83-322

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

Final Affirmative Countervailing Duty Determination; Industrial
Nitrocellulose From France

Tuesday, March 22, 1983

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AGENCY: International Trade Administration, Commerce.

ACTION: Final affirmative countervailing duty determination.

SUMMARY: We have determined that certain benefits which constitute subsidies within
the meaning of the counterviling duty law are being provided to Societe Nationale des
Poudres et Explosifs, a producer and exporter in France of industrial nitrocellulose
described in the "Scope of Investigation" section of this notice. The estimated net subsidy
is 3.248 percent ad valorem. The U.S. International Trade Commission will determine
whether imports are materially injuring or threatening to materially injure a U.S.
industry, within 75 days after publication of this notice.

EFFECTIVE DATE: March 22, 1983.

FOR FURTHER INFORMATION CONTACT: Gary Taverman, Office of Investigations,
Import Administration, International Trade Administration, U.S. Department of
Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230,
telephone: (202) 377-0161.

SUPPLEMENTARY INFORMATION: Based upon our investigation, we have determined
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 Societe nationale des Poudres et
Explosifs (SNPE), a manufacturer and exporter in France of industrial nitrocellulose as
described in the "Scope of Investigation" section of this notice.
The following programs are found to confer subsidies:
Grant from the Ministry of Defense;

Cross-subsidization through military sales;

Assumption of labor costs;

Regional development incentives.
We determine the net subsidy to be 3.248 percent ad valorem.

Case History

On September 14, 1982, we received a petition from counsel for Hercules Incorporated
(Hercules), a U.S. producer of industrial nitrocellulose. The petition alleged certain
benefits constituting subsides within the meaning of section 701 of the Act are being
provided, directly or indirectly, to the manufacturers, producers, or exporters in
France of industrial nitrocellulose.
We found the petition sufficient and initiated a countervailing duty investigation on
October 4, 1982 (47 FR 44807). We stated we expected to issue a preliminary
determination by December 8, 1982. We subsequently determined the investigation is
"extraordinarily complicated," as defined in section 703(c) of the Act, and postponed our
preliminary determination 14 days until December 22, 1982 (47 FR 53441). At that time
we stated we expected to issue a final determination by February 21, 1983. However, due
to the complex nature of the investigation, and in accordance with section 705(a) of the
Act, we subsequently determined we would issue our final determination by March 15,
1983.
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 International Trade Commission (ITC) of our initiation. On October 29, 1982, the ITC
determined there is a reasonable indication these imports are materially injuring, or
threatening to materially injure, a U.S. industry (47 FR 51024). We presented
questionnaires concerning the allegations to the government of France, and to counsel
for SNPE, in Washington, D.C. We received the response to the

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questionnaire on
November 17, 1982. A supplemental response was received from SNPE on December 15,
1982.
On December 22, 1982, we preliminarily determined that the government of France was
providing SNPE with certain benefits constituting subsidies within the meaning of the
countervailing duty law. However, the estimated net subsidy was de minimis, and,
therefore, our preliminary determination was negative (47 FR 58330).
On January 17-21, 1983, we verified in France the questionnaire response submitted by
the government of France and SNPE.
We held a public hearing on January 28, 1983. Both Hercules and SNPE participated.

Scope of investigation

The merchandise covered by this investigation consist of industrial nitrocellulose
containing between 10.8 percent 12.2 percent nitrogen, not to be confused with explosive
grade nitrocellulose which contains over 12.2 percnt nitrogen. Industrial nitrocellulose is
a dry, white, amorphous synthetic chemical produced by the action of nitric acid on
cellulose. It is extremely falmmable, so it is stored and shipped wet with alcohol.
Industrial nitrocellulose comes in several viscosities and is used to form films and
lacquers, coatings, furniture finishes and printing ink. This product is currently classified
as cellulosic plactic materials, other than cellulose acetate, under item number 445.2500
of the Tariff Schedules of the United States Annotated. Explosive grade nitrocellulose is
classified differently.
SNPE is the only known producer and exporter in France of the subject merchandise
exported to the United States. The period for which we are measuring subsidization is the
calendar year 1981.

