NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Final Affirmative Countervaling Duty Determination; Prestressed Concrete Steel
Wire Strand From France
Friday, October 22, 1982
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AGENCY: International Trade Administration, Commerce.
ACTION: Final affirmative countervailing duty determination: prestressed concrete
steel wire strand from France.
SUMMARY: We have determined 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 Investigation" section of this notice. The estimated net
subsidy is 4.792 percent ad valorem. The U.S. International Trade Commission (ITC) will
determine within 45 days of the publication of this notice whether these imports are
materially injuring, or threatening to materially injure, a U.S. industry.
EFFECTIVE DATE: October 22, 1982.
FOR FURTHER INFORMATION CONTACT: Nicholas C. Tolerico, 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) 377-4036.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we have determined 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 Investigation" section of this notice. The following
programs are found to confer subsidies:
Government preferential financing including loans and equity infusions through the
parent company
Certain labor-related aid/early retirement and layoff benefits
We determine the estimated net subsidy to be 4.792 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 and 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. We found the petition to contain sufficient grounds upon which to
initiate a countervailing duty investigation, and on March 24, 1982, we initiated a
countervailing duty investigation (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 ITC of our initiation. On April 19, 1982, the ITC determined that there is a reasonable
indication that imports of PC strand from France are materially injuring, or threatening
to materially injure, a U.S. industry (47 FR 18200).
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 April 8 and 9, 1982, we received the responses to the questionnaires.
Supplemental responses were received on June 30, 1982. On August 2, 1982, we issued
our preliminary determination in this investigation (47 FR 34173). The preliminary
determination stated that the government of France was providing its manufacturers,
producers, or exporters of PC strand with benefits which constitute subsidies. The
programs preliminarily determined to bestow countervailable benefits were:
. Export credit insurance
. Preferential financing including equity infusions
. Governmental assistance channeled through parent company
. Certain labor-related aid
Scope of Investigation
The product covered by this investigation is prestressed concrete steel wire strand (PC
strand) from France. This product is fully described in Appendix 1, which follows this
notice.
Trefileries et Cableries Chiers Chatillon Gorcy (CCG) and Fis 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 in 1981.
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 Appendices 2, 3
and 4 of this notice. Based upon our analysis of the petition, responses to our
questionnaires, our verification and oral and written comments by interested parties, we
determine the following.
I. Programs Determined to Confer Subsidies
We have determined that subsidies are being provided under the programs listed below to
manufacturers, producers, or exporters in France of PC strand.
A. Government Preferential Financing Including Loans and Equity Infusions Through the
Parent Company
Petitioners alleged preferential financing in the form of low-interest loans and loan
guarantees, and the conversion of accumulated debt into equity.
1. Loans and Loan Guarantees. A number of French government organizations have
issued loans and/or loan guarantees to CCG or its predecessors. The majority of these
loans were provided by the following institutions:
Fonds de Developpment 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. The fund, which is actually a line
item in the French government budget, is approved on an annual basis by Parliament.
As FDES is not an organization but a budgetary item, it is administered by the Ministry of
Finance which receives the applications for FDES loans. However, the decision to issue a
loan rests with
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the FDES Board, which is composed of government ministers and
career civil servants whose agencies are involved in economic policy.
A semi-public financial institution, Credit National, disburses FDES funds to recipients
approved by the Ministry of Finance (see discussion on Credit National below).
FDES loans are always part of a global financial package, as other lenders such as
government credit institutions and public and private banks participate in the funding of
a project. An FDES loan never covers the entire cost of a project. Usually, loans are
secured by a mortgage or a pledge. We were advised by the government of France that
FDES lending rates were consistently lower than commercial rates.
There is some evidence which suggests that FDES loans are available to all industries and
regions. At verification, we requested French government authorities to provide sample
FDES loan applications and agreements, and to specify the criteria on which these loans
were actually granted. As in our investigations of "Certain Steel Products from France"
(47 Fed. Reg. 39322), the French government did not provide this information. In light of
this refusal, we cannot conclude that these loans are generally available. Therefore, we
consider these loans to confer subsidies within the meaning of the countervailing duty
law to the extent that they were provided at preferential, below-market rates.
. Credit National (CN)
Credit National (CN) 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.
CN acted as the conduit through which FDES loans were granted to the steel industry. The
French government, either directly or through CN, also guarantees some loans to the
steel companies. 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,
which in effect 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. We verified that
CN loans to the French steel industry were made with government backing and that Credit
National's operating budget is financed by the French government.
There is some evidence suggesting that CN loans are available to all industries and
regions. At verification, we requested French government authorities to arrange a
meeting with CN officials, to provide sample loan applications, and to specify the criteria
on which these loans were actually granted. As in our earlier investigations of "Certain
Steel Products from France" (47 FR 39322), CN officials declined to meet with us.
Therefore, we were unable to establish that these loans were not given at the specific
direction of the government of France, or that CN loans are generally available.
Consequently, we consider these loans to confer subsidies within the meaning of the
countervailing duty law, to the extent that they were provided at preferential,
below-market rates. Similarly, we find that bank loans in which CN participated to confer
subsidies within the meaning of the countervailing duty law to the extent that they
were provided at preferential, below-market rates.
Further, a number of the loans provided by CN to CCG were linked to export performance.
We determine that those CN loans which carry a preferential interest rate that is
specifically linked to a target level of exports are export subsidies within the meaning of
the countervailing duty law.
. Regional Development Agencies
CCG received loans from LORDEX, CENTREST, and SUDEST which are regional
development agencies. At verification we were informed by government officials that
each region of France is served by a regional development agency. We have also
reviewed publications which indicate that all regions of France are covered by such
agencies and that assistance from these agencies is generally available. Based on this
information, we do not consider these loans to be regional or industry-specific. However,
a number of these loans were specifically linked to export performance. To the extent that
loans from these agencies were tied to increasing exports and were provided at
preferential, below-market rates, we determine that these loans are export subsidies
within the meaning of the countervailing duty law.
2. Creditworthiness Issue. The petition contained allegations that CCG is uncreditworthy.
In our preliminary determination, we found that, for purposes of this investigation, CCG
has been uncreditworthy since its formation in 1977. During verification, we established
that, although CCG was in operation during 1977, the company was not legally
established until December, 1977. In every year of operation, CCG has registered
significant operating losses. In addition, certain financial condition since 1977. While CCG
incurred significant losses in 1977, and had unfavorable financial ratios such as the sales
to net earnings ratio and the interest expenses to net earnings ratio indicate a
deteriorating financial ratios, we cannot conclude that the company was uncreditworthy
in that year because commercial lenders, not having the year-end figures for 1977, might
have made loans to, or investments in, CCG. Accordingly, we now determine, for
purposes of this determination, that CCG became uncreditworthy in 1978 and remained
so through 1981. Therefore, for the reasons outlined in Appendix 2, loans of more than
one year made to CCG during this period are treated essentially as equity. Since equity
infusions into CCG during this period cannot be considered to be consistent with
commercial considerations, they give rise to a potential subsidy.8
3. Loans and Equity Infusions from Parent Company. Since 1979, CCG has been a
wholly-owned subsidiary of Usinor. In the recent "Final Affirmative Countervailing
Duty Determinations: Certain Steel Products from France" (47 Fed. Reg. 39322), we
determined that Usinor received substantial subsidies from, or at the direction of, the
government, from the European Coal and Steel Community (ECSC), and from the
European Investment Bank (EIB), in the form of preferential loans and loan guarantees,
cash infusions and cancellation of debt in exchange for equity. CCG, in turn, received
medium-term loans from Usinor in 1980 and 1981, as well as a short-term loan in 1981 on
accounts payable. In addition, Usinor made equity infusions into CCG in 1979 in the form
of cash payments and debt cancellation in exchange for new stock.
Both the loans and infusions were made at a time when we consider CCG to have been
uncreditworthy. (see Creditworthiness Issue in section 2 above.) The loans from Usinor
were made at preferential, below-market rates and, since CCG had never registered a
positive rate of return on equity, the cash payments and debt cancellation in exchange for
stock cannot be considered as investments that were consistent with commercial
considerations. Moreover, at the time the loans and equity infusions were made, Usinor
was also experiencing serious financial difficulties, as evidenced by heavy operating
losses
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and unfavorable financial ratios (see "Final Affirmative Countervailing
Duty Determinations: Certain Steel Products from France", 47 FR 39322). Inasmuch as
Usinor was not in a financial position to make loans to and equity infusions in CCG, and
the loans and equity infusions were inconsistent with commercial considerations, we
determine that Usinor indirectly channeled to CCG subsidies received from the
government, the ECSC, and the EIB.
4. Calculation of Countervailable Benefits. Our treatment of preferential loans from FDES,
CN, the regional development agencies, and Usinor, is outlined in parts (a-b) below. Our
treatment of cash infusions from Usinor and cancellation of debt in exchange for
additional stock is outlined in parts (c- d) below. We calculated the ad valorem subsidy by
allocating the countervailable benefits as follows:
Where benefits were provided to all steel production, or were not specifically tied to
plants or equipment, the 1981 net benefit was allocated over total steel sales; and
Where export subsidies were provided, the 1981 net benefit was allocated over total
export sales of all steel products.
a. Preferential Loans Issued Prior to 1978. CCG and its predecessor companies received
both medium- and long-term preferential loans prior to 1978 which remained
outstanding on CCG's books through 1981. The benefit from any long- term loan from
FDES, the regional development agencies, CN, or 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. To determine the commercial benchmark for France, we used the
monthly financial statistics for the secondary market yields of private bonds in France,
published by the Organization for Economic Cooperation and Development (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.
