NOTICES
DEPARTMENT OF COMMERCE
Preliminary Negative Countervailing Duty Determination; Large Diameter Welded
Carbon Steel Pipes and Tubes From France
Tuesday, October 12, 1982
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AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary negative countervailing duty determination.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies
within the meaning of the countervailing duty law are not being provided to
manufacturers, producers, or exporters in France of large diameter welded carbon steel
pipes and tubes, as described in the "Scope of Investigation" section of this notice. If this
investigation proceeds normally, we will make our final determination by December 17,
1982.
EFFECTIVE DATE: October 12, 1982.
FOR FURTHER INFORMATION CONTACT: Nicholas C. Tolerico, Office of Investigations,
Import Administration, International Trade Administration, U.S. Department of
Commerce, 14th and Constitution Avenue, NW, Washington, DC 20230, telephone: (202)
377-3518.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine that there is no reason to
believe or suspect that 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 large diameter welded carbon steel pipes and tubes,
as described in the "Scope of Investigations" section of this notice.
For purposes of this investigation, we preliminarily determine that while preferential
financing from Credit National confers a benefit to Vallourec and Pont a Mousson, the
estimated net subsidy to each manufacturer is de minimis, and therefore our preliminary
countervailing duty determination is negative.
Case History
On May 13, 1982, we received a petition from United States Steel Corporation filed on
behalf of the U.S. industry producing large diameter welded carbon steel pipes and tubes.
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 the steel product listed above.
We found the petition to contain sufficient grounds upon which to initiate a
countervailing duty investigation, and on June 3, 1982, we initiated a
countervailing duty investigation (47 Fed. Reg. 24169). We stated that we expected to
issue a preliminary determination by August 2, 1982. We subsequently determined that
the investigation is "extraordinarily complicated", as defined in section 703(c) of the Act,
and postponed our preliminary determination for 65 days until October 4, 1982 (47 Fed.
Reg. 32758).
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 June 21, 1982, the ITC
preliminarily determined that there is a reasonable indication that these imports are
materially injuring, or threatening to materially injure, 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 in
Washington, D.C. On August 16 and 18, 1982, we received the responses to the
questionnaires. Supplemental responses were received on September 3, 20 and 22, 1982.
Scope of Investigation
The product covered by this investigation is large diameter welded carbon steel pipes and
tubes. The product is fully described in Appendix 1, which follows this notice.
Vallourec and Pont a Mousson are the only known producers and exporters in France of
the subject product which is exported to the United States. The period for which we are
measuring subsidization is calendar year 1981.
Analysis of Programs
Throughout this notice, general principles and conclusions of law applied by the
Department of Commerce
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to the facts of the current investigation concerning
large diameter welded carbon steel pipes and tubes are described in detail in Appendices
2 and 3, which appear with this notice.
Based upon our analysis of the petitions and responses to our questionnaires, we
determine the following.
I. Program Preliminarily Determined to Confer a Benefit
We preliminarily determine that a benefit is being provided under the program listed
below to manufacturers, producers, or exporters in France of large diameter welded
carbon steel pipes and tubes included in this investigation.
A. Preferential Financing--Credit National (CN)
Credit National is a semi-public credit institution, with special legal status, which issues
medium- and long-term loans to French industry, including the steel industry. Loan funds
are raised by offering bonds in the public marketplace. These bonds are guaranteed by the
government of France.
In addition, CN has participated in bank loans to the steel industry through such means as
assuring the banks that they can rediscount the loans with CN. In effect, this constitutes a
guarantee.
In most cases, CN acts only as part of a loan syndicate. The terms of any loans CN makes
on behalf of the French government are set by the French government. Information
indicates that CN loans to the French steel industry are made with government backing,
and that CN's operating budget is financed by the French government.
There is some evidence suggesting that CN loans are available to all industries and
regions. However, we are unable to establish that these loans are not given at the
direction of the government of France, or that CN loans are generally available.
Therefore, we preliminarily determine that these loans confer a benefit within the
meaning of the countervailing duty law, to the extent that they were provided at
preferential, below-market rates.
The subsidy rate for any loan and loan guarantee from CN and bank syndicates in which
CN participated for which principal was still outstanding in 1981, and which was made at a
rate below the commercial benchmark for a comparable loan in the year of issue, is
calculated according to the general methodology for loans and loan guarantees outlined
in Appendix 2. For the commercial benchmark, we used the monthly financial statistics
on the secondary market yields of private bonds in France published by the OECD. For
the discount rate, we used the average annual yield of public and semi-public sector
bonds on the secondary market published by the OECD because it represents the best
estimate of the risk-free rate in France.
Where benefits were provided to all steel production, they were allocated over the value
of all steel sales of the company receiving the benefit. Where benefits were provided to
the production of large diameter welded carbon steel pipes and tubes, they were allocated
over the total value of each company's sales of this product.
