57 FR 42971
NOTICES
DEPARTMENT OF COMMERCE
(C-428-812)
Preliminary Affirmative Countervailing Duty Determination: Certain Hot Rolled
Lead and Bismuth Carbon Steel Products From Germany
Thursday, September 17, 1992
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AGENCY: Import Administration, International Trade Administration, Department of
Commerce.
EFFECTIVE DATE: September 17, 1992.
FOR FURTHER INFORMATION CONTACT: Rick Herring or Magd Zalok, Office of Countervailing
Investigations, Import Administration, U.S. Department of
Commerce, room 3099, 14th Street and Constitution Avenue NW., Washington, DC 20230;
telephone: (202) 377-3530 or 377-4162, respectively.
Preliminary Determination
The Department preliminarily determines that benefits which constitute subsidies within the
meaning of the countervailing duty law are being provided to manufacturers, producers, or
exporters in Germany of certain hot rolled lead and bismuth carbon steel products. The final
determination is currently scheduled for November 24, 1992.
For information on the estimated net subsidy, please see the "Suspension of Liquidation" section of
this notice.
Case History
Since the publication of the notice of initiation in the Federal Register (57 FR 19884, May 8, 1992),
the following event occurred. On June 17, 1992, we found this investigation to be extraordinarily
complicated and postponed the preliminary determination until no later than September 10, 1992
(57 FR 27025).
Scope of Investigation
The products covered by this investigation are hot rolled bars and rods of nonalloy or other alloy
steel, whether or not descaled, containing by weight 0.03 percent or more of lead or 0.05 percent
or more of bismuth, in coils or cut lengths, and in numerous shapes and sizes. Excluded from the
scope of this investigation are other alloy steels (as defined by the Harmonized Tariff Schedule of
the United States (HTSUS) Chapter 72, note 1 (f)), except steels classified as other alloy steels by
reason of containing by weight 0.4 percent or more of lead, or 0.1 percent or more of bismuth,
tellurium, or selenium. Also excluded are semi-finished steels and flat-rolled products. Most of the
products covered in this investigation are provided for under subheadings 7213.20.00.00 and
7214.30.00.00 of the HTSUS. Small quantities of these products may also enter the United States
under the following HTSUS subheadings: 7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90;
7214.40.00.10, 00.30, 00.50; 7214.50.00.10, 00.30, 00.50; 7214.60.00.10, 00.30, 00.50; and
7228.30.80.00. Although the HTSUS subheadings are provided for convenience and customs
purposes, our description of the scope of this proceeding is dispositive.
Injury Test
Because Germany is a "country under the Agreement" within the meaning of section 701(b) of the
Tariff Act of 1930, as amended (the Act), the International Trade Commission (ITC) is required to
determine whether imports of the hot rolled lead and bismuth carbon steel products from Germany
materially injure, or threaten material injury to, a U.S. industry. On May 28, 1992, the ITC
preliminarily determined that there is a reasonable indication that an industry in the United States
is materially injured by reason of imports from Germany of this merchandise (57 FR 27739).
Analysis of Programs
For purpose of this preliminary determination, the period for which we are measuring subsidies
(the period of investigation) is calender year 1991. The investigation includes two producers,
Saarstahl AG (Saarstahl) and Thyssen Stahl AG (Thyssen).
Because there is a significant differential in the estimated net subsidy calculated for Saarstahl and
Thyssen, we have preliminarily assigned individual company rates pursuant to 19 CFR
355.15(a)(2)(ii).
Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily
determine the following:
A. Programs Preliminarily Determined To Be Countervailable
We preliminarily determine that subsidies are being provided to manufacturers, producers, or
exporters in Germany of certain hot rolled lead and bismuth carbon steel products under the
following programs:
1. Government Forgiveness of Saarstahl's Debt in 1989
In the years 1971 through 1989, the companies which were eventually to become Saarstahl AG,
went through various mergers, restructurings, and name changes. For the sake of simplicity, we are
using the name "Saarstahl" when referring to assistance provided to Saarstahl AG or to assistance
provided to any of its predecessor companies.
In response to the poor economic condition of the steel industry in the Saarland in the 1970's, the
Governments of Germany and Saarland, and the steel companies which were to become Saarstahl,
adopted their first restructuring plan in an attempt to create a viable steel industry in Saarland. In
order to facilitate the implementation of the restructuring plan, the Federal Government
authorized the provision of DM 244 million in funds to Saarstahl in 1978. Repayment of these funds
was contingent upon Saarstahl returning to profitability. This contingent repayment
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obligation was called a Ruckzahlungsverpflichtung (RZV).
In addition, the Governments of Germany and Saarland guaranteed loans in the amount of DM 1.18
billion made to Saarstahl by a group of private banks. According to the response of Saarstahl, the
banks would not have made the loans to Saarstahl without the government guarantees because of
the company's poor financial condition. These loans were also used to finance the restructuring
plan. Saarstahl made payments on the guaranteed loans until April, 1983. At that time, The
governments of Germany and Saarland assumed the payment of interest and principal. Again, these
government payments of principal and interest were to be repaid by Saarstahl under RZVs.
The initial provision of DM 244 million by the Government of Germany and the payments of
interest and principal by the two governments were the first in a long line of assistance provided by
both governments to Saarstahl. Assistance provided to the company from 1981 through 1985 was
used to modernize the company, make capital investments, cover operating expenses, and cover
employee expenses pursuant to a number of Saarstahl restructuring plans. In addition, the
government payments of the interest and principal of the guaranteed loans continued until 1989.
All of this assistance was tied to RZVs which obligated Saarstahl to repay the assistance provided
the company earned a profit in the future. By 1989, Saarstahl had accumulated DM 3.936 billion in
repayment obligations to both governments.