Using the methodology in Appendix 2, we calculated the following subsidies. For
non-export oriented loans, we calculated a subsidy rate of 0.011 percent ad valorem. For
export loans, we calculated a subsidy rate of 0.088 percent ad valorem.
For medium-term loans with floating interest rates, we compared the average floating
interest rate in each month in 1981 with the monthly commercial benchmark. To
determine the commercial benchmark for medium-term loans in France, we used the
OECD monthly statistics for medium-term loans in 1981. For each month that the average
floating interest rate was below the commercial benchmark, we multiplied the difference
by the principal outstanding for that month during 1981 to derive a 1981 monthly
countervailable benefit. We then summed the monthly benefits to determine the total
1981 countervailable benefit. For loans with floating interest rates that were not
export-oriented, we calculated a subsidy of 0.026 percent ad valorem. For export loans
with floating interest rates, we calculated an export subsidy of 0.418 percent ad valorem.
b. Preferential Loans Issued Since 1978. Because we consider CCG to have been
uncreditworthy since 1978, loans of more than one year issued since then by FDES, the
regional development agencies, CN, bank syndicates in which CN participated, or Usinor,
with principal still outstanding during 1981, are treated as loans to companies considered
to be uncreditworthy. Using the methodology for loans to uncreditworthy companies
(see Appendix 2), we compared the national average rate of return on equity in France
with CCG's 1981 rate of return on equity. 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 under the methodology used for loans to uncreditworthy companies with the
result under the grant methodology described in Appendix 2. Using the amount
calculated under the grant methodology we found a subsidy rate of 0.389 percent ad
valorem for non-export oriented loans. For export loans issued since 1978, we used the
same methodology and calculated an export subsidy of 1.241 percent ad valorem.
As described above, CCG received a short-term loan on accounts payable in 1981. Since
this loan was provided for the purchase of inputs that are utilized within a period of less
than one year, any benefits from this loan accrue to the year of receipt and not to
subsequent years. Moreover, at the end of 1980 and 1981, Usinor, CCG's parent company,
converted a significant percentage of the outstanding amount of the short-term loan on
accounts payable into medium-term loans, which have been treated above as loans to
uncreditworthy companies.
This short-term loan carries a floating interest rate, and is accounted for in CCG's books on
a quarterly basis. To calculate the subsidy we compared the average floating interest rate
in each quarter in 1981 with the quarterly commercial benchmark. To determine the
commercial benchmark for comparable short-term loans in France, we used the OECD
monthly statistics on the mobilization of trade debts for short-term credits to enterprises.
We then computed a quarterly average for the commercial benchmark. For each quarter
that the average interest rate was below the commercial benchmark, we multiplied the
difference by the principal outstanding at the beginning of each quarter during 1981 to
derive a 1981 quarterly countervailable benefit. We then summed the quarterly benefits
to determine the 1981 total countervailable benefit. We found a subsidy of 1,797 percent
ad valorem.
c. Loss Coverage. Since the 1979 cash infusion provided by Usinor in exchange for
additional stock was neither tied to capital assets nor explicitly earmarked, we consider
these funds to have been available to cover cash-cased losses.
We assume that, when a company running large cash-based losses receives funds, it will
use these funds to meet immediate obligations such as wages, materials, and interest
expenses, which are items normally expensed in one year. As explained in Appendix 2,
we calculated CCG's 1978 cash-based loss and compared it to the cash received in 1979.
Since the loss exceeded the cash infusion, we consider the entire amount of the infusion to
have been expensed in 1979. Therefore, no 1981 countervailable benefit remains from
the 1979 cash infusion.
d. Cancellation of Debt. In 1979, Usinor also cancelled debt owed to it by CCG in exchange
for new stock. As explained above, we consider this debt cancellation to have been a
pass-through to CCG of government subsidies provided to Usinor, and to have made on
terms inconsistent with commercial considerations. Using the methodology outlined in
Appendix 2, we calculated the 1981 benefit by comparing the company's rate of return on
equity with the national average rate of return on equity. If the company's rate of return
was less than the national average, we multiplied the difference by the amount of debt
cancelled in order to determine the 1981 benefit. To prevent countervailing a higher
amount than if this equity infusion had been an outright grant to the company, we
calculated as a grant the amount of debt cancelled, and chose the lower of the two benefit
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amounts as the 1981 net benefit. Since the benefit calculated under the grant
methodology was lower, we applied this amount over the value of all sales and computed
a subsidy of 0.822 percent ad valorem.
B. Certain Labor-Related Aid/Early Retirement and Layoff Benefits
French corporations have certain statutory and contractual obligations to pay severance
to their employees in case of interruption or cessation of employment. There are several
French government early retirement plans designed to compensate for the effects of mass
layoffs. The plan designed to cover all industries is the Fonds National de l' Emploi (FNE).
Because of the significant problems faced by the steel industry with respect to
restructuring, two special early retirement and layoff agreements, were negotiated
between certain steel companies and the labor unions.
These are the Convention de Protection Sociale of June 1977 (CPS), which applies to
engineers and executives of the steel industry, and the Convention Generale de
Protection Sociale of July 1979 (CGPS), which applies to all other steel industry workers.
Under these special steel agreements, workers laid off between the ages of 55 and 60 must
retire. This is the "anticipated cessation of activity" plan which is financed in the same
manner as the FNE; that is, by government, employer, and employee contributions to the
unemployment fund and government contributions financed by company payments.
Workers between the ages of 50 and 55 who are laid off fall under the "dispensation of
activity" plan. Under this plan, the workers are still under contract to the company, but
their salaries are paid by the government. While the companies are under no contractual
or statutory obligation to pay wages to laid-off workers, they do have contractual and
statutory obligations to pay severance to laid-off workers. Since the workers who are
laid-off at age 50 continue to receive wages, the companies' requirement to pay severance
is deferred until the worker reaches age 55. In our "Final Affirmative Countervailing
Duty Determinations: Certain Steel Products from France" (47 FR 39322), we
determined that the deferral of severance pay provided for under the "dispensation of
activity" plan of the CGPS agreement conferred a subsidy on the steel companies involved
in those investigations. The benefit to the steel companies of the deferral payment of
severance was the difference between the liability accrued in each year for severance pay
and the actual expense incurred in each year for severance pay.
CCG had fewer than twenty-five employees affected by the "dispensation of activity" plan
under the CGPS agreement. This number is insignificant when compared to the large
number of employees from the steel companies involved in the investigations of "Certain
Steel Products from France" who were affected by the dispensation of activity plan.
Because CCG had so few employees affected by the dispensation of activity plan, the
annual differences between the liability accrued and the expense incurred in each year
are negligible. Consequently, the amount of any countervailable benefit conferred on CCG
under the dispensation of activity plan even assuming the "worst case", is so small that it
has virtually no discernible impact on the subsidy rate.
II. Programs Determined Not to Confer Subsidies
We have determined that subsidies are not being provided under the following programs
to manufacturers, producers, or exporters in France of PC strand.
A. Export Credit Insurance
CCG insures its exports to the United States through the Compagnie Francaise
d'Assurance pour le Commerce Exterieur (COFACE). COFACE is a government
corporation that provides export insurance to cover commercial, political, exchange rate
fluctuation and inflation risks. For our preliminary determination, we reviewed COFACE's
1980 annual report (the most recent report available at that time) and 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-
1980 revealed a pattern of yearly operating deficits on insurance activities that were
offset by revenues from investments. However, we reviewed the 1981 data and verified
that only the political risk program suffered losses, not the commercial risk program. We
also verified that premiums for COFACE's commercial risk insurance program exceeded
losses incurred by that program. Consequently, we now determine that COFACE export
insurance for commercial risks does not confer a subsidy with respect to exports to the
United States. We verified that CCG insures its exports to the United States only for
commercial risks.
B. Assistance to Improve Working Conditions
CCG received a small grant for employee training from the "aides a des actions de
formation" (FAAF) program, and another grant from the "aides pour l'amelioration des
conditions de travail" (FACT) program to ameliorate working conditions by decreasing
fumes emanating from a lead bath.
In our preliminary determination, we found these grants to confer subsidies. However,
official government documents obtained since the preliminary determination show that
grants under both of these programs are generally available thoughout the country. Any
enterprise is eligible for funding, and if a grant is awarded, the recipient must agree to
allow the results of the project to be made public. Therefore, we now determine that
grants provided under the FAAF and FACT programs do not confer subsidies within the
meaning of the counter-vailing duty law.
C. Regional Anti-Pollution Agencies
Created by Law No. 64-1245 of 1964, these regional agencies, known generically as
"Agences Financi>=2eres de Bassin", provide incentives for the installation of
anti-pollution devices. The agencies' operations are funded by dues from industrial users.