Using the method outlined in Appendix 2, we computed the following subsidies:
[In percent]
-----------------------------------------------------
Manufacturer/producer/exporter Ad valorem rate
-----------------------------------------------------
Vallourec ..................................... 0.024
Pont a Mousson ................................ 0.332
-----------------------------------------------------
II. Programs Preliminarily Determined Not to Confer Benefits
We preliminarily determine that the French government is not providing benefits to
manufacturers, producers or exporters of large diameter welded carbon steel pipes and
tubes under the following programs.
A. Benefits to Vallourec via Usinor
Petitioner alleges that Vallourec indirectly receives countervailable benefits through its
purchases of Usinor's subsidized plate and sheet products. Vallourec is owned by Usinor
(which is largely government-owned), Nord-Est (a publicly-held holding company), and
private shareholders. The ownership shares are 25 percent, and 50 percent, respectively.
With respect to sales of Usinor's subsidized plate and sheet products to Vallourec, we
believe that benefits bestowed upon the manufacturer of an input do not necessarily flow
down to the purchaser of that input, if the sale is transacted at arm's length. In an arm's
length transaction, we believe it is reasonable to assume that the seller generally attempts
to maximize its total revenue by charging as high a price and selling as large a volume as
the market will bear.
When sales transactions are made at arm's length, economic considerations must be taken
into account to determine if a benefit received by a seller should be passed on to the
purchaser. A benefit will not be passed on if the 'own' price elasticity of demand for the
seller's product is less than one. Studies show that the 'own' price elasticity of demand for
steel is less than one. Therefore, there is no economic rationale for a seller of a subsidized
steel product to pass on its subsidy in the form of lower prices to the buyer.
The application of these principles to the allegation that Vallourec benefits from the
purchase of Usinor s subsidized plate and sheet are as follows. Usinor is Vallourec's
primary supplier of raw materials used in the production of the products under
investigation. Most of Vallourec's remaining plate and sheet requirements are furnished
by Dillinger, a producer located in the Federal Republic of Germany. The record of these
transactions shows that the prices charged for Usinor's plate and sheet products are
comparable to prices for similar products from other suppliers, including those suppliers
located outside of France.
Therefore, we preliminarily determine that Vallourec and Usinor deal at arm's length, and
that the benefits to Usinor's plate and sheet production do not provide subsidies to
Vallourec's pipe and tube production.
B. Export Credit Insurance--Commercial Risk Coverage
The Compagnie Francaise d'Assurance pour le Commerce Exterieur (COFACE) is a
government corporation that provides export insurance to cover commercial, political,
exchange rate fluctuation and inflation risks. In 1981, both Vallourec and Pont a Mousson
purchased commercial risk insurance from COFACE.
We have information indicating that, while COFACE showed an overall profit, its overall
insurance activities operated at a deficit.
Revenues from financial and real estate investments allowed COFACE to offset the
operating deficit on insurance. However, in 1981, the commercial risk program did not
suffer any losses. In addition, premiums for COFACE's commercial risk insurance program
exceeded claims against the program. Therefore, we preliminarily determine that
COFACE export insurance for commercial risk does not confer a subsidy with respect to
exports to the United States.
C. Local Business Tax Deductions
Under the direction of the French tax authority ("Direction Generale des Imports"), all
French industries are eligible for reductions of local business taxes ("taxe professionelle")
for the
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purpose of creating new jobs. Vallourec has received tax reductions in
1981.
Inasmuch as this program is available to all industrial sectors and not specific to any
particular region in France, we preliminarily determine that no countervailable benefit
exists.
D. Research and Development Assistance
Both Vallourec and Pont a Mousson reported receiving a small amount of funding for R &
D projects from the French government. Three government organizations which provide
R & D funding to French steel companies are:
Agence Nationale de Valorisation de la Recherche (ANVAR): a public corporation which
is designed to support innovation and enhance research;
Direction Generale de la Recherche Scientifique et Technique (DGRST): a subdivision of
the Ministry of Research and Technology; and
Agence de l' Informatique (ADI): a public corporation which promotes the use of
computer technology.
Information indicates that R & D funding is not awarded on a regional or industry-specific
basis, and research results are made publicly available. Therefore, we preliminarily
determine that the amounts received through these programs do not confer subsidies
within the meaning of the Act.
E. Tax Relief on Investments
Pont a Mousson has reported receiving both investment tax deductions and investment
tax credits under the following three French laws: (1) No. 75-408, dated May 29, 1975,
which provided a 10% tax deduction on industrial investments; (2) No. 79-525, dated
July 3, 1979, which provided tax credits equal to 10% of the increase in expenditures for
investment; and (3) No. 81- 1160, dated December 30, 1981, which provided tax credits
equal to 10% of the cost of investments.
