NOTICES
DEPARTMENT OF COMMERCE
(C-427-810)
Final Affirmative Countervailing Duty Determinations: Certain Steel Products
From France
Friday, July 9, 1993
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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 9, 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 Determinations
The Department determines that benefits which constitute subsidies within the meaning
of section 701 of the Tariff Act of 1930, as amended (the Act) (19 U.S.C. 1671), are being
provided to manufacturers, producers, or exporters in France of certain steel products.
For information on the estimated net subsidies, please see the Suspension of Liquidation
section of this notice.
Case History
Since the publication of these preliminary determinations in the Federal Register on
December 7, 1992 (57 FR 57785), the following events have occurred.
On December 15, 1992, we issued a supplemental/deficiency questionnaire to the
Government of France (GOF) and Usinor Sacilor. On January 11, 1993, we received a
response to this questionnaire. In response to our letter of January 13, 1993, we received
additional information concerning the sales value of French- produced merchandise on
January 22, 1993. In addition, on January 22, 1993, we received information from
respondents to clarify the record on certain issues.
We conducted verification of the responses submitted on behalf of the GOF and Usinor
Sacilor from January 25 through February 3, 1993.
On March 8, 1993, we published in the Federal Register a notice postponing the final
determinations in these investigations in accordance with the postponement of the final
determinations in the companion antidumping duty investigations (58 FR 12935).
On April 6, 1993, we terminated the suspension of liquidation of all entries of the subject
merchandise entered, or withdrawn for consumption, on or after that date (see
Suspension of Liquidation section, below).
Country-specific case and rebuttal briefs were submitted on April 19 and April 22, 1993,
respectively, by petitioners and respondents. In addition, we received general issues case
and rebuttal briefs on April 28 and May 3, 1993, from petitioners and respondents. A
country-specific hearing was held on April 23, 1993 and the general issues hearing was
held on May 5 and 6, 1993. On May 26, 1993, we returned to both petitioners and
respondents certain information submitted in their respective case briefs because it
constituted untimely presented factual information.
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Scope of Investigations
The products covered by these investigations, certain steel products, constitute the
following four separate "classes or kinds" of merchandise, as described in the Scope
Appendix attached to the Final Affirmative Countervailing Duty Determination:
Certain Steel Products from Austria: (1) Certain hot-rolled carbon steel flat products; (2)
certain cold-rolled carbon steel flat products; (3) certain corrosion-resistant carbon steel
flat products; and (4) certain cut-to-length carbon steel plate.
Injury Test
Because France is a "country under the Agreement" within the meaning of section 701(b)
of the Act (19 U.S.C. 1671(b)), the U.S. International Trade Commission (ITC) is required
to determine whether imports of the subject merchandise from France materially injure,
or threaten material injury to, a U.S. industry. On August 21, 1992, the ITC preliminarily
determined that there is a reasonable indication that a U.S. industry is being materially
injured or threatened with material injury by reason of imports from France of the
subject merchandise (57 FR 38064).
Respondents
The GOF and the Commission of the European Communities are respondents for each
class or kind of merchandise subject to these investigations. Usinor Sacilor is the only
respondent company for each class or kind of merchandise subject to these
investigations.
Corporate History
At the end of 1986, Usinor and Sacilor, which previously had been stated-owned
corporations, were merged into a single holding company called Usinor Sacilor.
Analysis of Programs
Based upon our analysis of the petition, the responses to our questionnaires, verification,
and comments by interested parties, we determined the following:
General Issues
Several issues raised by interested parties in these investigations and in other
countervailing duty investigations of certain steel products from various countries,
were not case-specific but rather general in nature. We included:
- Allocation Issues;
- Denominator Issues;
- Equity Issues;
- Prepension Issues;
- Privatization Issues;
- Restructuring Issues;
The comments submitted by interested parties concerning these issues, in both the
general issues case and rebuttal briefs, as well as the country-specific briefs, and the
Department's positions on each are addressed in the General Issues Appendix which is
attached to the Final Countervailing Duty Determination: Certain Steel Products from
Austria which is published concurrently with this notice.
Period of Investigation
For purposes of these final determinations, 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.
Equityworthiness
Petitioners alleged that Usinor, Sacilor, and Usinor Sacilor were unequityworthy from
1982 through 1991. Therefore, any equity infusions received during those years were
provided on terms inconsistent with commercial considerations.
The Department has previously determined that Usinor and Sacilor were unequityworthy
for the years 1979 and 1982 in Final Affirmative Countervailing Duty Determinations:
Certain Steel Products from France, 47 FR 39332 (September 7, 1982) (Certain Steel). In
these current investigations, respondents did not provide nor did we verify any
information regarding Usinor's and Sacilor's financial position for these years that would
lead us to reverse our earlier finding.
Also, respondents have not provided any information to show, nor have they argued, that
Usinor and Sacilor were equityworthy during the entire 1979 through 1985 period.
Therefore, for the reasons stated in our preliminary determinations, we continue to find
that Usinor and Sacilor were unequityworthy in those years.
With respect to the period following 1985, we have considered comments raised by both
petitioners and respondents concerning our preliminary finding that Usinor Sacilor was
unequityworthy from 1986 to 1988, and equityworthy during 1991. Based on our
analysis, we continue to determine that Usinor Sacilor was unequityworthy in 1986
through 1988, and equityworthy in 1991.
Respondents have argued that they were equityworthy beginning in 1986 through 1991.
However, because there were no infusions in 1989 and 1990, we need not determine
whether Usinor Sacilor was equityworthy in those years.
Respondents argue that the Department's preliminary finding ignored the firm's prospects
for future profitability. Rather, according to respondents, the Department focused on past
performance without taking into consideration the restructuring and consolidation
activities of the company and the cyclical downturn being experienced by the steel
industry. We have addressed this issue, as well as respondents' arguments regarding the
owner-investor viewpoint and conversion of past investments, in the Equityworthiness
section of the General Issues Appendix.
When determining whether a company is equityworthy in a particular year, it is the
Department's practice to evaluate the company's financial performance over the three
years prior to the year in which the infusion was provided. Therefore, to evaluate whether
Usinor Sacilor was equityworthy beginning in 1986, we have evaluated the financial
position of Usinor and Sacilor three years prior to each year in which investments were
made.
Usinor, Sacilor, and Usinor Sacilor reported substantial losses in each year until 1987.
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 until 1987. In 1988, Usinor Sacilor reported positive rates of return on
assets and equity, profit margin on sales, and a positive debt to equity ratio. However,
given its history of losses and poor financial condition in the years preceding 1988, we
cannot say that Usinor Sacilor was equityworthy in 1988. Therefore, we determine that
Usinor, Sacilor, and Usinor Sacilor were unequityworthy in 1986 through 1988.
Respondents have argued that earnings before interest, taxes and depreciation (EBITD) is
an important measure of the equityworthiness of a company. Respondents maintain that
a potential investor may view strong gains in EBITD as a positive indicator that a
company's restructuring efforts are paying off. In addition, according to respondents,
investors may be less concerned with net income if they can see that the company is
actively working toward retiring debt and unproductive assets.
