66 FR 3985, January 17, 2001
C-428-817
1997 Admin. Review
1998 Admin. Review
Public Document
IA/II/VI: RC
MEMORANDUM TO: Troy H. Cribb
Assistant Secretary
for Import Administration
FROM: Holly A. Kuga
Acting Deputy Assistant Secretary
AD/CVD Enforcement Group II
RE: Final Results of the Administrative Reviews of the Countervailing
Duty Order on Certain Cut-to-Length Carbon Steel Plate from Germany
for the Periods Calendar Years 1997 and 1998
SUBJECT: Issues and Decision Memorandum
Summary
We have analyzed the comments submitted by interested parties. Our analysis of
the comments did not require that any changes be made to our Preliminary
Results.(1) These administrative reviews cover exporter Novosteel SA and only
one producer, Reiner Brach GmbH and Co. KG (Reiner Brach). During the two
periods of review, Reiner Brach did not use any of the reviewed programs.
Therefore, this memorandum only addresses the comments raised in the interested
parties' case and rebuttal briefs. We recommend that you approve the positions
we have developed in this memorandum.
Comment Section
Comment 1: Upstream Subsidy Allegations
Petitioners state that the Department erred when it failed to investigate
petitioners' upstream subsidy allegation with respect to inputs purchased by
Reiner Brach from Stahlwerke Bremen. Petitioners state that section 702(b)(1)
of the Act requires the Department to initiate a countervailing duty (CVD)
proceeding when a petition: (1) alleges the elements necessary for the
imposition of the countervailing duty rate; and (2) is accompanied by
"information reasonably available to the petitioner" to support its
allegations. They also note that the Department's regulations require the
Department to initiate an investigation of an upstream subsidy allegation if
the Department has "a reasonable basis to believe or suspect" the existence of
the upstream subsidy elements enumerated under section 351.523 of the
Department's regulations. Petitioners argue that there is a reasonable basis to
believe or suspect that such elements exist. Specifically, petitioners argue
that the one-percent threshold enumerated under section 351.523(a)(1)(iii) of
the Department's regulations is satisfied as a result of additional subsidies
not previously investigated in the Certain Steel Products from Germany
investigation. Petitioners argue that Stahlwerke Bremen, a supplier of Reiner
Brach, benefitted from government funding provided during the bailout of
Kloeckner Werke AG, an integrated steel producer that was facing bankruptcy.
They state that this allegation is supported by the following facts: (1) there
is evidence that Kloeckner Stahl (which was created by Kloeckner Werke AG in
1993 and is now Stahlwerke Bremen) was unequityworthy; (2) there is evidence
private investors were induced by the government to invest in Kloeckner Stahl;
(3) there is evidence of an additional DM 305 million investment by the
government in Stahlwerke Bremen; and (4) there is evidence that Kloeckner Stahl
received loan forgiveness in exchange for a promise to reduce hot-rolled steel
capacity. As evidence of all of these factors, petitioners provided an
untranslated German newspaper article. Subsequently, included within its case
brief filed on October 10, 2000, was a translation of the newspaper article.
Finally, petitioners argue that the fact that a private company also invested
in Stahlwerke Bremen does not erase the suspicion that Stahlwerke Bremen had
been subsidized.
Petitioners also argue that the Department erred by not initiating on their
upstream subsidy allegation with respect to inputs purchased by Reiner Brach
from a "Second Supplier."(2) Specifically, petitioners argue that the newspaper
articles placed on the record with the original new subsidy allegations raise a
reasonable suspicion that the Second Supplier received subsidies.
Department's Position: The Department's regulations stipulate that the
Department must have a "reasonable basis to believe or suspect" that the
elements enumerated under section 351.523 of the Department's regulations exist
before initiating an upstream subsidy investigation. Based upon the information
submitted by petitioners' in their January 13, and March 14, 2000 submissions
alleging an upstream subsidy, we determined that there was not a reasonable
basis to believe or suspect that all the required elements under section
351.523 of the Department's regulations have been met.
The threshold for initiating an upstream subsidy investigation is higher than
the threshold for other subsidy program allegations. It is the only subsidy
program which has its own statutory and regulatory standard for initiation.
