NOTICES
DEPARTMENT OF COMMERCE
(C-427-805)
Preliminary Affirmative Countervailing Duty Determination: Certain Hot Rolled
Lead and Bismuth Carbon Steel Products From France
Thursday, September 17, 1992
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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: September 17, 1992.
FOR FURTHER INFORMATION CONTACT:Julie Anne Osgood or Susan Strumbel, Office of
Countervailing Investigations, U.S. Department of Commerce, Room 3099, 14th Street
and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 377- 0167 or
377-1442, respectively.
Preliminary Determination
The Department preliminarily determines that benefits which constitute subsidies within
the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being
provided to manufacturers, producers, or exporters in France of certain hot rolled lead
and bismuth carbon steel products.
For information on the estimated net subsidy, please see the "Suspension of Liquidation"
section of this notice.
Case History
Since the publication of the notice of initiation in the Federal Register (57 FR 19884, May
8, 1992) the following events have occurred. On June 17, 1992, we found this
investigation to be extraordinarily complicated and postponed the preliminary
determination until no later than September 10, 1992 (57 FR 27025).
Scope of Investigation
The products covered by this investigation are hot-rolled bars and rods of nonalloy or
other alloy steel, whether or not descaled, containing by weight 0.03 percent or more of
lead or 0.05 percent or more of bismuth, in coils or cut lengths, and in numerous shapes
and sizes. Excluded from the scope of these investigations are other alloy steels (as
defined by the Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72, note
1 (f)), except steels classified as other alloy steels by reason of containing by weight 0.4
percent or more of lead, or 0.1 percent or more of bismuth, tellurium, or selenium. Also
excluded are semi-finished steels and flat-rolled products. Most of the products covered
in this investigation are provided for under subheadings 7213.20.00.00 and
7214.30.00.00 of the HTSUS. Small quantities of these products may also enter the
United States under the following HTSUS subheadings: 7213.31.30.00, 60.00;
7213.39.00.30, 00.60, 00.90; 7214.40.00.10, 00.30, 00.50; 7214.50.00.10, 00.30,
00.50; 7214.60.00.10, 00.30, 00.50; and 7228.30.80. Although the HTSUS subheadings
are provided for convenience and customs purposes, our written description of the scope
of this proceeding is dispositive.
Injury Test
Because France is a "country under the Agreement" within the meaning of section 701(b)
of the Act, the International Trade Commission (ITC) is required to determine whether
imports of the certain hot rolled lead and bismuth carbon steel products from France
materially injure, or threaten material injury to, a U.S. industry. On May 28, 1992, the ITC
preliminarily determined that there is a reasonable indication that an industry in the
United States is materially injured by reason of imports from France of this merchandise
(57 FR 27739).
Analysis of Programs
For purposes of this preliminary determination, the period for which we are measuring
subsidies (the period of investigation (POI)) is calendar year 1991, which corresponds to
the fiscal year of Usinor Sacilor.
Based upon our analysis of the petition and the responses to our questionnaire, we
preliminarily determine the following:
A. Programs Preliminarily Determined To Be Countervailable
We preliminarily determine that subsidies are being provided to manufacturers,
producers, or exporters in France of certain hot-rolled lead and bismuth carbon steel
products under the following programs;
1. Reductions in Paid-in Capital. During the period 1978 through 1988, the paid-in capital
of Usinor, Sacilor, and their successor, Usinor Sacilor, was increased through conversions
and reclassification of various financial instruments into common stock. As the
companies sustained losses over this same period, the paid-in capital was used to offset
these losses. The conversions, reclassifications, and reductions in paid-in capital are
described below.
In 1978, the GOF, the principal steel companies (Usinor, Sacilor, Chatillon-
Neuves-Maisons, their subsidiaries), and their creditors agreed upon a plan to help the
steel companies restructure their debt. This plan included a reduction in paid-in capital.
Furthermore, the steel companies and their creditors, Fonds de Developpement
Economique et Social (FDES), Credit National and bondholders, created a new instrument
called "Loans with Special Characteristics" (PACs) to provide additional equity so as to
allow steel companies to reconstitute their capital. According to the responses, pre-1978
loans from Credit National and FDES to the steel companies were converted into PACs.
The PAC was an instrument akin to redeemable subordinated nonvoting preferred stock.
