86-213

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

[C-427-016]

Industrial Nitrocellulose From France; Preliminary Results of Administrative
Review of Countervailing Duty Order

Thursday, February 13, 1986

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AGENCY: International Trade Administration/Import Administration,
Commerce.

ACTION: Notice of Preliminary Results of Administrative Review of Countervailing
Duty Order.

SUMMARY: The Department of Commerce has conducted an administrative review of the
countervailing duty order on industrial nitrocellulose from France. The review
covers the period March 22, 1983, through December 31, 1983, and 12 programs.

As a result of the review, the Department has preliminarily determined the net subsidy for
the period of review to be 0.44 percent ad valorem, a rate we consider de minimis.
Interested parties are invited to comment on these preliminary results.

EFFECTIVE DATE: February 13, 1986.

FOR FURTHER INFORMATION CONTACT:Bernard Carreau or Barbara Williams, Office of
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone (202) 377-2786.

SUPPLEMENTARY INFORMATION:

Background

On June 22, 1983, the Department of Commerce ("the Department") published in the
Federal Register (48 FR 28521) a countervailing duty order on industrial
nitrocellulose from France. We began this review under our old regulations on
November 23, 1983, and sent a questionnaire to the French government on that day.
After the promulgation of our new regulations, a foreign exporter, the Societe
Nationale des Poudres et Explosifs ("SNPE"), on September 6, 1985, requested an
administrative review of the order, in accordance with § 355.10(a) of the Commerce
Regulations. We published the new initiation on November 27, 1985 (50 FR 48745). The
Department has now conducted that administrative review, in accordance with section
751 of the Tariff Act of 1930 ("the Tariff Act").

Scope of Review

Imports covered by the review are shipments of French industrial nitrocellulose
containing between 10.8 percent and 12.2 percent nitrogen, not explosive grade
nitrocellulose which contains over 12.2 percent nitrogen. Industrial nitracellulose is a
dry, white, amorphous synthetic chemical produced by the action of nitric acid on
cellulose. Industrial nitrocellulose comes in several viscosities and is used to form films
in lacquers, coatings, furniture finishes and printing ink. Such

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merchandise is
currently classifiable as cellulosic plastic materials, other than cellulose acetate, under
item 445.2500 of the Tariff Schedules of the United States Annotated.
The review covers the period March 22, 1983, through December 31, 1983, and 12
programs: (1) Cross-subsidization through military sales; (2) a grant from the Ministry of
Defense; (3) a grant from DATAR; (4) the assumption of labor costs for civil servants; (5)
increased government equity; (6) raw material purchases from government-owned firms;
(7) assumption of labor costs by the FNE; (8) research and development assistance; (9)
financing from the Fonds de Developpement Economique et Social; (10) loans from
Credit National; (11) financing from the Caisse des Depots et Consignations;
and (12) loans from the Ministry of Research and Industry. SNPE is the only known
producer and exporter to the United States of this merchandise.

Analysis of Programs

(1) Cross-Subsidization through Military Sales.
In our final determination in this case (48 FR 11971, March 22, 1983), we found on the
basis of the best information available that the French government conferred a
countervailable benefit on industrial nitrocellulose by paying excessive prices for SNPE's
military nitrocellulose. Again on the basis of the best information available, we
determined that SNPE used those "excess" profits to subsidize the purchase of fixed assets
for the production of industrial nitrocellulose. We used the best information available
because the French government and SNPE refused to provide data on the cost of
production of industrial nitrocellulose. We requested the cost of production data to test
whether the French government was conferring such a subsidy.
In this review, we requested, received, and verified complete cost of production
information. After examining the data, we conclude that it cannot serve to show whether
cross-subsidization occurs.
Cross-subsidization involves the issue of the fungibility of money because it implies that a
benefit tied to a particular product is in fact not tied only to that product. If we were to
consider money as fungible, we would treat a benefit ostensibly for a particular product
as part of a pool of funds indirectly affecting other products. A strict fungibility of money
approach would allow us to capture the effects of such a benefit by allocating it over all
products, whether under investigation or not.
However, in Appendix II of Certain Steel Products from Belgium (47 FR 39316), we stated
that:
[w]e have not viewed all aid received for any purpose by companies under investigation
as fungible, and thus equally beneficial to all products made by the company in question.
While the law clearly envisions reaching subsidies which benefit the product under
investigation indirectly, as well as directly, it would distort and be inconsistent with the
clear intent of the statute, as reflected in its legislative history, to allocate to products
under investigation any portion of benefits clearly tied to products not under
investigation. This is particularly true since we are compelled to allocate fully to the
products actually being investigated any subsidies directly tied to them . . .
We continued to adhere to this interpretation of the statute. If we applied the fungibility
approach in all cases, we would have to allocate over a company's total sales those
benefits that we formerly allocated only over sales of the product under investigation. If
Congress had intended that we universally apply the fungibility concept, we would have
to countervail export subsidies on sales to countries other than the United States,
allocate export subsidies on U.S. sales over total sales instead of over only export sales,
and dilute benefits tied to a product under investigation by allocating them over total
sales.
In fact, an export subsidy does not ordinarily provide an incentive to produce for
domestic sale; a third country export subsidy does not ordinarily provide an incentive to
export to the United States; and a benefit tied to a specific product does not ordinarily
provide an incentive to produce anything other than that product.
We should not allocate benefits tied to products not under investigation over a product
under investigation unless we have a clear reason to believe that such benefits do
encourage the production or export to the United States of the merchandise under
investigation. When we refer to tied benefits, the intent to subsidize must at times become
a surrogate for the effect of a subsidy when that effect is not demonstrable. In the absence
of evidence to the contrary, we conclude that a benefit tied to a specific product is
intended to affect only that product and provides an incentive to produce or sell only that
product.
In this case, we have no evidence that the French government does in fact pay excessive
prices for military nitrocellulose. Even if the French government does pay excessive
prices, such prices would normally encourage the production of sale of that product
rather than industrial nitrocellulose. We have no evidence that any of the payments for
military nitrocellulose are diverted to, or otherwise encourage, the production or sale of
industrial nitrocellulose.
For these reasons, we preliminarily determine that cross-subsidization does not occur
and that any benefit from potentially excessive prices on military nitrocellulose would be
tied to a produce not under investigation.