Analysis of Programs

Based upon our analysis of the petition, responses to our questionnaires, verification, and
comments received before, during, and after the public hearing held on January 28, 1983,
we determine the following:

I. Programs Determined To Confer Subsidies

We have determined subsidies are being provided under the programs listed below to
SNPE, a manufacturer, producer, and exporter in France of industrial nitrocellulose
included in this investigation.

A. Grant from the Ministry of Defense. SNPE reported receipt of a grant from the Ministry
of Defense (MOD). The purpose was to aid modernization of the company's plant facilities
at Bergerac, the site at which industrial nitrocellulose is produced. Since this grant was
limited to a specific enterprise (and specifically benefited production of industrial
nitrocellulose), we determine it constitutes a subsidy within the meaning of the
countervailing duty law.
The subsidy rate for this grant is calculated according to the Department's usual
methodology. As indicated in several recent determinations, our allocation technique is a
present value analysis based on the concept that a sum of money to be received in the
future does not have the same value as that sum received today. The present value of any
series of payments under this program is calculated using a risk-free discount rate. For
this rate, we used the average annual yield of public and semi-public sector bonds on the
secondary market in France published by the Organization for Economic Cooperation
and Development (OECD) because it represents the best estimate of the risk-free rate in
France. Dividing the present value of the 1981 benefit by SNPE's 1981 industrial
nitrocellulose sales, we calculated an ad valorem benefit of 0.345 percent.

B. Cross-Subsidization Through Military Sales. Petitioner alleges SNPE's close ties to the
French military establishment provide a framework for indirect subsidization of
industrial nitrocellulose production. In effect, earnings from a guaranteed, profitable
market for military sales establish a pool of cash from the government which can be
drawn upon to purchase assets for use in the production of industrial nitrocellulose.
To test the allegation, we requested that we be provided with specific data to be used in
constructing a profit and loss provide for industrial nitrocellulose. Our rationale was that
if we could verify the independent profitablility of SNPE's industrial nitrocellulose
operations, there would be no economic or business reason for supporting industrial
production from earnings on military sales.
After repeated requests for this data, we were informed by the government of France
that it would not approve release of the requested information because it was "not
necessary" for our investigation (letter of February 25, 1983, from M. Francois David,
Sous-Directeur--Ministry of Economics and Finance). In addition, SNPE was unable to
provide us with the value of purchases of fixed assets used in the production of industrial
nitrocellulose from 1972 through 1981, but did provide the total purchases of fixed assets
by year for the same period. (We note that this incomplete response is in contrast to the
cooperation otherwise given in this case by both SNPE and the government of France.)
In view of respondent's refusal to furnish the information required to prove or disprove
the petitioner's allegation that military sales are used to provide a subsidized basis for
industrial nitrocellulose, we must assume its validity.
Under section 776(b) of the Act, in the event of refusal of requested information, we are
required to use the best information otherwise available. [FN1] In our view, such
information is the respondent's to the extent we have been able to verify it, and
supplemented where necessary by other information. We note that in this case,
petitioner's submissions regarding this issue do not contain the type of information
readily applicable to our methodology for calculating the potential subsidy. Finally, there
is precedent in Departmental practice for using information derived from respondent's
submissions as the best information available. (See, e.g., Michelin X-Radial Steel Belted
Tires from Canada: Final Results of Administrative Review of Countervailing Duty
Order (46 FR 48739) (1981)).