PACs could be included in shareholders' equity on the balance sheet and had the following
characteristics: 1) a symbolic 0.10 percent enumeration for the first five years and 1.0
percent thereafter, 2) no schedule of reimbursement but in the
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event the steel
companies became profitable, the PACs holders could elect to redeem their PACs or share
in profits according to a predetermined formula, and 3) PACs were subordinated to all but
the common stock.
Additionally, prior to 1978, bonds were issued for the benefit of the steel companies by
various financial institutions. The Societe de Gestion D'Emprunts Collectifs pour la
Siderurgique (GECS) was created by the GOF and was substituted for the steel companies
as the debtor on these bonds. Consequently, the GECS also became a creditor of the
French steel companies for the bond amounts. The amounts owed to the GECS were also
converted to PACs.
The Corrected Finance Law of 1981 allowed the PACs resulting from the 1978 debt
conversion to be used to cover operating losses. According to the responses, the process
involved two steps, neither of which involved the injection of new funds: first, the steel
companies were permitted to reclassify PACs issued between 1978 and 1981 as common
stock, and, second, paid-in capital was immediately reduced by a similar amount.
In addition to allowing the conversion of PACs and reduction of capital, the 1981
Corrected Finance Law granted Usinor and Sacilor the authority to issue convertible
bonds. The Fonds d'Intervention Siderurgique (FIS) or steel intervention fund was
created by decree of May 18, 1983, in order to implement that authority. According to
the responses, Usinor and Sacilor issued convertible bonds to the FIS, which, in turn, with
the GOF guaranty, floated bonds to the public and to institutional investors. In 1983,
1984, and 1985, Usinor and Sacilor issued convertible bonds to the FIS.
Furthermore, the GOF financed the recurring needs of Usinor and Sacilor through
shareholders' advances beginning in 1982. These shareholders' advances carried no
interest and there was no precondition for receipt of these funds. Consistent with the GOF
policy of adherence to the EC State Aids Code, and with the GOF private investor policy
articulated by President Mitterand in 1984, the GOF, in 1986, paid out the last of the
advances it had agreed to make under this program.
Another restructuring plan, developed at the end of 1985 and implemented in late 1986,
called for significant reductions of capacity, deep cuts in employment, modernization of
equipment and alleviation of financing costs. Pursuant to this plan, the capital of Usinor
and Sacilor was restructured. The restructuring did not include the injection of any new
funds into the capital of either Usinor or Sacilor. Rather, it involved the additional
reclassification of PACs as common stock as well as the conversion of FIS convertible
bonds and shareholders' advances into common stock. The GOF then reduced the paid-in
capital of both companies.
At the end of 1987, Usinor and Sacilor, companies owned by the GOF, were merged to
become one holding company called Usinor Sacilor. According to the responses, this
transaction entailed bookkeeping entries only and did not involve any new capital being
injected into Usinor Sacilor or any of its subsidiaries.
At the end of 1988, Usinor Sacilor was substituted as debtor for Usinor and Sacilor for the
bonds issued by them to the FIS between 1983 and 1985. The GOF then purchased the
bonds from the FIS. As a result, the GOF became a creditor of Usinor Sacilor for a like
amount. Usinor Sacilor then issued new shares to the GOF which paid for them by
canceling the debt represented by the bonds. The increase in shareholders' equity
stemming from this cancellation of bond indebtedness was then offset by accumulated
losses from past years, i.e., paid- in capital was reduced to reflect these losses.
Because the restructurings described above, including the reclassification and
conversions of PACS, FIS bonds, and shareholders' advances into common stock, and the
corresponding reductions in paid-in capital, were limited to the companies in question,
we have preliminarily determined that these measures provided subsidies to Usinor
Sacilor.
For purposes of calculating the benefit, we have treated each reduction of paid-in capital
in the years 1978, 1981, 1986, and 1988, as discussed above, as non-recurring grants. Our
policy with respect to nonrecurring grants is to allocate the benefits from such grants
over the average useful life of assets in the industry, unless the sum of grants under a
particular program is less than 0.50 percent of a firm's total or export sales (depending on
whether the program is a domestic or export subsidy.) See, e.g., Final Affirmative
Countervailing Duty Determination: Fresh and Chilled Atlantic Salmon from Norway,
56 FR 7678 (February 25, 1991). Therefore, we have allocated the benefits from these
reductions over 15 years, the average useful life of assets in the steel industry.
