PC strand"), as described in the "Scope of the Investigation" section of this notice.
The estimated net subsidy is 15.578 percent ad valorem. Therefore, we are directing the
U.S. Customs Service to suspend liquidation of all entries of the product subject to this
determination which are entered, or withdrawn from warehouse, for consumption, and to
require a cash deposit or bond on these products in the amount equal to the estimated net
subsidy. If this investigation proceeds normally, we will make our final determination by
October 15, 1982.
EFFECTIVE DATE: August 6, 1982.
FOR FURTHER INFORMATION CONTACT:
Mary A. Martin, Office of Investigations, Import Administration, International Trade
Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue,
NW., Washington, D.C. 20230, telephone: (202) 377- 1276.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that there is reason to believe
or suspect that certain benefits which constitute subsidies within the meaning of section
701 of the Tariff Act of 1930, as amended ("the Act"), are being provided to
manufacturers, producers, or exporters in France of PC strand, as described in the
"Scope of the Investigation" section of this notice. For purposes of this investigation, the
following programs are preliminarily found to be subsidies:
Export credit insurance.
Preferential financing, including equity infusions.
Governmental assistance channeled through parent company.
Certain labor-related aid.
We estimate the net subsidy to be 15.578 percent ad valorem.
Case History
On March 4, 1982, we received a petition from counsel for six domestic manufacturers of
PC strand: American Spring Wire Corporation, Armco Inc., Bethlehem Steel Corporation,
Florida Wire & Cable Company, Pan American Ropes, Inc. and Shinko Wire America, Inc.,
filed on behalf of the U.S. industry producing PC strand. The petition alleged that certain
benefits which constitute subsidies within the meaning of section 701 of the Act are being
provided, directly or indirectly, to the manufacturers, producers, or exporters in
France of PC strand. Critical circumstances were not alleged.
We reviewed the petition, and on March 24, 1982, determined that an investigation
should be initiated (47 FR 13397). In our notice, we stated that we expected to issue a
preliminary determination by May 28, 1982. We subsequently determined that the
investigation was "extraordinarily complicated", as defined in section 703(c) of the Act,
and postponed our preliminary determination to no later than August 2, 1982 (47 FR
21114).
Since France is a "country under the Agreement" within the meaning of section 701(b) of
the Act, an injury determination is required for this investigation. Therefore, we notified
the U.S. International Trade Commission ("ITC") of our initiation. On April 19, 1982, the
ITC preliminarily determined that there is a reasonable indication that these imports are
materially injuring or threatening material injury to a U.S. industry.
We presented questionnaires concerning the allegations to the Delegation of the
Commission of the European Communities and to the government of France at its
embassy in Washington, D.C. On June 8 and 9, 1982, we received responses to the
questionnaires. We received a supplemental response on June 30, 1982.
Scope of the Investigation
The merchandise covered by this investigation is PC strand from France. The term
"prestressed concrete steel wire strand" covers wire strand of steel other than stainless
steel for prestressed concrete, as currently provided for in item number 642.1120 of the
Tariff Schedules of the United States Annotated.
Trefileries et Cableries Chiers Chatillon Gorcy ("CCG") and Fils et Cables d'Acier de Lens
("FICAL") are the only known producers in France of PC strand exported to the United
States. The period for which we are measuring subsidization is calendar year 1981.
Analysis of Programs
In their responses, the government of France and the Delegation of the Commission of
the European Communities provided data for the applicable periods. Additionally, we
received information from CCG, which produced and exported PC strand to the U.S. in
1981. FICAL did not submit a response to the questionnaire because it did not export PC
strand to the United States.
Throughout this notice, general principles applied by the Department of Commerce to the
facts of the current investigation of PC strand are described in detail in Appendix A of this
notice. Appendix A is identical to Appendix B published on June 17, 1982, with our
notice of "Preliminary Affirmative Countervailing Duty Determinations, Certain Steel
Products from Belgium" (47 FR 26300). Based upon our analysis to date of the petition
and responses to our questionnaires, we preliminarily determine the following.
I. Programs Preliminarily Determined To Be Subsidies
We preliminarily determine that subsidies are being provided to manufacturers,
producers, or exporters in France of PC strand under the programs listed below.