FN1 In this respect, it is important to point out what we perceive as a valid distinction
between a refusal of information based on the assertion of national security
considerations and an outright denial of requested information. Under Article XXI of the
GATT, any contracting party has the right to refuse disclosure of information where it
considers such disclosure contrary to its security interests. In our view, while national
security considerations cannot serve as a blanket excuse for non-cooperation, nor for
non-compliance with our countervailing duty and antidumping laws, the legitimate
national security interests of a respondent government must be taken into account in any
decision regarding what constitutes best information available. Where access to
information deemed relevant to an investigation is barred by legitimate claims of national
security, resort to "best information available" supporting the most adverse assumptions
or results would give every appearance of punishing the respondent for its invocation of a
right recognized by the GATT and by general principles of international law and
sovereignty.
In this specific aspect of this investigation, the denial of information requested has not
been based on any claim of national security. Consequently, there are none of the
constraints discussed above on our determination regarding best information available.
To calculate the potential subsidy on industrial nitrocellulose production from sales of
the military product ot the government of France, we applied a methodology which
measures subsidies arising from government purchases as a

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form of equity. An
equity based methodology was used because cash infusions by means of government
purchases of military products at premium or "excess" prices may, when such prices are
paid to a wholly government-owned company, properly be viewed as infusions of equity.
The use of this methodology was required by the novel situation presented and the need
to work within the limits imposed by the verified information available to us. The formula
used to calculate the potential subsidy has three basic elements: (1) The respondent's
company-wide rate of return on equity, (2) the rate of return achieved on industrial
nitrocellulose, which was compared against the respondent's company-wide rate of
return on equity, and (3) the results of these comparisons applied against purchases of
fixed assets associated with industrial nitrocellulose production.
The return on equity through income earned on opeartions is considered the appropriate
benchmark because it would reflect the effect of subsidies through military purchases.
Earnings from military sales at advantageous prices would augment income, and this
would be reflected in a higher rate of return. The return on equity through income earned
on operations is also useful because we believe it provides an accurate measure of
company performance free of distortions resulting from extraordinary events.
As for the second element, the rate of return achieved on industrial nitrocellulose is
relevant because the product under investigation represents only a small portion of
SNPE's total operations. In effect, by comparing the return on industrial nitrocellulose
with the company-wide return, we have a measure of whether industrial operations
perform at a level which would justify support from other operations. In this case, since
SNPE was unable to provide us with the financial data needed to evaluate the performance
of its industrial nitrocellulose operations during the relevant period, we have assumed a
return of zero.
Fixed asset purchases are used because we have no accurate measure of the possible
premiums or excess paid on purchases of military products. Our assumption is that the
benefit to the company from premiums on military sales would be the availability of
additional cash which could be used to purchase assets required for the production of
industrial nitrocellulose. In addition, since SNPE was unable to provide figures reflecting
the purchase of assets devoted solely to industrial nitrocellulose production, we have
arrived at a figure by allocating a proportional share of total asset purchases to industrial
nitrocellulose. The allocation is based upon the ratio of industrial nitrocellulose sales to
total sales on all products for the calendar year 1981.
We applied the methodology described above to asset purchases in each of the 10 years
prior to and including 1981. The 10-year period represents the average useful life of
assets employed in the manufacture of industrial nitrocellulose. Our selection of this
useful life is based upon information gathered from both petitioner and respondent. We
then allocated the 1981 subsidy figure arrived at under this methodology over total
industrial nitrocellulose sales in 1981 and calculated an ad valorem benefit of 2.710
percent.

C. Assumption of Labor Costs. When SNPE was incorporated, all military and civilian
personnel of its predecessor, Service des Poudres (SP), were placed at the disposal of the
president of SNPE, as authorized by Article 5 of Law No. 575 dated July 5, 1970. After a
period of one year, those employees had the option of either: (a) Being placed again at the
disposal of the Minister of National Defense; or (b) being recruited by SNPE in accordance
with the provisions of the labor laws. Employees with government civil service status who
remained with SNPE had the option of retaining this status. Original employees of SNPE
who elected to retain civil service status would continue to be subject to the terms and
conditions applicable to government employees in any facility which fell under the
jurisdiction of the Minister of National Defense. According to the 1982 Report of the
Government of France's Auditor General's Office, there are still a number of workers with
government status employed at SNPE. All new employees hired since the establishment of
SNPE have no option to choose civil service status.
Petitioner alleges SNPE is relieved of the payment of certain wage costs because a portion
of its workforce retains government status. We have verified that, while SNPE is
responsible for the payment of the wages for all its employees (status and non-status), it is
relieved of the payment of certain benefit costs (unemployment, pension, and health
insurance premiums) for those workers retaining government status.
According to section 771(5)(B) of the Act, "the assumption of any costs or expenses of
manufacture, production, or distribution" by government action will be treated as a
domestic subsidy if provided to a specific enterprise. SNPE's non-payment of certain
benefit obligations for status workers is an assumption by the government of France to
those costs and is, therefore, a counteravailable benefit within the meaning of the Act. For
purposes of our subsidy calculaton, the Department generally treats labor-related
subsidies as united grants. Since these are relatively small grants applied to costs
normally expensed in the year they are received, we allocated them only to the year of
receipt. Following this methodology, we calculated an ad valorem benefit for 1981 of
0.141 percent.