In return, they award bonuses and loans to combat pollution. Since we consider these
programs to be generally available, and not to benefit a specific industry or group of
industries, we find that they do not confer subsidies within the meaning of the
countervailing duty law.
D. Assistance to Coal Suppliers
In our preliminary determination, we found that subsidies to French coal producers did
not bestow a countervailable benefit upon the production, manufacture or exportation of
French steel.
In our investigations of "Certain Steel Products from France", we analyzed and verified
aspects of the French coal subsidy program as it applies to steel. As detailed in our "Final
Affirmative Countervailing Duty Determinations: Certain Steel Products from
France" (47 Fed. Reg. 39322), we find that the French coal subsidy program does not
confer a countervailable benefit on French steel producers for the following reasons.
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Benefits bestowed upon the manufacturer of an input do not flow down to the
purhaser 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 willbear.
These principles apply to French coal sales as follows. We find that the price charged for
French coal does not undercut the market price. Absent special circumstances
warranting a contrary conclusion, the French steel producers apparently do not benefit
from French coal subsidies as long as the price for French coal does not undercut the
market price.
Further consideration is warranted, however, for one special circumstance. The
government of France directly or indirectly owns all French coal producers and
partially owns major French steel companies. The issue arises whether transactions
between them are conducted on an arm's length basis. We do not believe that government
ownership per se confers a subsidy, or that common government ownership of separate
companies necessarily precludes arm's length transactions between them. To determine
whether coal sales between government- owned coal and steel producers appear to have
been consummated on arm's length terms, we considered whether the
government-owned coal producers sold to the government-owned steel producer at the
prevailing market price. We found that French coal producers did charge the prevailing
market prices. On this basis, we conclude that coal subsidies were not conferred on steel
producers as a result of government ownership.
Based upon the above considerations, we determine that French coal subsidies do not
confer upon French steel producers a subsidy within the meaning of the Act.
Regarding the allegation that the French steel industry indirectly benefits from German
government assistance provided to the coal industry in the Federal Republic of Germany,
we do not consider such assistance to confer a countervailable benefit on the French steel
producers for the reasons outlined in Appendix 2.
The ECSC provides various production and marketing grants to ECSC coal and coke
producers. However, we do not consider this assistance to confer a countervailable
benefit on the French steel producers for the reasons described in Appendix 3.
Since we do not consider any of the above programs to confer countervailable benefits to
steel producers, no benefits exist which can be passed through to companies such as CCG
which transform steel.
E. Indirect Benefits Through the Purchase of Wire Rod From Usinor
Petitioners alleged that, since Usinor has received subsidies from the government or at
the direction of the government, CCG receives benefits when it purchases wire rod from
Usinor. Since 1979, CCG has been a wholly-owned subsidiary of Usinor, which is currently
90 percent government-owned. Wire rod is the principal input into PC strand. With
respect to sales of Usinor's wire rod to CCG, 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 are also taken
into account to determine if a benefit received by a seller would be passed on to the
purchaser. According to economic theory, 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 '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 its subsidy on to the buyer in the form of
lower prices.
The application of these principles to the allegation that CCG benefits from the purchase of
Usinor's subsidized wire rod is as follows. Usinor is CCG's primary supplier of the wire rod
used in the production of PC strand. Most of CCG's remaining wire rod requirements are
furnished by unrelated suppliers located ourside of France. During verification, we
established that the prices charged by Usinor for wire rod were comparable to prices for
the same quality of wire rod from suppliers outside of France.
Since CCG is a wholly owned subsidiary of Usinor and purchases almost all of its wire rod
requirements from Usinor, we also reviewed prices charged by Usinor to its largest
unrelated customer for wire rod in order to determine whether the transactions between
Usinor and CCG can be considered to be at arm's length. During verification we
established that CCG pay no less for Unisor's wire rod than the largest unrelated purchaser
of Usinor's wire rod. We consider that this dual price comparison establishes that wire rod
transactions between CCG and Usinor are at arm's length. Therefore, we determine that,
while Usinor has used other means, such as preferential loans and equity infusions, to
channel benefits to CCG, the benefits to Usinor's wire rod production are not passed
through to CCG in the form of lower prices for wire rod.
F. Bank Loans
Before the creation of CCG in 1977, CCG's predecessors received loans from Societe
Generale and Banque Nationale de Paris. Since we have no evidence that these loans were
made at the direction of the government, we do not consider these loans to confer
subsidies within the meaning of the countervailing duty law.
G. Loans From Private Cooperative Financial Institutions
Two private cooperative financial institutions awarded loans to CCG's predecessors. These
institutions are:
Groupement Interprofessionnel Financier Antipollution (GIFIAP); and
Groupement des Industries de la Mer et des Activites Sous-Marines (GIMER).
GIFIAP and GIMER emerged after World War II to raise capital for French industry for
environmental protection and to promote marine industries. By floating bond issues,
these cooperative institutions raised capital and made loans to their member companies.
Since these are private, cooperative institutions, and since the loans were made prior to
the period in which we consider the company to have been uncreditworthy, we do not
consider these loans to confer subsidies within the meaning of the countervailing duty
law.
III. Programs Determined Not To Be Used
We have determined that the following programs, which were listed in the notice of
"initiation of Countervailing Duty Investigation", are not used 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 listed in Annex I of the Treaty Establishing the European Coal and Steel
Community, and, therefore, is not an ECSC product. Accordingly, CCG is not eligible to
receive loans and loan guarantees from these institutions. For a more detailed
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description of these ECSC programs, refer to Appendix 3.
B. ECSC Labor-Related Aid
Petitioners alleged 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 in not eligible for ECSC benefits. For a more
detailed description of these ECSC programs, refer to Appendix 3.
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. We have no evidence that CCG availed itself of these
programs.
D. 1978 Rescue Plan
Petitioners alleged 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. While subsidies provided to Usinor under the Rescue Plan may
have been passed through to CCG in the form of preferential loans and equity infusions (as
described in Section I-A, above), we have no evidence that CCG participated in or
benefitted directly from the 1978 Rescue Plan.
E. Research and Development (R&D) Assistance
We verified that CCG does not receive research and development funds from either the
"Institut de Recherches de la Sede rurgie Francaise (IRSID), the R&D organization of the
French steel industruy, or from the ECSC. For a more detailed description of ECSC R&D
programs, refer to Appendix 3.
IV. Petitioners' Comments
Comment 1
Counsel argues that subsidies must be found to exist from any governmental programs
providing benefits, regardless of whether these programs are generally available.
DOC Position
See Appendix 4.
Comment 2
Counsel argues that assistance from anti-pollution agencies is countervailable since it
benefits a specific industry or industries; i.e., those that significantly pollute.
DOC Position
We do not consider loans and incentives for pollution control to confer subsidies, because
such loans and incentives constitute general assistance to any company with a pollution
problem. Although not all companies would necessarily be eligible at any one time, loans
for pollution control are not selective in the same manner as regional or industry-specific
programs, because there is no predetermination of eligible areas or industries, and no
part of the country, and no industry, is excluded from eligibility in principle.
Comment 3
Counsel argues that CCG received a countervailable benefit through its wire rod
purchases from Usinor, its subsidized parent. Counsel asserts that, since Usinor and CCG
consolidate their financial statements, the transfer price for wire rod paid to Usinor by
CCG is irrrelevant, in that subsidies to Usinor allow Usinor to sell rod at a lower price than
would otherwise be possible. Counsel argues that, at the very least, DOC should
countervail that portion of the subsidy which flows through the cost of wire rod. Counsel
also argues that when a company is required to purchase its supplies from a subsidized
producer, that company receives the benefit of purchases of an input sold at a lower price
as a result of the producer's subsidy.
DOC Position
Our determination concerning the pass-through of benefits from the purchase of Usinor's
wire rod is detailed in Section II-F above. Regarding the consolidation of financial
statements, consolidated financial statements would not negate the conclusion that
transactions between CCG and Usinor represented prices charged in arm's length dealings.
Consolidated financial statements simply reflect the economic position of the entity as a
whole. It cannot be concluded solely from the consolidation of financial statements that
the subsidiaries or the parent are not operating independently. Regarding counsel's
argument that a company receives a subsidy when it is required to purchase its supplies
from a subsidized producer, we consider that the dual comparison of prices paid by CCG
to Usinor with the prices paid by Usinor's largest unrelated customer, and with the prices
paid by CCG to unrelated suppliers, demonstrates that CCG is not receiving any benefit
from purchasing most of its wire rod from Usinor. Further, while there is an unwritten
agreement that CCG will purchase most of its wire rod from Usinor, there is no written
contractual obligation which requires CCG to purchase from Usinor.
Comment 4
Counsel argues that, even if the Department compared prices paid by CCG with prices paid
by unrelated purchasers of Usinor's wire rod, a benefit which constitutes a subsidy within
the meaning of the statute is provided to all purchasers of Usinor's wire rod.
DOC Position
In the absence of any evidence that Usinor's prices to unrelated parties are distorted by
subsidization, price comparisons are the best available and most reasonable basis for
determining whether CCG benefits from discriminatory pricing for wire rod. We
established that CCG pays no less for Usinor's wire rod than any other purchaser. Further,
as explained in Section II-F above, we believe when transactions are at arm's length that
there is generally 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.