Inasmuch as these tax credits and deductions are available to all industrial sectors and
not specific to any particular regions in France, we preliminarily determine that no
countervailable benefit exists.
F. Regional Anti-Pollution Agencies
Created by Law No. 64-1245 of 1964, these regional agencies known generically as
"Agences Financie>=2res de Bassin" provide incentives for the installation of
anti-pollution devices. We have information which indicates that these anti-pollution
incentives are generally available and do not benefit a specific group of industries.
Therefore, we preliminarily determine that no countervailable benefit is bestowed.
III. Programs Preliminarily Determined Not To Be Used
We preliminarily determine that the following programs which are listed in the notice of
"Initiation of Countervailing Duty Investigation" are not used by the manufacturers,
producers, or exporters of the products subject to this investigation.
A. Preferential Financing--Fonds de Developpement Economique et Social (FDES)
Created by the French Parliament in 1955, FDES is a fund which provides loans to
businesses and corporations in order to further the French government's economic,
social, industrial, and regional development objectives.
Based upon our investigation, we preliminarily determine that neither Vallourec nor Pont
a Mousson had any FDES loans outstanding in 1981.
B. Preferential Financing--Groupement de l'Industrie Siderurgique (GIS)
GIS was founded in 1946 as a corporation whose sole shareholders were 45 steel
companies. The purpose of GIS was to raise money for capital projects of the steel
companies. By floating debt instruments in the public marketplace, GIS raised monies to
lend to the companies at a rate equal to the rate being paid on bonds issued to the public,
plus operating expenses. No loans have been issued by GIS since 1978.
Based upon our investigation, we preliminarily determine that neither Vallourec nor Pont
a Mousson had any GIS loans outstanding in 1981.
C. Preferential Financing--Specialized Financial Institutions
A number of private, cooperative financial institutions emerged after World War II to
raise capital for various sectors of French industry. By floating bond issues, these
cooperative institutions raised capital and made loans to their member companies,
including steel companies. Since 1978, none of these institutions has floated bonds or
loaned funds to the steel industry. These institutions include:
Groupement Interprofessionnel Financier Antipollution (GIFIAP): environmental
protection;
Groupement pour le Financement de la Region de Fos (GIFOS): development of the Fos
area near Marseille;
Groupement des Industries de Materiaux de Construction (GIMAT): construction
materials;
Groupement pour le Financement des Economies d'Energie (GENERCO): energy
conservation;
Groupement d'Equipement pour le Traitement des Minerais de Fer (GETRAFER):
processing of iron ore.
Based upon our investigation, we preliminarily determine that neither Vallourec nor Pont
a Mousson had any loans outstanding from these financial institutions in 1981.
D. The 1978 Rescue Plan
By 1978, the French steel industry had been experiencing severe financial difficulties for
a number of years. In September 1978, the government of France instituted a major
recapitalization and restructuring program for the steel industry, hereinafter referred to
as the "Rescue Plan."
The primary financial goal of the restructuring was the reduction of certain steel
companies' debt service burden. This was accomplished in three ways: interest refunds,
forgiveness of debt, and conversion of loans into "soft" loans of special characteristics
("Prets a Caracteristiques Speciales" or PACS.)
Neither Vallourec nor Pont a Mousson were included in the Rescue Plan and received no
benefits resulting from it.
For a more detailed description of the Rescue Plan, refer to the notice of "Final
Affirmative Countervailing Duty Determinations: Certain Steel Products from
France" (47 Fed. Reg. 39332).
E. Assistance to Coal Suppliers
Neither Vallourec nor Pont a Mousson use coke or coking coal for the production of raw
steel, nor do they produce the carbon steel sheet and plate used in the manufacture of the
welded pipe and tube products under investigation. Therefore, we preliminarily
determine that neither company has benefited from any assistance programs which may
have benefited the coal industry.
For a more detailed description of the assistance programs to coal suppliers, refer to the
notice of "Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from France" (47 Fed. Reg. 38332).
F. Tax Exemptions and Assistance for Land Purchases
Petitioners alleged that Vallourec may have benefited from a program through which it
purchased land at reduced prices, and received exemptions from value- added taxes on
the purchase of the land and equipment.
We find no evidence indicating Vallourec's participation in any government programs of
this nature.
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G. Funding for Infrastructure
Petitioners alleged that Vallourec may have benefited from a program by which the
French government provided funding for infrastructure such as road, port, rail and
communication facilities at Vallourec's Dunkirk pipe mill.
We find no evidence indicating Vallourec's participation in any government programs of
this nature.