D. Regional Development Incentives. The government of France provides a series of tax
and non-tax regional incentives to French and foreign businesses to establish new, or to
expand existing businesses in certain French regions selected as those in which to
promote additional development. The Delegation a l'Amenagement du Territoire et
l'Action Regionale (DATAR) coordinates the programs of various government agencies
and ministries. The Department has verified that, for incentive purposes, France is
divided into several zones. Each zone, or part of a zone, is eligible for different types and
levels of assitance. The assistance includes development grants, non-industrial grants,
research and development grants, decentralization indemnities, and job training
subsidies. Since the availability, kind and extent of benefits received under these
programs are based upon regional preferences, we determine assistance provided
through DATAR constitutes subsidies within the meaning of the Act.
SNPE reported the receipt of a grant in 1979, designated for the Bergerac plant, for the
purpose of improving production facilities and general infrastructure. Using the
Department's usual methodology for grants, we calculated an ad valorem benefit of 0.052
percent.

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 industrial nitrocellulose.

A. Reorganization of the Explosive Powders and Substances Industry. Prior to the
creation of SNPE, the French state historically maintained a monoploy over the
manufacture of and trade in powders and explosives. The monoploy

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extended to
industrial nitrocellulose, a co-product of explosive grade nitrocellulose. The monopoly
was operated by the Service des Poudres (SP), a division of the Ministry of Defense.
Article 37 of the Treaty of Rome establishing the European Economic Community (EEC)
requires Member states to:
Adjust any State monopoly of a commercial character so as to ensure that * * * no
discrimination regarding the conditions under which goods are procured and marketed
exists between nationals of Member States. The provisions of this Article shall apply to
any body through which a Member State, in law or in fact, either directly or indirectly
supervises, determines or appreciably influences imports or exports between Member
States. These provisions shall likewise apply to monopolies delegated by the State to
others.
In response to its obligations under Article 37, the French government, as authorized by
Law No. 575 of July 3, 1970, established guidelines and regulations for reorganizing the
explosive powders and substances industry. In exchange for stock, the government
transferred the commercial and industrial assets and operations of SP to SNPE, a newly
formed public corporation. The government, through the Ministry of Finance, remains
the majority shareholder with over 99 percent of the outstanding stock.
Petitioner alleges the transfer of assets of SNPE constitutes "the provision of capital * * *
on terms inconsistent with commerical considerations," as set out in section 771(5)(B)(i)
of the Act, because the company acquired land, equipment, and other assets, including
industrial nitrocellulose production facilities at Bergerac, from the government of
France in return for equity. Petitioner contends these asset transfers should be treated
as countervailable grants.
The record in this case shows that SNPE was organized in response to binding directive
that certain state monopolies be adjusted to operate on a competitive, commercial basis.
Indeed we have discovered no evidence that the purpose or intent of the French
government was anything other than the commercialization of SP. Given that government
ownership of a business is not a subsidy per se, the French government's decision to fulfill
its treaty obligations by "spinning off" its industrial nitrocellulose operations does not, on
its face, constitute subsidization of those operations.
Our conclusion that the creation of SNPE was not inconsistent with commercial
considerations is supported by several factors. First, we have verified that a proper
valuation was made, in accordance with French commercial law and practice, of assets
transferred to the company. The methods of valuation employed were proper under
generally accepted accounting procedures in France, and met or exceeded U.S.
accounting practice standards for comparable exercises. The operation of SNPE since
1972, supported by other evidence on the record, indicated that the government of
France expected SNPE would function as a commercial enterprise. Insofar as we are able
to determine, SNPE has been operated in a commercial fashion. [FN2] With certain
exceptions discussed elsewhere in this notice, industrial nitrocellulose operations and
improvements have been financed from operating revenues. Except for a small loss in
1975 stemming from the accidental destruction of one of its plants, SNPE has achieved a
company-wide profit in every year since its inception. Third, since industrial
nitrocellulose continues to represent a relatively small share (e.g., 9.6 percent of 1981
total sales value) of SNPE's overall activity, it does not follow that, whatever the reasons
for the company's creation, they were predicated on an intent to establish an operation
dedicated solely, or even primarily, to the subsidized production of industrial
nitrocellulose.