However, as we stated in the Final Affirmative Countervailing Duty Determination:
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from France 58 FR 6222
(January 27, 1993) (Lead and Bismuth), we are not persuaded that EBITD is the best
means of measuring the rate of return on
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equity. While potential investors may
consider EBITD, it is not as accurate a reflection of the potential return on investment as a
measure which is net of interest, taxes, and depreciation, i.e., net income. The
Department considers that the net income of a company, not EBITD, reflects the amount
which would potentially accrue to the benefit of the shareholders. For these reasons, we
have relied upon the companies' return on assets and return on equity, calculated as net
income divided by the assets and average shareholder's equity, respectively.
Petitioners have observed that most of the ratios used by the Department to evaluate
equityworthiness (e.g., current, quick, debt-to-equity, profit margin, etc.), deteriorated
over the period 1988 through 1990, despite Usinor Sacilor's two profitable years in 1988
and 1989. Therefore, according to petitioners, Usinor Sacilor could not have attracted
equity capital in 1991.
Two measures of liquidity, the current ratio and quick ratios, indicated that the firm was
sufficiently able to meet its short-term obligations during the period 1988 and 1991.
However, petitioners maintain that the decline in Usinor Sacilor's times-interest earned
ratio indicates that the firm was barely able to meet its interest payments. Respondents
point out, however, that this ratio is below normal, particularly with respect to 1991,
because of the restructuring undertaken by Usinor Sacilor.
Petitioners also argue that although there was a global upturn in the steel cycle from 1988
through 1990, which allowed Usinor Sacilor to increase its net sales, its profit on those
sales declined. Respondents answer that if petitioners had calculated the profitability
ratios using EBITD, they would find that the ratios were very good for these years.
Further, respondents argue that although Usinor Sacilor posted a loss in 1991, it was due
to a large restructuring charge taken in that year.
We agree with petitioners that although the company reported positive rates of return on
both assets and equity for 1988 through 1991, the financial position of the firm weakened
yearly. However, we do not believe that the firm's financial position, as indicated by the
ratios during these years, was such that it would not be able to attract investment. Ratio
analysis only provides a "snapshot" of the financial position of the firm at a particular
point in time. While that snapshot is important, it must be weighed against evidence
regarding the future prospects of the company.
In these investigations, we have such evidence--a report of an analysis of Usinor Sacilor
performed by an independent Swiss consulting firm. The Swiss consulting firm was hired
by the European Commission to evaluate Credit Lyonnais' proposed acquisition of 20
percent of Usinor Sacilor's voting stock. The European Commission ordered the study to
determine whether the proposed investment by Credit Lyonnais was one that a prudent
investor would make, and whether Credit Lyonnais was paying a fair price, in accordance
with the European Communities' State Aids Code.
Petitioners contend that the Swiss consulting report is error-ridden, fundamentally
biased, and that it fails to establish that a reasonable investor would have provided
capital to Usinor Sacilor. We disagree. We find the Swiss consulting report to be reliable
and probative. Due to the proprietary nature of this report, we have set out our
evaluation of the arguments with respect to this report in a separate memorandum to the
file.
Thus, in considering Usinor Sacilor's potential to generate a reasonable rate of return
within a reasonable period of time, we have looked to both the relevant financial data and
the Swiss consulting report. On that basis, we have concluded that Usinor Sacilor was
equityworthy in 1991. For further discussion of our equityworthiness analysis and our
analysis of the Swiss Consulting Report, see Memorandum to File, dated June 21, 1993,
regarding the Evaluation of Usinor Sacilor's Equityworthiness and Creditworthiness, on
file in the Central Records Unit (Room B-099 of the Main Commerce Building).
Creditworthiness
In our preliminary determinations, we found Usinor Sacilor to be uncreditworthy during
the years 1978 through 1989. Respondents have not challenged this finding nor have they
provided any information for the record that would lead us to reach a different
conclusion for the period 1978 through 1981. Therefore, for purposes of these final
determinations, we determine that Usinor and Sacilor were uncreditworthy in the years
1978 through 1981.
Based on our analysis of certain liquidity ratios and debt ratios, i.e., current and quick,
times interest earned, long-term debt, and debt-to-equity, we continue to determine that
Usinor, Sacilor, and Usinor Sacilor were uncreditworthy during the years 1982 through
1988. In reaching this determination, we evaluated financial data for the three years prior
to each year in which borrowings were made.
For the period, 1979 through 1987, Usinor, Sacilor, and Usinor Sacilor consistently
incurred substantial losses. As a result, the interest ratios were negative and the liquidity
ratios indicated that the companies may have had difficulty in meeting their short-term
obligations. Moreover, Usinor and Sacilor reported net losses in each of these years.
Therefore, we find Usinor, Sacilor, and Usinor Sacilor to be uncreditworthy from 1982
through 1988.
The picture began to change, however in 1988. Usinor Sacilor reported a profit in that
year, as well as in 1989, and 1990. In addition, the times- interest earned, long-term debt,
and debt-to-equity ratios indicated that Usinor Sacilor was in a position to cover its
interest obligations, and had improved its debt structure. Based on this, we find Usinor
Sacilor creditworthy for the years 1989, 1990, and 1991. For further discussion of our
creditworthiness analysis and our analysis of the Swiss Consulting Report, see
Memorandum to File, dated June 21, 1993, regarding the Evaluation of Usinor Sacilor's
Equityworthiness and Creditworthiness, on file in the Central Records Unit (Room B-099
of the Main Commerce Building).
A. Programs Determined To Be Countervailable
We determine that subsidies are being provided to manufacturers, producers, or
exporters in France of certain steel products under the following programs. The analysis
provided below applies equally to each of the four classes or kinds of merchandise.
1. Equity Infusions
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 ensuring 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 "loans with special
characteristics," or PACS. As a result of this process, the steel companies were no longer
liable for the
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loans and bonds, but did take on PACS obligations.
Respondents argue that PACS were an instrument akin to redeemable subordinated
nonvoting preferred stock. PACS would be included in shareholders' equity on the
balance sheet, and had the following characteristics: (1) A symbolic 0.10 percent
remuneration for the first five years and 1.0 percent thereafter; (2) no repayment
schedule, 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.
For the reasons discussed in the Equity section of the General Issues Appendix, we have
determined that PACS were debt, rather than equity, when issued. 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. Usinor and Sacilor issued
convertible bonds to the FIS, which, in turn, with the GOF's 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.
For the reasons discussed in the Equity section of the General Issues Appendix, we have
determined that FIS bonds were debt, rather than equity, when issued.
Calculation Methodology
Consistent with the equity methodology adopted in these investigations, we have
concluded that any benefits to Usinor Sacilor occurred at the point when these debt
instruments, i.e., PACS and FIS bonds, were converted to common stock. Because we
have determined that Usinor Sacilor was unequityworthy from 1978 through 1988 and
equityworthy in 1991, we consider the conversion of PACS to common stock in 1981 and
1986 to constitute equity infusions on terms inconsistent with commercial
considerations. However, because we have determined that Usinor Sacilor was
equityworthy in 1991, the PACS-to-equity conversion in 1991 has been determined to be
consistent 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
because Usinor Sacilor was unequityworthy in 1986 and 1988.