Comment 5
Counsel concurs with DOC's preliminary determination of uncreditworthiness and urges
DOC to reject "CCG's contention that ITA should ignore the uncreditworthy status of CCG
as a whole and merely look at the PC strand division of CCG". To focus on just one division
of a company ignores the fact that money is fungible.
DOC Position
It is the Department's position that the financial condition of the company as a whole, and
not just of one division, is the basis on which investment decisions are made. While the
performance of a division is certainly taken into account by potential lenders, it is the
company and not the division which receives loans and incurs the resulting financial
obligations of those loans. Accordingly, our determination on creditworthiness is based
on CCG as a whole, and not merely on the PC strand division.
Comment 6
Counsel argues that applying a risk-free discount rate to an admittedly uncreditworthy
company like CCG is unrealistic. Counsel also opposes the Department's use of the "grant
cap."
DOC Position
See Appendix 2.
*47037
Comment 7
Counsel argues that subsidies to the French coal industry confer benefits on CCG.
DOC Position
Since we do not consider that subsidies to French coal producers, subsidies to West
German coal producers, or that coal subsidies from the ECSC confer subsidies on French
steel producers (as described in Section III above and in Appendices 2 and 3), no
countervailable benefits, which could have been passed through to steel transformers
such as CCG, exist.
Comment 8
Counsel objects to using the average annual yield to maturity of newly issued corporate
bonds on the Paris Bourse as the benchmark for preferential loans.
DOC Position
We used OECD statistics to determine the benchmark and the discount rate because we
consider these statistics to be the best available estimates of the rates for comparable
commercial loans and the risk-free rate in France.
Comment 9
Counsel argues that loans and loan guarantees from the ECSC and EIB benefit CCG because
they are passed through from Usinor. Counsel also argues that ECSC labor-related aid to
Usinor benefited CCG.
DOC Position
PC strand is not listed as an ECSC product in Annex I of the Treaty Establishing the
European Coal and Steel Community. Thus there is no statutory basis whereby the ECSC
may provide direct benefits to CCG. We also verified that CCG receives no direct benefits
under these programs.
In our "Final Affirmative Countervailing Duty Determinations: Certain Steel Products
From France" (47 Fed. Reg. 39322), we determined that ECSC and EIB loans, loan
guarantees and interest rebates conferred subsidies on Usinor. These subsidies, as well as
those provided by the government of France or at the direction of the government,
confer benefits that can potentially be passed through to CCG by Usinor. Since Usinor
provided loans and made equity infusions in CCG at a time when, for purposes of this
investigation, CCG was uncreditworthy, Usinor's investments were on terms inconsistent
with commercial considerations. Therefore, we find that subsidies to Usinor from the
government of France, the ECSC, and the EIB have been indirectly channeled to CCG by
Usinor.
Comment 10
Counsel argues that the 1978 Rescue Plan benefitted CCG.
DOC Position
To the extent that the French government provided subsidies to Usinor either under the
Rescue Plan or through other means, and Usinor, in turn, provided assistance to CCG that
was on preferential terms or inconsistent with commercial considerations, we found that
a subsidy from the French government was indirectly channeled through Usinor to CCG.
However, we found no evidence that CCG participated in or benefitted directly from the
Rescue Plan.
Respondent's Comments
Comment 1
Counsel contends that Credit National (CN) loans and loan guarantees are not
industry-specific. Counsel also argues that CN loans to increase exports were used for
plant and equipment tied to all production, and not merely to production for export.
DOC Position
As indicated in the section on preferential financing above, that there is some evidence to
suggest that CN loans are available to all industries. However, the government of France
would not provide us with the criteria on which the loans were based. We were not
permitted to meet with CN officials or to view sample CN loan applications. Inasmuch as
we were not satisfied that CN loans were not industry-specific, or given at the specific
direction of the government, we could not find that they were not subsidies.
Regarding CN loans to increase exports, we consider that if a loan is linked to export
performance, it constitutes an export subsidy, to the extent that the loan is provided on
preferential terms. Even though the loan may be used to purchase plant and equipment,
these purchases are intended to increase or enhance exporting capacity with the net
result of increasing exports. Therefore, such loans constitute export subsidies within the
meaning of the countervailing duty law.
Comment 2
Counsel argues that FDES loans are not made on a regional basis, and, therefore, are not
countervailable.
DOC Position
As indicated above in the section on preferential financing, there is some evidence to
suggest that FDES loans are available to all regions. However, FDES is a government fund
administered by the French Treasury. The government of France would not provide us
the criteria on which the loans were awarded. Therefore, we were not satisified that FDES
loans were not regional and that they did not confer subsidies.
Comment 3
Counsel contends that COFACE's commercial risk and political risk insurance programs
should be considered separately, as the former operates at a profit and the latter at a loss.
CCG's exports to the United States are insured under the commercial risk program
exclusively.
DOC Position
We determined that COFACE's commercial risk insurance program does not confer a
benefit which constitutes a subsidy within the meaning of the countervailing duty law.
Comment 4
Counsel asserts that the allegedly new methodology used in the preliminary
determination should be rejected for failure to follow proper administrative procedures.
DOC Position
See Appendix 4.
Comment 5
Counsel argues that the methodology used in the preliminary determination to calculate
the benefits of loans and equity infusions is incorrect.
DOC Position
The methodology used in this investigation is outlined in Appendix 2. We consider that it
has been applied accurately and consistently in this determination.
Comment 6
Counsel objects to the use of the grants methodology which involves the imputation of a
future value designed to reflect the time value of money.
DOC Position
See Appendix 4.
Comment 7
Counsel argues that the creditworthiness concept adopted by the Department which
results in preferential loans being treated as infusions of equity is inconsistent with the
Act. Counsel further argues that no standards have been articulated for determining
creditworthiness.
DOC Position
See Appendix 2.
*47038
Comment 8
Counsel argues that an error was made in the application of DOC's methodology regarding
the creditworthiness determination for CCG.
DOC Position
In our preliminary determination we found CCG to have been uncreditworthy since its
creation in 1977. We now determine that CCG has been uncreditworthy since 1978. The
basis for this determination is outlined in section I-A-2 above.
Comment 9
Counsel argues that our treatment of floating interest rate loans failed to reflect
repayment of principal over the life of the loan.
DOC Position
This determination reflects repayment of principal over the life of the loan in the
calculation of benefits of floating interest rate loans.
Comment 10
Counsel argues that our treatment of quarterly and semi-annual interest payments as
single year-end interest payments, did not yield accurate results.
DOC Position
In this determination, we have taken into account the repayment schedule of both
interest and principal in calculating the 1981 benefits from preferential loans issued prior
to 1978.
Comment 11
Counsel argues that DOC failed to apply uniformly the equity/grant methodology in
calculating the benefit to CCG of Usinor's equity infusions.
DOC Position
We consider that the methodology outlined in Appendix 2 has been applied consistently
in this determination.
Comment 12
Counsel contests our finding of a benefit to CCG via certain labor-related programs.
DOC Position
We verified that grants provided by the FAAF and FACT programs are available to all
enterprises. We, therefore, do not consider that grants provided to CCG under these
programs constitute subsidies within the meaning of the countervailing duty law.
Regarding the "Convention Generale De Protection Sociale" (CGPS), we do consider that
benefits are provided to companies with employees that are covered under the
"dispensation of activity" plan. However, as explained in Section I-B above, the amount of
any countervailable benefit is so small that it has virtually no discernible impact on the
subsidy rate.
Comment 13
Counsel argues that an unreasonably high rate of return on equity was used as the
standard for calculating the amount of the subsidy conferred by equity infusions.
DOC Position
See Appendix 2.
Comment 14
Counsel contends that ITA "failed to focus on the question whether a subsidy is provided
to CCG with respect to PC strand, the merchandise which is the subject of the
investigation, and thus failed to meet the requirements of the Act".
DOC Position
It is our position that subsidies provided to a company which are not specifically tied to a
particular plant or piece of equipment, benefit all production of that company, including
the product under investigation.
Since the 1981 benefits of such subsidies are allocated over the value of all sales, the
product under investigation only receives a subsidy rate in proportion to its share of the
value of all production. Similarly, where subsidies are tied specifically to the product
under investigation, the 1981 benefits are allocated over the value of sales of that
product.
If subsidies are tied to plant and/or equipment that are not in any way related to the
production of the product under investigation, we have not included these subsidies in
our determination.
Comment 15
Counsel argues that the 'PC strand division is sufficiently productive and profitable to
justify investments of equity capital in CCG which can be allocated to that Division' and
that the PC strand division's performance is adequate to attract free market capital.
DOC Position
While the performance of a particular division within a company is undoubtedly taken
into account by lenders when deciding whether or not to lend funds, the ultimate decision
to lend funds is based on the viability of the company as a whole. Further, it is the
company, not the divisions, that receives the loans and incurs the resulting financial
obligations. As stated elsewhere in this notice, we have determined that CCG was
uncreditworthy for purposes of this investigation, and that it could not attract market
capital.
Comment 16
Counsel argues that the capitalization of CCG by Usinor beginning in 1979 is consistent
with commercial considerations as it was in Usinor's commercial interest to provide the
means for its new subsidiary to achieve future profitability.