(2) Grant From the Ministry of Defense

The Ministry of Defense provided a grant to SNPE in 1975 to modernize the company's
Bergerac plant, where SNPE produces (among other products) industrial nitrocellulose.
We determined in our original investigation that this grant constitutes a subsidy.
To calculate the benefit, we applied the grant methodology outlined in the Subsidies
Appendix to the notice of "Final Affirmative Countervailing Duty Order on certain
cold-rolled carbon steel flat-rolled products from Argentina" (49 FR 18006, April 26,
1984) ("the Subsidies Appendix"). We allocated the grant over 10 years, the average useful
life of assets in the nitrocellulose industry, according to the Asset Guideline Classes of the
Internal Revenue Service. We used as the discount rate the 1975 national average
corporate bond rate in France (as reported in Morgan Guarantee Trust Company's World
Financial Markets) because we have no information on SNPE's weighted cost of capital for
that year. On this basis, we preliminarily determine the benefit from this program to be
0.23 percent ad valorem.

(3) DATAR Grant

The Delegation a l'Amenagement du Territoire et a l'Action Re
1gionale ("DATAR") coordinates the programs of various government agencies that
provide incentives to establish or expand businesses in certain regions of France. SNPE
received a grant from DATAR in 1979 to improve the production facilities and general
infrastructure of the Bergerac plant. We determined in the original investigation that this
program constitutes a subsidy.
Using the same methodology as described for the Ministry of Defense grant, we allocated
the grant over 10 years and used as the discount rate the 1979 national average
corporate bond rate in France. On this basis, we preliminarily determine the benefit
from this program to be 0.04 percent ad valorem.

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(4) Assumption of Labor Costs for Civil Servants

Some employees of SNPE retain government civil service status as a result of the
company's change from a government agency to a government-owned private
corporation in 1971. SNPE is responsible for paying the wages and benefits of all its
employees.
In general, SNPE's contribution for social security benefits, such as health insurance,
pensions, and unemployment insurance, is lower for its employees with civil service
status than for other employees. Because the French government assumes part of SNPE's
contributions for those with civil service status, we determined in the original
investigation that this program constitutes a subsidy.
To calculate the benefit, we took the difference between SNPE's annual contribution for its
civil service employees and for other employees and multiplied it by the number of its
civil service workers involved in industrial nitrocellulose production. We allocated the
result over total sales of industrial nitrocellulose during the period of review. On this
basis, we preliminarily determine the benefit from this program to be 0.17 percent ad
valorem.