A. Export Credit Insurance. The Compagnie Francaise d'Assurance pour le Commerce
Exterieur ("COFACE") is a government corporation that provides export insurance to
cover commercial, political, exchange rate and inflation risks. In reviewing the 1980
annual report (the most recent report available), we found that while the company
showed an overall profit, its insurance activities operated at a deficit. Revenues from
financial and real estate investments allowed COFACE to offset the operating deficit on
insurance. Our preliminary review of the annual reports for 1976-1979 revealed a pattern
of yearly operating deficits on insurance activities that were offset by revenues from
investments. This pattern of operating deficits on insurance activities indicates that
COFACE does not charge premiums sufficient to cover long-term operating costs and
losses. We preliminarily determine that this is an export subsidy within the meaning of
the countervailing duty law.
A portion of CCG's U.S. accounts receivable is insured against commercial risk. Using data
contained in COFACE's 1980 profit and loss statement as the best information available,
we calculated the 1980 operating deficit on COFACE's insurance activities as a percentage
of net premiums received. By applying this percentage to the premiums paid by CCG to
COFACE on shipments of PC strand to the United States in 1981, we calculated the total
benefit to CCG on insured exports to the United States. We found a subsidy of 0.274
percent ad valorem on PC strand exports to the United States by allocating the total
benefits received by CCG over the total value of its PC strand exports to the United States
in 1981.
B. Preferential Financing Including Equity Infusions. Petitioners alleged preferential
financing in the form of low-interest loans and loan guarantees, and the conversion of
accumulated debt into equity.
A number of French government organizations have issued loans and/or loan guarantees
to the French steel industry. The majority of these loans were provided by the following
institutions:
Fonds de Developpement Economique et Social ("FDES"). Created by Parliament in 1955,
FDES lends funds to government-owned and privately held corporations for industrial
development or relocation of facilities to further the government's regional development
objectives. Loan applications are filed with the Ministry of the Economy and Finance, but
the decision to issue a loan rests with the FDES Board, which is composed of government
ministers whose agencies are involved in economic policy. Usually, loans are secured by
a mortgage or a pledge. The source of FDES loan funds is a line item in the national budget.
Because FDES provides loans on a regional basis, we consider these loans to be subsidies
within the meaning of the countervailing duty law.
Credit National. Credit National is a government credit institution with special legal
status, which issues loans to French industry, particularly the steel industry. Loan funds
are raised by offering bonds in the public marketplace. Credit National also acted as the
conduit through which FDES loans were granted to the steel industry. In addition, the
French government, either directly or through Credit National, guarantees some loans to
the steel companies. Until 1979, a yearly guarantee fee averaging 0.5 percent of the
principal was paid by the company receiving a loan guarantee. The current charge is 0.25
percent of the principal of the loan. Credit National provided certain loans to CCG for the
stated purpose of increasing exports. We preliminarily determine that the loans intended
to increase exports are export subsidies within the meaning of the countervailing duty
law. Other loans, not specifically directed to exports, are also considered countervailable
because they are offered to a specific industry at preferential rates.
Local Economic Development Agencies. CCG, its predecessors, or its parent received
loans for the promotion of energy economies and exportation from LORDEX, CENTREST
and SUDEST, which are local economic development agencies. Absent sufficient
information to determine whether any of the loans were solely for the purposes of energy
conservation, we preliminarily determine that these preferential loans are export
subsidies within the meaning of the countervailing duty law.
Petitioners have alleged that CCG is uncreditworthy. CCG incurred financial losses in each
year of its existence. The 1981 CCG annual report reveals unfavorable ratios of total debt
to total equity, and current assets to current liabilities. In addition, CCG has received
various forms of financial assistance from its parent, Usinor. This assistance includes:
capitalization of debt owed to Usinor, conversion of accounts payable to Usinor from CCG
into interest-free loans, and other short-term loans from Usinor. Therefore, on the basis
of these and other factors, we preliminarily determine that CCG has been uncreditworthy
since its formation in 1977.