DOC Position
While capitalization of a new subsidiary may be consistent, in some instances, with
commercial considerations, we consider that this was not the case with respect to the
cash provided and the debt cancelled by Usinor in exchange for additional stock in CCG.
As stated in section I-A-3 above, at the time Usinor invested in CCG through cash
payments and cancellation of debt, CCG had never registered a return on equity. Further,
as stated in our "Final Affirmative Countervailing Determinations: Certain Steel Products
from France" (47 FR 39322), Usinor has incurred significant operating losses in every
year since 1975, and its financial ratios have been unfavorable. Therefore, Usinor was not
in a financial position to invest in an uncreditworthy company, and could not have done
so without the assistance received from the government.
Comment 17
Counsel asserts that the Department "mistakenly allocated to PC strand the benefits of
loans tied to products other than PC strand, and even loans to other companies at the
time unrelated to the production facilities at Ste. Colombe."
DOC Position
See DOC Position on Comment 14.
Comment 18
Counsel argues that loans granted by LORDEX, CENTREST and SUDEST were used to
finance energy-efficient plant and equipment and that promotion of exports was at most
an incidental consideration in determining the terms of such loans.
DOC Position
In a number of the loan agreements between CCG and LORDEX, CENTREST, and SUDEST,
the interest rate of the loan was linked specifically to export performance. Accordingly,
we consider these loans to be export subsidies. If this linkage was not
*47039
specified in
the loan agreement, we did not countervail against these loans.
Comment 19
Counsel argues that PC strand production does not receive an upstream subsidy via the
purchase of wire rod from Usinor.
DOC Position
While we have determined that subsidies provided by the government to Usinor have
been passed through to CCG in the form of preferential loans and equity infusions, we do
not consider that the production of PC strand received a subsidy through the purchase of
wire rod from Usinor. Our reasons for this determination are outlined in Section II-E
above.
Comment 20
Counsel argues that the Department cannot legally presume that Usinor's financing of CCG
is provided or required by government action.
DOC Position
We consider that subsidies provided to Usinor by the government of France can
potentially be passed through to subsidiaries. Since Usinor made investments in CCG on
terms inconsistent with commercial considerations, and since they were made at a time
when Usinor itself was experiencing serious financial dufficulties, we determine that
subsidies provided to Usinor by the government of France have been indirectly
channeled to CCG and, as such, are subsidies to CCG within the meaning of section
771(5)(B) of the Act.
Verification
In accordance with section 776(a) of the Act, we verified the data used in making our final
determination. During this verification, we followed normal procedures, including
inspection of documents, discussions with government officials and on-site inspection of
the manufacturer's operations and records.
Administrative Procedures
The Department has afforded interested parties an opportunity to present oral views in
accordance with its regulations (19 CFR 355.35). A public hearing was held on September
15, 1982. In accordance with the Department's regulations (19 CFR 355.34(a)), written
views have been received and considered.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative countervailing
duty determination shall remain in effect until further notice. Since CCG is the only firm
in France that exported PC strand to the United States in 1981, the ad valorem subsidy
found for CCG shall apply to all manufacturers, producers or exporters of PC strand.
Therefore, the estimated net subsidy for all manufacturers producers or exporters of PC
strand from France is 4.792 percent ad valorem. We are directing the United States
Customs Service to require a cash deposit or the posting of a bond in the amount
indicated above for each entry of the subject merchandise entered on or after the date of
publication of this notice in the Federal Register.
ITC Notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination.
In addition, we are making available to the ITC all non- privileged and non-confidential
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 administrative protective order
without the written consent of the Deputy Assistant Secretary for Import Administration.
The ITC will determine within 45 days of the publication of this notice whether these
imports are materially injuring, or threatening to materially injure, a U.S. industry. If the
ITC determines that material injury, or threat of material injury, does not exist, this
proceeding will be terminated and all securities posted or cash deposited as a result of the
suspension of liquidation will be refunded or canceled. If, however, the ITC determines
that such injury does exist, within 7 days of notification by the ITC of that determination,
we will issue a countervailing duty order, directing Customs officers to assess
countervailing duty on PC strand from France entered, or withdrawn from
warehouse, for consumption after the suspension of liquidation, equal to the net subsidy
determined or estimated to exist as a result of the annual review process prescribed by
section 751 of the Act. The provision of section 707(a) of the Act will apply to the first
directive for assessment.
This notice is published pursuant to section 705(d) of the Act and § 355.33 of the
Department of Commerce Regulations (19 CFR 355.33).
Dated: October 15, 1982.
Lawrence J. Brady,
Assistant Secretary for Trade Administration.
Appendix 1
Description of Product For Purposes of This Investigation
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.
Appendix 2--Methodology
This appendix describes in some detail the general principles applied by the Department
when dealing with issues, such as government assistance through grants, loans, equity
infusions, loss coverage, research and development projects, and labor programs, arising
within the factual context of this investigation of prestressed concrete steel wire strand
from France. Most of the principles described below were set forth in the "Final
Affirmative Countervailing Duty Determinations: Certain Steel Products from
Belgium" (47 FR 39304).
Grants
Petitioner alleged that numerous grants have been provided to the respondent steel
company 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.
1When we allocate a subsidy over a number of years it is not the intention of the
*47040
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 this final
determination 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
fom 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 this steel investigation we have allocated a grant over the useful life of equipment
purchased with it when the value of the 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 are allocated
over 15 years, a period of time reflecting the average useful life of capital assets in steel
mills. We are using 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.
Funds to Cover Losses
In the preliminary determination we did not distinguish funds (either in the form of
untied grants or cash infusions in exchange for equity) which were available for loss
coverage from other grants or equity infusions. We stated that since grants used for loss
coverage often have the effect of helping keep the firm in business, we allocated the
benefit over 15 years when the funds were in the form of a grant or used the appropriate
equity methodology when the loss coverage funds were in the form of equity.
Based on comments and suggestions from interested parties to this case and the cases on
"Certain Steel Products", and on advice from the Department's accountants and outside
consultants on the issue of the appropriate treatment of funds for loss coverage, we have
decided not to allocate the subsidy benefit of these funds over time but rather to allocate
them to the year of receipt.
We have done so on the advice of these accounting experts in order to reflect the nature
of the liabilities giving rise to the loss. These liabilities are generally the basic costs of
operations (e.g., wages, materials, certain overhead expenses)--items generally expensed
in the year incurred.
We calculated the magnitude of the loss from a company's financial statements beginning
with net earnings and working back to a cash-based measure of loss. We allocated to loss
coverage only those grants and equity infusions which were truly cash inflows into the
company and were actually available to cover losses.
In any instances in which infusions were specifically tied to loss coverage, we allocated
such infusions accordingly. If infusions were not so tied, we concluded that general,
untied grants were a more logical source of loss coverage assistance than general
infusions of equity. Accordingly, in making these allocations we treated funds available
from grants as the primary source of monies available for loss coverage. We allocated
funds available from equity infusions to loss coverage only in the absence of grants or
after available grant funds had been exhausted. We treated such cash inflows as covering
the losses incurred in the previous fiscal year and allocated the subsidy benefit flowing
from such funds to the year of their receipt.
Loans and Loan Guarantees for Companies Considered Creditworthy
In this investigation 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 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 program, we used a national average
commercial interest rate as our benchmark. If the loan program is not generally available
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 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.
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 the 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 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. 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.
Loans and Loan Guarantees for Companies Considered Uncreditworthy
The petition contained allegations that the respondent company was uncreditworthy, and
that it could not have obtained commercial loans without government intervention.
*47041
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. This does not mean that such a company is totally uncreditworthy for all
purposes. Virtually all companies can obtain limited credit, such as short-term supplier
credits, no matter how precarious their financial situation. Our use of the term
uncreditworthy means simply that the company in question would not, in our view, have
been able to obtain comparable loans in the absence of government intervention.
Accordingly, 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 or any 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 interest benchmark for companies considered uncreditworthy. Therefore, we
continue to treat loans to an uncreditworthy company as an equity infusion by or at the
direction of the government. We believe this treatment is justified by the great risk, very
junior status, and low probability of repayment of these loans absent government
intervention or direction. To the extent that principal and/or interest is actually paid on
these loans, we have adjusted our subsidy calculation (which is performed using our
equity methodology, infra) to reflect this. We have applied the rate of return shortfall (the
amount by which the corporate rate of return on equity was lower than the national
average rate of return on equity) only to the outstanding principal in the year which we
are measuring subsidization. From this amount, we additionally subtract any interest and
fees paid in that year. Moreover, in no case do we countervail a loan subsidy to a
creditworthy or uncreditworthy company in an amount greater than if the government
had given the principal of the loan as an outright grant.
Short-Term Credits
Even the most financially troubled companies regularly receive short- term supplier
credits. This type of debt is different and easily distinguishable from the loans previously
discussed. We find that the short- term credits at preferential rates received by the
respondent company from its parent company are an indirect pass-through of
government subsidies provided to the parent company.
Where such short-term credits were not given at a preferential rate, we found no subsidy.
Furthermore, since the risk involved and the basis for giving supplier credits is
qualitatively different than for long-term loans, we did not interpret the presence of
supplier credits as an indication of creditworthiness.