Equity Infusion 1978
The GOF provided an infusion of capital to Usinor and Sacilor in 1978. Given our
determinations that Usinor and Sacilor were unequityworthy in 1978, this equity infusion
was provided on terms inconsistent with commercial considerations.
We followed the grant methodology discussed in the Allocation section of the General
Issues Appendix in allocating the benefits from the 1978 infusion, and the 1981, 1986,
and 1988 debt-to-equity conversions. We divided these benefits, as well as all other
benefits discussed below, by total 1991 sales of either Usinor Sacilor or the producers of
the subject merchandise, as appropriate. (See, the Denominator section of the General
Issues Appendix for a discussion of the methodology used). On this basis, we calculated
an estimated net subsidy of 10.91 percent ad valorem.
2. Other Equity Infusions in 1979, and 1981 Through 1983
Petitioners alleged that the GOF made equity infusions into Usinor and Sacilor in 1979,
pursuant to the Plan Acier launched in 1978, and in 1981 when PACS held by the FDES
were cancelled in exchange for stock. In addition, petitioners asserted that President
Mitterrand's 1982 Plan Acier called for equity infusions in Usinor and Sacilor in 1982 and
1983. Petitioners maintained that these injections were accomplished through the
creative use of loss reserves.
We verified the detailed exposition provided by the GOF and Usinor Sacilor of the events
of 1978 through 1991, specifically with respect to the conversion of loans to PACS in
1978, the reclassification of PACS to common stock in 1981, and the subsequent
reductions in paid-in-capital. In addition, we examined the changes in capital for the
years 1982 and 1983. On this basis, we confirmed that neither Usinor nor Sacilor received
any equity infusions in addition to those already discussed.
3. Grants in the Form of Shareholders' Advances
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. The GOF, in 1986, paid out the last of the
advances it had agreed to make under this program. These advances were converted to
common stock in 1986.
With respect to shareholders' advances, we have determined that the advances constitute
countervailable grants, as no shares were received for them (see, the Equity section of the
General Issues Appendix). We calculated the benefit from shareholders' advances for the
POI using the methodology discussed in the Allocation section of the General Issues
Appendix. We divided this benefit by total 1991 sales (see, the Denominator section of the
General Issues Appendix. On this basis, we calculated an estimated net subsidy of 3.97
percent ad valorem.
4. Investment Subsidies
At verification, we confirmed that pursuant to the French Accounting Plan in 1984, all
French companies had to report in their accounting records all subsidies which they
received according to whether the subsidies were for the purchase of fixed assets or other
than fixed assets. If the subsidy was for the purchase of fixed assets, it would be reported
as an investment subsidy. Within this category, there is a further breakdown for subsidies
going to the purchase of specific fixed assets, i.e., equipment subsidies. For example, a
subsidy for the purchase of anti-pollution equipment would be treated as an equipment
subsidy. If the subsidy was for other than fixed assets, it would be reported as an
operating subsidy.
Funds are provided by (1) the health insurance offices for investments to reduce
work-related illnesses and accidents; (2) the water agencies to assist in the financing of
projects for the public good, such as water protection, pollution control and water
rehabilitation; (3) the agency for energy control for projects promoting the rational use of
energy; and (4) the ECSC for research and development, the results of which, according to
officials, must be made available to all Community members. These funds can take the
form of investment, equipment, or operating subsidies depending on how the funds are
used.
Respondents provided brochures from the various agencies in an effort to demonstrate
that these funds were generally available. However, during the verification of the GOF,
although requested, we were not provided with
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any documentation concerning
the actual distribution of funds under these programs to demonstrate that these subsidies
are not specific on a de facto basis.
Because we did not receive sufficient information, we have based our determination on
"best information available" (BIA). Section 776(c) requires the Department to use BIA
"whenever a party or any other person refuses or is unable to produce information
requested in a timely manner and in the form required, or otherwise significantly impedes
an investigation . . ." Therefore, as BIA we have determined that investment subsidies are
de facto specific.
Based on the criteria outlined in the Allocation section of the General Issues Appendix,
we have determined that investment subsidies are nonrecurring grants. However,
because we have no information on the record concerning receipt of investment subsidies
in any year other than 1991, we are expensing the amount received in 1991. By expensing
the total amount received in 1991, rather than allocating it, we create a proxy for the
benefit that would have existed if past subsidies had been allocated over time.
Accordingly, we have divided the amount of grants received in 1991 by total 1991 sales
(see, the Denominator section of the General Issues Appendix). On this basis, we find no
benefit during the POI.
5. Grants in the Form of Cancellation of Debt by Denain Nord-Est Longwy and
Marine-Wendel
Denain Nord-Est Longwy ("DNEL") and Marine-Wendel, the former private majority
shareholders of Usinor and Sacilor, respectively, cancelled a portion of the debt owed to
them by Usinor and Sacilor. In Certain Steel, the Department stated that since this
forgiveness of debt was provided at the direction of the GOF as part of the 1978 Rescue
Plan, it conferred a couuntervailable benefit. Accordingly, in the final determination, we
treated the cancelled amount of debt as a grant and allocated the benefits over a 15- year
period.
Although respondents have argued that these debt cancellations by private parties are
not countervailable, they have provided no information that would lead us to overturn
our 1982 determination that the cancellations were directed by the GOF. In addition, the
Protocols which implemented the 1978 restructuring, provided in the responses, support
the conclusion made in Certain Steel that the debt cancellations were directed by the GOF.
Because the debt forgiveness represented by the loan write-off was specific to Usinor and
Sacilor, we find it counteravailable. We have calculated the benefit from this program
using the methodology outlined in the Allocation section of the General Issues Appendix.
In addition, in the 1978 restructuring, many of the loans made to the companies by the
private majority shareholders were converted to PACS. 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 rate loan for
which benefits expired prior to the POI.
The loans from Usinor's former majority shareholder, which also were converted to PACS,
were essentially written off in 1981 at a redemption value of FF100. Accordingly, we are
treating the difference between the original value of the loan and the amout repaid as a
grant. However, the benefit arising from the write-off of Usinor's PACS did not exceed
0.50 percent of sales in that year. Therefore, we have expensed the benefit in the year
received. (See the methodology discussed in the Allocation section of the General Issues
Appendix.)
Adding the benefits from the debt forgiveness and the write-off, we divided this amount
by total 1991 sales (see, the Denominator section of the General Issues Appendix.) On this
basis, we calculated an estimated net subsidy of 0.05 percent ad volorem.
6. ECSC Article 54 Loans and Loan Guarantees
ECSC Article 54 industrial investment loans are provided for the purpose of purchasing
new equipment or financing modernization. At verification, it was established that Article
54 loans are not funded through the ECSC budget. Rather, they are direct loans from the
EC Commission carrying a slightly higher rate than that at which the Commission
obtained them, in order to cover its costs.
We confirmed at verification that the Commission uses this program to facilitate the
borrowing process for companies in the ECSC, some of which may not otherwise be able
to obtain loans. These loans are only available to companies in the steel and coal
industries. The ECSC has never provided any loan guarantees under Article 54.