Before the Department can decide to investigate an upstream subsidy, there must
be a reasonable basis to believe or suspect that each element set for set forth
under section 351.523 of the Department's regulations exists. Therefore,
section 351.523 of the Department's regulations provides that, before
investigating the existence of an upstream subsidy, the Secretary must have a
reasonable basis to believe or suspect that all of the following elements exist:
A countervailable subsidy, other than an export subsidy, is provided with
respect to an input product;
(ii) One of the following conditions exists:
(A) The supplier of the input product and the producer of the subject
merchandise are affiliated;
(B) The price for the subsidized input product is lower than the price the
producer of the subject merchandise otherwise would pay another seller in an
arm's-length transaction for an unsubsidized input product; or
(C) The government sets the price of the input product so as to guarantee that
the benefit provided with respect to the input product is passed through to
producers of the subject merchandise; and
(iii) The ad valorem countervailable subsidy rate on the input product,
multiplied by the proportion of the total production costs of the subject
merchandise accounted for by the input product, is equal to, or greater than,
one percent.
As we stated at the time we declined to initiate on this allegation, the
petitioners did not meet the section 351.523(a)(iii) criterion for initiating
an upstream subsidy examination. See the August 25, 2000, memorandum entitled
1997 and 1988 Administrative Reviews of the Countervailing Duty Order on
Certain Cut-to-Length Carbon Steel Plate from Germany: Memorandum Regarding
Affiliation, Cross-ownership, Upstream Subsidy Allegations, and Other Subsidy
Allegation (New Subsidy Allegation Memo). As detailed in the New Subsidy
Allegation Memo, the only countervailable subsidy rate ever calculated for
Stahlwerke Bremen was 1.06 percent.(3) If this 1.06 percent subsidy rate is
multiplied by the proportion of the total production costs accounted for by the
input product, the resulting rate is less than the one percent minimum
threshold.
In its original allegation, in an attempt to meet the initiation threshold,
petitioners alleged that Stahlwerke Bremen received equity infusions and
additional grants not investigated in Certain Steel Products. As explained in
detail in the New Subsidy Allegation Memo, the Department did not initiate an
investigation of these alleged subsidies.
Petitioners, in their October 10, 2000 case brief, belatedly provided a
translation of a German newspaper article provided in their original January
13, 2000, new subsidy allegation submission. Under section 351.303(e) of the
Department's regulations, all original submissions must include an English
translation. However, we considered the untranslated article and discussed it
in the New Subsidy Allegation Memo. While the untranslated article remains part
of the record, the translation provided with the case brief constitutes new and
untimely filed factual information. Under section 351.301(b)(2) of the
Department's regulations, the deadline for submitting factual information in an
administrative review is 140 days after the last day of the anniversary month.
If petitioners needed additional time to submit a translation or other factual
information, they needed to request an extension for submission of new factual
information. See sections 351.301(b) and 351.301(c) of the Department's
regulations. Because the submission was made after the deadline and because no
timely request for an extension was made, we have rejected this new factual
information as untimely. In accordance with section 351.104(a)(2) of the
Department's regulations, we are retaining one full copy of the case brief
(with the translation found at page 8, footnote 22 and Attachment 1) and are
destroying all other copies of the translation (by removing the footnote and
the attachment). The remainder of the case brief will remain intact and part of
the administrative record.
Also included within the petitioners' case brief is a new allegation of an
additional subsidy (relating to loan forgiveness from the European Coal and
Steel Community) that petitioners believe Stahlwerke Bremen received. See page
6, footnote 17 of petitioners' case brief. We have rejected this claim. In an
administrative review, new subsidy allegations must be alleged within 20 days
after all responses to the initial questionnaire are filed with the Department.
See section 351.301(d)(4)(i)(B) of the Department's regulations. This
allegation was first made in the petitioners' case brief and thus is untimely.
We would also note that if petitioners are concerned about additional subsidies
provided to Stahlwerke Bremen after the 1991 period of investigation in Certain
Steel Products, then petitioners could have requested an administrative review.