We treated CCG's preferential loans and equity infusions in the following ways:
1. Preferential Loans and Loan Guarantees Issued Prior to CCG's Formation in 1977. The
subsidy rates for preferential loans and loan guarantees made prior to the end of 1976
were calculated according to the loan methodology in Appendix A for companies
considered creditworthy. These loans were both export oriented and non-export
oriented. Using the prescribed methodology, we compared what CCG would have paid to
normal commercial lenders in the year the loan was made with what the company
actually paid on preferential loans in that year. To determine what CCG would have paid
to normal commercial lenders, we used as a benchmark the average annual yield to
maturity of newly issued corporate bonds on the Paris Bourse. For non-export oriented
loans we allocated the 1981 subsidy amount over the value of CCG's domestic steel
production for 1981. For export oriented loans, we allocated the 1981 subsidy amount
over the value of CCG's exports of all steel products for that year.
We computed a subsidy of 0.040 percent ad valorem for domestic subsidy loans and we
computed a subsidy of 0.072 percent ad valorem for loans considered to be export
subsidies for a total subsidy of 0.112 percent ad valorem.
2. Preferential Loans and Loan Guarantees Made After 1976. The subsidy rates for
preferential loans and loan guarantees issued since the formation of CCG in 1977 were
calculated according to the loan methodology in Appendix A for companies considered
uncreditworthy. We treated the loans essentially as equity investments and compared
CCG's rate of return in 1981 with the average rate of return on equity investment in
France. The subsidy equalled this rate of return shortfall, times the original loan
principal. We subtracted from this subsidy value the principal and interest payments
made by CCG on these loans in 1981.
To prevent countervailing a higher amount than if the loan had been an outright grant to
the company, we compared the 1981 benefit of these loans calculated under the
methodology used for loans to uncreditworthy companies, with the result calculated
under the grant methodology described in Appendix A.
Since the latter caution resulted in a lower subsidy, we appropriately capped the subsidy
calculated pursuant to the methodology for loans to uncreditworthy companies for the
reasons described in Appendix A. Because all these loans were export subsidies, we
divided the total 1981 countervailable benefit by the value of CCG's 1981 steel exports. We
calculated a subsidy of 2.698 percent ad valorem.
C. Assistance Channeled Through Usinor. CCG has received preferential loans and
infusions of capital from the French government channeled through Usinor. Usinor is at
least 90 percent owned by the French government. In the recent "Affirmative Preliminary
Countervailing Duty Determinations on Certain Steel Products from France" (47 FR
26315), we found that Usinor had received substantial subsidies from the government.
Insofar as we have been able to determine that certain benefits bestowed on Usinor by the
French government have been passed through to CCG, we have treated such benefits as
countervailable subsidies to CCG.
Our determination that benefits to Usinor pass through to CCG is based on an examination
of the relationship between the two companies. Usinor is CCG's principal supplier of wire
rod used in the manufacture of PC strand. There is evidence of a close working
relationship between the two companies. CCG's profit and loss statements are
incorporated in Usinor's annual reports. Benefits to Usinor from the French government
appear to have been transferred to CCG by means of preferential loans and capital
infusions. Since 1979, Usinor has aided CCG in the following manner:
Capitalization of debt owed to Usinor into equity in CCG,
Conversion of accounts payable to Usinor by CCG into interest free loans, and
Provision of short term loans at preferential rates.
In addition, Usinor's assistance to CCG cannot be considered consistent with commercial
considerations since, as noted above, we consider CCG uncreditworthy since its
formation in 1977. Accordingly, we have preliminarily determined that countervailable
benefits transferred from Usinor to CCG should be treated essentially as equity under the
methodology set forth in Appendix A. We calculated the benefit to CCG and allocated it
over CCG's total steel production in 1981. This resulted in an ad valorem subsidy of 12.481
percent.
D. Certain Labor-Related Aid. French corporations have statutory and contractual
obligations to their employees in case of interruption or cessation of employment. The
government provides assistance to relieve steel companies of labor-related obligations
mandated by law. We consider this a subsidy.
At this time, we are not fully aware of the extent or duration of CCG's responsibilities
under the law. We will seek additional information.