We determine that this program is limited to the coal and steel industry. Therefore, these
loans are countervailable to the extent that they are provided on terms inconsistent with
commercial considerations, i.e., on terms more favorable than the benchmark financing.
For those years in which Usinor, Sacilor, and Usinor Sacilor were uncreditworthy, we
have used as the benchmark and the discount rate the rate for the Credit National Bank
Equipment Loans reported in the OECD Financial Statistics publication for 1991. We
added a risk premium in accordance with section 355.44(b)(6)(iv) of the Proposed
Regulations. For those years in which Usinor, Sacilor, and Usinor Sacilor were
creditworthy, we did not add a risk premium to the benchmark interest rate.
We then compared the appropriate benchmark financing to the financing received from
the ECSC and found that loans under ECSC Article 54 were provided on terms inconsistent
with commercial considerations. Therefore, we determine that these loans are
countervailable.
To calculate the benefit from these loans, we employed our long-term loan methodology
as described in section 355.49(c)(1) 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). (See also Final
Affirmative Countervailing Duty Determination: Certain Granite Products from Spain,
53 FR 24340 (June 28, 1988).) We divided the total benefit during the POI by 1991 total
sales (see, the Denominator section of the General Issues Appendix.) On this basis, we
calculated an estimated net subsidy of 0.16 percent ad valorem.
7. Long-Term Loans From 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 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. In our preliminary
determinations, we stated that loans outstanding to CFDI were consolidated into a new
loan in 1991. Because we were treating this consolidation as a new loan taken out in 1991,
no payment would be due until 1992. Hence, there would have been no cash flow effect on
the firm until 1992.
Nevertheless, the old loans which were consolidated in 1991 remained outstanding during
a portion of the POI and potentially gave rise to a benefit. Therefore, we also analyzed the
old
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loans and found that they were specific because respondents had not
provided sufficient evidence concerning the distribution of lending at the time these loans
were given.
During verification, we confirmed that the outstanding balances on the CFDI loans which
were issued to Usinor and Sacilor prior to their merger were not, in fact, consolidated.
Rather these debts were transferred to Usinor Sacilor. The purpose of this transaction was
simply to change the identity of the debtor from Usinor and Sacilor to Usinor Sacilor. We
established that the terms of the loans did not change in any way.
Therefore, because there was no change in the terms of these loans in 1991, we have
examined whether these loans were specifically provided at the time they were originally
given, i.e., from 1983 through 1988, to Usinor, Sacilor, and Usinor Sacilor.
The GOF has claimed that loans from CFDI are not limited to a specific enterprise or
industry or group of enterprises or industries. Respondents provided a letter from CFDI
regarding the distribution of loans during the period 1983 through 1988. However, during
verification, GOF officials could not provide any documentation supporting the data
provided in the letter. Therefore, because we do not have sufficient verified information
on the record regarding the distribution of CFDI loans, we have determined that these
loans are de facto limited to a specific enterprise or industry or group of enterprises or
industries. Therefore, these loans 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 rate for the Credit National Bank
Equipment Loans reported in the OECD Financial Statistics publication for 1991. We
added a risk premium in accordance with section 355.44(b)(6)(iv) of the Proposed
Regulations. For those years in which Usinor, Sacilor, and Usinor Sacilor were
creditworthy, we did not add a risk premium to the benchmark interest rate.
We then compared the appropriate benchmark financing to the financing received from
the CFDI and found that these loans were provided on terms inconsistent with
commercial considerations. Therefore, we determine that these loans are
countervailable.
To calculate the benefit from these loans, we employed our long-term loan methodology
as described above in the ECSC Article 54 Loans and Loan Guarantees section. We divided
the total benefit during the POI by 1991 total sales (see, the Denominator section of the
General Issues Appendix). On this basis, we calculated an estimated net subsidy of 0.35
percent ad valorem.
8. ECSC Redeployment Aid (Article 56(2)(b)
Grants under Article 56(2)(b) of the ECSC treaty have been provided since the 1950's to
coal and steel workers. The main purpose of the grants is to assist workers affected by the
restructuring of the coal and steel industries. Application for assistance under this
program must be submitted by the Member State on behalf of the workers affected by the
restructuring. Such application must contain information relating to the specific
production process that will result in the elimination of jobs.
The maximum amount of aid provided by the ECSC is ECU 3,000, and this amount must at
least be matched by the Member State. 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, i.e., 50 percent is
not countervailable.
With respect to the matching GOF contributions, we have learned that companies in
France have no minimum legal obligations to severed employees.
Typically, employees receive pensions equal to 65 percent of their salaries, of which the
government pays 35 percent and the company pays 65 percent. However, under the
collective bargaining agreements for steel, employees receive 70 percent of their salary.
The GOF pays 35 percent of this amount. However, because the GOF is paying 35 percent
of a higher pension, its absolute contribution towards steelworkers retirement is higher
than its absolute contribution to other workers.
Because the GOF typically provides 22.75 percent, (i.e., 65 times 0.35) of a workers
salary, we determine that this amount of the GOF contribution to steel workers' pensions
is not countervailable. However, it is necessary to determine with respect to the
increment provided only to steel whether Usinor Sacilor has been relieved of an
obligation it would otherwise incur.
Consistent with the policy described in the Prepension Assistance section of the General
Issues Appendix, we have attempted to determine whether Usinor Sacilor and its workers
were aware when they negotiated their collective bargaining agreement that the GOF
would contribute their extra amount. Based on our review of the record in these
investigations, we have no information that these extra payments were expected by the
company or the workers. Therefore, we have assumed that the extra government
contribution relieved Usinor Sacilor of an obligation that it had incurred under the
collective bargaining agreement, and treated this contribution as countervailable in its
entirety.
In accordance with the allocation methodology discusssed in the Allocation section of the
General Issues Appendix, we have treated these benefits as recurring grants. To calculate
the benefit during the POI we took that extra portion that the GOF paid towards the
retirement of steel workers and divided it by 1991 total sales (see, the Denominator
section of the General Issues Appendix). On this basis, we calculated an estimated net
subsidy of 0.01 percent ad valorem.
9. Loan Guarantees 1978 Through 1982
In Certain Steel, the Department found countervailable a wide variety of loan guarantees.
These guarantees were provided by, or were provided to guarantee loans from, Credit
National, bank syndicates in which Credit National, participated, Caisse des Depots et
Consignations (CDC), Groupement de l'Industrie Siderurgique (GIS), FDES, the ECSC, and
the European Investmemt Bank. According to petitioners, Usinor Sacilor and its affiliates
have continued to carry outstanding debts to these organizations since 1982.
Based on our review of Usinor Sacilor's long-term loan accounts during verification, we
saw no indication that there were any CDC or GIS loans outstanding. In addition, our
review of loan contracts and supporting documentation for FDES established that these
loans did not carry a GOF guarantee. Furthermore, during our review of the loan
accounts, we did not find any reference to loan guarantee payments.