Equity
In this case, we have determined that the parent company's cash payments and debt
cancellation in exchange for additional shares of stock in the respondent company
constituted a pass-through of government subsidies provided to the parent company. We
consider that these equity infusions in the subsidiary were possible because of
government subsidies provided to the parent company.
It is well settled that neither government equity ownership per se, nor equity purchases
made possible by government subsidies provided to the parent company, nor any
secondary benefit to the company reflecting the private market's reaction to government
ownership, confers a subsidy. Government equity infusions, or equity infusions made
possible by government subsidies provided to the parent company, confer a subsidy only
when they are on terms inconsistent with commerical considerations. An equity subsidy
potentially arises when equity infusions, provided either directly by the government or
indirectly channeled through the parent company, are made in a company which is
sustaining deep or significant continuing losses and for which there does not appear to be
any reasonable indication of a rapid recovery. If such losses have been incurred, then we
consider from whom the equity was purchased and at what price, or, absent a market
value for the equity, we examine the rate of return on the company's equity and compare
it to the national average rate of return on equity.
We respect the characterization of the equity infusions as equity in a commercial venture.
However, to the extent in any year that the rate of return realized on the equity
investment in a particular company is less than the average rate of return on equity
investment for the country as a whole (thus including returns on both successful and
unsuccessful investments), the equity infusion is considered to confer a subsidy. This
"rate of return shortfall" (the difference between the company's rate of return on equity
and the national average rate of return on equity) is multiplied by the original equity
infusion (less any loss coverage to which the equity funds were applied) to yield the
annual subsidy amount. Under no circumstances do we countervail in any year an
amount greater than which is calculated treating the government's equity infusion as an
outright grant.
Cancellation of Debt
We have found that government subsidies to the parent company have been passed
through to the respondent company in the form of cancellation of an outstanding debt
obligation in exchange for additional shares of stock. Where outstanding debt has been
converted into equity (i.e., shares in the company are received 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
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 producers 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
concluded 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 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 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.
*47042
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 a "untied" grant; a loan for R&D is treated as any other preferential loan.
Labor Subsidies
To be countervailable, a benefit program for worker 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, social welfare programs are countervailable 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 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.
Comments by Parties to the Proceeding
Comment 1
Counsel for the respondent argues that the Department's method of determining
uncreditworthiness was unfair in that it was based on hindsight which was not available to
a lender at the time it made a decision whether or not to provide funds to a company.
DOC Position
As outlined in this notice, our determination as to the creditworthiness of firms was based
upon information reasonably available to a potential lender at the time a loan was given.
For example, as outline in Appendix 2 to the "Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Belgium" (47 FED. Reg. 39304), although
British Steel Corporation's financial results for the fiscal year 1976/77 were a major
factor pointing to uncreditworthiness, in our final determinations we found it
uncreditworthy beginning in fiscal year 1977/78, when the lending community could
reasonably have known of the weakness of the firm's financial position in the preceding
year. This approach allows the potential lender time to evaluate its behavior in light of the
changed circumstances of the firm.
Comment 2
Counsel for petitioners states that to the extent that the Department calculates the benefit
from a loan to an uncreditworthy company as if it were a grant, failure to use a discount
rate to reflect the greater risk of providing credit to uncreditworthy firms which could not
borrow at any average or national rate leads to an understatement of the true value of the
subsidy received.
DOC Position
Although we used the average national debt rate as the discount rate in the preliminary
determination, we did not intend this to imply that the choice of the discount rate
reflected our speculation as to the riskiness of the company or the cost of alternative
financing. As discussed in the Grants section of this appendix, we view the discount rate
as simply a financial tool to move money through time. It is not our intention to embed in
this rate any project- specific risk or company risk. For this reason we are changing the
discount rate used in this final determination to the risk-free rate, a rate equally
accessible to all companies (including very risky ones) country-wide.
Comments 3
Counsel for petitioners rejects the Department's view that a party receiving a benefit on
the production of its merchandise is not assumed to share that benefit with an unrelated
purchaser. They maintain that a party may market its products at a lower price than it
would be able to charge absent the subsidy in order to secure or hold on to a large share
of the market, and thus to increase it profitability by realizing lower unit costs and
increased unit sales.
DOC Position
We agree that there is more than one way to seek to achieve maximum profitability.
However, the German coal companies do not sell below the prices of coal as sold in
Europe and elsewhere. In fact, German steel producers are required to pay a slight but
significant premium for German coal. Under these circumstances, we disagree with
petitioners' argument that German steel companies are indirectly subsidized through
German coal subsidies.
Comment 4
Counsel for petitioners argues that the Department should have considered German coal
subsidies to subsidize all steel companies purchasing that coal, both German and
non-German, because the intent of the coal subsidies is to stabilize coal supplies to the
ECSC steel industry and to insure that industry against the risk of adverse price
developments on the world market. Petitioners claim that without this subsidized coal,
the ECSC steel companies would have had to pay higher world market prices.
DOC Position
For the reasons indicated supra, we believe that it is too speculative to consider possible
effects on world prices for coal in the hypothetical absence of German subsidization of its
coal industry. However, if coal prices would rise in that event, we believe that they would
rise throughout the world. We do not believe that prices would rise for European
purchasers of coal rather than non-Europeans.
As also indicated in detail supra, we believe that the real economic effect of German
subsidies is to penalize, not to assist, German steel companies. As a result of the German
coal policy, German steel companies are required to pay a slight premium above the
world market price for their coal purchases. Non- German purchasers of subsidized
German coal similarly receive no demonstrable price advantage.
Comment 5
Counsel objects to the Department's alleged requirement that a subsidy on an input be
demonstrated to confer an unfair competitive advantage.
DOC Position
Under the Act, the Department is required to determine whether respondents have
received subsidies within the meaning of the Act. To do so, the Department seeks to
determine whether or not respondents have received directly or indirectly an economic
benefit. Whereas this is relatively easy in the case of the direct bestowal of a grant, it is
quite difficult with regard to indirect subsidies allegedly conferred through the
subsidization of inputs used in a final product. In this more complex area, we believe it is
required for the Department to consider whether there is an economic benefit to foreign
manufacturers of an individual input. This is quite distinct from the ITC's determination
whether imports of the final product into the United States injure a U.S. industry. The
Department therefore disagrees with petitioners on this issue.
Appendix 3--Programs Administered by Organizations of the European Communities
The determinations and comments set forth in this appendix are the same as those
presented in Appendix 3 of the "Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Belgium" (47 FR 39304). We are including
this appendix with this notice because the petitioners in this investigation made
allegations and comments pertaining to the programs administered by the 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 ("EEC"), 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 itself 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.
*47043
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 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 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 industries. 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 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 of 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 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.
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 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 1981, 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
benefitting 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 evironmental 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 determine 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. In
the "Certain Steel Products" investigations, we 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 contiue 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 lower 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 while 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
*47044
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 fincancial 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 EC countries 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 hypothethical
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 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 determined that this program was not used by any of the manufacturers, producers or
exporters of the products from countries under the "Certain Steel Products"
investigations.
Comments Received From Parties to the Proceeding
Comment 1
Counsel for petitioners argues that the Department did not correctly interpret the term
"subsidy" and did not countervail ECSC assistance programs to the extent that funds for
these programs were derived from the ECSC budget.
DOC Position
As explained in detail supra, the Department has determined that ECSC budget- funded
assistance is potentially countervailable to the extent that the ECSC budget for the year
concerned is financed by Member State contributions.
Whether or not we found particular ECSC budget-funded assistance to confer a subsidy
depended on other factors as well. For example, we found that the results of ECSC funded
research and development projects were made publicly available, and therefore did not
confer subsidies.
Comment 2
Counsel for petitioners argues that ECSC budget-funded assistance programs confer
subsidies on ECSC steel producers despite levy financing of the budget, because the ECSC
must borrow massively to supplement the levies.
DOC Position
As indicated in detail supra, to the extent that the ECSC budget in a given year is funded
by Member State contributions, we consider any assistance funded generally from the
budget in that year to be partially countervailable. Also as explained supra, to the extent
that ECSC loans financed by ECSC borrowings on world capital markets are made to steel
companies at preferential interest rates, we believe that they are countervailable.
Comment 3
Counsel for petitioners maintains that ECSC budget-funded programs confer subsidies
even when financed through levy funding; that the ECSC borrows to finance its programs,
and there is no delineation between the programs funded by the levy and the programs
funded by debt.
DOC Position
As explained in detail supra, we agree that many (though not all ECSC) budget- funded
programs confer some countervailable benefit if the assistance was provided in a year in
which the ECSC budget was derived partially from Member State contributions. Where it
can be shown that ECSC budget-funded assistance derives exclusively from levies and
levy-generated funds ultimately derived from steel producers, no countervailable benefit
is conferred upon steel producers by the return to them of their own funds. However, for
the period of investigation we did not find that any program's funding could be shown to
derive exclusively from levy financing.
Comment 4
Counsel for petitioners has claimed that ECSC assistance funded by producer levies
confers subsidies wherever an idividual producer receives assistance in excess of levies
paid by that producer.