Petitioners further argue that, with respect to the upstream subsidy
allegation relating to inputs purchased by Reiner Brach from a "Second
Supplier,"(4) the Department incorrectly determined that the evidence
supporting the subsidy was insufficient to meet the requirements for initiation
under section 351.523 of the Department's regulations. See New Subsidy
Allegation Memo. Specifically, petitioners stress that the newspaper articles
on the record indicate that the Second Supplier has received at least one
subsidy from government authorities, and that the Second Supplier provides the
inputs to Reiner Brach at less than arm's length prices. Petitioners further
note that there is evidence that the second supplier is partly owned by a
government entity. Based on these facts, petitioners contend that the
Department should have found reason to suspect or believe that upstream
subsidies existed, and thus, should have initiated an investigation on such
subsidies. Finally, petitioners argue that, if the subsidies provided to the
Second Supplier are included within the upstream subsidy calculation (under
section 353.523(a)(1)(iii) of the Department's regulations), then the one-
percent threshold will be satisfied.
As we explained in the New Subsidy Allegation Memo, the evidence provided by
petitioners was insufficient to meet the high standard for initiation of an
upstream subsidy investigation. With regard to the first element of section
353.523(a)(1), petitioners have not provided sufficient evidence that the
alleged subsidies received by the Second Supplier are countervailable. With
regard to the second element, the record establishes that Reiner Brach is not
affiliated with the Second Supplier. See New Subsidy Allegation Memo, at 7. In
addition, petitioners have not provided sufficient evidence that the prices
paid by Reiner Brach to the Second Supplier were less than what Reiner Brach
would have paid in an arm's length transaction.(5) As we explained in the New
Subsidy Allegation Memo, petitioners have provided only speculation based on
their claims regarding affiliation rather than any specific evidence. Although
petitioners note that the Second Supplier may be partially owned by a
government entity, this alone does not indicate that the government has
specifically set the prices for the inputs so as to guarantee that any benefit
provided is passed through to the producers of the subject merchandise. More
evidence than mere government ownership is necessary to warrant an
investigation into an upstream subsidy allegation. We also note that, based on
information provided in the petitioners' March 14, 2000, submission, the Second
Supplier was taken over, prior to the PORs, by a non-German private party.
Finally, with regard to the third element, petitioners have not provided enough
information about the alleged subsidies to warrant consideration of whether the
one-percent threshold is met. Therefore, because none of the criteria outlined
under 351.523(a)(1) of the Department's regulations have been met, we declined
to initiate an upstream subsidy investigation.
Comment 2: Need to Conduct Verification
Petitioners allege that Reiner Brach has provided contradictory information
regarding its ownership/control, and that it is unreasonable for the Department
to accept the responses of Reiner Brach without verification of the
information. For example, petitioners state that Reiner Brach, in its April 24,
2000 submission to the Department stated it "has no information regarding the
ownership structure of Reny Stahl (one of Reiner Brach's minority shareholders)
and Stahlwerke Bremen," while in a January 25, 2000 submission it stated that,
"Reny Stahl is not owned or controlled by any other entity and no shares are
held by another German or European steel producer." Thus, they argue that, with
respect to the question of ownership, it is unreasonable for the Department to
implicitly accept Reiner Brach's assertion that it is not owned by another
steel company without verification.
The respondent states that petitioners are incorrect that the company has
provided contradictory information regarding its ownership structure. Reiner
Brach stated that it has provided some information on Reny Stahl based upon
public knowledge of that company, rather than detailed information on the
ownership and/or operating structure of Reny Stahl, which it does not have.
Thus, respondent states, its responses are not contradictory.
Department's Position: We disagree with petitioners that Reiner Brach's
responses on its ownership/control are contradictory. Reiner Brach has
adequately explained that its knowledge pertaining to the ownership of Reny
Stahl is based solely upon public information. Simply because respondent has
some public knowledge regarding one of its minority shareholders does not
establish that it has specific knowledge of detailed ownership information of
that minority shareholder. Respondent has stated that its minority shareholders
do not have any management control of the company. Furthermore, there is no
information on the record of this review that contradicts respondent's
statements or that warrants a decision to conduct a verification of Reiner
Brach's questionnaire responses. Thus, we determined that good cause for
verification did not exist. See section 351.307(b)(iv) of the Department's
regulations.