FN2 The fact SNPE, by virtue of its status as the sole supplier of certain military products,
retains close business ties with the government does not necessarily lead to the
conclusion that it cannot operate as a truly commercial entity. In the United States, there
are a number of companies which function as independent, commercial entities even
though they serve primarily or exclusively as defense contractors. Petitioner Hercules
also performs defense work for the U.S. government. For example, it manages and
operates the U.S. government-owned military nitrocellulose plant at Radford, Virginia.
In sum, viewing SNPE's industrial nitrocellulose operations within the context of the
whole company, and in the larger context of the special circumstances of the company's
creation, there is no evidence to suggest an intent to subsidize industrial production. To
the contrary, the evidence we have gathered and verified supports the conclusion the
French government has no purpose other than the fulfillment of its treaty obligation to
commercialize SP. Consequently, we conclude the creation of SNPE and the transfer of
assets by which it was carried out did not take place on terms inconsistent with
commercial consideration and, therefore did not give rise to countervailable benefits.

B. Equity Infusions Not Used. Prior to the reorganization of SP, the government of
France had begun a program to modernize SP facilities to comply with regulations
governing pyrotechnical safety, security and environmental protection. The program was
continued after reorganization, with the government covering the cost of completion in
return for additional stock in SNPE. Petitioner argues these equity infusions constitute
countervailable benefits to SNPE.
We have verified that these post-reorganization payments to SNPE represented later
stages of the original reorganization plan and were accounted for properly as additional
equity invested in SNPE. In addition, we have verified that all such post-reorganization
payments were tied directly and solely to products other than industrial nitrocellulose.
Therefore, we determine these payments or equity infusions do not confer
countervailable benefits on the production of industrial nitrocellulose.

C. Financing from Credit National. Credit National (CN) is a major financial institution
which plays an important role in the French financial banking system and has a special
legal status. Though not nationalized, 36.85 percent of CN's stock is owned by
nationalized institutions. The General Manager of CN is nominated by the President of
France, and the government is at least indirectly represented by a majority of its board
of directors. CN undertakes special operations for the government. These include
extending "special procedure loans" on behalf of the government and performing certain
advisory and management functions on projects designated for the government, its
agencies and authorities. A substantial portion of CN's economic and financial activity is
directed to sectors of French national interest. Thus, while CN is not a governmental
institution, it does maintain a variety of official, semi- official and indirect ties with the
government of France.
We were able to verify, however, that, while some of the loans made by CN are of a
"special " nature (i.e. at interest rates set by the government and made in conjunction with
medium-term credits which may be rediscounted), the majority of its loans are of the
"ordinary" type. Such loans are extended on commercial terms, with interest rates similar
to those of commercial banks in France.
On the basis of our analysis and verfication of the terms and conditions-- including
interest rate, repayment obligations and security

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requirements--of SNPE's loan
agreement with CN, we conclude this loan was of the "'ordinary" type and made on
commercial terms. Therefore, in this specific instance we determine there has been no
subsidy to SNPE.

