NOTICES
DEPARTMENT OF COMMERCE
(C-427-805)
Final Affirmative Countervailing Duty Determination: Certain Hot Rolled Lead
and Bismuth Carbon Steel Products From France
Wednesday, January 27, 1993
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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: January 27, 1993.
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) 482-0167 or 482-1442, respectively.
Final Determination
The Department of Commerce (the Department) determines that benefits which constitute
subsidies within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in France of certain hot rolled lead and bismuth
carbon steel products (hereinafter: "certain additive 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 preliminary determination (57 FR 42977, September 17,
1992), the following events have occurred.
Verification was conducted from September 22 through September 30, 1992.
On October 16, 1992, in accordance with section 705(a)(1) of the Tariff Act of 1930, as
amended (the Act), we aligned the final determination in this investigation with the final
determination in the companion antidumping duty (AD) investigation of the same
merchandise (57 FR 48020, October 21, 1992). On November 6, 1992, we postponed the
final countervailing duty (CVD) and AD determinations until January 11, 1993 (57 FR
53691, November 12, 1992). On January 11, 1993, we postponed for a second time the
final CVD and AD determinations until January 19, 1993 (Not Yet Published).
The parties submitted case and rebuttal briefs on November 23 and December 2, 1992,
respectively. A public hearing was held on December 7, 1992.
Scope of Investigation
The products covered by this investigation are hot rolled bars and rods of nonalloy or
other alloy steel,
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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.
Respondents
The Government of France (GOF), Usinor Sacilor, and the European Community (EC) are
respondents for merchandise subject to this investigation.
Corporate History
At the end of 1986, Usinor and Sacilor, which were separate companies owned by the
GOF, were merged to become one holding company called Usinor Sacilor.
Analysis of Programs
For purposes of this final 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.
In determining the benefits received under the various programs described below, we
used the following calculation methodology. We first calculated the ad valorem benefit for
each program received by Usinor Sacilor. The benefits for all programs were then
summed to arrive at Usinor Sacilor's total subsidy rate, which, because Usinor Sacilor is
the only respondent company in this investigation, equals the country-wide rate.
As a result of the ongoing Countervailing Duty Investigations of Certain Carbon Steel
Products from France, we have been made aware of certain programs, not originally
investigated in this case, which appear to provide subsidies, e.g., investment subsidies.
Nevertheless, we did not have sufficient time to obtain and verify information with
respect to these programs. Accordingly, we will address them during the first
administrative review of the countervailing duty order in this case, as is contemplated
by section 355.39 of the Department's Proposed Regulations (Countervailing Duties;
Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31,
1989) (Proposed Regulations)), assuming a countervailing duty order is issued and an
administrative review is requested.
Based upon our analysis of the petition, responses to our questionnaires, verification, and
written comments from the interested parties, we determine the following:
Equityworthiness
Petitioners have alleged that Usinor, Sacilor and Usinor Sacilor were unequityworthy for
certain years during the period 1979 through 1991, and, therefore, that equity infusions
received during those years were inconsistent with commercial considerations. The
Department previously determined that Usinor and Sacilor were unequityworthy for the
years 1978 and 1981 in Final Affirmative Countervailing Determinations: Certain Steel
Products from France, 47 FR 39332 (September 7, 1982) (Certain Steel). Respondents
have presented no new evidence in this investigation that contradicts the Department's
findings.
Based on the following analysis, we have determined that Usinor, Sacilor, and Usinor
Sacilor were unequityworthy during the years 1982 through 1988 and that Usinor Sacilor
was equityworthy during 1991. Although petitioners' allegation includes 1989 and 1990,
there were no infusions in those years.
Throughout the period 1982 to 1987, Usinor, Sacilor, and Usinor Sacilor reported
substantial losses. Stockholders' equity was negative in every year except 1986.
Accordingly, certain financial indicators, such as rate of return on assets and equity and
profit margin on sales, were negative. Therefore, we determine Usinor, Sacilor, and
Usinor Sacilor to be unequityworthy in those years.
However, respondents argue that the Department should place its emphasis on indicators
of future financial health as would a private investor, not on past indicators. Respondents
argue that the 1986 restructuring, which was undertaken in accordance with a study
prepared by McKinsey & Co., had a dramatic effect upon Usinor Sacilor's profitability,
making it a firm in which it would be reasonable for investors to invest.
We have analyzed the information on the record with respect to the study prepared by
McKinsey & Co. We disagree with respondents that, as a result of this study and its
projections, we should ignore all past financial indicators when making our equityworthy
determination. In our view, a prudent investor would not assess the reasonableness of
investing in the newly restructured company without taking into consideration the
tremendous financial difficulties of both companies prior to the restructurings or the
reasons for those difficulties. For this reason, and absent any positive financial indicators
prior to the restructuring, we have continued to find Usinor Sacilor unequityworthy in
1986 and in 1987 and 1988.
Furthermore, Usinor Sacilor argues that the Department should calculate return on
equity using earnings before interest, taxes and depreciation (EBITD) for the numerator.
On this basis, Usinor Sacilor has calculated a positive return on equity for the years 1984,
and 1987 through 1991. During verification, GOF officials maintained that EBITD is the
primary measure in France use to evaluate a company's ability to meet its obligations.
(See the public version of the Report on the Verification of the Government of France, on
file in Room B-099 of the Department of Commerce.) Usinor Sacilor argues that a
reasonable investor in France, using Usinor Sacilor's EBITD ratios, would have found
Usinor Sacilor to be an excellent investment.
With respect to EBITD, we are not persuaded that it is the best means of measuring the
rate of return on equity. While potential investors may consider EBITD, it is not as
accurate a reflection of the potential return on an investment as a measure which is net of
interest, taxes, and depreciation, i.e., net income. Therefore, we have continued to rely
upon the companies' return on assets and return on equity calculated on the basis of net
income divided by the average shareholder's equity.
We preliminarily determined that Usinor Sacilor was unequityworthy in 1991 based upon
a review of the financial data and a summary of an analysis of Usinor Sacilor performed by
an independent Swiss consulting firm. We stated that beginning in 1988, the company
reported positive rates of return on both assets and equity for the preceding years,
although the financial
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position of the firm weakened yearly. However, since the
preliminary determination, the complete Swiss consulting report has been submitted for
the record and we have been able to evaluate it. Based on our review of the complete
report, we have reevaluated Usinor Sacilor's potential for generating a reasonable rate of
return within a reasonable period of time and concluded that Usinor Sacilor was
equityworthy during 1991.
Creditworthiness
We have analyzed whether Usinor, Sacilor and Usinor Sacilor were uncreditworthy from
1978 through 1991.
Based on our analysis of Usinor's and Sacilor's financial statements, their debt-to-equity
ratios indicate that the companies were highly leveraged during 1979 through 1981. In
addition, the current and quick ratios indicate low levels of liquidity available to pay
debts. Moreover, Usinor Sacilor reported net losses for each of these years. Therefore,
although we cannot analyze the companies' actual experience in meeting their debt
obligations because no information was provided on this point, the above indicators lead
us to conclude that the companies would have had difficulty making interest and principal
payments. Given this, we continue to determine that Usinor and Sacilor were
uncreditworthy during the years 1978 through 1981.
To determine the creditworthiness of Usinor, Sacilor, and Usinor Sacilor during the
period 1982 through 1991, we have evaluated certain liquidity and debt ratios, i.e.,
current and quick, times interest earned, long-term debt, and debt-to-equity on a
consolidated basis. For the period, 1979 through 1987, the company consistently
incurred substantial losses. The interest coverage ratios were negative and the liquidity
ratios indicated that the company may have had difficulty in meeting its short-term
obligations. Although Usinor Sacilor reported a profit in 1988, as a result of our analysis,
we determine that Usinor, Sacilor, and Usinor Sacilor were uncreditworthy for the years
1982 through 1989.