During our review of other loans outstanding, we established that GOF guarantees had
been received on certain loans. Notwithstanding our requests, GOF officials did not
provide any information concerning:
(1) The basis on which the GOF guarantees were given;
(2) The value of the guarantee fees charged by the GOF;
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(3) Whether it is normal commercial practice in France for the government to
guarantee commercial loans; or
(4) The value of fees charged by the commercial banks for comparable guarantees.
Given the lack of information on the record concerning whether these fees are de jure or
de facto specific and provide a benefit, we have determined as best information available
that guarantee fees are limited to a specific enterprise or industry or group of enterprises
or industries. Therefore, we find loan guarantees to be countervailable.
Under section 355.44(c)(1) of the Proposed Regulations, we find that loan guarantees
confer a benefit to the extent that (1) the fee paid is less than the fee that would have been
paid for a comparable commercial guarantee or (2) the amount paid on a guaranteed loan
is less than the firm would have paid for a comparable commercial loan.
In this instance, we have no information that would allow us to determine what Usinor
Sacilor would have paid for a comparable commercial guarantee. Therefore, we are
measuring the benefit from these guarantees by comparing the interest rates on the loans
in question to the benchmark interest rates discussed in the ECSC Article 54 Loans and
Loan Guarantees section, above.
As a result of this methodology, for those loans otherwise being countervailed, any
benefit arising from the guarantee will be captured in the loan calculation. For the
remaining loans with guarantees, we applied our normal long-term loan methodology,
discussed above, to calculate the benefit from the loan guarantees attributable to the POI.
We divided the calculated benefit by 1991 total sales see, the Denominator section of the
General Issues Appendix. On this basis, we find no benefit during the POI.
10. Outstanding Loans Discovered at Verification
During our review of the company's loan accounts at verification, officials of Usinor
Sacilor informed us that another category of loans outstanding, "other participative
loans," were "loans to other members of the Group." However, officials could give no
further explanation of this category.
Because these loans were unreported and we have no information about the programs
under which these loans might have been issued, we are applying best information
available.
To calculate the benefit from these loans, we treated the outstanding principals as a zero
rate short-term loan. We then calculated what the company would have paid using the
1990 short-term benchmark interest rate. This short- term benchmark interest rate was
taken from the OECD's Financial Statistics (Short-Term Financial Credit and Overdrafts
and Advances). We divided the benefit by total 1991 sales (see, the Denominator section
of the General Issues Appendix). On this basis, we calculated an estimated net subsidy
rate of 0.01 percent ad valorem.
B. Programs Determined To Be Not Countervailable
We determine that the following programs do not provide subsidies to manufacturers,
producers, or exporters in France of certain steel products:
1. Regional Development Subsidiaries ("SODIs")
There were a number of regional development subsidiaries, known as SODIs, which had
been established by Usinor and Sacilor in 1983 to assist in retraining of personnel who
had lost their jobs. These SODIs loaned funds given to them by Usinor and Sacilor to
enterprises in various depressed steel regions. These loans were provided to establish
new businesses and to train workers for jobs outside the steel industry. When the funds
were repaid to the SODIs, the principal plus any interest paid was reloaned.
The GOF found that these SODIs had developed an expertise in regional development
during this period, 1983 through 1986, and as a result requested that Usinor Sacilor not
only continue its work in the depressed steel regions but also serve other depressed
regions. The GOF originally had wanted Usinor Sacilor to assume all funding
responsibility for the SODIs, but through negotiations Usinor Sacilor and the GOF agreed
to contribute funds to the SODIs on an equal basis.
When the GOF advanced funds to the SODIs (through Usinor Sacilor), the GOF specified
the areas where the SODIs should lend those funds. The GOF funds provided to the SODIs
were initially recorded on the books of Usinor Sacilor as shareholders' advances.
In 1991, Usinor Sacilor repaid FF250 million of the funds it received from the GOF, as
discussed in the Annual Report (1991). This situation arose when, for reasons of
administrative convenience and simplification, numerous loans made by Usinor, Sacilor,
and Usinor Sacilor to the SODIs through the years were transferred or "sold" to the parent
company, Usinor Sacilor.
In order to accomplish that transfer, the GOF and Usinor Sacilor analyzed the accounts
and attempted to equate the amounts given by the GOF to Usinor Sacilor in the form of
shareholders' advances, with the amounts contributed by Usinor Sacilor since 1986. They
found that Usinor Sacilor had not always matched equally the advances given by the GOF.
As a result, of the amount outstanding in shareholders' advances, the GOF determined
that Usinor Sacilor owed FF250 million in matching contributions. Rather than put this
amount into the SODIs, Usinor Sacilor "repaid" it to the GOF.
By virtue of this repayment, Usinor Sacilor was considered to have satisfied fully its
matching obligation, and any claim of the GOF on the balance of shareholders' advances
was thus eliminated. As a result, the amount of shareholders' advances remaining in the
Usinor Sacilor Group's consolidated accounts, FF567 million, was moved from the
shareholders' advances account to the stockholders' equity account as a share premium.
As discussed above, this settlement of accounts and subsequent equity transfer is
reflected in Usinor Sacilor's 1991 Annual Report.
Petitioners argue that shareholders' advances were converted to equity in 1991 at a time
when Usinor Sacilor was unequityworthy and, therefore, must be countervailed in the
final determinations. Petitioners maintain that these funds should be considered debt
until cancelled or converted to equity.
Respondents contend that the GOF funding of the SODIs did not relieve Usinor Sacilor of
any legal obligations. Respondents maintain that at verification, the Department
established that these funds did not benefit Usinor Sacilor because the GOF monitored the
funds provided for the SODIs to ensure that they were being used for the purposes
established by the GOF.
We disagree with petitioners that these shareholders' advances should be treated as loans
which were subsequently converted to equity. It is clear that the advances were
payments by the GOF for its share of the SODI's contributions. Moreover, as respondents
noted, we verified that the GOF monitored the funds it contributed to ensure that they
were being used for the purposes established by the GOF. Thus, we can conclude that the
GOF funds in question did not go to support Usinor Sacilor's steel operations.
Although this is the case, the issue remains whether Usinor Sacilor was relieved of any
costs it would legally bear with respect to the SODIs. In other words, if Usinor Sacilor was
obligated to provide full funding for these activities, the GOF's contributions would be
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relieving Usinor Sacilor of costs it would otherwise be incurring.
According to GOF and Usinor Sacilor officials, Usinor Sacilor's obligation to fund the
SODIs ceased in 1986. At that time, it appears that a new obligation was created. While
there is no hard evidence to support this, it is clear that (1) the nature of the parties'
obligations changed, i.e., contributions would be made on a matching basis, and (2) the
SODI's mission expanded, i.e., they were to begin servicing depressed regions other than
those suffering from steel industry lay-offs.
This latter consideration, in particular, would seem to indicate that a new obligation was
created in 1986. It is highly unlikely that Usinor Sacilor would have had a prior obligation
to provide funding in areas outside of steel regions.
Based on these facts, we have determined that Usinor Sacilor was not relieved of any
obligations with respect to the SODIs when the GOF began making contributions.