We calculated the benefit for the POI using the declining balance methodology described
in the Department's proposed rules (Countervailing Duties; Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed
Regulations)), and used in prior investigations (see, e.g., Final Affirmative
Countervailing Duty Determinations: Oil Country Tubular Goods from Canada, 51 FR
15037 (April 22, 1986)). For the discount rate, we included a risk premium since we have
preliminarily determined that Usinor, Sacilor, and Usinor Sacilor were uncreditworthy
from 1978 through 1988.
For the years 1978 and 1981, where we previously found Usinor and Sacilor
uncreditworthy, (See, Final Affirmative Countervailing Duty Determination: Certain
Steel Products from France, 47 FR 39335 (August 17, 1982)), we have continued to
consider Usinor and Sacilor uncreditworthy for purposes of the preliminary
determination. The GOF has provided certain information arguing that the companies
should be considered creditworthy during 1978 through 1981, but it was not provided in
the requested format and we have not had sufficient time to analyze the data actually
provided. We will consider this information for the final determination. Our
determination of uncreditworthiness for the years 1986 and 1988 is based on our analysis
of Usinor, Sacilor and Usinor Sacilor's cash flow, interest expense, and various other
ratios, e.g., times interest earned.
When we determine that a company is uncreditworthy, we base our discount rate on the
highest lending rate applicable to firms in the country in question, plus an amount equal
to 12 percent of the country's prime rate. See, Final Affirmative Countervailing Duty
Determination: New Steel Rail, Except Light Rail, from Canada, 54 FR 31991 (August 3,
1989), and the Proposed Regulations. We used the interest rates published in the
International Monetary Fund's International Financial Statistics and used the highest
annual interest rate reported in that publication for the years the reductions in paid-in
capital took place. We then added to this interest rate an amount equal to 12 percent of
the prime rate in France for the same year. We calculate 12 percent of this prime rate
and added it to the annual interest rate. On this basis, we calculated an estimated net
subsidy of 11.71 percent ad valorem.
2. Repaid PACS. Shareholders' advances held by the former majority shareholders were
converted to PACs in 1978. Unlike the other PACs, discussed above, the PACs created
from the shareholders' advances were repaid. Although Sacilor paid no interest on the
PACs, the full value of the advances was repaid in 1989. Therefore, we are
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treating this as a zero interest loan where benefits expired prior to the POI. However, the
amount repaid by Usinor in 1981 was less than the original shareholders' advance.
Therefore, we are treating the difference between the original shareholders' advance and
the amount repaid as a nonrecurring grant. Accordingly, we have applied the grant
methodology discussed above to calculate an estimated net subsidy of 0.01 percent ad
valorem.
3. Long-term Loans from FDES. The Law of July 13, 1978, created participative loans
(prets participatifs), which were by law available to all French companies. Under these
loans, which were issued by the FDES and the Caisse Francaise de Developpement
Industriel (CFDI), the borrower paid a lower- than-market interest rate plus a share of
future profits according to an agreed upon formula. These loans were obtained by either
Usinor, Sacilor, or their subsidiaries. On July 1, 1990, the outstanding principal on the
FDES loans to Usinor and Sacilor was consolidated into long-term loans.
We have preliminarily determined that we should treat the 1990 consolidation as loans
given in 1990. The GOF did not provide information regarding the distribution of FDES
loans for that year. However, for the period 1985 through 1989, the GOF provided a chart
showing by sector, i.e., agricultural and food industries, mineral extraction and
metallurgy, electrical and mechanical industries, chemical, rubber and glass-related
industries, miscellaneous industries and textiles, building materials and construction
related industries, and other activities, the total distribution of FDES loans for the years
1985 through 1989.
Comparing the amount of Usinor Sacilor's consolidated loans with this information
indicates that Usinor Sacilor's consolidated loans exceeded the total amount of FDES
loans distributed to all sectors of the economy for the years 1987, 1988, and 1989
combined. Based on this comparison, we preliminarily conclude that the FDES loans are
de facto limited to a specific enterprise or industry or group of enterprises or industries.