Respondents have argued that when determining the creditworthiness of a company, the
Department must consider the extent to which the company was able to obtain loans from
private sources without government assistance or guarantees. Respondents argue that
Usinor and Sacilor, in fact, had obtained such loans since 1978. However, respondents
have provided no information with respect to the nature of the loans from private sources
nor whether Usinor, Sacilor, or Usinor Sacilor were able to obtain this private debt
without government assistance and/or guarantees. Therefore, we have not considered
the extent of Usinor Sacilor's private borrowings in determining whether Usinor Sacilor
was creditworthy.
Respondents have further argued that the 1986 restructuring greatly improved Usinor
Sacilor's outlook, making it a better risk for lenders as well as for investors. In contrast,
petitioners maintain that Usinor Sacilor's return to profitability should be ignored
because it was primarily the result of subsidies provided in 1986 and 1988.
With respect to respondent's arguments, we disagree that a lender would rely solely on
future profitability resulting from restructuring. With respect to petitioner's arguments
regarding the past subsidies received by Usinor Sacilor, past practice and our regulations
do no allow us to consider the effect of past subsidies when making a determination as to
whether a firm is creditworthy, as is set forth in § 355.44(b)(6)(iii) of the Department's
Proposed Regulations.
Our review of the financial statements and certain ratios for the years 1990 through 1991,
as well as the prior three years, indicates that Usinor Sacilor was able to generate
sufficient cash flow to meet its current and long- term obligations. Therefore, we continue
to determine that Usinor Sacilor was creditworthy during these years.
Equity Methodology
According to section 355.49(e) of the Department's Proposed Regulations the Department
measures the benefit of equity investments in "unequitworthy" firms by comparing the
national average rate of return on equity with the company's rate of return on equity
during each year of the allocation period. The difference in these amounts, the so-called
rate of return shortfall (RORS), is then multiplied by the amount of the equity investment
to determine the countervailable benefit in the given year.
The Department has concluded that the RORS methodology does not provide an accurate
measure of the benefits arising from government equity investments in unequityworthy
companies. When the Department finds that a company is unequityworthy and, hence,
that the government's equity investment is inconsistent with commercial considerations,
we are effectively finding that the company could not attract share capital from a
reasonable investor. When a company is in such poor financial condition that it cannot
attract capital, any capital it receives benefits the company as if it were a grant and no
earnings of the company in subsequent years should be used to offset the benefit.
Moreover, in calculating the company's rate of return, no adjustment is made to eliminate
the effect of past or current subsidies. Therefore, those subsidies that increase the
company's rate of return serve to reduce the amount of the subsidy arising from
government equity investments in subsequent years. In addition, this method does not
compensate for the effect of prior year results on equity in subsequent years, thus
measuring the rate of return against an equity other than that invested in the transaction
in question.
For these reasons, we have determined that equity investments in unequityworthy
companies will be treated as grants given in the year of the equity investment.
Accordingly, we will value the benefit using the grants methodology described below.
Where a market-determined benchmark price for equity exists, we will continue to use
that benchmark to determine whether the government's purchase of equity confers a
subsidy and to measure the amount of the subsidy.
Grant Methodology
Our policy with respect to grants is (1) to expense recurring grants in the year of receipt,
and (2) to allocate non-recurring grants over the average useful life of assets in the
industry, unless the sum of grants provided under a particular program is less than 0.5
percent of a firm's total or export sales (depending on whether the program is a domestic
or export subsidy) in the year in which the grant was received. See, e.g., Final Affirmative
Countervailing Duty Determination; Fresh and Chilled Atlantic Salmon from Norway,
56 FR 7678 (February 25, 1991) (Salmon from Norway).
We have considered the grants provided under the programs described below to be
non-recurring, unless otherwise noted, because the benefits are exceptional, the recipient
cannot expect to receive benefits on an ongoing basis from review period to review
period, and/or the provision of funds by the government must be approved every year.
See, Final Affirmative Countervailing Duty Determination; Certain Fresh Atlantic
Groundfish from Canada, 51 FR 10041 (March 24, 1986) (Groundfish from Canada).
Therefore, we have allocated the benefits over 15 years, which the Department considers
to be reflective of the average useful life
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of assets in the steel industry (see section
355.49(b)(3) of the Proposed Regulations).
The benefit from each of the grant programs discussed below was calculated using the
declining balance methodology described in the Department's Proposed Regulations (see
section 355.49(b)(3)) and used in prior investigations (see e.g., Salmon from Norway).
For the discount rate used in these calculations, we used the lending rates published in
the International Monetary Fund's International Financial Statistics because Usinor
Sacilor did not report its actual cost for long-term, fixed-rate debt. Since Usinor Sacilor
was uncreditworthy in the years in which all grants were approved we have used the
highest annual interest rate reported in the IMF publication and have added a risk
premium to the benchmark interest rate in accordance with section 355.44(b)(6)(iv) of
the Proposed Regulations.
Specificity
When receipt of benefits under a program is not contingent upon exportation, the
Department must determine whether the program is specific to an enterprise or industry,
or group of enterprises or industries. Under the specificity analysis, the Department
examines both whether a government program is limited by law to a specific enterprise or
industry, or group thereof (i.e., de jure specificity) and whether the government program
is in fact limited to a specific enterprise or industry, or group thereof (i.e., de facto
specificity). See section 771(5)(B) of the Act. In section 355.43(b)(2) of the Department's
Proposed Regulations, the Department has set forth the factors that may be considered in
determining whether there is specificity:
(i) The extent to which a government acts to limit the availability of a program;
(ii) The number of enterprises, industries, or groups thereof that actually use a program;
(iii) Whether there are dominant users of a program, or whether certain enterprises,
industries, or groups thereof receive disproportionately large benefits under a program;
and
(iv) The extent to which a government exercises discretion in conferring benefits under a
program.
See also Final Affirmative Countervailing Duty Determination: Certain Softwood
Lumber Products from Canada, 57 FR 22570 (May 28, 1992).
I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or
exporters in France of certain additive steel products as follows:
A. Equity Infusions and Grants
Loans with Special Characteristics (PACS)
A plan was agreed upon in 1978 to help the principal steel companies, Usinor, Sacilor,
Chatillon-Neuves-Maisons, and their subsidiaries, restructure their massive debt. This
plan entailed the creation of a steel amortization fund, called the Caisse d'Amortissement
pour l'Acier (CAPA) for the purpose of assuring repayment of funds borrowed by these
companies prior to June 1, 1978. In accordance with the restructuring plan of 1978,
bonds previously issued on behalf of the steel companies and pre-1978 loans from Credit
National and Fonds de Developpement Economique et Social (FDES) were converted into
PACS. As a result of this process, the steel companies were no longer liable for the loans
and bonds, but did take on PACS obligations.
According to the responses, PACS were an instrument akin to redeemable subordinated
nonvoting preferred stock. Respondents state that PACS would be included in the
shareholders' equity on the balance sheet, and had the following characteristics: (1) a
0.10 percent remuneration for the first five years and 1.0 percent thereafter, (2) no
schedule of reimbursement but in the 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.
In 1978, Usinor and Sacilor converted 21.1 billion French francs (FF) of debt into PACS.
From 1980 to 1981, Usinor and Sacilor issued FF8.1 billion of new PACS. PACS in the
amount of FF13.8 billion, FF12.6 billion and FF2.8 billion were converted into common
stock in 1981, 1986 and 1991, respectively.
Fonds d'Intervention Siderurgique (FIS)
The 1981 Corrected Finance Law granted Usinor and Sacilor the authority to issue
convertible bonds. The FIS, or steel intervention fund, was created by a 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 guarantee,
floated bonds to the public and to institutional investors.