CCG has also received grants from the French government for the training of employees
and for amelioration of working conditions. Under the aides a des actions de formation
("FAAF") program, CCG received a grant to defray a portion of the expense of training
workers. CCG also received a grant under the aides pour l'amelioration des conditions de
travail ("FACT") program which covered a portion of the costs of studies and investments
aimed at improving employees' working conditions. Because the amount of the grants
received under these programs in 1981 was less than one percent of the total value of
production and was used for items which would normally be expensed in one year (see
Appendix A), we allocated the grants over the total value of CCG's 1981 steel production.
This calculation yielded a subsidy of 0.013 percent ad valorem.
II. Programs Preliminarily Determined Not To Be Subsidies
We preliminarily determine that subsidies are not being provided to manufacturers,
producers, or exporters in France of PC strand under the following programs.
A. Indirect Subsidy Through Benefits to Wire Rod Production. Petitioners allege that CCG
receives benefits indirectly when it purchases subsidized wire rod from Usinor. Wire rod
is the principal input into PC strand. CCG's response indicates that it pays a higher price
for wire rod to Usinor than to its other suppliers. It appears that while Usinor has used
other means to transfer benefits to CCG, transfer prices for wire rod are a means for
extracting funds from CCG rather than for transferring subsidies. In general, we believe a
subsidy on an input to a product under investigation is transferred to that product only
when it can be established that the input is provided to the producer of the product under
investigation on preferential terms which afford a competitive advantage. Consequently,
since CCG apparently does not purchase wire rod from Usinor at preferential prices, we
preliminarily determine that these purchases do not constitute a countervailable benefit.
B. Assistance to Coal Supplies. The government of France, which directly or indirectly
owns all French coal producers, makes available to Charbonnages de France ("CDF")
such assistance as may be necessary to equalize the selling price of coal produced in
France with the world market price for each type of coal. Even though the French coal
industry appears to be subsidized, we do not consider this assistance to confer a
countervailable benefit on the French steel industry for the following reasons. The
apparently subsidized coal companies are unrelated to the steel companies, and their coal
transactions are conducted at arm's length. Moreover, the French steel companies
purchase coal at similar or even lower prices without regard to French government
assistance to the coal industry. Over 75 percent of the French steel industry's coal
requirements during 1981 were supplied by non-French sources, including the United
States, which accounted for 25 percent of all coking coal and coke utilized. In addition,
CCG does not produce raw steel for which supplies of coal, coking coal, coke and iron ore
are required.
III. Programs Preliminarily Determined Not To Be Utilized
We preliminarily determine that the following programs which were described in the
notice of "Initiation of Countervailing Duty Investigation" are not utilized by the
manufacturers, producers, or exporters in France of PC strand.
A. European Coal and Steel Community ("ECSC") and European Investment Bank ("EIB")
Loans and Loan Guarantees. PC strand is not an ECSC product because it is not listed in
Annex I of the Treaty Establishing the European Coal and Steel Community. Accordingly,
CCG is not eligible to receive loans and loan guarantees from these institutions.
B. ESCS Labor Related Aid. Petitioners allege the existence of ECSC aid for steel worker
retraining to permit the absorption of redundant workers, job creation, resettlement
allowances and layoff payments. As explained above, PC strand is not eligible for ECSC
benefits.
C. Export Financing. In France, exports may be financed or guaranteed through the
Commission Interministerielle des Garanties et du Credit au Commerce Exterieur and the
Banque Francaise du Commerce Exterieur. At this time, we have no evidence that CCG
availed itself of these programs.
D. 1978 Rescue Plan. Petitioners allege that producers, manufacturers, or exporters in
France of PC strand received a benefit through the recapitalization of the French carbon
steel industry under the 1978 Rescue Plan. CCG's response to our questionnaire stated
that it was not affected by the 1978 Rescue Plan, and we have no evidence to indicate that
CCG participated in the 1978 Rescue Plan.
IV. Programs for Which Additional Information is Needed
At this time, we do not have sufficient information to determine whether these programs
are providing manufactures, producers, or exporters in France of PC strand benefits
which constitute subsidies within the meaning of the countervailing duty law. We will
seek additional information regarding these programs before reaching a final
determination
A. Regional Development/Regional Anti-Pollution Agencies. Created by Law No. 64-1245
of 1964, these regional agencies provide incentives for the installation of anti-pollution
devices. The agencies collect dues for their operation and in return award "bonuses" and
loans to combat pollution. CCG has received a few small grants and loans from such
agencies. Due to insufficient information both on the availabity of this assistance within
and across regions, and on the operating income and expenses of these agencies, we are
unable to determine at this time if the grants and loans received by CCG are
countervailable.