D. Research and Development (R&D) Assistance. SNPE reported receiving funding for R&D
projects from the French government through the Direction Generale a la Recherche et a
la Technologie (DGRT), formerly the Delegation General a la Recherche scientifique et
Technique, a subdivision of the Ministry of Research and Technology.
We verified that R&D funding was not targeted to a specific industry, group of industries,
or to industries in specified regions, and research results are made publicly available.
Therefore, we have determined the small amounts SNPE received through this program
did not confer a subsidy within the meaning of the countervailing duty law.

E. Energy Assistance. SNPE received a few small grants from the Agence Pour les
Economics d'Energie (AEE), referred to in our preliminary determination as the National
Agency for Energy Conservation. The AEE is a government agency, created in 1974, that
provides grants to foster energy conservation and energy research. Early in 1982, the
AEE was merged with several other agencies to form the Agence Francaise Pour la
Maitrise de l'Energie. We verified that these grants were not provided on a regional or
industry-specific basis. Therefore, we have determined that the amounts received by
SNPE from AEE do not constitute subsidies within the meaning of the Act.

F. Regional Anti-Pollution Agencies. Created by Law No. 64-1245 of 1964, these regional
agencies known generically as "Agences Financieres de Bassin," and referred to in our
preliminary determination as River Dock Agencies, provide incentives for the installation
of anti-pollution devices. These incentives are generally available and do not benefit a
specific industry, group of industries, or industries in specified regions. We have also
verified that the agencies' operations are funded solely by dues from industrial users and
that expenditures do not exceed collections.
SNPE has received funds from the Adour-Garonne Agency for its Bergerac and Toulouse
plants, and from the Rhone-Mediterranee Corse Agency for its Sorgues plant. Since the
funds disbursed by these agencies cannot exceed the amount of dues collected from
industrial users, we find the funds received by SNPE do not confer subsidies on users,
such as SNPE, who provide the funds.

G. Labor Programs. SNPE has participated in the following labor programs:

Contract Emploi-Formation--Under this program, the government provides funds for
the training of young people first entering the job market.

Reduction of Benefit Costs--Under this program, firms may reduce by 50 percent for
up to one year the amount of payments to the government for health insurance, pensions,
and family allowances on behalf of those young people who are given new jobs.
Since we have verified that assistance under these programs is not limited to a specific
industry, group of industries or to industries in specified regions in France, we
determine no subsidy exists.

H. Local Business Tax Reductions. Under the direction of the French Tax Authority
("Direction Generale des Impots"), all French industries are eligible for reductions in local
business taxes (''taxe professionelle") for the purpose of expansion of business activities.
SNPE received local business tax reductions in 1980. Since we have verified that tax
reductions under this program are not limited to a specific industry, group of industries
or to industries in specified regions, we determine no subsidy exists.

I. Subvention d'Equipment. In our preliminary determination, we stated we would seek
additional information on the line item in SNPE's balance sheet entitled "Subvention
d'equiment," or equipment subsidies. We have since verified that the amount indicated in
this line item represents the cumulative value of all government grants received by SNPE
since 1975, including those grants from the Ministry of Defense and DATAR which were
found to be countervailable, as well as other grants received by SNPE which were found
not to be countervailable.