Therefore, since Usinor Sacilor merely channeled these contributions to the SODIs, we
find no benefit to the company as a result of the GOF's contributions. Accordingly, we find
this program to be not countervailable.
2. 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 thee loans, which were issued by the FDES,
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.
We have determined that these consolidations amount to new loans. Unlike the
consolidations of CFDI and CN loans discussed in other sections of this notice, the
consolidations of the FDES loans resulted in a different structure for the loan and a
different interest rate. Our treatment of the FDES consolidation as a new loan in 1990 is
consistent with our final determination in Lead and Bismuth.
Unlike Bar, however, we find that the "new" FDES loan in 1990 is not countervailable. In
the Lead and Bismuth case, in making our specificity finding, we considered a chart
showing the distribution of FDES loans in 1990. However, we lacked definitive
information regarding the composition of this chart and, therefore, did not rely on it.
At verification in these investigations, we were able to confirm that Usinor Sacilor's
consolidated loan was not included in this chart. This is because from FDES' perspective
no new funds were lent. Therefore, it would not record the consolidation in a chart
designed to show the public what its lending activities were.
We note, however, that Usinor Sacilor was undertaking consolidations with other major
creditors at the same time. Those consolidations were undertaken as a matter of
administrative convenience for both Usinor Sacilor and its creditors. The same
considerations played an important part in the FDES consolidations as well, as Usinor
Sacilor officials explained at verification.
We also have, in the various FDES distribution charts, indirect indicia showing the "new"
loans to be non-specific. The 1990 FDES distribution chart shows that the metallurgical
sector, which includes steel, did not receive any FDES funds in that year. Looking at
earlier years, FDES has not been a significant lender to the metallurgical sector since
1986. This sector received approximately one to two percent of FDES funds in 1986,
1997, and 1988. In 1989, the metallurgical sector did not receive any funds.
Nevertheless, we need not decide this specificity issue. Rather, after examining the
interest rates charged on the "new" FDES loans to Usinor Sacilor, it would seem that these
"new" loans did not provide a special benefit. Those rates are consistent with the
benchmark interest rate information for 1990 (see, Comment 9, below). We note that this
benchmark data is different from that used in Lead and Bismuth. Accordingly, we have
determined that Usinor Sacilor's consolidated FDES loans are not countervailable.
3. Loans From Credit National
In 1991, Usinor Sacilor's outstanding loans from Credit National were consolidated. In
addition, in 1991, Credit National converted an overdraft facility available to various
companies within the Usinor Sacilor Group to a loan to Usinor Sacilor.
For purposes of the preliminary determinations in these investigations, we treated both
events as consolidations and considered these consolidations to be new loans given in
1991. As with CFDI, because we treated these loans as new loans taken out in 1991, no
interest was due until 1992. However, the old loans which were consolidated in 1991 were
outstanding during a portion of the POI and potentially gave rise to benefit.
At verification, we established that the consolidated loan was constructed so that Credit
National would obtain the same return that it would have earned on the pre-consolidated
loans. Thus, while the interest rate or maturity on the consolidated loan differed from the
terms of any individual loans included in the consolidation, overall the terms did not
change. Because of this, we no longer consider the consolidation to be a new loan.
Therefore, it is inappropriate to base our specificity determination on the year of the
consolidation. Instead, we have looked to the years in which the original loans were
issued.
The law creating Credit National does not in any way limit the industries to which loans
can be made. Further, we have reviewed Credit National's Annual Reports for the years in
which the old loans were given to determine whether these loans were provided to a
specific enterprise or industry or group of enterprises or industries on a de facto basis.
Credit National's Annual Reports demonstrate that loans in these years were in fact
provided to numerous sectors and were not disproportionately provided to the steel
industry. Industries which received Credit National loans include, among others, the
agricultural, metallurgical (which includes steel), electrical, energy and chemical, textiles
and clothing industries.
Based on this, we determine that Credit National loans are not provided to a specific
enterprise or industry or group of enterprises or industries. Therefore, they are not
countervailable.
4. European Investment Bank (EIB) Loans
The European Investment Bank ("EIB") was created to fund projects in various countries
and different types of industries. The EIB's main objective is to grant loans and give
guarantees which facilitate the financing of projects (1) for less developed regions, (2) for
modernizing or converting undertakings or for developing fresh activities called for by
the progressive establishment of the common market, and (3) of common interest to
several Member States.
The EIB borrows the major part of its resources on international capital markets--mainly
through public bond issues. The remainder of its resources come from its own funds,
which are comprised of contributions from its Member States.
The Department established, at verification, that EIB provides loans to numerous sectors
of the various economies (e.g., energy, transportation, telecommunications, urban
infrastructure, mining, electronics, and many more). The metal production category
(which includes production of
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the subject merchandise) historically has received
a very small percentage of the loans granted by the EIB. For example, between
1987-1991, this sector received only 0.50 percent of total loans provided by the EIB. On
this basis, we find EIB loans to be non-specific and therefore, not countervailable.
5. ESCS Research and Development Assistance Under Article 55
According to Article 55 of the ESCS Treaty, assistance is available to promote technical
and economic research relating to the production and increased use of coal and steel, and
to occupational safety in the coal and steel industries. Since the end of 1986, this program
has been funded solely through levies on steel producing companies.
Because the results of the research conducted under Article 55 are made publicly
available, we find this program to be not countervailable. Moreover, we note that to the
extent that Article 55 assistance is funded solely by levies on steel companies, we would
find no benefit.
C. Programs Determined To Be Not Used
We determine that the following programs were not used by manufacturers, producers, or
exporters in France of certain steel products:
1. ECSC Article 54 Interest Rebates
2. ECSC Article 56 Conversion Loans, Guarantees and Interest Rebates
3. European Regional Development Fund (ERDF) Loans
4. New Community Investment (NCI) Loans
E. Programs Determined Not To Exist
We determine that the following programs do not exist:
1. Additional Financing from FIS and CAPA
2. Withdraw and Recover Order
3. Grants in the Form of Interest Rebates (Redemption Premiums)
Interest Party Comments
The following are country-specific comments only. See the Final Affirmative
Countervailing Duty Determination: Certain Steel Products from Belgium for
additional discussion and comments relating to EC programs. All other issues are either
addressed in the sections above or in the General Issues Appendix.
Comment 1: Petitioners argue that the 1986 conversion of FF54.4 billion of PACS, FIS
bonds and shareholders' advances to common stock and the subsequent write-off of this
stock represented a debt cancellation. Petitioners further argue that this cancellation was
a single, non-recurring event.
Respondents argue that because the company's obligations regarding these instruments
were minimal, Usinor Sacilor did not benefit from the forgiveness of these obligations.
Moreover, respondents state that the reclassification of PACS and FIS instruments into
common stock conferred no countervailable benefit to the company because there was
no cash flow effect on the firm at that time. In support of their argument, respondents cite
Final Affirmative Countervailing Duty Determination: Fresh, Chilled, and Frozen Pork
from Canada, 54 FR 30,774 (July 24, 1986) and Final Affirmative Countervailing Duty
Determination: Industrial Phosphoric Acid from Israel, 56 FR 50,854 (October 9, 1991).