B. Loans from Nationalized Banks. CCG's predecessors and/or its parent received loans
prior to 1977 from Societe General and Banque Nationale de Paris, which are nationalized
banks. At this time we have insufficient information to determine whether these banks are
providing loans which constitute a subsidy within the meaning of the countervailing
duty law. We will seek additional information about these loans before reaching a final
determination.
Verification
In accordance with section 776(a) of the Act, we will verify all the information used in
making our final determination.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to
suspend liquidation of all entries of PC strand from France which are entered, or
withdrawn from warehouse, for consumption, on or after the date of publication of this
notice in the Federal Register, and to require a cash deposit or bond, for each such entry
of the merchandise in the amount of 15.578 percent ad valorem.
This suspension will remain in effect until further notice.
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 nonprivileged and nonconfidential
information relating to this investigation. We will allow the ITC access to all privileged
and confidential information in our files, provided the ITC confirms that it will not
disclose such information, either publicly or under an admiistrative protective order,
without the written consent of the Deputy Assistant Secretary for Import Administration.
Public Comment
In accordance with ยง 355.35 of the Commerce Department Regulations, if requested, we
will hold a public hearing to afford interested parties an opportunity to comment on this
preliminary determination at 10 a.m on September 1, 1982, at the U.S. Department of
Commerce, Conference Room A, 14th Street and Constitution Avenue, N.W., Washington,
D.C. 20230. Individuals who wish to participate in the hearing must submit a request to
the Deputy Assistant Secretary for Import Administration, Room 3099B, at the above
address within ten days of this notice's publication. Requests 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, prehearing
briefs must be submitted to the Deputy Assistant Secretary by August 25, 1982. Oral
presentations will be limited to issues raised in the briefs. All written views should be filed
in accordance with 19 CFR 355.34, within thirty days of this notice's publication, at the
above address and in at least ten copies.
Dated: August 2, 1982.
Judith Hipple Bello.
Acting Deputy Assistant Secretary for Import Administration.
Appendix A
Several basic issues are common to many of the countervailing duty investigations of
certain steel products, initated by the Department of Commerce (the "Department") on
February 1, 1982; e.g., government assistance through grants, loans, equity infusions,
and research and development projects. This Appendix describes in some detail the
general principles applied by the Department when dealing with these issues as they arise
within the factual contexts of these cases.
Grants
Petitioners allege that respondent foreign steel companies have received numerous
grants for various purposes. Under section 771(5)(B) of the Tariff Act of 1930, as
amended ("the Act") (19 U.S.C. 1677(5)(B)), domestic subsidies are countervailable where
they are "provided or required by government action to a specific enterprise or industry,
or group of enterprises or industries" (emphasis added).
The legislative history of Title VII of the Act states that where a grant is "tied" to--that is,
bestowed expressly to purchase--costly pieces of capital equipment, the benefit flowing
from the grant should be allocated over the useful life of that equipment. A subsidy for
capital equipment should also be "front loaded" in these circumstances; that is, allocated
more heavily to the earlier years of the equipment's useful life, reflecting its greater
commercial impact and benefit in those years.
In the past we have allocated the face value of the grant, in equal increments, over the
appropriate time period. For large capital equipment, we used a period of half the useful
life of the equipment purchased with the grant. In each year we countervailed only that
year's allocated portion of the total grant. For example, a hypothetical grant of $100
million used to purchase a machine with a 20-year life would have been countervailed at
a rate of $10 million per year (allocated over the appropriate product group) for 10
years, beginning in the year of receipt.
This allocation technique has often been criticized for not capturing the entire subsidy by
ignoring the time value of money. It has been argued that $100 million today is much
more valuable to a grant recipient than $10 million per year for the next 10 years, since
the present value of the latter is considerably less than $100 million. We agree, and are
now changing our methodology of grant subsidy calculation to reflect this agreement. So
long as the present value (in the year of grant receipt) of the amounts allocated over time
does not exceed the face value of the grant, we are consistent with both our domestic law
and international obligations because the amount countervailed will not exceed the total
net subsidy.