H. European Coal and Steel Community (ECSC) and European Investment Bank (EIB)
Loans, Loan Guarantees and Interest Rebates
Neither Vallourec nor Pont a Mousson reported any loans, loan guarantees, or interest
rebates outstanding through any of the above mentioned programs in 1981.
For a detailed description of these programs, refer to Appendix 3 to this notice.
I. ECSC Funds for Research and Development
Neither Vallourec nor Pont a Mousson reported the receipt of any funds from the ECSC for
any research and development projects in 1981.
For detailed description of ECSC R & D programs, refer to Appendix 3 to this notice.
J. ECSC Labor Programs
Neither Vallourec nor Pont a Mousson reported the receipt of funds from the ECSC for
labor assistance in 1981.
For a complete description of ECSC labor programs refer to Appendix 3 to this notice.
K. Regional Development Incentives
The government of France provides a series of tax and non-tax regional incentives to
French and foreign businesses to establish new, or to expand existing, businesses in
certain French regions.
The Delegation a l'Amenagement du Territoire et l'Action Regionale (DATAR) coordinates
the programs of various government agencies and ministries. For incentive purposes,
France is divided into four zones. Each zone, or part of a zone, is eligible for different
types or levels of assistance. The assistance includes development grants, non-industrial
grants, research and development grants, decentralization indemnities, and job training
subsidies.
We have no evidence that DATAR provided any benefits to the steel companies involved
in this investigation.
L. Special Fund for Industrial Adaptation
Petitioners alleged that French steel companies received grants and preferential loans
through the Fonds Special d'Adaptation Industrielle (FSAI). FSAI was established in 1978
to promote job creation and industrial diversification in the steel, textile, shipbuilding
and coal regions of France.
We have no evidence that the steel companies included in this investigation received
benefits from FSAI.
M. Early Retirement and Layoff Benefits
French corporations have certain statutory and contractual obligations to pay severance
to their employees in case of interruption of cessation of employment. There are several
French government early retirement plans designed to compensate for the effects of mass
layoffs.
We have no evidence that the steel companies included in this investigation received
benefits under these program..
IV. Programs For Which Additional Information is Needed
A. Export Credit Insurance--Political and Exchange Risk
For a general description of COFACE programs, refer to the section entitled "Export Credit
Insurance--Commercial Risk" in this notice.
In 1981, both Vallourec and Pont a Mousson purchased from COFACE coverage against
the fluctuation of the exchange rates between the french franc and the U.S. dollar. In
addition, during that same period Pont a Mousson purchased COFACE coverage against
political risk on its sale to the United States.
We will seek additional information on the profitability of COFACE's political risk and
exhange rate risk programs.
B. Export Credits
In France, commercial banks may, upon endorsement from the Banque Francaise du
Commerce Exterieur (BFCE), rediscount loans issued for export financing. After receiving
a BFCE guarantee, the Bank of France will rediscount a portion of the outstanding credit
instrument at an interest rate equal to the discount rate in effect at that time. The balance
of the outstanding credit instrument is then financed by the commercial banks at their
normal lending rate. When combined, the Bank of France discount rate and the
commercial bank lending rate result in a "blended rate" which is below the commercial
benchmark for comparable loans in the year of issue.
In 1981, some sales to U.S. customers of the product under investigation, manufactured
by both Vallourec and Pont a Mousson, were financed with export credits. The funds for
those credits were provided by a pool of French commercial banks to the U.S. customers.
We will seek clarification on the composition of the pool of French commercial banks
extending the export credits in order to determine the extent to which the French
government is involved in the financing schemes. In addition, we will seek information
from the U.S. customers on the specific terms of the export credits to determine whether
a countervailable benefit has been bestowed.
Verification
In accordance with section 776(a) of the Act, we will verify all data used in making our
final determination.
Summary of Preliminary Benefits
We preliminarily determine that benefits which do not constitute subsidies within the
meaning of the countervailing duty law are being provided to the manufacturers,
produces, or exporters in France of large diameter welded carbon steel pipes and tubes
in the following amounts:
[In percent]
Manufacturer/producer/exporter Ad valorum rate
Vallourec ..................................... 0.024
Pont a Mousson ................................. .332
However, because these net subsidy rates are de minimis, our preliminary
countervailing duty determination is negative.
ITC Notification
In accordance with section 703(e) of the Act, we will notify the ITC of our determination.
Public Comment
In accordance with § 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 10:00 a.m. on November 1, 1982 at the U.S. Department of
Commerce, Room 3104, 14th and Constitution Avenue, NW, Washington, DC 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
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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 October 25, 1982. Oral Presentations
will be limited to issues raised in the briefs.
All written views should be filed in accordance with 19 CFR 355.43, within thirty days of
this notice's publication, at the above address and in at least ten copies.
Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.
October 4, 1982.