In 1983, 1984, and 1985, Usinor and Sacilor issued convertible bonds to the FIS. These
FIS bonds were converted to common stock in 1986 and 1988.
Shareholders' Advances
According to the responses, the GOF financed the revenue shortfall 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. The
responses indicated that, consistent with the GOF's policy of full adherence to the EC State
Aids Code, and with the GOF's private investor policy articulated by President Mitterrand
in 1984, the GOF, in 1986, paid out the last of the advances it had made under this
program.
All of these advances were converted to common stock in 1986.
In 1981, 1986, 1988, and 1991, virtually all the common stock purchased through
conversions of PACS, FIS bonds and shareholder's advances was offset against company
losses, with the result of reducing paid-in capital. In the preliminary determination, we
concluded that the benefit was realized at the time of the reduction in paid-in-capital and
we treated each reduction in paid- in-capital as a grant.
We have reconsidered the approach taken in the preliminary determination and,
consistent with the equity methodology adopted in these investigations, we have
concluded that any benefits to Usinor Sacilor occurred at the point when these
instruments were converted to common stock. Because the equity methodology does not
recognize the subsequent performance of the company receiving the equity investment
and treats the equity investment as a grant, the later write-off of the equity is irrelevant.
As discussed above, we have determined that Usinor Sacilor was unequityworthy from
1981 through 1988 and equityworthy in 1991. As a result, we consider the conversion of
PACS to common stock in 1981 and 1986 to constitute equity infusions on terms
inconsistent with commercial considerations. Similarly, we consider the conversion of
FIS bonds to common stock in 1986 and 1988 to constitute equity infusions on terms
inconsistent with commercial considerations. However, the PACS to equity conversion in
1991 was consistent with commercial considerations.
Petitioners argue that Usinor Sacilor received benefits from the PACS converted in 1991,
for the portion of the POI they were outstanding. We disagree.
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Benefits from
equity infusions are not prorated to correspond to the number of months the firm
benefitted from the equity in the year of the infusion. Therefore, it is appropriate to
consider that the only benefit that could arise during the POI was that potentially
conveyed by the 1991 PACS-to-equity conversion. To assign loan and potential equity
benefits during the same year would lead to excess countervailing duties.
Consistent with the equity methodology adopted in this investigation, we followed the
grant methodology outlined above for allocating the benefits from the equity infusions
stemming from conversion of PACS and FIS bonds.
With respect to shareholders' advances, we have determined that shareholders' advances
constitute countervailable grants at the time they were received as no shares were
distributed in return for these advances when they were made to Usinor and Sacilor.
We calculated the benefit from shareholders' advances for the POI using the grant
methodology discussed above. We then added the benefits accruing from PACS, FIS
bonds and shareholders' advances. We divided this total benefit by Usinor Sacilor's total
sales, excluding sales of non-French produced merchandise and shipment expenses on
domestic sales. On this basis, we calculated an estimated net subsidy of 22.28 percent ad
valorem.
Equity Infusion in 1978
Based on information provided in the Changes in Capital exhibits in the responses, it is
evident that the GOF provided an infusion of capital to Usinor and Sacilor in 1978. Given
that we have determined that Usinor and Sacilor were unequityworthy in 1978, this
equity infusion was provided on terms inconsistent with commercial considerations.
Consistent with the decision concerning equity methodology adopted in this
investigation, we followed the grant methodology outlined above for allocating the
benefits from this equity infusion in 1978. We divided this benefit by Usinor Sacilor's total
sales, excluding sales of non-French produced merchandise and shipment expenses on
domestic sales. On this basis, we calculated an estimated net subsidy of 0.04 percent ad
valorem.
B. Long-Term Loans From FDES and CFDI
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.
Loans From FDES
On July 1, 1990, the outstanding principal on the FDES loans to Usinor and Sacilor was
consolidated into multiple long-term loans. We consider these consolidated loans to be
new loans.
In these investigations, the GOF has provided the total distribution of participative FDES
loans for 1981 through 1990. It does not appear that the new 1990, consolidated loans for
Usinor Sacilor are included in this information. The information provided only seems to
relate to participative loans rather than the types of loans obtained by Usinor Sacilor in
1990. Indeed, the information provided indicates that the consolidated amounts
exceeded the total amount of FDES loans distributed to all sectors of the economy for the
years 1987, 1988, and 1989 combined.
Therefore, lacking information on whether the FDES consolidated loans are limited to a
specific enterprise or industry or group of enterprises or industries, we have determined
that the 1990 consolidated loans are de facto limited. Accordingly, Usinor Sacilor's FDES
loans are countervailable to the extent that they were provided on terms more favorable
than the benchmark financing.
We have used as the benchmark and the discount rate the private bond interest rate
reported in the OECD Financial Statistics publication for 1990. Because we have
determined that Usinor Sacilor was creditworthy during 1990, we did not add a risk
premium to the benchmark interest rate. We then compared this benchmark financing to
the financing provided by FDES and found that the FDES loans were provided on more
favorable terms than the benchmark financing. Therefore, we determine that Usinor
Sacilor's loans are countervailable.
To calculate the benefit from these loans, we employed our normal long-term loan
methodology as described in section 355.49(c)(1) of the Department's Proposed
Regulations. (See also Final Affirmative Countervailing Duty Determination: Certain
Granite Products from Spain, 53 FR 24340 (June 28, 1988).) We divided the benefit
attributable to the POI by Usinor Sacilor's total sales, excluding sales of non-French
produced merchandise and shipment expenses on domestic sales. On this basis, we
calculated an estimated net subsidy of 0.02 percent ad valorem.
Loans from CFDI
In 1991, outstanding loans to Usinor Sacilor from CFDI were consolidated. These
consolidated loans carried new terms and conditions. Therefore, we are treating these
consolidations as new loans in 1991.
Because we are treating these as new loans taken out in 1991, no interest would be due
until 1992. Hence, there would be no cash flow effect until 1992. Only at that time would
any potential subsidy from these loans be realized. However, the old loans which were
consolidated in 1991 were outstanding during a portion of the POI and potentially give
rise to a benefit.
Although the GOF has claimed that loans from CFDI are not limited to a specific enterprise
or industry or group of enterprises or industries, no supporting evidence has been
provided other than a short letter from CFDI. This letter does not provide any showing
that the loans are non-specific. Therefore, we determine that CFDI loans are de facto
limited to a specific enterprise or industry or group of enterprises or industries and that
they are countervailable to the extent that they were provided on terms inconsistent with
commercial considerations.
For those years in which Usinor, Sacilor, and Usinor Sacilor were uncreditworthy, we
have used as the benchmark and the discount rate the same interest rate as described in
the Grant Methodology section above. For those years in which Usinor, Sacilor, and
Usinor Sacilor were creditworthy, we have used as the benchmark the interest rate
described in the "Long-Term Loans from FDES" section above.
Comparing the appropriate benchmark financing with the CFDI financing received by
Usinor, Sacilor, and Usinor Sacilor, we found that CFDI loans did provide a benefit during
the POI. Therefore, we determine that Usinor and Sacilor's loans are counteravailable.
To calculate the benefit from these loans, we employed our normal long-term loan
methodology as described above under the FDES Program. We divided the benefit
attributable to the POI by Usinor Sacilor's total sales, excluding sales of non-French
produced merchandise and shipment expenses on domestic sales. On this basis, we
calculated an estimated net subsidy rate of 0.48 percent ad valorem.
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C. Repaid PACS
In the 1978 restructuring, part of the loans made by the private majority shareholders
were converted to PACS. In Certain Steel, the Department considered these PACS to be
debt and stated that because they were created under the government-directed Rescue
Plan of 1978 and were specific to the steel companies, the PACS conferred
counteravailable benefits.