DOC Position
As explained elsewhere in this Appendix and in Appendix 4, we do not consider ECSC
budget-funded programs to confer subsidies on steel producers to the extent such
programs are funded by producer levies. Our view is not affected by the degree to which
individuals producers, which have contributed levies, do not participate in or receive
benefits from these programs. The producers probably should be viewed as pooling their
resources, for their mutual benefit, to create and maintain certain programs which are
available to all the producers. Over the relatively short period for which we are
measuring subsidies, certain producers have more frequent occasion to use certain
programs than other producers. In principle, this is not different from other types of
cooperative behavior, such as jointly funded risk insurance, under which not all
particpiants will have identical claims although all contribute equal premiums.
Accordingly, insofar as producer levies are directly funding the programs, no subsidies
can be said to arise from any apparent short-term disparity of benefits received.
Comment 5
Counsel for petitioners has challenged our determination that benefits received under
certain ECSC programs funded by ECSC coal and steel producer levies were not subsidies.
Counsel asserts that, in reaching such a determination, we have allowed offsets from
subsidies in a manner contrary to law.
We disagree with petitioner' characterization of the determination on this issue. To the
extent that we have viewed benefits received under ECSC programs as attributable or
allocable to producer levies, we find that no gross subsidy exists. No "offset" or reduction
in subsidy amount is made, because the recipients of the program benefits are directly
funding those benefits themselves and thus the ECSC is not creating a subsidy. This is not
analogous to governmental benefits funded by general tax revenues, for the levies in
question are--and since the inception of the levy system have
*47045
been-- strictly
earmarked for the ECSC budget-funded programs for which they are, in fact, used. In
reality, the ECSC acts as no more than the administrator and distributor of levies
collected, and does so under such tight restrictions as to preclude the conclusion that the
return of levy funds to the producers gives rise to a gross subsidy.
Appendix 4--General and Gatt-Related Issues
The issues contained in this appendix are the same as those presented in Appendix 4 of
the "Final Affirmative Countervailing Duty Determinations: Certain Steel Products
from Belgium" (47 FR 39304). We are including this appendix because these same issues
were raised by petitioners and respondents in this case or are relevant to this
investigation.
. General issues
Comment 1
Counsel for petitioners contends that many of the conclusions in our preliminary
determination were erroneous insofar as they found that particular programs of general
applicability and availability within a country do not give rise to domestic subsidies. They
assert that subsidies must be found to exist from any governmental programs providing
benefits, regardless whether those programs are generally available.
DOC Position
Section 771(5) of the Act, in describing governmental benefits which should be viewed as
domestic subsidies under the law, clearly limits such subsidies to those provided "to a
specific enterprise or industry, or group of enterprises or industries." We have followed
this statutory standard consistently, finding countervailable only the benefits from those
programs which are applicable and available only to one company or industry, a limited
group of companies or industries, or companies or industries located within a limited
region or regions within a country. This standard for domestic subsidies is clearly
distinguishable from that for export subsidies, which are countervailable regardless of
their availability within the country of exportation. We view the word "specific" in the
statutory definition as necessarily modifying both "enterprise or industry" and "group of
enterprises or industries". If Congress had intended programs of general applicability to
be countervailable, this language would be superfluous and different language easily
could and would have been used. All governments operate programs of benefit to all
industries, such as internal transportation facilities or generally applicable tax rules. We
do not believe that the Congress intended us to countervail such programs. Further, our
conclusion is supported by the clear Congressional intent that " subsidy" be given the
same meaning as "bounty or grant" under section 303 of the Act. Never in the history of
the administration of this law or section 303 of the Act has a generally available program
providing benefits to all production of a product, regardless of whether it is exported,
been considered to give rise to a subsidy or a bounty or grant. In enacting the Trade
Agreements Act of 1979, Congress specifically endorsed that interpretation of section
303. Finally, the fact that the list of subsidies in section 771(5) is not an exclusive one in
no way compels the conclusion that domestic benefits of general availability must or can
be considered subsidies. Indeed, in view of the statute and its legislative and
administrative history, we doubt that we are free to treat such generally available benefits
of domestic programs as subsidies; certainly we are not compelled to do so.
Comment 3
Counsel for the respondent claims that our adoption in the preliminary determination of a
number of new methodologies for the ascertainment and calculation of subsidies was
procedurally deficient as a matter of law. They assert that these new methodologies
conflict with past practice and, therefore, cannot be implemented in any case before
rulemaking procedures have been completed, which procedures would have to provide
published notice of proposed changes and opportunity to comment.
DOC Position
We do not agree that the methodologies employed in this case have to be the subject of
rulemaking procedures or that such methodologies could not be employed until such
procedures have been completed. The adoption of these methodologies is neither
rulemaking nor adjudication within the meaning of the Administrative Procedures Act.
Some of the methodologies employed cannot be said to be in conflict with any past
practice under sections 701 or 303 of the Act, for they address issues and factual
situations which, to the best of our knowledge, have not previously been encountered.
Others, such as the present value methodology of valuing money over time, do represent
a departure from past methods for determining the existence or size of subsidies.
However, the prior practice, with which the methodology used in these cases has been
alleged to be inconsistent has never been prescribed in the Commerce Regulations or,
before that, the Customs Regulations.
Decisions as to the use of such methodologies are not matters requiring rulemaking
procedures, but are questions of policy left to the judgment and discretion of the
Department and decided on a case-by-case basis, applying the law, as we understand its
requirements and intent, to the facts of each case. While the Department could prescribe
such methodologies in its regulations, we have not chosen to do so. Unless and until that
occurs, no rulemaking procedures can be considered necessary before changing prior
methodologies. At the outset of these investigations respondents may have anticipated
that certain prior methodologies would be employed in place of ones actually used, but
they have no legal right to the maintenance of such prior practices.
Further, our perliminary determination and subsequent disclosures to all interested
parties fully explained these methodologies and the respondent took advantage of the
opportunity to comment upon them, both orally and in writing. We took all of these
comments fully into account in reaching our final determination. As such, the respondent
fully participated in the decision- making process to the extent of its legal rights, and
cannot properly be viewed as having been denied any such rights. Moreover, there is no
substantial evidence in the record in any of this case which would support a conclusion
that the respondent government, when establishing or administering the programs
investigated, relied to its detriment on prior methodologies. Indeed, it would be difficult
to conclude that the government in any way considered the possible consequences under
the U.S. countervailing duty law before taking the actions which resulted in
countervailable benefits to the product under investigation.
Gatt-Related Issues
Comment 5
The European Communities (EC) assert that in order for a countervailable subsidy to exist
under the GATT, there must be a charge on the public account. In support of this
contention, the EC cites in particular item (1) of the Illustrative List of Export Subsidies
(the List), included as an annex to the Agreement on Interpretation and Application of
Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade (the Code).
Item (1) of the List defines as an export subsidy, "Any other charge on the public account
constituting an export subsidy in the sense of Article XVI of the General Agreement."
DOC Postion
Item (1) does not limit the definition of subsidy to a charge on the public account, but
rather makes clear that such a charge is included in the universe of subsidies which
constitute on their face prohibited export subsidies. Items (c) and (d) of the List show that
preferential treatment for exports, without regard to a charge on the public account, can
also constitute a subsidy on its face. These items define as subsidies:
(c) Internal transport and freight charges on export shipments, provided or mandated by
governments, on terms more favorable than for domestic shipments.
(d) The delivery by governments or their agencies of imported or domestic products or
services for use in the production of exported goods, on terms or conditions more
favorable than for delivery of like or directly competitive products or services for use in
the production of goods for domestic consumption, if (in the case of products) such terms
or conditions are more favorable than those commercially available on world markets to
their exporters.
Item (1), cited by the EC, derives from the original illustrative list of subsidies of 1960,
which represented an agreed interpretation of Article XVI: 4 ot the GATT. However, the
Department notes that this list also includes items (c) and (d) of the current List. Since the
negotiation of Article XVI: 4 in the 1950s, there has never been a consensus on an
interpretation such as that advanced by the EC. Rather, it has been generally accepted
that the range of activities covered by the term subsidy as used in the GATT is quite
broad, including charges on the public
*47046
account as well as certain activities which
do not necessarily involve such a charge.
Comment 6
The EC argues that subsidies other than export subsidies cannot be considered
countervailable under the Code unless such subsidies "(a)dversely affect the conditions fo
normal competition. In the absence of any such distortion, subsidies, other than export
subsidies, are recognized as important instruments for the promotion of social and
economic policy objectives against which no action is envisaged by the Code." The EC
further argues that the Department considered regional aids countervailable "(w)ithout
taking into consideration any disadvantages incurred by companies having to operate in
economically retarded and remote areas. This approach does not take into account, that
under GATT and the Code countervailable susidies are only those, which adversely affect
the conditions of normal competition." In support of this contention the EC cites Article
11 of the Code, "Subsidies Other Than Export Subsidies."
DOC Position
The language of Article 11 does not prejudice the right of any signatory to the code to
countervail against non-export subsidies. The language of the Article is the result of
compromise between the United States and the EC at the time of the negotiation of the
Code; the United States proposed to include an illustrative list of domestic subsidies,
while the EC position was that such subsidies should not be considered countervailable.
The Department notes that, while no list of domestic subsidies was incorporated per se in
the Code, examples of such subsidies are included in Article 11. In contrast, the position
of the EC was not adopted, as no such prohibition regarding the countervailability of
domestic subsidies appears in the Code. The fact that certain subsidies are not prohibited
by the Code is not relevant to a determination as to whether such subsidies confer a
countervailable benefit in a specific case.