Appendix 1: Description of Product
For purposes of this investigation: the term "large diameter welded carbon steel pipes and
tubes" covers welded carbon steel pipes and tubes with walls not thinner than 0.065 of an
inch, of circular cross section and over 16 inches in outside diameter, as currently
provided for in items 610.3211 and 610.3251 of the Tariff Schedules of the United States
Annotated (TSUSA). Pipes and tubes suitable for use in boilers, superheaters, heat
exchangers, condensers, and feedwater heaters, or conforming to A.P.I. specifications for
oil well tubing, with or without couplings, cold-drawn pipes and tubes and cold-rolled
pipes and tubes with wall thickness not exceeding 0.1 of an inch are not included.
Appendix 2: Methodology
Several basic issues are common to many of the countervailing duty investigations of
large diameter welded carbon steel pipes and tubes, initiated by the Department of
Commerce (the Department) on June 3, 1982; e.g., government assistance through
grants, loans, equity infusions, loss coverage, research and development projects, and
labor programs. This appendix describes in some detail the general prinicples applied by
the Department when dealing with these issues, as they arise within the factual context of
these cases.
Grants
Petitioner alleged 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).
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 (the value in the
initial year of receipt) of the series of payments is considerably less than the amount if
initially given as a lump sum. We agree with this position. As 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 grants, we are consistent with both our domestic law and international
obligations in that the amount countervailed will not exceed the total net subsidy.
The present value of any series of payments is calculated using a discount rate. We have
determined that the most appropriate discount rate for our purposes is the "risk-free" rate
as indicated by the secondary market rate for long-term government debt (in the home
country of the company under investigation). The basic function of the "present value"
exercise is to allocate money received in one year to other years. Domestic interest rates
perform this function within the context of an economy. The foundation of a country's
interest rate structure is usually its government debt interest rate (the risk-free rate). All
other borrowings incorporate this risk-free rate and add interest overlays reflecting the
riskiness of the funded investment.
When we allocate a subsidy over a number of years it is not the intention of the
Department to comment on or judge the riskiness of the project undertaken with the
subsidized funds, nor to evaluate the riskiness of the company as a whole. We do not
intend either to speculate how a project would have been financed absent government
involvement in the provision of funds. Rather, we simply need a financial mechanism to
move money through time so as to accurately reflect the benefit the company receives.
We believe that the best discount rate for our purposes is one which is risk free and
applicable to all commercial actors in the country. Therefore we have used in these final
determinations long-term government debt rates (as reflected in the secondary market)
as our discount rates.
The legislative history of Title VII of the Act states that where a grant is "tied" to--that is,
bestowed specifically to purchase--costly pieces of capital equipment, the benefit flowing
from the grant should be allocated in relation to the useful life of that equipment.
The subsidy is allocated in equal nominal increments over the entire useful life, since
money tomorrow is less valuable than money today, thus the subsidy is effectively front
loaded. 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 (generally less than one percent of the company's
gross revenues and tied to items generally expensed in the year purchased, such as wages
or purchases of materials), we have allocated the subsidy solely to the year of the grant
receipt. We construe that a grant is "tied" when the intended use is known to the subsidy
giver and so acknowledged prior to or concurrent with the bestowal of the subsidy. All
other grants--the vast majority of those involved in these investigations--are allocated
over 15 years, a period of time reflecting the average life of capital assets in integrated
steel mills. 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 a common useful life adopted in some of the countries involved in these
investigations for steel capital equipment. We are using this time period because we
sought a uniform period of time for these allocations and this was 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.
Loans and Loan Guarantees for Companies Considered Creditworthy
In these investigations, various loan activities give rise to subsidies. The most common
practices are the extension of a loan at a preferential interest rate where the government
is either the actual lender or directs a private lender to make funds available at a
preferential rate, or where the government guarantees the repayment of the loan made by
a private lender. 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) reflecting standard
commercial terms. If the preferential loan is part of a broad, national lending
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program, we used 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
commerical credit experience (e.g., a contemporaneous loan to the company from a
private commercial lender). If there were no similar loans, the national commercial loan
rate is used as a substitute rate. Finally, where a national loan-based interest rate was not
available, an average industrial bond rate was used as best evidence.
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 apporpriate) applicable to loans denominated in the same currency
as the loan under consideration (where possible, rates on loans in that currency in the
country where the loan was obtained; otherwise, loans in that currency in other
countries, as best evidence). The appropriate discount rate remains the risk-free rate as
indicated by the secondary market rate for long-term debt obligations of the company's
home country government. The subsidy for each year is calculated in the foreign
currency and converted at an exchange rate applicable for each year.