J. Inputs. SNPE purchases oleum, nitric acid, natural gas and electricity from companies
owned by the government of France. Petitioner alleges these government-owned
suppliers of energy and raw materials act as conduits for passing on subsidies in the form
of lower, preferential prices to SNPE. Petitioner also alleges that SNPE, as a result of high
volume discount purchaes of materials used primarily to produce military products is
receiving subsidies for its production of industrial nitrocellulose.
In the case of SNPE's purchases of electricity and natural gas, we have verified that the
utility rates charged to SNPE are based on a standard pricing formula which is applicable
to all industrial users in the region of SNPE's Bergerac plant. We have found no evidence
indicating preferential pricing practices with respect to SNPE's purchases of energy from
these government- owned utility companies.
With respect to SNPE's purchases of oleum and nitric acid, we have verified that while the
suppliers of these inputs are now owned by the government of France, during the period
of investigation these companies were privately owned and controlled. Any
countervailable benefits flowing to the company which occur outside the period for which
we are measuring subsidization would be included in an annual review following any
issuance of a countervailing duty order in this investigation.
Finally, a company's mere purchasing power as a function of its size is not a subsidy per
se, even where such size or purchasing power results from a high volume of business with
the government. There is no evidence SNPE obtains volume discounts because of
government pressure on its suppliers. Nor is there evidence to support a finding that the
terms upon which the company is able to secure volume discounts are unduly favorable
to SNPE, as opposed to other large volume buyers of these inputs. In sum, we have no
basis to conclude SNPE does not negotiate volume discounts at arm's length or that its
agreements to purchase inputs are not arrived at on purely commercial terms.
Consequently, we determine there is no basis to support the allegation that SNPE's
industrial nitrocellulose production indirectly receives countervailable benefits as a
result of government influence or pressure on the transactions through which SNPE is
able to secure volume discounts on the purchase of inputs used primarily in the
production of military products.

III. Programs Determined Not To Be Used

We determine the following programs are not used by the manufacturers, producers, or
exporters in France of industrial nitrocellulose.

A. Fonds de Development 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.
We have no evidence SNPE received benefits from FDES.

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B. Caisse des Depots et Consignations (CDC). CDC is a government institution that
invests funds deposited in the Caisses d'Espargne (the French savings banks), pension
funds, and insurance companies' deposits. CDC makes both short- and long-term loans to
various industries.
We have no evidence SNPE received benefits from CDC.

C. Fonds Special d'Adaptation Industrielle (FASAI). FSAI was established in 1978 to
promote job creation and industrial diversification in various industries in France.
We have no evidence SNPE received benefits from FSAI.

D. Loan Guarantees. We have determined SNPE has not received loan guarantees directly
from the government of France, or indirectly from any financial institution acting on the
direction of the government of France.

E. Fonds National de l'Emploi (FNE). FNE was established in 1963 to provide vocational
training programs, and relocation and early retirement allowances to workers confronted
with industrial changes brought about by economic development.
We have no evicence SNPE received benefits from the FNE.

F. 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
designated to compensate for the effects of mass layoffs.
We have no evidence SNPE has received benefits under any of these early retirement
plans.

Petitioner's Comments: 1. Petitioner argues the Department has not given adequate
consideration to its allegation that SNPE's military nitrocellulose operations serve as a
means for subsidizing industrial production. Petitioner argues further that, where access
to relevant information is barred on grounds of military secrecy, the Department is
required to rely on petitioner's submissions as the best information available.

DOC Position: See the section of this notice titled "Cross-subsidization Through Military
Sales," particularly footnote 1.

2. Petitioner argues NSPE is in effect an arm of the government of France and the
Department should presume, therefore, that all asset transfers to SNPE constitute
countervailable grants.

DOC Position: On the basis of our verification and all other information available from the
record, insofar as we are able to determine, SNPE is an independent company which
operates in a commercial fashion.

3. Petitioner argues that even if SNPE is an independent company and not an arm of the
government, the Department must determine whether it has received transferred assets
and funds on a commercial basis.

DOC Position: See the section of this notice titled "Reorganization of the Explosive
Powders and Substances Industry."

4. Petitioner argues SNPE receives indirect subsidies through volume discounts on inputs
sold to it by government-owned suppliers.

DOC Position: During the period of investigation, certain suppliers of inputs were not
government-owned. In addition, we find no evidence to support this allegation. See the
section of this notice titled "Inputs."

5. Petitioner contends the Department has failed to verify whether government- owned
suppliers of inputs charge SNPE the same rates as those charged other purchasers.