(5) Increased Government Equity in SNPE

In 1983, the Government of France increased its equity holdings in SNPE. To determine
whether the purchase of additional shares by the French government was made in
accordance with commercial considerations, we examined SNPE's financial ratios for
1981 and 1982.
In our final determination, we found that SNPE had reported a profit in every year
between 1972 and 1981 except 1975, when one of the company's plants was accidentally
destroyed. SNPE continued to report healthy and rising profits in 1982 and 1983. For
1981 and 1982, we examined the company's interest to income ratio, its quick ratio, its
current ratio, its cash flow from operations, its return on sales, and its return on equity.
Interest expenses for this period represented only a fraction of net income. The quick
ratios were below one during this period, showing that a significant portion of the
company's current assets was made up of inventory. However, the current ratios, which
give the relationship of current assets plus inventory to current liabilities, were well
above one and therefore reasonably strong. Although the 1982 cash flow from operations
was slightly in the red, the company reported a high return on sales and an even higher
return on equity for both years.
We also examined several trade journals and periodicals published in France and abroad
in 1982 and early 1983 in order to determine whether a commercial investor would have
considered investment in the nitrocellulose industry attractive. Industrial nitrocellulose
is classified as part of the plastics industry in the Office of Management and Budget's
Standard Industrial Classification Manual, and as part of the chemical industry in the IRS
Asset Guideline tables. Articles in Usine Nouvelle and the Financial Times of London
indicated that the chemical industry in France suffered losses of FF5 billion in 1982.
However, the Wall Street Journal Europe reported operating profits for the French
chemical industry in 1982. European Chemical News and I1 Sole 24 Ore of Milan reported
that French chemical output would rise somewhere between 0.6 percent and 3 percent in
1983. Information Chimie predicted that the basic demand for chemicals in France
would rise more than overall industrial output through 1987 and that plastics output
would increase through 1986. Chimie Actualites reported that plastic materials
output in France rose in 1982 and compared to 1981 and Monde reported that the
French chemical sector's turnover would rise 11 percent in 1982 as compared to 1981.
Given SNPE's favorable data and the preponderance of encouraging news reported in
trade journals at the time of the French government's new equity infusions in SNPE, we
conclude that a commercial investor would have considered investment in that company
to be an attractive prospect. Based on this information, we find that SNPE remained
equity-worthy during the period of review and that the government's 1983 purchase of
shares in SNPE was not inconsistent with commercial considerations. Therefore, we
preliminarily determine that the government's 1983 equity infusions in SNPE do not
constitute a subsidy.

(6) Raw Material Purchases From Government-Owned Firms

During the period of review, SNPE purchased nitric acid, oleum, and woodpulp from
companies recently nationalized by the Government of France. The petitioner alleges
that SNPE benefited from the government's acquisition of those suppliers.
SNPE signed a contract with one government-owned supplier of nitric acid long before
that supplier was nationalized. The price formula set in that contract is still in effect. We
also examined SNPE's purchases of woodpulp and oleum and found that it paid prices
negotiated at arm's length.
We therefore preliminarily determine that SNPE did not benefit from purchases of its raw
materials from government-owned suppliers.

(7) Fonds National d'Emploi

In 1982, SNPE signed a contract with the Fonds National d'Emploi ("FNE") with two
significant features: 1) to allow early retirement for employees provided each were
replaced by a newly-hired employee, and 2) to hire new employees for training. In return,
SNPE agreed that the total number of employees would not drop below the level of
employment at the time the contract with the FNE was signed. Any firm in France may
use this program. Because the program is generally available, we preliminarily determine
that it does not constitute a subsidy.

(8) Other Programs

We also examined the following programs and preliminarily find that SNPE did not use
them during the period of review:
(A) Research and development assistance;
(B) Financing from the Fonds de Developpement Economique et Social;
(C) Preferential loans from Credit National;
(D) Financing from the Caisse des Depots et Consignations; and,
(E) Loans from the Ministry of Research and Industry.

Preliminary Results of Review

As a result of our review, we preliminarily determine the net subsidy to be 0.44 percent
and ad valorem for the period of review. The Department considers any rate less than
0.50 percent ad valorem to be de minimis.
The Department therefore intends to instruct the Customs Service not to assess
countervailing duties for shipments of this merchandise entered, or withdrawn from
warehouse, for consumption on or after March 22, 1983, the date of our affirmative final
determination (48 FR 37051), and exported on or before December 31, 1983.
Further, the Department intends to instruct the Customs Service to waive deposits of
estimated countervailing duties, as provided by section 751(a)(1) of the Tariff Act, on
all shipments of this merchandise entered, or withdrawn from warehouse, for
consumption on or after the date of publication of the final results of this administrative
review. This deposit waiver shall remain in

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effect until publication of the final
results of the next administrative review.
Interested parties may submit written comments on these preliminary results within 30
days of the date of publication of this notice and may request disclosure and/or a hearing
within 10 days of the date of publication. Any hearing, if requested, will be held 55 days
from the date of publication, or the last workday preceding. Any request for an
administrative protective order must be made no later than five days after the date of
publication. The Department will publish the final results of this administrative review
including the results of its analysis of issues raised in any such written comments or at a
hearing.
This administrative review and notice are in accordance with section 751(a)(1) of the
Tariff Act (19 U.S.C. 1675(a)(1)) and § 355.10 of the Commerce Regulations (19 CFR
355.10; 50 FR 32556, August 13, 1985).
Dated: February 10, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary Import Administration.

[FR Doc. 86-3203 Filed 2-12-86; 8:45 am]

BILLING CODE 3510-DS-M