Sacilor's former majority shareholder redeemed its PACS in 1989. Although Sacilor paid
no interest on the PACS, the full value was repaid. Therefore, we are treating this as a zero
interest loan where benefits expired prior to the POI.
PACS issued by Usinor to its former majority shareholder were essentially written off in
1981 at a redemption value of FF100. Accordingly, we are treating the difference between
the original shareholder's advance and the amount repaid as a nonrecurring grant. We
have applied the grant methodology discussed above to calculate the benefit. We divided
this benefit by Usinor Sacilor's total sales, excluding sales of non-French produced
merchandise and shipment expenses on domestic sales. On this basis, we calculated an
estimated net subsidy of 0.01 percent ad valorem.
D. European Coal and Steel Community (ECSC) Article 54 Loans
Article 54 industrial investment loans are provided for the purpose of purchasing new
equipment or financing modernization. These loans are direct loans from the European
Commission and are made at interest rates slightly higher than those paid by the
Commission in obtaining funds. The purpose of this program is to facilitate the borrowing
process for companies in the ECSC, some of which may not otherwise be able to obtain
these loans. These loans are only available to the iron and steel industries.
Based on information provided in the responses, we preliminarily determined that this
program was not used. However, at verification we learned that Unimetal, the actual
producer of the subject merchandise, had loans outstanding under this program during
the POI.
Because Article 54 loans are limited to the iron and steel industries, we determine that
this program is limited to a specific enterprise or industry or group of enterprises or
industries. Therefore, these loans are counteravailable to the extent that they are
provided on terms inconsistent with commercial considerations.
We have used as the benchmark the interest rate described in the Grant Methodology
section above. We then compared the appropriate benchmark financing to the financing
Unimetal received through the EC and found that these loans were provided on terms
inconsistent with commercial considerations. Therefore, we determine that Unimetal's
Article 54 loans are counteravailable.
To calculate the benefit from these loans, we employed the long-term loan methodology
described above in our discussion of "Long-Term Loans from FDES." We divided this total
benefit by Unimetal's total sales. On this basis, we calculated an estimated net subsidy of
0.03 percent ad valorem.
E. ECSC Redeployment Aid (Article 56(2)(b))
Under Article 56(2)(b) of the ECSC Treaty, individuals employed in the coal and steel
industries who lose their jobs may receive assistance for social adjustment. This
assistance is provided for workers affected by restructuring measures, particularly as
workers withdraw from the labor market into early retirement or are forced into
unemployment. The ECSC disburses assistance under this program on the condition that
the affected country makes an equivalent contribution. Funds for the ECSC portion of
these payments are from the ECSC operational budget, made up entirely of levies on ECSC
companies.
Since the ECSC portion of payments under this program comes from its operational
budget, we determine the portion of payments provided by the ECSC to be not
countervailable. However, we are countervailing the matching contributions by member
state governments to the extent that their payments relieve companies of obligations
they would otherwise incur.
In Usinor Sacilor's response, it stated that the ECSC disbursed funds under this program to
the GOF during the POI. At verification, company officials stated that Usinor Sacilor did
not receive any funds under this program during 1991. However, officials did not provide
any documentation supporting this claim. Given the lack of documentation establishing
that Usinor Sacilor did not receive funds under this program, we have applied best
information available and concluded that the ESCS funds were in fact disbursed to the GOF
during the POI and that the GOF would have disbursed an equal amount of funds to Usinor
Sacilor during the POI. See, e.g., Portland Hydraulic Cement and Cement Clinker from
Mexico; Final Results of Countervailing Duty Administrative Review, 53 FR 18325
(May 23, 1988); Final Affirmative Countervailing Duty Determination; Standard
Carnations from Chile, 52 FR 3313 (Feb. 3, 1987); Certain Steel Products from South
Africa; Final Results of Countervailing Duty Administrative Review, 51 FR 33648
(Sept. 27, 1986).
Due to the lack of information provided at verification, we are further assuming that these
payments relieved the company of obligations it would otherwise incur. On this basis, we
have determined that the GOF's matching contributions have provided a countervailable
benefit to Usinor Sacilor. See e.g., Wool From Argentina; Final Results of
Countervailing Duty Administrative Review, 52 FR 23196 (June 18, 1987); Final
Affirmative Countervailing Duty Determination; Fresh Cut Flowers from Ecuador, 52
FR 1361 (Jan. 13, 1987); Certain Steel Products from South Africa; Final Results of
Countervailing Duty Administrative Review, 51 FR 33648 (Sept. 22, 1986).
Finally, we consider this program to provide recurring benefits because it is one under
which recipients can expect to receive benefits on an ongoing basis year after year.
Therefore, we expensed the payments provided under this program by the GOF in 1991.
We divided the total benefit by Usinor Sacilor's total sales, excluding sales of non-French
produced merchandise and shipment expenses on domestic sales. On this basis, we
calculated an estimated net subsidy of 0.28 percent ad valorem.
II. Programs Determined Not To Be Countervailable
We determine that the following programs do not provide subsidies to manufacturers,
producers, or exporters in France of certain additive steel products under the following
programs:
A. Loans From Credit National
Credit National is a financial institution with a structure based on four core-businesses,
corporate lending, capital markets, equity financing and real estate activities.
In 1991, outstanding loans to Usinor Sacilor from Credit National were consolidated.
Consistent with our treatment of the FDES loans, we are treating these consolidations as
new loans in 1991 because they carried new terms and conditions.
To determine whether the consolidated loans were provided to a specific enterprise or
industry or group of enterprises or industries, we have examined the factors discussed in
the Specificity section above. With respect to de jure availability, the law creating
*6227
Credit National does not in any way limit the industries to which loans can be made. With
respect to de facto availability, Credit National's Annual Report (1991) demonstrates that
loans in the year in which these consolidations were completed were in fact provided to
numerous sectors and were not disproportionately provided to the steel industry.
Industries which received Credit National loans included hotel, leisure and tourism,
retailing and health care, chemicals, energy and metals, agribusiness, and mechanical
engineering, automotive, aerospace, and transportation, and several others. The
chemicals, energy and metals sector, of which steel is a part, received 10.51 percent of all
Credit National loans approved in 1991. Finally, we verified that an independent
committee, composed of experts from various industries, evaluates loan applications and
makes recommendations to Credit National with respect to their viability. The committee
assesses this viability based on neutral criteria. Recommendations made by the
committee are then accepted by Credit National.
Based on this, we determine that the consolidated 1991 loans from Credit National were
not provided to a specific enterprise or industry or group of enterprises or industries,
and, therefore, are not countervailable.
B. Assistance for Research and Development
The Institute de Recherches de la Siderurgie Francaise (IRSID) is a non-profit
organization that is funded by contributions from each subsidiary of Usinor Sacilor. At
verification, we established that the GOF provides a very small amount of funds for
fundamental research as well as some basic research and that the results of this research
are published. Therefore, because the results of the research projects are made publicly
available, we find this program to be not countervailable.
III. Program Determined Not To Be Used
We determine that the following programs were not used by manufacturers, producers, or
exporters in France of certain additive steel products:
A. ECSC Article 54 Interest Rebates and Loan Guarantees
B. ECSC Article 56 Conversion Loans (Article (56)(2)(a))
C. ECSC Article 56 Interest Rebates
D. European Investment Bank (EIB) Loans
E. New Community Investment (NCI) Loans
Comments
Comment 1
Petitioners contend that the Department correctly treated as grants to the company, the
reductions of Usinor Sacilor's paid-in-capital occurring after PACS, FIS bonds, and
shareholders' advances were converted to common stock. Petitioners further contend
that all of these subsidies are "non-recurring" and must be allocated over a period of
years. Petitioners argue specifically that each reductions in paid-in-capital was a
separate, ad hoc decision made pursuant to a series of national steel plans enacted by the
GOF from 1978 to 1983. Petitioners contend that far from undertaking a continuing
program, the GOF was simply forced, by a series of annual crises caused by bad planning
and over-optimistic projections to provide the money necessary to keep Usinor Sacilor in
business. Petitioners further contend that although the GOF was forced into covering
Usinor Sacilor's accumulated losses past the EC deadline for the termination of state aids,
the company could not have anticipated the continuing receipt of these benefits.