After calculating the payment differential in each year of the loan, we then calculated the
present value of this stream of benefits in the year the loan was made, using the risk-free
rate (as described in the grants section of this appendix) as the discount rate. In other
words, we determined 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. This amount was then
allocated evenly over the life of the loan to yield the annual subsidy amounts. We did so
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 differential was 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
methodology previously employed by the Department whereby we considered the
difference in total repayments in each year of a loan's lifetime to be the subsidy in that
year. For loans with costant 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 is 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. Where we have sufficient evidence
that deferment of principal is a normal and/or customary lending practice in the country
under consideration, then such deferral has not been considered as conferring an
additional subsidy.
Coal Assistance
As explained in detail in the September 7, 1982 notice of "Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from the Federal
Republic of Germany" (47 FR 39345), we analyzed and verified aspects of the German coal
subsidy program as it applied to steel. Based upon the verified information in the records
of those investigations, we determined that this particular program does not confer a
countervailable benefit on either non-German or German steel producers.
As we stated in some of the preliminary determinations on Certain Steel Products reached
on June 10, 1982 (47 FR 26309), benefits bestowed upon the manufacturer of an input do
not flow down to the purchaser of that input if the sale is transacted at arm's length. In an
arm's length transaction, the seller generally attempts to maximize its total revenue by
charging as high a price and selling as large a volume as the market will bear.
The application of these principles to sales of German coal outside Germany is as follows.
The records of these transactions show that the prices charged for subsidized German
coal outside Germany certainly do not undercut the freely available market prices.
Therefore, non-German purchasers of subsidized German coal do not benefit from german
coal subsidies.
In support of this conclusion, we note that if non-German steel procedures did benefit
from German coal subsidies, they would attempt to purchase German coal rather than
unsubsidized coal from other sources including the U.S., since there are no restrictions on
their ability to do so. The fact that they purchase significant amounts of unsubsidized U.S.
coal indicates that the subsidies on German coal do not flow to non-German coal
consumers.
Moreover, it is extremely unlikely that the German government would significantly
subsidize non-German coal consumers unless compelled to do so by obligations with
respect to the European Communities. Since there is no evidence of such obligations, we
conclude that the German government is not in fact subsidizing non-German coal
consumers.
For these reasons, we determine that non-German steel producers do not benefit from
subsidization of German coal.
Research and Development Grants and Loans
Grants and preferential loans awarded by a government to finance research that has
broad applications and yields results which are made publicly available do not confer
subsidies. Programs of oranizations 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 in 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 particular program is countervailable, we calculate the value of
the subsidy by reference to
*44824
the form in which the R&D was founded. An R&D
grant is treated as an "united" 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 targeted region. Whether the program
preferentially benefits some workers as opposed to others is determined by looking at
both program eligibility and participation. Even where provided to workers in specific
industries, special welfare programs are countervaliable only to the extent that they
relieve the firm of costs it would ordinarily incur--for example, a government's
assumption of a firm's normal 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 small and expensed by
the company in the year received, we likewise allocated them only to the year of receipt.
However, where they were more than one percent of gross revenues, we allocated them
over a longer period of time, generally reflecting the program duration.
Appendix 3: Programs Administered by Organizations of the European Communities
I. The ECSC
On April 8, 1965, the three separate European communities--the European Coal and Steel
Community ("ECSC"), the European Economic Community ("EED") and the European
Atomic Energy Community--signed a treaty to merge into the European Communities
(EC"). Article 9 of the merger treaty established the Commission of the European
Communities to take the place of the High Authority of each of the formerly independent
institutions. The merger became effective in 1967.
The ECSC was established by the Treaty of Paris in 1951 to modernize production,
improve quality, and assure a supply of coal and steel to the member countries. The
Treaty of Paris governs all programs intended directly to affect the steel industry. Funds
for these programs flow from two sources: (1) ECSC borrowings on international capital
markets, and (2) the ECSC budget.
A. ECSC Programs Determined to be Subsidies
1. ECSC Loan Guarantees. Under Article 54 of the Treaty of Paris, the ECSC is authorized to
guarantee loans from commercial lenders to coal and steel companies. Since these
guarantees are intended specifically for the steel industry, we find the resulting benefits to
be countervailable. The countervailable benefit is the difference between the interest rate
charged by private lenders to commercial customers in the ordinary course of business
and the rates available with an ECSC loan guarantee.