In these cases, the Department stated that benefits are received based the cash flow effect
of the subsidy instrument. Respondents contend that to properly measure the cash flow
effect, the Department must calculate the net present value of the forgiven obligations.
DOC Position: 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 into common stock. Therefore, the benefit from these
conversions began in 1986. We do not, however, recognize any benefit in connection with
equity write-offs. 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 write-off of the equity is irrelevant.
With respect to respondents' cash flow argument, respondents misinterpret the role of a
"cash flow effect" in the Department's analysis. A cash flow effect does not define what a
subsidy is, it merely directs the Department when to begin allocating benefits. For
example, a subsidized loan unquestionably affects a company's cash flow the moment it is
received. However, there is no cash flow effect, as the Department uses that term, until an
interest payment is due. Only at that time does the subsidy, i.e., a lower interest payment,
have an effect on the company's cash flow. For this reason, we do not begin allocating
benefits from long-term loans until an interest payment would be due.
Because the Department has classified PACs as interest free loans, the cash flow effect
from the subsidies conferred by those loans occurred as long as Usinor Sacilor did not
have to make interest payments. When the loans were forgiven, there was a new cash flow
effect. This was because the forgiveness was tantamount to giving Usinor Sacilor a grant
to pay off the old loans.
Comment 2: According to petitioners, the mere fact that the 1986-87 restructuring of
Usinor Sacilor was required by Article 241 of the French Corporation Law of 1966 does
not render the restructuring not countervailable. Petitioners state that Usinor's and
Sacilor's obligations to repair their finances do not affect the countervailability of the
GOF's decision to donate FF54 billion to that effect.
Respondents maintain that the absence of any benefit to Usinor Sacilor from PAC/FIS
reclassifications was recognized by the EC Commission.
DOC Position: We agree with petitioners. Article 241 of the French Corporation Law of
1966 requires companies to dissolve if they cannot meet the requirement that
shareholders' equity equal at least 50 percent of their stated capital. Usinor Sacilor faced
two options, shutting down or obtaining new equity. It chose the latter and we have found
those equity infusions to be inconsistent with commercial considerations. Therefore, we
have determined that they are countervailable, irrespective of whether the EC
Commission considered them to be compatible with the internal EC State Aids guidelines.
Comment 3: Petitioners argue that any PACS which were outstanding but then exchanged
for equity during the POI should be treated as loans while they were outstanding, and as a
countervailable equity infusion at the time of conversion.
DOC Position: We disagree. Because we do not prorate equity benefits to correspond to
the amount of time the equity was "outstanding" during the year of receipt, we can only
countervail the equity portion of debt to equity conversions in the year of conversion. To
do otherwise would lead to overcountervailing.
Comment 4: Petitioners state that in 1988 the remaining FF9.132 billion in FIS bonds
were eliminated, with part being written off against accrued losses and the remainder
exchanged for new shares in Usinor Sacilor. Petitioners argue that to the extent the
transaction involved cancelling FF5.9 billion of debt, without shares or other instruments
being issued, there is no need for the Department to examine Usinor Sacilor's
equityworthiness in 1988 as no equity was provided. Petitioners contend that the
Department should calculate this portion of the benefit as a nonrecurring grant given in
1988, amortizable over the 15-year useful life of assets in the steel industry.
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Petitioners also state that the portion of the cancelled debt that was not written off against
accrued losses was exchanged for shares in Usinor Sacilor at a time when Usinor Sacilor
was unequityworthy. Petitioners contend, therefore, that the Department should treat
this portion of the benefit as a countervailable equity infusion.
DOC Position: We disagree with petitioners' characterization of the 1988 FIS bonds
transaction. In 1988, all of the remaining FIS bonds were first converted to common
stock. Thereafter, part of this stock was written off, and part remained as stock. Therefore,
the entire transaction was properly treated as a debt to equity conversion.
Comment 5: Respondents state that the Department improperly reamortizes the full face
value of a forgiven loan. Thus, in their view, assessing countervailing duties in excess
of the amount of the subsidy. This practice, respondents argue, violates U.S. law and the
GATT.
Respondents state that the proper timeframe in which to countervail a benefit is the
period over which the subsidy actually benefits a firm. Further, the period begins when
the firm receives cash from the government and extends, in the case of subsidies tied to
equipment, over the useful life of that equipment. Respondents argue that reclassification
of a security does not extend that period, and that the Department's current methodology
should, therefore, be abandoned.
Petitioners state that respondents confuse interest and principal when analyzing the
Department's loan forgiveness methodology. Petitioners argue that the Department only
countervails interest savings, not the principal, when it measures the benefit from
low-interest loans. In debt forgiveness, by contrast, the interest savings cease to be
countervailed because the low- interest loan is no longer outstanding. At that point,
petitioners state, the Department begins to countervail the forgiveness of the principal.
Petitioners further argue that neither GATT nor the countervailing duty law is violated
by the Department's loan forgiveness methodology. Petitioners contend that respondents
are improperly defining the countervailable event as the original receipt of a loan.
Respondents fail to recognize that the loan forgiveness constituted a new countervailable
event, the benefit from which is associated with the principal of the loan.
DOC Position: We agree with petitioners. "Overcountervailing" only exists when the net
present value (NPV) of allocated benefits exceeds the face value of the subsidy. Since it is
the Department's practice to treat a reclassification of debt to equity as a new
countervailable event, two distinct subsidies exist where debt is converted to equity. Our
loan and grant methodologies are designed to ensure that neither instrument is
overcountervailed. We note, in addition, that a comparison of the face value of the loan to
the NPV of all benefits countervailed in connection with debt to equity conversions,
shows that the Department still does not overcountervail, in the sense discussed above.
Comment 6: Respondents object to our preliminary determination that investment
subsidies are specific despite our statement that, with respect to eligibility criteria,
investment subsidies are generally available. Respondents argue that the Department
incorrectly shifted the burden of proof when it required respondents to provide evidence
that these subsidies were not specific on a de facto basis. Respondents maintain that, the
Department has an affirmative obligation to investigate and support its findings with
substantial evidence on the record. Respondents contend that because the subsidies in
question were provided by local and regional agencies throughout France, it was not
feasible to gather information regarding the actual distribution of funds under each of the
programs.
DOC Position: We agree that our findings should be based on substantial evidence on
record. However, it is the respondent who possesses the relevant evidence. Whenever a
respondent refuses or is unable to provide requested information on the specificity of a
program in a timely manner and in the form required, the Department may find, as best
information available, that the program was specific. See, e.g., Final Affirmative
Countervailing Duty Determination; New Steel Rail, Except Light Rail, from Canada,
54 FR 31991, 31995 (Aug. 3 1989); Final Affirmative Countervailing Duty
Determination; Fresh, Chilled, and Frozen Pork from Canada, 54 FR 30774, 30779-80
(July 24, 1989); Final Affirmative Countervailing Duty Determination; Certain
Electrical Conductor Aluminum Redraw Rod from Venezuela, 53 FR 24763, 24767 (June
30, 1988).