Therefore, petitioners argue that Usinor Sacilor's reductions in paid-in-capital were
exceptional non-recurring grants.
Respondents argue that the reduction in paid-in capital on Usinor Sacilor's books were
not countervailable events because these reductions did not involve the injections of any
new funds into the companies. Consistent with the Department's cash flow methodology,
respondents argue that the cash flow effect occurred when PACS were issued, either
directly for cash or by relieving Usinor Sacilor of obligations to pay creditors, and when
FIS instruments and shareholders' advances were issued and provided, respectively.
Respondents argue that countervailing the reductions in paid-in capital would result in
the attribution of benefits in excess of those conceivably involved.
DOC Position
We disagree with petitioners that the reductions in paid-in-capital constitute subsidies.
Rather, the countervailable events occurred when PACS and FIS bonds were converted to
common stock. As our new equity methodology recognizes, any potential benefits from
these equity investments into an unequityworthy company, arose at the time the equity
was purchased and what happened to that equity subsequently is irrelevant. Moreover,
because our new methodology treats equity investments in unequityworthy companies
like grants, constructing a new benefit at the time of the reduction of paid-in-capital
would result in over-countervailing. As to shareholders' advances, we are treating them
as grants when made, and have not countervailed separately the subsequent stock
conversion or reduction in paid-in-capital.
We need not address petitioners' argument that the reductions in paid-in- capital are
non-recurring (as opposed to recurring) grants. As we explained above, we do not
consider the reductions in paid-in-capital to be countervailable events.
Finally, contrary to respondents' argument, to the extent that it still may be applicable in
light of our above determinations, we are not over- countervailing. As to the conversion
of PACS and FIS bonds into common stock, respondents' argument is premised on the
assumption that PACS and FIS bonds were equity when created. As we explain in
Comments 2 and 4 below, we have concluded that they were debt. As to shareholders'
advances, we are countervailing them only when made and, therefore, there is no
possibility of over-countervailing.
Comment 2
Respondents argue that PACS should be recognized as involving capital infusions upon
issuance, the only time when there was a cash flow effect on the company. The PACS were
considered to be a form of non-voting equity for funding the steel industry. Respondents
assert that PACS were initially treated as "quasi-equity" on the companies' balance sheets,
and they were the functional equivalent of equity. Respondents contend that PACS were
not subject to repayment obligations and, because they were subordinated to all but
common stock, PACS entitled their holder, the GOF, to dividends only if the companies
showed a net profit. Respondents also argue that the PACS were characterized as equity in
the companies' financial reports.
Respondents disagree with petitioners' assertion that the Department should treat PACS
as debt because they were called "loans with special characteristics" and because they
were sometimes characterized as loans on Usinor Sacilor's balance sheets. Respondents
contend that such an approach ignores the salient fact that the PACS did not have any
characteristics of debt. Specifically, respondents state that the GOF could choose to deem
its share of profits as supplemental remuneration on the PACS or it could allot a share of
profits to repayment. Respondents contend that this sort of participative right is not
characteristic of debt but rather the essential
*6228
characteristic of equity. Finally,
respondents argue the fact that the GOF never took repayment on these PACS (either as
supplemental remuneration or repayment) demonstrates that they lack characteristics of
a debt instrument which would require payments regardless of the obligor's profitability.
Petitioners argue that PACS as originally issued constituted debt and not equity, as the
Department held in Certain Steel. Petitioners assert that PACS carried a fixed rate of
interest while outstanding and that although there was no fixed repayment schedule, the
companies made lump sum interest payments on the debt obligations in 1986 and in
1991. Petitioners contend that Usinor and Sacilor elected to classify the instruments as
long-term financial debt on the companies' balance sheets pursuant to French generally
accepted accounting principles.
Petitioners further argue that the right to participate in future profits was actually a
contingent right to demand repayment of the face value of the obligations should the
company become profitable. Petitioners contend that unlike preferred stock, which
confers an unlimited right to share in profits, PACS merely stated a preference in the
allocation of future earnings to pay off the debt and contemplated only a reimbursement
of the face value of the PACS plus interest. Therefore, petitioners contend that because
PACS have the characteristics of debt, the Department should treat it as such.
DOC Position
We have continued to treat PACS as debt, not equity. While we agree with respondents
that the PACS shared certain characteristics with equity, they differed from equity in one
crucial respect--they carried with them an obligation for repayment. This obligation only
expired at the time the PACS were converted to common stock. The obligation to repay,
whether met or not, is sufficient to warrant treating these instruments as debt.
With respect to respondents' cash flow argument, we agree that the PACS had an effect on
the companies' cash flow. However, while the PACS were outstanding, the cash flow effect
was the interest savings the companies received by virtue of paying reduced interest
rates for the use of the funds. Upon conversion of the PACS to common stock, the cash
flow effect was that of a grant.
Comment 3
Respondents argue that the 1986 reclassification of PACS to equity was approved by the
EC Commission on the condition that Usinor Sacilor continue to be responsible for the
remuneration due under the terms of the PACS. In addition, Usinor Sacilor paid an
amount to the GOF, which represented the present value of the one percent remuneration
of the FF2.8 billion PACS reclassified in 1991. Accordingly, respondents maintain that
these payments must offset any subsidy calculation made.
DOC Position
The remuneration described by respondents amounts to prepayment of interest on the
PACS and would be accounted for in subsidies calculations on the PACS as loans.
However, as these loans expired prior to the POI by virtue of their conversions to equity,
no subsidies arising from the PACS are included in our calculations.
Comment 4
Respondents maintain that FIS instruments were convertible securities that should be
recognized as involving capital infusions upon issuance. Respondents contend that
although the face amount which the FIS paid for the instruments was nominally subject to
a repayment schedule, the FIS instruments, like the PACS, were essentially equity
instruments and effectively represented a permanent commitment of funds by the GOF
(through the FIS) to Usinor Sacilor.
Respondents further argue that the remuneration rate obviously was not a mechanism by
which the FIS recouped its financing costs. Rather, respondents contend that the essential
compensatory element of the instrument was a profit- sharing component akin to that on
common stock. Respondents argue that these instruments, like the PACS, had the
essential characteristics of equity rather than debt.
Petitioners contend that FIS bonds had the defining characteristics of debt: an obligation
to repay funds that had been advanced pursuant to a fixed amortization schedule and
with a fixed rate of interest. Petitioners argue that the profit-sharing component, in
addition to the fixed interest provision on FIS bonds, are not unique to equity
instruments.
Petitioners further maintain that Usinor Sacilor classified the instruments as financial
debt on their balance sheets, and this treatment fully conformed to French generally
accepted accounting principles. Thus, petitioners contend that from the perspective of
Usinor Sacilor at the time the instruments were issued, FIS bonds were debt securities
and not shareholders' equity.
DOC Position
We disagree with respondents that these instruments were essentially equity at issuance.
Like the PACS, the FIS instruments carried repayment obligations. Therefore, for the
reasons discussed in our response to Comment 2, we have continued to treat the FIS
instruments as debt prior to their conversion to common stock.