2. Programs Funded Through ECSC Borrowings. Because of its quasi-governmental
nature, the ECSC is able to raise funds at interest rates lower than those which would be
available on commercial terms to European steel companies. When the ECSC relends
these borrowed funds to a company without increasing the interest rate, any difference
between the lower rate passed on and the rate otherwise available to the steel company in
the commercial financial market (the "benchmark") is a benefit to the company. For this
reason, we preliminarily determine that ECSC loans raised through capital market funding
are countervailable insofar as they offer preferential interest rates (i.e., rates which would
not be available on commercial terms) to steel companies. Consequently, any loan to a
steel company involving ECSC funds borrowed on international capital markets, provided
under an ECSC assistance program, confers countervailable benefits to the extent that the
loan is made at a preferential interest rate.
a. ECSC Industrial Investment Loans. Article 54 of the Treaty of Paris authorizes the ECSC
to provide loans to steel companies in member countries for reducing production costs,
increasing production, or facilitating product marketing. Loans provided under this
program are funded exclusively from ECSC borrowings on world capital markets. For the
reasons discussed above, we preliminarily determine that this program confers
countervailable benefits to loan recipients to the extent that the interest rates are
preferential.
b. ECSC Industrial Reconversion Loans. Under Article 56 of the Treaty of Paris, the ECSC
provides loans to companies or public authorities for investments in new non-steel
ventures in regions of declining steel industry activity. The goal of the loan program is to
provide employment for former steel workers in new industires. To the extent that such
industrial reconversion loans are made for steel production, they confer benefits on steel
production generally, or possibly on particular types of steel products if the loans were
tied. Since this program is funded exclusively from ECSC borrowings on world capital
markets, we have preliminarily determined that these loans to steel producers confer
subsidies on steel to the extent that the interest rates are preferential.
3 Programs Funded Through the ECSC Budget. With respect to programs funded by the
ECSC budget, we have information which verified the following facts about the
composition of the ECSC budget.
--From 1952, through 1956, the ECSC budget was financed exclusively through
producer-generated levies.
--From 1971 through 1977, the ECSC budget was financed exclusively through
producer-generated levies, funds generated from unexpended levies, and other relatively
small amounts obtained from steel companies (e.g.,) fines and late payment fees).
--Beginning in 1982, the member state contribution is to be used exclusively to fund one
particular program, rehabilitation aid provided under Article 56 of the Treaty or Paris.
We continue to believe that programs funded by the ECSC budget through 1977 do not
confer countervailable benefits.
However, since 1978 member state contributions have constituted a portion of the ECSC
budget. Upon consideration of this information, for the years 1978- 1981, we believe it is
reasonable to assume that programs funded by the ECSC budget are subsidized to the
extent that the budget derives from member state contributions. To assume to the
contrary (i.e., that all program assistance derives from levies and levy-generated funds,
and that member state contributions are used exclusively for expenses other than
program assistance) is inappropriate unless member state contributions are expressly
earmarked for particular programs. Accordingly, we have treated as a subsidy in 1981 a
proportion of the benefits received under programs funded by the ECSC budget.
Although not relevant to the subsidies being determined and measured in these
investigations, we note that for 1982, member state contributions have been so
earmarked for one particular program: rehabilitation aid provided under Article 56 of the
Treaty of Paris. If all member state contributions are expended in funding that program,
other programs would then be funded by levies and levy-generated funds, not from
member state contributions.
a. ECSC Labor Assistance and Rehabilitation Aids. Under Article 56 of
*44825
the Treaty
of Paris, the ECSC provides matching grants to member states for programs that assist
former steel workers currently unemployed or in training for a new trade. We have
information which verifies that some of this assistance has been provided to retrain
workers for other jobs in other industries and to cover some worker unemployment and
early retirement expenses for which the employing companies were not legally
responsible. Where such assistance has been provided to retrain steel workers for new
steel jobs, and/or to cover unemployment and early retirement expenses which steel
companies would normally be required to pay, then it benefits the steel industry. To that
extent, it is considered a subsidy.
This program is funded from the ECSC budget. In view of the relatively small amounts
concerned, we are expensing this assistance in the year it was received. Therefore, for
purposes of this investigation, we are capturing only assistance provided in the period for
which we are measuring subsidies (generally 1981). In 1982, member state contributions
accounted for 20.05% of the ECSC budget. Therefore, for the reasons discussed above,
20.05% of the assistance under Article 56 provided to steel companies for programs
benefiting steel production in 1981 constitutes a subsidy on the manufacture or
production of steel.
b. ECSC Interest Rebates. (1) Certain Article 54 industrial investment loans qualify for
further interest reduction depending on whether they are for environmental projects,
removal of industrial bottlenecks, promotion of steel industry competitiveness, or
stabilization of coal production. The rebates generally reduce the interest expense for the
first five years of the loan repayment schedule by three percentage points. The interest
rebates are paid out of the ECSC budget.