Comment 7: Petitioners contend that the Department did not verify respondents' claim
that the aid subject to the ECSC's "withdraw and recover order" is covered by, and not
additional to, the subsidies already reported to the Department. Petitioners argue further
that the firm's only documented repayment of FF500 million was insufficient to repay the
principal and interest on the original funds granted. Therefore, petitioners argue that the
Department should determine based on best information available that the withdraw and
recover procedure dealt with additional countervailable subsidies, and the Department
should countervail all but the FF500 million repayment.
Respondents argue that the subsidies subject to the withdraw and recover order were
disbursed by the GOF in the form of PACS, FIS bonds, and shareholders' advances.
Respondents maintain, indeed, that PACS, FIS bonds, and shareholders' advances were
the only types of funds given to Usinor Sacilor during the period subject to the withdraw
and recover order. Therefore, all subsidies provided in conjunction with the withdraw
and recover order were fully accounted for by the Department.
DOC Position: We agree with respondents. Based upon our review of accounting records,
financial statements, and other supporting documentation at verification, we found no
indication of additional subsidies that Usinor Sacilor had not reported. For a complete
discussion of the Department's analysis of the "Withdraw and Recover Order," see the
Concurrence Memorandum to Barbara R. Stafford from Team, dated June 21, 1993.
Comment 8: Respondents disagree with the Department's preliminary decision to use the
long-term loan benchmark rate--the IMF interest rate plus a risk premium--as a discount
rate used for amortizing grants and equity in the years when the company was
uncreditworthy. Respondents state that the Department's Proposed Regulations
regarding the discount rate to be used in amortizing grants and equity infusions differ
from the guidance for selecting loan benchmarks. Respondents argue that, for amortizing
grants and equity, the Department is required to use the average cost of long-term,
fixed-rate debt in the country under investigation, as the interest rate.
Petitioners state that respondents' recommended discount rates do not account for the
risk associated with uncreditworthy and unequityworthy firms. Therefore, the
Department should continue to use an "uncreditworthy" discount rate for allocating
benefits received in years when the company is unequityworthy and uncreditworthy.
DOC Position: We have continued to use an "uncreditworthy" discount rate to allocate
benefits received in years
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when the company was found uncreditworthy.
Although the respondents are correct that our Proposed Regulations do not provide for
uncreditworthy discount rates, we believe that their use is consistent with our
methodology.
In allocating benefits over time, we attempt to create a stream of benefits in such a way
that the company in question would be indifferent between: (1) Receiving the benefit in a
lump sum, and (2) receiving a series of payments over the allocation period. The use of a
company-specific discount rate is what guarantees that we will achieve indifference. This
is because a company- specific rate reflects the company's own time preference for
money.
Because company-specific rates should be used to allocate benefits over time, it would be
incorrect to rely on a creditworthy discount rate (as the Proposed Regulations would
have us do) for a company which has been found to be uncreditworthy. If we did so, we
would be understating the benefit stream and would make the recipient indifferent
between current and future values.
Comment 9: Respondents object to our use of the IMF lending rate as the benchmark
interest rate for long-term loan calculations. They contend that the IMF rates are
inappropriate because they are neither long-term rates, nor corporate rates used in
France, as section 355.49(b) contemplates. Respondents argue that this was confirmed
at verification be bank officials, who indicated that the IMF lending rate did not
correspond with long-term commercial rates in France.
Respondents suggest that the Department use the information on long-term, fixed interest
rates in France published by the OECD. However, if the Department determines these
rates are not applicable, it should use information obtained at verification. At
verification, French bank officials informed the Department's analyst that their
commercial interest rates were based on PIBOR or the prime rate plus a number of basis
points. Respondents state that this information is in the verification report.
Petitioners argue that the IMF rates are preferable to the imprecise and undocumented
rates provided by the respondents, since the former are French- specific and not
OECD-wide rates. Petitioners also state that the IMF rates are appropriate benchmarks
because they are normally differentiated according to creditworthiness of borrowers and
the objectives of financing.
DOC Position: Because we have found loans from Credit National to be not
counteravailable, we are using the interest rates provided in the OECD Monthly Financial
Statistics for Credit National equipment loans as our benchmark rates in years when
Usinor Sacilor was creditworthy. These rates are described as "the prime rate charged by
the Credit National Bank on fixed-rate loans to enterprises, in principal periods of
between eight and fifteen years and only exceptionally for amounts of less than one
million francs."
We find these rates to be more consistent with our Regulations than either the IMF or the
PIBOR rates because they reflect the cost of corporate long-term borrowing. We also
disagree with petitioners argument that the IMF rates are appropriate benchmarks
because they are normally differentiated according to the creditworthiness of borrowers
and the objectives of the financing. Although the IMF description says this, the rate we
used, the "Lending rate," did not have a minimum and maximum rate to account for a
company's creditworthiness. In any case, our methodology accounts for
uncreditworthiness by requiring us to include a risk premium.
Verification
In accordance with section 776(b) of the Act (19 USC 1677e(b)), we verified the
information used in making our final determinations. 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 our affirmative preliminary determinations, we instructed the U.S.
Customs Service to suspend liquidation of all entries of certain steel products from
France which were entered, or withdrawn from warehouse, for consumption on or after
December 7, 1992, the date of publication of our preliminary determinations in the
Federal Register. These final countervailing duty determinations were aligned with the
final antidumping duty determinations on certain steel products from various countries,
pursuant to section 606 of the Trade and Tariff Act of 1984 (section 705(a)(1) of the Act).
Under article 5, paragraph 3 of the GATT, provisional measures cannot be imposed for
more than 120 days without final affirmative determinations of subsidization and injury.
Therefore, we instructed the U.S. Customs Service to discontinue the suspension of
liquidation on the subject merchandise entered on or after April 6, 1993, but to continue
the suspension of liquidation of all entries, or withdrawals from warehouse, for
consumption of the subject merchandise entered between December 7, 1992, and April 6,
1993. We will reinstate suspensions of liquidation under section 703(d) of the Act (19 USC
(1671b(d)), if the ITC issues a final affirmative injury determination, and will require a
cash deposit of estimated countervailing duties for such entries of merchandise in the
amount indicated below.
Certain Hot-Rolled Carbon Steel Flat Products
Country-Wide Rate--15.49
Certain Cold-Rolled Carbon Steel Flat Products
Country-Wide Rate--15.49
Certain Corrosion-Resistant Carbon Steel Flat Products
Country-Wide Rate--15.49
Certain Cut-To-Length Carbon Steel Plate
Country-Wide Rate--15.49
ITC Notification
In accordance with Section 705(d) of the Act (19 USC 1671d(d)), we will notify the ITC of
our determinations. In addition, we are making available to the ITC all nonprivileged and
nonproprietary information relating to these investigations. 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 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 canceled. If,
however, the ITC determines that such injury does exist, we will issue countervailing
duty orders, directing Customs officers to assess countervailing duties on entries of
certain 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
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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.
These determinations are published pursuant to section 705(d) of the Act (19 U.S.C.
1671d(d)) and 19 CFR 355.20(a)(4).
Dated: June 21, 1993.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
(FR Doc. 93-15632 Filed 7-8-93; 8:45 am)
BILLING CODE 3510-DS-P