Comment 5
Respondents argue that shareholders' advances were recurring grants that should be
expensed in the year they were received. Respondents contend that shareholders'
advances provided by the GOF plainly satisfy the Department's three-part test for
distinguishing a recurring benefit from a non-recurring benefit. First, respondents argue
that the shareholders' advances provided by the GOF do not fall within the Department's
definition of an "exceptional program," as described in Live Swine and Fresh, Chilled and
Frozen Pork Products from Canada, 50 FR 25097 (June 17, 1985) (Live Swine), but were
routinely provided. Second, respondents argue that these advances, provided on a
routine basis for five consecutive years, were more "longstanding" than the grants
provided in Live Swine, which the Department treated as recurring grants. Finally,
respondents argue that it is evident that Usinor and Sacilor had to, and in fact did,
anticipate receiving the benefits year after year. These payments were curtailed only at
the time of the adoption of the EC State Aids Code in 1986.
Petitioners refute respondents' argument that shareholders' advances were recurring
benefits and should be expensed in the year of receipt. Petitioners contend that in Live
Swine the government used a pre-set formula to determine whether payments were
authorized in any given year and to set the level of the payments. Petitioners argue that
unlike Live Swine, the funds provided by the GOF were not mandated by legislation or by
specific agreement. Petitioners contend as a result that there was no contract or legally
enforceable obligation. Usinor and Sacilor could not have anticipated the continuing
receipt of these benefits because the GOF could have terminated the program at any time.
Petitioners argue that each advance was a separate, ad hoc decision by the government
and the amounts varied from month-to-month. Thus, petitioners contend that
shareholder advances constitute non-
*6229
recurring benefits under the Department's
methodology and should be evaluated accordingly.
DOC Position
We have determined that shareholders' advances should be treated as non- recurring
grants. Although Usinor and Sacilor received shareholders' advances on a regular basis
during the years 1982 through 1986, each advance required specific shareholders'
approval. Moreover, these shareholders' advances were made to cover operating losses.
Repeated shareholders' advances made to keep a company from dissolving are
"exceptional" events, within the meaning of Live Swine. Therefore, under the Department's
methodology, we are treating the shareholders' advances as non-recurring.
Comment 6
Petitioners contend that on numerous occasions, the GOF wrote-off portions of Usinor's
and Sacilor's debt by converting debt into equity, and then simultaneously cancelling this
new equity by using it to offset accrued losses. Petitioners maintain that most of these
funds were in the form of debt--PACS, FIS bonds, and shareholders' advances. Petitioners
argue that these transactions were ostensibly structured as debt-to-equity conversions;
however, no new shares were ever issued or other obligations incurred. In essence,
petitioners argue that these transactions were simply debt cancellations intended to
relieve Usinor and Sacilor of their enormous debt burdens.
DOC Position
Given our decision to treat equity infusions in unequityworthy companies like grants and
our finding that Usinor Sacilor was unequityworthy in 1986, the conversions of PACS and
FIS bonds to common stock have been countervailed using the same methodology that
would be used if the conversion were treated as debt forgiveness. With respect to
shareholders' advances, we treated them as grants to the time of receipt. We have no
evidence showing that the parties contemplated that the shareholders' advances carried a
repayment obligation. Therefore, we do not view them as loans that were subsequently
converted to equity or loans that were cancelled.
Comment 7
Petitioners maintain that in the case of a wholly government-owned company such as
Usinor Sacilor, there is no economic difference whatsoever between funds provided as
grants, loans, or equity. In such a company, the government owns the entire right to all
future earnings, and has a total claim on all the company's assets both before and after it
provides funds. Therefore, petitioners argue that the Department should apply the
standard non-recurring grant amortization methodology to measure the benefits from
these forms of subsidies.
Moreover, the RORS methodology yields absurd results in this case because Usinor
Sacilor canceled enormous amounts of paid-in-capital from 1978 to 1988 as part of the
company's balance sheet restructurings. As a result, a rate of return calculated on such a
reduced base of stockholders' equity would be meaningless. This calculated rate of return
on equity would ignore most of the equity actually invested in Usinor Sacilor, and RORS
would badly overestimate the actual return on the equity contributed by the GOF.
According to respondents, petitioners' arguments for rejecting the RORS methodology
are based on two faulty assumptions. First, petitioners assume that a determination by
the Department that a company is unequityworthy implies that the company can raise no
additional capital in private equity markets. According to respondents, a company can
attract equity capital by varying its price or its return, such that its return will be
sufficient to attract private investment. This suggests that if a company is able to obtain
any private capital through sale of equity, it should per se be considered equityworthy.
Under this standard, Usinor Sacilor would be per se equityworthy in 1986 when it sold
stock to private investors.
In response to petitioners' argument that RORS does not measure the benefit to the firm
on the grounds that the issuance of new equity is supposedly costless to a wholly
government-owned firm, respondents argue that there is a cost associated with raising
new equity capital. Respondents argue that according to the Court of International Trade,
"(u)nder Commerce's methodology, the measure of what a firm 'pays' for equity is its rate
of return on equity * * *. The rate of return on equity reflects the price the firm must offer
to attract equity, any dividends paid, and changes in the company's retained earnings and
net worth." In addition, respondents argue that because it is not possible to measure
accurately the aggregate benefit at the time the equity purchase is made, the RORS
methodology calculates the benefit to the firm each year to ensure that the proper
amount is countervailed.
Finally, respondents points out that the courts have confirmed the Department's use of
the RORS methodology as consistent with the countervailing duty law.
DOC Position
As explained above, we have determined that the RORS methodology does not
adequately measure the benefit arising from an equity investment in an unequityworthy
company. If we find a company to be unequityworthy, that finding is tantamount to
saying that a reasonable investor would not invest in that company. Therefore, from the
company's point of view, in this circumstance, any equity capital it receives from the
government is equivalent to a grant.
As for respondents' argument that the effect of the Department's decision is to render a
company equityworthy whenever private investment occurs, we note that where
meaningful private investment (i.e., more than a token amount that is not undertaken at
government direction) exists, we would not be making an equityworthy analysis. The
private investor's action would serve as a benchmark for determining whether the
government's investment was made on terms inconsistent with commercial
considerations.
With respect to respondents' argument that RORS measures what a firm would have paid
for equity, we disagree. To determine whether an equity investment is inconsistent with
commercial considerations and to measure the benefit properly, it would be necessary to
determine the expected rate of return the company would have to generate to attract a
private investor and compare that to the company's actual expected rate of return at the
time of the government equity investment. Because of the difficulty in calculating
expected rates of return, the Department in the past used the RORS methodology as a
proxy. However, we have now determined that this proxy is inadequate because it
necessarily reflects the subsequent performance of the company. As explained above in
connection with our decision not to view equity cancellations as new subsidies, potential
subsidies arise from the equity investment and not what happens to that equity
subsequently.
Finally, we also disagree with petitioners that equity, loans and grants in wholly-owned
government firms should be treated identically. Equity investments, unlike grants, do
represent a claim on the company and even in a wholly government-owned company,
equity investments are normally based upon some expectation of return.
*6230
Therefore, we continue to recognize a difference between grants and equity investments
in wholly government-owned companies.
Comment 8
Respondents argue that a 10-year period for allocating subsidies over time would provide
greater relief to U.S. industry by heightening the impact of any subsidy determination,
while assuring that foreign producers are not penalized for subsidies received so far in the
past that they no longer confer any tangible benefit. Respondents also argue that the
application of a 10-year period would be particularly appropriate in this case, given that
the U.S. steel industry negotiated for and received 10 years of extraordinary import relief
in exchange for withdrawing countervailing duty petitions addressing some of the
very same programs at issue here. Respondents argue that countervailing subsidies
granted prior to the signing of the voluntary restraint agreement is inconsistent with the
principle recognized in the Subsidies Code that only one form of relief should be
permitted to remedy the effects of a particular subsidy in the domestic market of the
importing country.