(2) Certain Article 56 industrial reconversion loans qualify for further interest
reductions. Like the interest rebates on Article 54 industrial investment loans, these
rebates are paid out of the ECSC budget. In a few instances the underlying loans made
under Article 56 benefit the products under investigation. Most Article 56 loans were
given to non-steel ventures. For the reasons discussed above, we have preliminarily
determined that both these programs described under (1) and (2) above confer
countervailable benefits to the extent that the ECSC budget in the year concerned is
financed by member state contributions. In view of the relatively small amounts
concerned, we are expensing this assistance in the year it was received. Therefore, we are
capturing only assistance provided in the period for which we are measuring subsidies
(generally 1981). In 1981, member state contributions accounted for 20.05% of the ECSC
budget. Therefore, for the reasons discussed above, 20.05% of the assistance provided in
1981 constitutes a subsidy on the manufacture or production of steel.
c. ECSC Coal and Coke Aids. Petitioner has alleged that ECSC assistance to coal producers
in EC countries constitutes an indirect benefit to steel producers purchasing that coal.
We have verified information that, in fact, certain ECSC coal aids are bestowed exclusively
on coking coal, which is used primarily by the iron and steel industry. Nonetheless, we
continue to believe, for other reasons, that the ECSC coking coal aids do not confer a
countervailable benefit on the manufacture or production of steel. We have no evidence
that ECSC-assisted coking coal is sold to ECSC steel companies at prices less than the
prices for other freely available coking coal produced in ECSC member countries but not
assisted by the ECSC, or for freely available coking coal produced outside ECSC member
countries. To the contrary, we have verified information that some coking coal is sold in
Europe at prices below the prices of ECSC-assisted coking coal. This indicates that the
coking coal subsidies to coal producers are not being passed along, in whole or in part, to
steel producers purchasing that coal in arm's length transactions.
Where a subsidized coal producer and a steel producer are related companies, it is
reasonable to question whether, in fact, the transfer price for coking coal is established on
an arm's length basis. In general, our tests for whether the prices for coking coal charged
to a related company were established on an arm's length basis include: (1) whether the
coal producer sold to its related steel producer at the prevailing price, and/or (2)
whether the coal producer sold to its related steel producers and all other purchasers of
coking coal at the same price.
B. ECSC Programs Determined Not To Confer Subsidies
1. ECSC Housing Loans for Workers. Article 54(2) of the Treaty of Paris authorized the
ECSC to provide loans for residential housing for steel workers. In some cases these loan
funds are provided directly to steel companies which relend them to their workers. In
other cases, they are administered through financial institutions or housing authorities.
These loans for the construction or purchase of homes are at highly concessionary one
percent interest rates.
The preferential ECSC housing loans provide substantial benefits directly to steel workers.
We do not believe that such aid relieves the employer steel companies of certain labor
wage costs.
In many of the countries concerned there is a high rate of unemployment, which reduces
upward pressure on wages. Moreover, we have found no instance in which wage rates
varied--depending upon the presence or absence of these mortgage loans to steel
workers--either within a steel company or between steel companies. Since we have no
firm basis for determining that the wage demands of steel workers would be responsive to
the (non)availability of this mortgage subsidy, we conclude that the hypothetical benefits
to the employing companies are too remote to be considered subsidies to these
companies.
2. ECSC R&D Grants and Loans. a. Article 55 of the Treaty of Paris provides funding in the
form of grants for up to 60 percent of an R&D project's cost. The projects must be for
improvements in the production and use of coal and steel.
We have preliminarily decided to consider ECSC budget-funded programs as
countervailable to the extent that the ECSC budget for the year concerned is financed by
member state contributions. Nevertheless, because we have evidence that the results of
the R&D are made publicly available, we have determined that this program does not
confer countervailable benefits.
b. With respect to ECSC R&D loans--also made under Article 55 of the Treaty of Paris--we
have information which indicates that the results of the research are made publicly
available. Therefore, we determine that ECSC R&D loans do not confer countervailable
benefits.
II. The European Investment Bank
The European Investment Bank ("EIB") was created by the Treaty of Rome establishing the
EEC to fund projects that serve regional needs in Europe. Article 130 of the Treaty of
Rome authorized the EIB to make loans and guarantee financial projects in all sectors of
the economy. These projects include the provision of funds to further the development of
low-income regions. Funds are drawn from debt instruments floated on world capital
markets and from investment earnings. Because EIB loans are designed by charter to
serve regional needs, we find them to be
*44826
countervailable where the interest rate
is less than the rate which would have been available commercially from a private lender
without government intervention.
The EIB also provides loan guarantees to companies in EC member countries. Again,
because this guarantee was available in some but not all regions, it is regarded as a
countervailable benefit.
III. The European Regional Development Fund
The European Regional Development Fund was established by the EC to provide funding
in the form of low-interest loans for industrial projects designed to correct regional
imbalances within the EC. The fund also awards interest subsidies on EIB loans.
We preliminarily determine that this program is not used by any of the manufacturers,
producers or exporters of the product from countries under investigation.
[FR. Doc. 82-27942 Filed 10-8-82; 8:45 am]
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