In addition, the Department notes that Article 11:3 of the Code states, "(t)he above form of
(non-export) subsidies are normally granted either regionally or by sector." Article 11:2
states:
"Signatories recognize, however, that subsidies other than export subsidies . . . may cause
or threaten to cause injury to a domestic industry of another signatory or serious
prejudice to the interests of another signatory or may nullify or impair benefits accruing
to another signatory under the General Agreement, in particular where such subsidies
would adversely affect the conditions of normal competition. Signatories shall therefore
seek to avoid causing such effects through the use of subsidies. In particular, signatories
when drawing up their policies and practices in this field, in addition to evaluating the
essential internal objectives to be achieved, shall also weigh, as far as practicable,
possible adverse effects on trade. They shall also consider the conditions of world trade
and production (e.g. price, capacity utilization, and supply of the product concerned).
While there is no agreed definition of the term "normal competition" in the context of the
GATT, the term can reasonably be construed to include comparative advantage, a
concept about which little, if any, serious dispute exists among economists. The argument
of the EC flows against the logic of comparative advantage. Subsidies used to alter the
comparative advantage of certain regions with respect to the production of a certain
product of products are by definition distortive of trade and the allocation of resources,
and, therefore, must affect normal competition, including competition with producers in
the market of the importing country. There is no evidence that the governments of the
countries in question, with regard to most of the programs and benefits under
consideration, specifically sought to avoid causing injury to the domestic industries of
other Code signatories, or even considered possible adverse effects on trade, as required
by Article 11:2.
Finally the Department notes that Article 4 of the Code, "Imposition of countervailing
duties", makes no distinction between domestic and export subsidies.
Comment 7
In objecting to the methodology used by the Department to calculate the subsidies found
to exist by virtue of grants, preferential loans and loan guarantees (See Appendix 2,
Methodology), the EC argues that "Article VI of the GATT provides that a
countervailing duty may not exceed the amount of subsidy 'determined to have been
granted'. The use of the work 'granted' rather than 'received' and the absence of any
reference to 'value' or 'benefit' indicates clearly that the countervailable amount is the
financial contribution of the government rather than the much more nebulous benefit to
the recipient." (Emphasis in the EC brief).
DOC Position
The position of the Department with respect to the need for a specific financial
contribution of the government is discussed above. With respect to the calculation of the
amount of the subsidy, the Department believes that the use of the word "granted" in
Article VI:3 does not control the question of calculation of the amount of a subsidy, but
merely refers to the existence of the subsidy. In fact, as the EC itself notes, Footnote 15 to
the Code states, "An understanding among signatories should be developed setting out the
criteria for the calculation of the amount of subsidy." Were the amount of subsidy always
equal to a charge on the public account, such an understanding would be unnecessary.
Article 4:2 of the Code states that "(n)o countervailing duty shall be levied on any
imported product in excess of the amount of the subsidy found to exist. . . ." The position
of the Department is that the subsidy is the benefit received by the producer or exporter.
In no way does the language of Article 4 of the Code or Article VI of the GATT mandate a
methodology to be used by signatories in the calculation of a subsidy as long as no
consensus to the contrary exists (as referred to in Footnote 15). As a matter of general
interpretation of the Code and the GATT, the omission of language dealing with a specific
issue must be seen as a purposeful decision on the part of the signatories to leave the
question open (see Comment 8 and DOC Position, below).
Comment 8
The EC has criticized the Department for making unilateral interpretations of various
provisions of the Code, in particular with respect to determinations as to whether certain
specific practices are subsidies and with respect to the methodologies employed in
calculating the value of a subsidy.
DOC Position
The Department will follow, as far as U.S. law permits, the mandatory provisions of the
Code, as well as any interpretations on which a consensus exists among all Code
signatories including the United States. However, the Code does not require inaction by
signatories with regard to areas not clearly covered by the Code or by agreed
interpretations of the Code. Such a requirement would be inconsistent with practice
under the GATT as it has developed since its inception in 1947. The fact that the Code is
silent with respect to whether a specific practice constitutes a subsidy does not mean that
no signatory may make a determination with respect to that practice in the course of a
proceeding. The fact that the signatories have not agreed on a methodology for the
calculation of the amount of a subsidy does not mean that no signatory may adopt a
methodology in the absence of such agreement, since the inability to calculate the
amount of the subsidy found to exist would clearly frustrate the intent of the Code and the
GATT.
Comment 9
The EC objects to the Department's use of average return on investment as a measure of
the commercial reasonableness of a government infusion of equity in the absence of a
market price for shares. The EC argues that "(i)t follows from the GATT that the decisive
criterion is the cost to the Government and therefore the investment should be treated as
a long-term loan by the Government and the long-term return should be measured
against the rate at which the Government borrowed money to make the investment."
DOC Position
The Code notes in Article 11:3 that possible forms of non-export subsidies include
"government subscription to, or provision of, equity capital." However, the Code and the
GATT are silent on the question of precisely when such activity does constitute a subsidy
and, where found, how such a subsidy should be calculated. The position of the EC with
respect to this issue turns on defining a subsidy as the cost to the government. As
discussed above in the response to Comment 6, the Department rejects this position. In
any event, the equity infusions in question were not long-term and had no provisions for
repayment. Accordingly, it is not possible to conclude that the decision of the
Department is inconsistent with the GATT or the Code (see Appendix 2 for a discussion of
the
*47047
methodology employed by the Department with respect to equity infusions).
Comment 10
The EC avers that "(t)his distinction (between creditworthy and uncreditworthy
companies) is a complete innovation and is not provided for anywhere in the GATT. Since
the GATT criterion for the determination of a subsidy is the financial contribution of the
government, the creditworthiness of the companies is irrelevant."
DOC Position
The fact that the GATT does not address this issue specifically does not preclude
consideration of the issue where it arises in the course of a proceeding. As discussed
above, the Department does not agree that the only criterion for the determination of the
existence of a subsidy under the GATT is the financial contribution of the government.
Therefore, the question of the creditworthiness of a borrower is relevan because a loan to
a company unable otherwise to obtain credit is a greater benefit to that company than a
comparable loan to a company which is able to obtain financing on its own.
Comment 11
The EC argues that the Code must be interpreted in its entirety, and that the various
provisions must be considered in relation to each other. In particular, the EC emphasizes
that the List prescribes by implication the manner in which subsidies must be determined
to exist and must be calculated.
DOC Position
The Department agrees that the Code must be interpreted as a whole. This includes the
code's distinction between subsidies which are prohibited per se and subsidies which are
prohibited only under certain circumstances. The subsidies which are enumerated in the
List are prohibited per se under Article 9, and, hence, actionable under "Track II", as
provided for under Articles 12, 13, 17, and 18. As its title implies, the List is illustrative of
the types of practices which constitute grounds for the invocation of Track II dispute
settlement procedures.
The list is thus descriptive of prohibited practices, not dispositive of the calculation of the
value of any subsidy conferred under any particular practice. Thus there is no
inconsistency between the Department's calculation of benefits conferred by export
subsidies compared with benefits conferred under domestic programs, since the
Department employs uniform methodologies without regard to any distinction between
the two types of subsidies.
Comment 12
The EC states that "Appendix B (of the Preliminary Determinations) contains a disturbing
assertion: In the absence of special circumstances, a party receiving a benefit on the
production of its merchandise is not assumed to share a benefit with an unrelated
purchaser. (47 Fed. Reg. 26307, 26309 (1982) emphasis supplied). The implication is
that the existence of a countervailable subsidy, i.e. 'benefit' can be assumed in certain
circumstances * * *." The EC asserts that the Code requires that the elements necessary
for the imposition of countervailing duties be established by positive factual
evidence. Further, the EC adds that "(t)he only instance in which Title VII permits a
presumption is under section 771(7)(E)(i) * * *."
DOC Position
The Department agrees that determinations as to the existence of a subsidy should be
based on verified facts. However, this is possible only insofar as the facts are made
available to the Department during the course of a proceeding. As a matter of normal
procedure, the Department requests information from all interested parties, including the
foreign government involved, in order to establish the facts upon which its
determinations may be based. The Department followed this procedure in the instant
cases. In those instances where the Department has been forced to make a determination
on the basis of incomplete information, the responsiblity rests with the interested parties
who, depsite the requests of the Department, failed to provide such information to the
Department in a timely manner.
Where incomplete information has formed the basis of decisions of the Department in
particular cases, there is no contravention of the obligations of the Department with
respect to the Code or the statute. Article 2-9 of the Code provides:
"In cases in which any interested party or signatory refuses access to, or otherwise does
not provide, necessary information within a reasonable period or significantly impedes
the investigation, preliminary and final findings, affirmative or negative, may be made on
the basis of the facts available."
Furthermore, Section 776(b) of the Act provides:
"In making their determinations under this title, the administering authority and the
Commission shall, whenever a party or any other person refuses or is unable to produce
information requested in a timely manner and in the form required, or otherwise
significantly impedes an investigation, use the best information otherwise available."
[FR Doc. 82-28992 Filed 10-21-82; 8:45 am]
BILLING CODE 3510-25-M