In addition, respondents argue that even if the Department continues to allocate benefits
based upon the average useful life of assets as a reasonable measure of the duration of the
benefit to a firm's overall activity, its use of a 15-year period based on 1977 depreciation
tables of the Internal Revenue Service (IRS) covering renewal of physical assets (i.e.,
equipment) does not reflect the facts of this case. Moreover, it would perpetuate a dated
guideline and ignore the reality of any possible commercial and competitive benefit
involved. Rather, respondents argue, the most accurate estimate of the average useful life
is the most recent estimate available, i.e., the 1991 Usinor Sacilor figures verified by the
Department.
Petitioners disagree with respondents' proposal to use the average useful life of Usinor
Sacilor's assets because it is based in the year of review only and bears no relation to the
company's experience in the years in which the grants were actually received or other
years in which the subsidies benefited the firm. In addition, petitioners dispute
respondents' claim that the IRS tables are superseded and outdated. Petitioners contend
that the IRS tables continue to provide a consistent and predictable standard for
allocating grants to steelmaking operations.
DOC Position
While the Department has indicated its willingness to consider a ten-year allocation
period generally (see the Preamble to the Proposed Regulations), nothing that the parties
have argued leads us to conclude that we should depart from the 15-year standard for this
investigation. Therefore, we have continued to use the 15-year allocation period based on
the 1977 IRS depreciation table, as amended in 1985, covering renewable assets for steel.
Comment 9
Petitioners argue that based on the "transnational subsidies rule" of the Proposed
Regulations the Department must not allocate GOF subsidies to any non- French activity.
Moreover, petitioners maintain that because the Department's CVD order applies only to
subject imports from the country under investigation, the Department must assume that
no activity outside France benefits from GOF subsidies, and that subsidies are instead
used by the GOF to increase economic activity in France. Therefore, all value-added
outside France must be excluded from the Usinor Sacilor sales denominator.
Respondents argue that the statute requires that any duty be limited to the net subsidy
determined to exist. Respondents maintain that the Department routinely allocates
subsidies to sales of products not under investigation if those products benefit from the
alleged subsidy, even though they are not subject to the countervailing duty order.
According to respondents, in arguing that non-French production should be excluded
from the denominator, petitioners improperly invoke the transnational subsidies rule.
According to respondents, on its face this rule relates solely to countervailability, i.e.,
whether an actionable benefit exists from a GOF program, and has no relevance to
measuring a subsidy in the home market. The provisions on allocating countervailable
benefits to a product or market and calculating an ad valorem subsidy are in an entirely
separate regulation.
Respondents claim that the subsidies at issue in this investigation are not tied to any
particular product or products and, therefore, must be allocated over total sales. The
statute, the regulations, and longstanding practice require the Department to measure the
benefits from United subsidies by determining the proportion of the benefit attributable
to the production of the product under investigation in the country to which the
countervailing duty order will apply. Therefore, respondents contend that the
Department is simply not permitted to eliminate non-French sales from the denominator
without a pro rata deduction of the benefit from the numerator. Without such a reduction,
the countervailing duty will exceed the net subsidy to the subject merchandise.
DOC Position
We have not previously addressed the question whether, in calculating subsidy rates for a
holding company with both domestic and foreign subsidiaries engaged in the production
of products, where the subsidies are domestic subsidies and are not tied to a particular
product or market, we should include in the sales denominator total world-wide sales,
including sales attributable to foreign production, or only sales attributable to domestic
production. In some cases, we have used total worldwide sales, as respondents point out,
but we did so without addressing this question. On the other hand, in at least one case, we
have excluded sales attributable to foreign production from the sales denominator. See
Final Affirmative Countervailing Duty Determination: Stainless Steel Hollow Products
from Sweden, 52 FR 5794 Feb. 26, 1987). In addition, the Department's Proposed
Regulations do not squarely address this question. Section 355.47(c)(1) of the Proposed
Regulations provides that, for "United" domestic subsidies, we will "allocate the benefit to
all products produced by a firm" and, therefore, use "a firm's total sales" in the sales
denominator. From this language and the discussion of § 355.47(c)(1) in the Background
section of the Proposed Regulations, there is no indication that § 355.47(c)(1)
contemplated a situation where the firm was a holding company with not only domestic
subsidiaries but also foreign subsidiaries engaged in the production of products.
At this time, we are not prepared to conclude automatically, as respondents seeks, that
otherwise United domestic subsidies to a holding company with both domestic and
foreign subsidiaries engaged in the production of products benefits not only domestic
production but also foreign production, with the result that we would include sales
attributable to both domestic production and foreign production in the sales
denominator. We also are not prepared to conclude, solely on the basis of petitioners'
legal arguments, that the subsidies benefit only domestic production.
Rather, as our starting point, we considered whether the subsidies at issue here were tied
to domestic
*6231
production, and we determined that they were. In making this
determination, consistent with our existing methodology, we examined whether the
subsidies were bestowed specifically to benefit domestic production. See Final
Affirmative Countervailing Duty Determinations; Certain Steel Products from
Belgium, 47 FR 39304 (Sept. 7, 1982) (Appendix 2). On the record before us, after
reviewing the programs from which the subsidies at issue arose, and after considering the
GOF's contemporaneous controlling ownership position in Usinor Sacilor, we concluded
that the GOF was seeking to promote domestic social policy and domestic economic
activities and therefore to encourage domestic production.
Next, we attempted to allocate, in a reasonable manner, the subsidies at issue to the
products that they benefited, i.e., the products as to which those subsidies provided
incentives to produce and sell. Consistent with our approach to subsidies tied to a
product or market, we believe that it is reasonable to allocate the benefits of the subsidies
at issue, which we have determined are tied to domestic production, fully to domestic
production. We also believe that it is reasonable not to allocate those benefits to foreign
production. See Proposed Regulations, supra; Appendix 2, supra. See generally Industrial
Nitrocellulose from France; Final Results of Countervailing Duty Administrative
Review, 52 FR 833 (Jan. 9, 1987) (Industrial Nitrocellulose). Accordingly, we determined
that we would allocate the benefits of the subsidies at issue fully to domestic production
and that we would not allocate those benefits also to foreign production, unless we had "a
clear reason to believe" that the benefits encouraged foreign production. See Industrial
Nitrocellulose, supra.
In this case, we do not have adequate evidence to give us a clear reason to believe that
the benefits of the subsidies at issue encourage foreign production. We therefore allocated
the benefits fully to domestic production, and we accordingly included in the sales
denominator only sales attributable to domestic production.
We note that we cannot apply respondents' alternative methodology in this case. If we
were to adjust the numerator in our subsidy rate calculation, as respondents request, we
would need evidence showing, for each subsidy, the amount of the subsidy benefiting the
subsidiaries engaged in foreign production. The record does not contain evidence that
would allow us to determine those amounts.
Therefore, to calculate the denominator, we have referenced petitioners' submission in
the ongoing Countervailing Duty Investigations of Certain Carbon Steel Products from
France. This calculation reasonably measures French production by excluding from
Usinor Sacilor's consolidated net sales, not only sales attributable to foreign production,
but also value-added outside France with respect to domestic production and
transportation charges on domestic sales.
Comment 10
Petitioners argue that in the absence of documented F.O.B. port data for purposes of
measuring the value of the steel shipments benefitting from the subsidies under
investigation, the Department should use best information available. Petitioners contend
that respondents' methodology for estimating its aggregate F.O.B. port value, starting
with customer billings and then subtracting only the overseas freight costs of three of its
subsidiaries, would overstate the sales denominator because other shipping expenses,
e.g., insurance, warehousing, brokerage and handling, etc., are not deducted, and
moreover, the ocean freight for only three subsidiaries was deducted. Finally, it is
overstated because value-added through processing by Usinor Sacilor's non-French
subsidiaries of merchandise shipped within Europe and costs incurred in connection with
domestic shipments after the product leaves the factory gate are included.