Comment 3: Attribution of Subsidies
Petitioners state that the Department mistakenly declined to investigate their
allegations that the subsidies received by Stahlwerke Bremen are directly
attributable to Reiner Brach. They argue that Reiner Brach has refused to
disclose ownership of Reny Stahl or Rosenberger GmbH. Therefore, they argue
that the Department should infer that these companies are owned or at least
affiliated with Stahlwerke Bremen, and that this inference necessarily implies
that Stahlwerke Bremen owns a majority interest in Reiner Brach.
The respondent states that it has fully responded to the Department's
questions regarding Reiner Brach's ownership and management structure. They
state that no other entity exercises control of Reiner Brach. Thus, there is no
cross-ownership pursuant to section 351.525(b)(6) of the Department's
regulations.
Department's Position: In accordance with section 351.525(b)(6)(i) of the
Department's regulations, the Department normally will attribute a subsidy to
the products produced by the corporation that received the subsidy. The
regulations provide exceptions to this attribution rule in cases where: (1)
corporations with cross-ownership produce the subject merchandise; (2) the firm
that received the subsidy is a holding company, including a parent company with
its own operation; (3) there is cross-ownership between an input supplier and a
downstream producer, and production of the input product is primarily dedicated
to production of the downstream product, or (4) a corporation producing non-
subject merchandise received a subsidy and transferred the subsidy to a
corporation with cross-ownership.
Cross-ownership is defined to exist between two or more corporations where one
corporation can use or direct the assets of the other corporation(s) in
essentially the same ways it can use its own assets. See section
351.525(b)(6)(vi) of the Department's regulations. In the preamble to the
regulations, the Department stated that "normally, cross-ownership will exist
where there is a majority voting ownership interest between two corporations or
through common ownership of two (or more) corporations. In certain
circumstances, a large minority voting interest (for example, 40 percent) or a
'golden share' may also result in cross-ownership." See 63 FR 65348 at 65401.
The facts of this case do not support a finding of cross-ownership between
Reiner Brach and Stahlwerke Bremen. Reiner Brach has provided information
regarding its shareholders, and the record demonstrates that there is no cross-
ownership between these two companies. As we stated in the New Subsidies
Allegation Memo, Stahlwerke Bremen, which is a minority shareholder, does not
have any voting rights in Reiner Brach and is not involved in the management of
Reiner Brach. Given that there is no evidence to support a finding that
Stahlwerke Bremen can use or direct the assets of Reiner Brach in essentially
the same way it can use its own assets, we continue to recommend a finding that
there is no cross-ownership between these companies. As such, the subsidies
alleged to have been provided to Stahlwerke Bremen, a minority shareholder of
Reiner Brach, are not attributable to Reiner Brach, and thus, we further
recommend that the Department not investigate these allegations.
Recommendation
Based on our analysis of the comments received, we recommend adopting all of
the above positions. As we noted above, the respondent company did not use any
of the reviewed programs during the two periods of review. If these
recommendations are accepted, we will publish the final determination in the
Federal Register.
AGREE_____ DISAGREE_____
______________________
Troy H. Cribb
Assistant Secretary
for Import Administration
______________________
(Date)
____________________________________________________________________________
footnotes:
1. Certain Cut-to-Length Carbon Steel Plate From Germany; Preliminary Results
of Countervailing Duty Administrative Reviews, 65 FR 54496 (September 8, 2000)
2. The name of the "Second Supplier" is proprietary.
3. This subsidy rate was calculated for Kloeckner Stahl (now known as
Stahlwerke Bremen) in the Final Affirmative Countervailing Duty Determinations:
Certain Steel Products from Germany, 58 FR 37315 (July 9, 1993)(Certain Steel
Products)
4. This allegation was made in petitioners' March 14, 2000 submission to the
Department and was addressed by the Department in the New Subsidy Allegation
Memo.
5. Note, petitioners attempt to establish this fact with a comparison of
certain alleged prices. See petitioners' case brief at page 15. Because this
information is proprietary, we have not discussed the details in this
memorandum. However, petitioners have not substantiated their claim that the
input price Reiner Brach paid to the Second Supplier is lower than an arm's
length price.