Present value is calculated using a discount rate. We considered using each company's
weighted cost of capital at the time of the grant receipt as the appropriate measure of the
time value of its funds. However, we lacked sufficient information to do so for these
preliminary determinations. Instead we used the national cost of long-term corporate
debt as a substitute measure of a company's discount rate. We welcome additional
information or comments on this estimate between the preliminary and final
determinations.
For costly pieces of capital equipment, we believe that the appropriate time period over
which to allocate the subsidy is its entire useful life. In the past, we allocated the subsidy
over only half the useful life in order to front load the countervailing duties in order
to comply with the legislative intent of the Act. However, so long as we allocate the
subsidy in equal nominal increments over the entire useful life, it will still be effectively
front loaded in real terms since money tomorrow is less valuable than money today.
For these steel investigations we have allocated a grant over the useful life of equipment
purchased with it when the value of that grant was large (in these investigations, greater
than $50 million), and specifically "tied" to pieces of capital equipment.
Where the grant was small (less than one percent of the company's gross revenues or,
where we do not know gross revenues, less than one percent of the company's total value
of 1981 steel production) and "tied" to items generally expensed in the year purchased
(e.g., wages, purchases of materials), we have allocated the subsidy solely to the year of
the grant receipt.
All other grants--the vast majority of those involved in these investigations--will be
allocated over 15 years, a period of time reflecting the average life of capital assets in
integrated steel mills in the U.S. The 15-year figure is based on Internal Revenue Service
studies of actual experience in integrated mills in the U.S. Furthermore, we understand
that a 15-year period is also used in some of the countries involved in these
investigations. We are using this time period as the best available estimate of the average
steel asset life worldwide. We could not calculate the average life of capital assets on a
company-by-company basis, since different accounting principles, extraordinary
write-offs, and corporate reorganizations yielded extremely inconsistent results. For
example, the average life of one steel company's assets, as indicated on its books,
increased from 3 years to 22 years within 3 years.
We do not distinguish grants bestowed expressly to cover operating losses from other
"untied" grants. Since grants used to cover operating losses often keep the company in
business and are frequently quite large, their real effects extend for a considerable period
of time. It is appropriate to allocate them over a number of years.
Loans and Loan Guarantees for Companies Considered Creditworthy
In these investigations, various loan activities give rise to subsidies. The most common
practices is the extension of a loan at a preferential interest rate where the government is
either the actual lender or directs a private bank to lend at a preferential rate. The subsidy
is computed by comparing what a company would pay a normal commercial lender in
principal and interest in any given year with what the company actually pays on the
preferential loan in that year. We determine what a company would pay a normal
commercial lender by constructing a comparable commercial loan at the appropriate
market rate (the "benchmark"). If the preferential loan is part of a broad, national lending
program, we use a national average commercial interest rate as our benchmark. If the
loan program is not generally available--like most large loans to respondent steel
companies--the benchmark used instead, where available, is the company's actual
commercial credit experience (e.g., a contemporaneous loan to the company from a
private commercial lender). If there were no similar loans, the national commercial rate
is used as a second-best alternative.
For loans denominated in a currency other than the currency of the country concerned in
an investigation, the benchmark is selected from interest rates (either national or
company-specific, as appropriate) applicable to loans denominated in the same currency
as the loan under consideration.
After calculating the payment differential in each year of the loan, we then calculate the
present value of this stream of benefits in the year the loan was made, using a national
cost of long-term corporate debt in that year as the discount rate. In other words, we
determine the subsidy value of a preferential loan as if the benefits had been bestowed as
a lump-sum grant in the year the loan was given. We determine how much less valuable
money tomorrow is than money today by applying a discount rate. We are using the
national cost of long-term corporate debt for the year in which the loan was given as this
discount rate. This amount is then allocated evenly over the life of the loan, with one
exception. Where the loan was given expressly for the purchase of a costly piece of capital
equipment, the present value of the payment differentials is allocated over the useful life
of the capital equipment concerned.