Respondents argue that they have been responsive to the Department's request for data
on export and domestic sales, and that they supplied an estimate of Usinor Sacilor's F.O.B.
port value. Therefore, respondents contend that the Department should reject
petitioners' call for best information available. Respondents assert that Usinor Sacilor's
cost of sales account contains an aggregate figure that does not itemize specific expenses,
so it is impossible to identify and quantify specific transportation or other incidental
expenses necessary to "back out" from a total sales figure to an ex-factory price.
Respondents argue that under these circumstances, in the absence of evidence of an
attempt to impede the investigation, the Department may not resort to BIA simply
because the requested data is not available.
Moreover, according to respondents, petitioners' complaint that the estimates fail to take
into account ocean freight costs of other subsidiaries is specious. The other subsidiaries
primarily sell in Europe and do not incur any such expenses in connection with export.
Also, petitioners' list of miscellaneous incidental expenses for the three export
subsidiaries and the other subsidiaries that are not subtracted are de minimis and do not
detract from the reasonableness of Usinor Sacilor's estimate. Finally, respondents argue
that many of these incidental expenses are related to petitioners' flawed claim concerning
value-added or incidental expenses outside of France.
DOC Position
As discussed above, we have calculated the sales denominator by referencing petitioners'
submission in the ongoing Countervailing Duty Investigations of Certain Carbon Steel
Products from France.
Comment 11
Petitioners agree with the Department's selection of the highest long-term annual interest
rate in France as reported in the International Monetary Fund's (IMF) International
Financial Statistics for the years 1982 through 1989, when the Department found Usinor,
Sacilor, and Usinor Sacilor uncreditworthy. However, petitioners disagree with the
Department's use of the private bond rate in determining the discount rate for the years
1978 and 1981, years in which the Department also found Usinor and Sacilor to be
uncreditworthy.
Petitioners contend that the chart supplied by the GOF providing the TMO private bond
rates described as "Average and highest long-term fixed interest rates" fails to reference
the OECD publications from which the rates were taken, or provide information on their
terms and conditions. Petitioners further contend that the Department determined at
verification that INSEE calculates the TMO rates based on "medium-term and long-term
issues" in France. These rates are used by banks as the basis for medium-to-long-term
lending and the banks will typically "add a few percentage points to the TMO rate to
determine the final lending rate." Petitioners maintain that no information was provided
on how this spread is calculated, or what the spread would be for uncreditworthy
companies. Therefore, petitioners argue that these rates are not the highest interest rates
available in France. Petitioners argue that the Department should use, as best
information available, the highest long-term interest rate as reported by the IMF in 1978
and 1981, plus a risk premium.
Respondents argue that in addition to assessing a risk premium based on the Department's
uncreditworthiness
*6232
determination, the Department's use of the short-term
consumer overdraft rate reported in the IMF's International Financial Statistics was in
error. Respondents maintain that this rate is inappropriate in two ways. First, the use of a
short-term overdraft rate was inappropriate given the Department's stated preference for
using a long-term rate. Second, OECD rates are used in France not the IMF rates.
Respondents also state that the Department's comments in the GOF verification report
regarding the TMO-OECD rates were not accurate. According to respondents, the banking
official quoted in the report actually testified that the TMO was at least a week old, if not a
month old, and was used as a benchmark. The actual rate of lending would depend on the
credit market's conditions on that day and on the particular borrower, and thus, the rate
could be higher or lower than the average TMO for the preceding week.
DOC Position
We agree with petitioners that we used an incorrect discount rate for the years 1978 and
1981 in our preliminary determination. For purposes of this final determination, we have
used the lending rate provided in the IMF's International Financial Statistics to construct
the discount rate for all years in which we have found Usinor Sacilor to be
uncreditworthy.
We disagree with respondents that this is a short-term rate. In most cases, it applies to
loans with maturity greater than one year and, hence, is consistent with the Department's
methodology because we consider loans with a maturity in excess of one-year to be
long-term loans.
We note that, as discussed above in the "Long-Term Loans from FDES" section, when we
have determined that Usinor Sacilor was creditworthy during a particular year, we have
used for the discount rate the rate indicated in the OECD publication provided by
respondents for that year.
Comment 12
Respondents argue that the Department's preliminary conclusion that Credit Lyonnais'
equity investment in Usinor Sacilor was not commercially reasonable is contradicted by
the record. Respondents assert that Usinor Sacilor was equityworthy in 1991 and
represented an excellent investment opportunity. Respondents argue that the Credit
Lyonnais' purchase of stock in Usinor Sacilor was subject to exhaustive studies by Credit
Lyonnais itself and by an independent Swiss consulting firm on behalf of the EC
Commission. Petitioners dispute respondents' claim that the two studies demonstrate that
the investment was commercially plausible. Petitioners assert that the EC Commission's
approval of the transaction does not mean that it is not countervailable under U.S. law.
The Commission's standard for determining whether a government subsidy constitutes
state aid is considerably less strict than that of the U.S. law.
Petitioners also argue that Usinor Sacilor's short-term improvement in financial
performance was hardly an indication of the company's permanent rehabilitation or a
sustainable recovery in the steel industry. Moreover, the profit projections are not
credible in light of the obvious declines in worldwide and EC demand for steel at the time
of the investment. Therefore, petitioners argue that a reasonable private investor would
never have proceeded with such a sizable investment under such adverse market
conditions.
DOC Position: While we agree with petitioners that the EC approval of the investment is
not relevant, the information provided in the studies is relevant to our analysis. Credit
Lyonnais used many different criteria to evaluate Usinor Sacilor as a potential
investment, some of which are discussed in a letter to the EC which is on file in this
investigation. In addition, as discussed at verification, Credit Lyonnais evaluated its
potential return from the investment by considering its overall return in the form of
profits, dividends, additional leverage, and increased banking fees. Based on this
information, Credit Lyonnais concluded that Usinor Sacilor was a commercially
reasonable investment. With respect to the Swiss consulting report, based on our review
of this study, we have concluded that Usinor Sacilor was capable of generating a
reasonable rate of return within a reasonable period of time and, hence, was
equityworthy at the time.
Verification
In accordance with section 776(b) of the Act, we verified the information used in making
our final determination. We followed standard verification procedures, including meeting
with government and company officials, examination of relevant accounting records, and
examination of original source documents. Our verification results are outlined in detail
in the public versions of the verification reports, which are on file in the Central Records
Unit (Room B-099 of the Main Commerce Building).
Suspension of Liquidation
In accordance with section 705(c) of the Act, we are directing the Customs Service to
continue to suspend liquidation of entries of certain additive steel products 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 bond of
estimated countervailing duties at the following rate:
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 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 the ITC determines that material injury, or the threat of material injury, does not exist,
these proceedings will be terminated and all estimated duties deposited or securities
posted as a result of the suspension of liquidation will be refunded or cancelled. If,
however, the ITC determines that such injury does exist, we will issue a countervailing
duty order, directing Customs officers to assess countervailing duties on entries of
certain additive steel products from France.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to Administrative Protective
Order (APO) of their responsibility concerning the return or destruction of proprietary
information disclosed under APO in accordance with 19 CFR 355.34(d). Failure to comply
is a violation of the APO.
This determination is published pursuant to section 705(d) of the Act (19 U.S.C.
1671d(d)) and 19 CFR 355.20(a)(4).
*6233
Dated: January 19, 1993.
Alan M. Dunn,
Assistant Secretary for Import Administration.
(FR Doc. 93-2002 Filed 1-26-93; 8:45 am)
BILLING CODE 3510-DS-M