To determine whether the loans were made on terms inconsistent with commercial
considerations, we used the methodology described in section 355.44(b)(4) of the
Department's proposed regulations. Because we have preliminarily found Usinor Sacilor
to be creditworthy in 1990, we have used as the benchmark and the discount rate a rate
from the OECD Financial Statistics publication "Typical Short-term Interest Rates"
publication as our benchmark rate for 1990. On this basis, we preliminarily determine
that the FDES loans to Usinor Sacilor are on terms inconsistent with commercial
considerations. Using this methodology, we calculated an estimated net subsidy during
the POI of 0.01 percent ad valorem.
4. Loans from Credit National and CFDI. In 1991, outstanding loans to Usinor Sacilor from
Credit National and CFDI were consolidated. Consistent with our treatment of the FDES
loans, we are treating these consolidations as new loans in 1991. Because it is reasonable
to assume that no interest would be due on a long-term loan taken out in 1991 until 1992,
no cash flow effect would occur until 1992. Only at that time would any potential subsidy
be realized. Therefore, given our POI is 1991, we have not analyzed whether the 1991
consolidations of Credit National and CFDI loans confer a subsidy on Usinor Sacilor.
However, the loans which were consolidated were outstanding during our POI. No
information was submitted on the terms of these "old loans" or whether these loans were
limited to a specific enterprise or industry or group of enterprises or industries. Lacking
such information, we are applying best information available, in accordance with section
355.37 of the Department's regulations.
To calculate the benefit arising from these loans during the POI, we have assumed that no
interest was paid and have compared this to the rate from the OECD Financial Statistics
publication "Typical Short-term Interest Rates" as our benchmark rate. On this basis, we
calculated an estimated net subsidy rate of 0.67 percent ad valorem for "old" Credit
National and CFDI loans.
5. Equity Infusions.
a. Purchase of Common Shares by Credit Lyonnais. On July 12, 1991,
an official announcement was made regarding the acquisition by Credit Lyonnais of 20
percent of the voting capital stock of Usinor Sacilor. The transaction was set to close on
December 31, 1991, in order to allow the EC Commission time to examine the transaction
with regard to the EC State Aids Code. Under the EC State Aids Code, the Commission
examined whether the proposed transaction was on terms consistent with commercial
considerations. To that end, the EC Commission retained the services of a Swiss
consulting firm whose task was to evaluate the value of Usinor Sacilor as a whole so as to
enable the Commission to decide whether Credit Lyonnais' proposed investment was one
which a prudent investor would make. On November 28, 1991, the EC Commission
granted its approval of the transaction.
According to the responses, Credit Lyonnais purchased both newly issued shares of
Usinor Sacilor and existing shares held by the GOF at the same price. The only objective
of the GOF was that the shares be sold at a price reflecting the value of the company.
For purposes of this preliminary determination, we have examined profit trends and
other information on the record regarding Usinor Sacilor's future financial prospects and
have determined that Usinor Sacilor was unequityworthy during 1991. Therefore, Credit
Lyonnais' purchase of 20 percent of Usinor Sacilor's voting capital stock is found to be
inconsistent with commercial considerations.
To calculate the benefit we have followed the methodology described in section
355.44(e)(1) of the Proposed Regulations and applied in previous cases (see, e.g.,
Preliminary Affirmative Countervailing Duty Determination: Circular Welded
Non-Alloy Steel Pipe from Brazil, 57 FR 24466 (June 9, 1992)) the rate of return shortfall
during the period of investigation by comparing Usinor Sacilor's rate of return for 1991 to
the national average rate of return in France for the same year. We then multiplied this
rate of return shortfall by the amount of the investment made by Credit Lyonnais to
derive the total benefit.
b. Equity Infusion in 1988. Although most of the increases in paid-in capital resulting
from the reclassification of PACs and the conversions of FIS bonds and shareholder's
advances into common stock were used to offset losses, as discussed above, a balance
remained in 1988. Accordingly, we have treated this residual amount as an equity
infusion.
Because we have preliminarily determined Usinor Sacilor was unequityworthy for 1988,
based on our analysis of profit trends and other information on the record regarding
Usinor Sacilor's future financial prospects from 1988 forward, this equity investment was
made on terms inconsistent with commercial considerations.
c. Equity Infusion in 1991. In 1991, the GOF decided to redeem the last remaining PACs
which were outstanding. The transaction took the form of a capital increase to Usinor
Sacilor, which then used the proceeds to redeem the PACs.