For loans not tied to capital equipment with mortgage-type repayment schedules, this
methodology results in annual subsidies equivalent to those calculated under the
previous Department policy of considering the difference in total repayments in each
year of a loan's lifetime to be the subsidy in that year. For loans with constant principal
repayments (i.e., declining total repayments), loans with deferral of repayments, and
loans for costly capital equipment, the present value method results in even allocations of
the subsidy over the relevant period. This effectively front loads countervailing
duties on these loan benefits in the same manner as grants are front loaded.
A loan guarantee by the government constitutes a subsidy to the extent the guarantee
assures more favorable loan terms than for an unguaranteed loan. The subsidy amount is
quantified in the same manner as for a preferential loan.
If a borrowing company preferentially received a payment holiday from a government
lending institution or from a private lender at government direction, an additional
subsidy arises that is separate from and in addition to the preferential interest rate
benefit. The subsidy value of the payment holiday is measured in the same manner as for
preferential loans, by comparing what the company pays versus what it would pay on a
normal commercial loan in any given year. A payment holiday early in the life of a loan
can result in such large loan payments near the end of its term that during the final years
the loan recipient's annual payments on the subsidized loan may be greater than they
would have been on an unsubsidized loan. By reallocating the benefit over the entire life
of the loan through the present value methodology described above, we avoid imposing
countervailing duties in excess of the net subsidy.
Loans and Loan Guarantees for Companies Considered Uncreditworthy
In a number of cases petitioners have alleged that certain respondent steel companies
were uncreditworthy at the time they received preferential loans or guarantees, and that
they could not have obtained any commercial loan without government intervention.
Where the company under investigation has a history of deep or significant continuing
losses, and diminishing (if any) access to private lenders, we generally agree with
petitioners. In these situations neither national nor company-specific market interest
rates provide an appropriate benchmark since, by definition, an uncreditworthy
company could not receive loans on these terms without government intervention. Nor
have we been able to find any reasonable and practical basis for selecting a risk premium
to be added to a national interest rate in order to establish an appropriate benchmark for
companies considered uncreditworthy. Therefore, we have treated loans to an
uncreditworthy company as an equity infusion by the government. We believe this
treatment is justified by the great risk, very junior status, and low probability of
repayment of these loans. To the extent that principal and/or interest is actually paid on
these loans, however, the subsidy (which is calculated using our equity methodology,
infra) is reduced dollar for dollar in the year of repayment. Moreover, in no case do we
countervail a loan subsidy to a creditworthy or uncreditworthy company more than if the
government gave the principal as an outright grant.
Equity
Petitioners allege that government purchases of equity in respondent steel companies
constitute a countervailable subsidy equal to the entire amount of the equity purchased.
Many respondents claim that such equity purchases are investments on commercial
terms, and thus are not subsidies to these companies.
It is well settled that government equity ownership per se is not a subsidy. Such
ownership is a subsidy only when it is on terms inconsistent with commercial
considerations. An equity subsidy potentially arises when the government makes equity
infusions into a company which is sustaining deep or significant continuing losses. If such
losses have been incurred, then we consider from whom the equity was purchased and at
what price.
If the government buys previously issued shares on the market and not directly from the
company, there is no subsidy to the company. This is true no matter what price the
government pays, since any overpayment benfits only the prior shareholders and not the
company.
If the government buys shares directly from the company (either a new issue or
corporate treasury stock) and similar shares are traded in a market, a subsidy arises if the
government pays more than the prevailing market price. To avoid any effect on the
market price resulting from the government's purchase or speculation in anticipation of
such purchase, we used for comparison a market price on a date sufficiently preceding the
government's action. Any amount of overpayment is treated as a grant to the company.
It is more difficult to judge the possible subsidy effects of direct government infusions of
equity where there is no market price for the shares since they were untraded (as where,
for example, the government is already sole owner of the company). As a matter of
principle, government equity participation can be a legitimate commercial venture.
Often, however, as in many of these steel cases, equity infusions follow massive or
sustained losses and are part of national government programs to sustain or rationalize
an industry which otherwise would be noncompetitive. We respect the government's
characterization of its infusion as equity in a commercial venture. However, to the extent
in any year that the government realizes a rate of return on its equity investment less
than the average rate of return on equity investment for the country as a whole (thus
including returns on both successful and unsuccessful investment), its equity infusion is
considered a subsidy. Under no circumstances do we countervail an amount greater than
that which is calculated treating the government's equity infusion as an outright grant.