DOC Position: On the basis of standard verification procedures and the information
available to it, the Department is satified SNPE does not receive special benefits or
discounts on its purchases of inputs. For further detail, see the section of this notice titled
"Inputs."

Respondent's Comments: 1. Respondent argues the scope of the investigation should be
limited solely to industrial nitrocellulose. Issues relating to military nitrocellulose are not
germane to the investigation. In any case, there is no substance to the allegation that
industrial production receives indirect subsidies through military operations. Moreover,
information relating to military nitrocellulose production cannot be provided in violation
of respondent's security commitments to the government of France.

DOC Position: The Department recognizes the legitimate national security claims of the
gdovernment of France and has acted accordingly (see footnote 1 to this notice). The
Department does not, however, pursue its investigations in a vacuum. In this case,
military and industrial products are produced at the same facility and are closely related
in nature and composition. In the face of the allegation that industrial production
receives indirect subsidies through military sales, and in view of the fact that industrial
nitrocellulose is a co-product of military grade nitrocellulose, the Department must carry
out its charge to investigate petitioner's claim. Finally, our determination regarding this
allegation has been based on the respondent's refusal to provide information, a refusal
which involved no claim of national security. For additional detail regarding our
treatment of this issue, see the section of the notice titled "Cross-subsidization Through
Military Sales."

2. Respondent argues the loan to SNPE from Credit National, which was preliminarily
determined to be countervailable, was made on commercial terms.

DOC Position: One the basis of additional information developed in the course of our
verification, we agree with respondent that, in this instance, the loan from Credit Nation
was made on commercial terms and does not, therefore, confer countervailable benefits.

3. Respondent argues that, since capital grants are subject to taxation as income, any
countervailing duty arising out of grants should be calculated on the basis of the net,
post-tax value of the grant.

DOC Position: The Department consistently has declined to consider the tax
consequences of grants to companies in calculating the benefit, and thus the subsidy,
received by a company. Further, it is our understanding of French tax accounting
practice that, though capital grants are in theory subject to the income tax, no actual tax
is paid in any given period because the amount of the grant taken in as income is offset by
the depreciation expense for the same period. Consequently, any countervailing duty
calculation should be based on the full value of the grants.

4. Respondent argues that since DATAR grants are available to all industries in France,
they should not be considered as countervailable. In any event, even if treated as
countervailable, the benefit to SNPE from DATAR grants should be allocated over
industrial nitrocellulose sales plus the value of shared infrastructure at the Bergerac
plant.

DOC Position: Through DATAR grants may be available in some form throughout France,
the extent of benefits available under this program vary according to a system of regional
priorities and preference. The Department has consistently held that grants which confer
incentive benefits on the basis of regional preference are countervailable. As to the
appropriate denominationover which to allocate the value of these grants, the
Department agrees with the respondent.

*11977

Verification

In accordance with section 776(a) of the Act, we verified the data relied upon in our final
determination. During verification we followed standard 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 regulation (19 CFR 355.35). Also, in accordance with the its
regulation (19 CFR 355.34(a)), a hearing was requested and held, and written views have
been received and considered.

Suspension of Liquidation

In accordance with section 705(c)(1)(B) of the Act, we are directing the U.S. Customs
Service to suspend liquidation of all entries of industrial nitrocellulose from France
which are entered, or withdrawn from warehouse, for consumption, on or after the date of
publication of this notice in the Federal Register, and to require a cash deposit or the
posting of a bond, for each such entry of the merchandise in the amount of 3.248 percent
ad valorem.

ITC Notification

In accordance with section 705(d) of the Act, we will notify the ITC of our determination
and make available to it all nonprivileged and nonconfidential information relating to this
investigation. We will allow the ITC access to all privileged and confidential information in
our files, provided it 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.
This notice is published pursuant to section 705(d) of the Act and section 355.33 of the
Department of Commerce regulations (19 CFR 355.33).

Lawrence J. Brady,

Assistant Secretary for Trade Administration.

[FR Doc. 83-7390 Filed 3-21-83; 8:45 am]

BILLING CODE 3510-25-M