Because we have preliminarily determined that Usinor Sacilor was unequityworthy
during 1991, we find this equity investment to be on terms
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inconsistent with
commercial considerations.
Following the methodology discussed above under 5a, we calculated an estimated net
subsidy for these equity infusions of 0.50 percent ad valorem.
The Department has received comments from interested parties regarding its
methodology for treating government equity infusions into unequityworthy companies.
We are soliciting comments from all interested parties on this issue. We will address these
comments in the final determination.
B. Programs Preliminarily Determined Not to be Used
EC Programs
a. Article 54 of the Treaty of Paris--the ECSC guarantees commercial loans to coal and
steel industries
b. Article 54 of the Treaty of Paris, Industrial Investment Loans
c. Article 56--Loans for Investment in Non-Steel Enterprises in areas of decreased steel
activity
d. Article 56 Conversion Loans
e. Article 56 of the Treaty of Paris--Labour Assistance and Rehabilitation Aid
f. Under Article 54 of the Treaty of Paris--Interest Rebates on Investment and
Reconversion Loans
g. European Investment Bank Loans
h. NCI Loans
C. Program Preliminarily Determined Not To Be Countervailable
Assistance for Research and Development. Petitioners alleged that the French producers
of hot-rolled lead and bismuth carbon steel products benefit from research and
development performed by the Institute de Recherches de la Siderurgie Francaise
(IRSID).
According to the responses, IRSID is a wholly-owned subsidiary of Usinor Sacilor. IRSID
carries out basic research on steel properties as well as research on production processes
and publishes its results in scientific and technical journals. In addition, the results of
IRSID-sponsored seminars and colloquia are open to interested parties throughout the
world.
Because the results of the research and development performed by IRSID are made
publicly available, we find this program to be not countervailable for purposes of this
preliminary determination.
Verification
In accordance with section 776(b) of the Act, we will verify the information used in
making our final determination.
Suspension of Liquidation
In accordance with 703(d) of the Act, we are directing the U.S. Customs Service to
suspend liquidation of all entries of hot-rolled lead and bismuth carbon steel products
from France, which are entered or withdrawn from warehouse, for consumption on or
after the date of the publication of this notice in the Federal Register and to require a cash
deposit or bond for such entries of the merchandise in the amount of 12.88 percent ad
valorem. This suspension will remain in effect until further notice.
ITC Notification
In accordance with Section 703(f) of the Act, we will notify the ITC of our determination.
In addition, we are making available to the ITC all nonprivileged and nonproprietary
information relating to this investigation. We will allow the ITC access to all privileged
and business proprietary 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 Investigations,
Import Administration.
If our final determination is affirmative, the ITC will make its final determination within
45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 355.38 of the Department's regulations, we will hold a public
hearing, if requested, on November 16, 1992, at 9:30 a.m. in room 3708, to afford
interested parties an opportunity to comment on this preliminary determination.
Interested parties who wish to request or participate in a hearing must submit a request
with ten days of the publication of this notice in the Federal Register to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room B-099, 14th
Street and Constitution Avenue, NW., Washington, DC 20230. Requests should contain:
(1) The party's name, address, and telephone number; (2) the number of participants; (3)
the reason for attending; and (4) a list of the issues to be discussed. Parties should confirm
by telephone the time, date, and place of the hearing 48 hours before the scheduled time.
In accordance with 19 CFR 355.38 (c) and (d), ten copies of the business proprietary
version and five copies of the nonproprietary version of the case briefs must be submitted
to the Assistant Secretary no later than November 6, 1992. Ten copies of the business
proprietary version and five copies of the nonproprietary version of rebuttal briefs must
be submitted to the Assistant Secretary no later than November 12, 1992. If the case and
rebuttal brief contain only nonproprietary information, then ten copies of each
respective brief must be submitted to the Department. An interested party may make an
affirmative presentation only on arguments included in that party's case or rebuttal brief.
If no hearing is requested, interested parties still may comment on these preliminary
results in the form of case and rebuttal briefs. Written argument should be submitted in
accordance with section 355.38 of the Department's regulations and will be considered it
received within the time limits specified in this notice.
This determination is published pursuant to Section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: September 10, 1992.
Rolf Th. Lundberg, Jr.,
Acting Assistant Secretary for Import Administration.
(FR Doc. 92-22556 Filed 9-16-92; 8:45 am)
BILLING CODE 3510-05-M