Forgiveness of Debt
Where we have found that the government has forgiving an outstanding debt obligation,
we have treated this as a grant to the company equal to the outstanding principal at the
time of forgiveness. Where outstanding debt has been converted into equity (i.e., the
government receives shares in the company in return for eliminating debt obligations of
the company), a subsidy may result. The existence and extent of such subsidies are
determined by treating the conversions as an equity infusion in the amount of the
remaining principal of the debt. We then calculate the value of the subsidy by using our
equity methodology, supra.
Coal Assistance
Petitioners alleged that respondent steel companies outside the Federal Republic of
Germany that buy German coal benefit from assistance given by the German government
to German producers of coking coal. The issue of indirect subsidization of German
steelmakers through the German government's assistance to German coking coal is
considered separately in the "Notice of Preliminary Affirmative Countervailing Duty
Determinations; Certain Steel Products from the Federal Republic of Germany," appearing
in this issue of the Federal Register.
In the absence of special circumstances, a party receiving a benefit on the production of
its merchandise is not assumed to share that benefit with an unrelated purchaser. It is in
the commercial interest of a firm receiving a subsidy not to share the benefits with
customers, but rather to pass it on to its shareholders in the form of greater net earnings.
This view has previously been expressed by the Department in the "Preliminary
Affirmative Countervailing Duty Determination; Sodium Gluconate from the
European Economic Community" (46 FR 45975).
Moreover, the German government's assistance to its coking coal industry does not
reduce the price of German coking coal below the world price. So long as non-German
coal can be purchased more cheaply, we see no measurable benefit to non-German
steelmakers who purchase German coal, whether or not it is subsidized.
Petitioners argue that German assistance to its coking coal industry exerts downward
pressure on the price of coal in all markets in which German coking coal is sold. If so, we
believe that such downward pressure would affect the price of coal worldwide, and thus
benefit all steelmakers everywhere. Similarly, if the German coking coal assistance were
eliminated and if German coal mine operations consequently were reduced or ceased, any
consequent rise in the price of coking coal would likely have worldwide effects and thus
affect steelmakers everywhere. There we do not accept petitioners' contention that the
FRG's assistance to its coking coal industry during 1981 had a significant downward effect
on the price of coking coal which preferentially benefited steelmakers purchasing German
coal.
Research and Development Grants and Loans
Grants and preferential loans awarded by a government to finance research that has
broad application and yields results which are made publicly available are not subsidies.
Programs of organizations or institutions established to finance research on problems
affecting only a particular industry or group of industries (e.g., metallurgical testing to
find ways to make cold-rolled sheet easier to galvanize) and which yield results that are
available only to producers in that country (or a limited number of countries) confer a
subsidy on the products which benefit from the results of the research and development
("R&D"). On the other hand, programs which provide funds for R&D in a wide range of
industries are not countervailable even when a portion of the funds is provided to the
steel sector.
Once we determine that a particular program is countervailable, we calculate the value of
the subsidy by reference to the form in which the R&D was funded. An R&D grant is
treated as an "untied" grant; a loan for R&D is treated as any other preferential loan.
Labor Subsidies
To be countervailable, a benefit program for workers must give preferential benefits to
workers in a particular industry or in a particular region. Whether or not the program
benefits specifically some workers and not others is determined by looking at both
program eligibility and participation. Even where provided to workers in specific
industries, social welfare programs are countervailable only to the extent that they
relieve the firm of costs it would ordinarily incur--for example, the government's
assumption of a firm's obligation partially to fund worker pensions.
Labor-related subsidies are generally conferred in the form of grants and are treated as
untied grants for purposes of subsidy calculation. Where they are quite small and
expensed by the company in the year received, we likewise allocated them only to the
year received. However, where they were more than one percent of gross revenues (or,
where we do not know gross revenues, one percent of the value of 1981 steel production),
we allocated them over five years.
[FR Doc. 82-21352 Filed 8-6-82; 8:45 am]
BILLING CODE 3510-25-M