During the period when most of the government assistance was being provided to Saarstahl, the
company was wholly-owned by the Luxembourg company, Arbed. By 1985, Arbed was no longer
able or willing to function as the owner of Saarstahl. Because of the importance of Saarstahl to the
economy of Saarland, the Government of Saarland decided to look for a new owner to replace
Arbed. Another steel company in Saarland, the French-owned Dillinger, expressed an interest in
Saarstahl. At that time, Dillinger and Saarstahl were already joint venture partners in a company
which produced pig iron.
In order to facilitate finding a new investor for Saarstahl, Arbed transferred 76 percent of the
ownership of Saarstahl to the Governments of Germany and Saarland for one DM in 1986. A trustee
was appointed to hold the shares for both governments while a new investor was sought. At the
same time, an agreement was signed under which Dillinger would manage Saarstahl. In April 1989,
an agreement was reached between the Government of Saarland and Dillinger's parent company,
Usinor Sacilor, regarding the purchase of Saarstahl.
Under the terms of this purchase agreement, Saarstahl and Dillinger became wholly-owned
subsidiaries of a newly-created holding company, DHS-Dillinger Hutte Saarstahl AG (DHS). The
Government of Saarland contributed the assets of Saarstahl and DM 145.1 million in cash in return
for 27.5 percent ownership of Saarstahl's new parent company, DHS.
Pursuant to the purchase agreement, the Governments of Germany and Saarland, and Saarstahl
entered into an agreement concerning the previous assistance received by Saarstahl. Under the
latter agreement, the Entschuldungsvertrag (the EV), all outstanding RZV repayment obligations
for all the funds provided to Saarstahl by the Governments of Germany and Saarstahl, as well as
additional rights held by both governments for repayment of principal on the guaranteed loans,
were unconditionally forgiven and relinquished. The EV was signed in June 1989.
Because the debt forgiveness under the EV was only provided to Saarstahl, we preliminarily
determine it to be countervailable because it was limited to a specific enterprise or industry or
group of enterprises or industries.
To calculate the benefit arising from the debt forgiveness, we are treating the amount of the
forgiveness, DM 3.936 billion, as a nonrecurring grant since the forgiveness of this debt constitutes
a one-time government action, rather than assistance provided pursuant to an ongoing
government program. Our policy with respect to nonrecurring grants is to allocate the benefits
from such grants over the average useful life of assets in the industry, unless the sum of grants
under a particular program is less than 0.5 percent of a firm's total or export sales (depending on
whether the program is a domestic or export subsidy.) See, e.g., Final Affirmative
Countervailing Duty Determination; Fresh and Chilled Atlantic Salmon from Norway, 56 FR
7678 (February 25, 1991).
Therefore, we have allocated the benefits from this forgiveness over 15 years, the average useful
life of assets in the steel industry.
The benefit for the period of investigation was calculated using the declining balance methodology
described in the Department's proposed rules (Countervailing Duties; Notice of Proposed
Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989) (Proposed
Regulations)), and used in prior investigations (see, e.g., Final Affirmative Countervailing
Duty Determination; Oil Country Tubular Goods from Canada, 51 FR 15037 (April 22, 1986).)
For the discount rate in this calculation, we included a risk premium since we have preliminarily
determined that Saarstahl was uncreditworthy in 1989, the year in which the debt was forgiven.
Our determination that Saarstahl was uncreditworthy is based on an analysis of the company's
financial statements and the fact that Saarstahl was unable to obtain commercial lending in 1989
without a guarantee from the government.
When we determine that a company is uncreditworthy, we base our discount rate on the highest
long-term interest rate applicable to firms in the country in question, plus an amount equal to 12
percent of the country's prime rate. See, e.g., the Final Affirmative Countervailing Duty
Determination: New Steel Rail, Except Light Rail, from Canada, 54 FR 31991 (August 3, 1989), and
the Proposed Regulations. According to the response of the Government of Germany, there are no
official statistics on long-term interest rates or interest rates comparable
to the U.S. prime rate in Germany. Therefore, we reviewed the interest rates published in the
International Monetary Fund's International Financial Statistics and used the average annual
interest rate reported in that publication for 1989, the year in which Saarstahl's debt was forgiven.
We then added to this interest rate an amount equal to 12 percent of the annual average short- and
medium-term interest rate in Germany as published in the International Financial Statistics. Based
on this approach, we calculated a discount rate of 11.13 percent.
The portion of the benefit allocated to the period of investigation was adjusted pursuant to section
771(6) of the Act. Under this section of the Act, the Department may subtract any application fee,
deposit, or similar payment from the benefit if that payment was made in order to qualify for, or to
receive, benefits under the program. According to the EV agreement, Saarstahl is required to pay a
yearly fee of DM 300,000 to the Government of Germany. Therefore, we deducted DM 300,000
from the portion of the benefit attributable to the period of investigation and divided the resultant
sum by DHS's total sales (which includes the total sales of both Saarstahl and Dillinger). We used the
sales of DHS because the forgiveness of Saarstahl's debt resulted in a benefit to DHS. Using this
methodology, we
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calculated an estimated net subsidy of 16.87 percent ad valorem.
Respondents have argued that the 1989 formation of DHS resulted in the
privatization of Saarstahl. They claim, further, that each participant received the full net worth of
its contribution to the new company. Therefore, consistent with the Department's past policy as
articulated in Lime from Mexico: Preliminary Results of Changed Circumstances Review, 54 FR
1753 (January 17, 1989), we should find that none of the benefits previously provided to Saarstahl
by the German and Saarland governments flow through to the new company.
As respondents submitted this argument on September 1, 1992, we have not had time to review
their claim. Moreover, we are requesting additional information on this transaction, particularly
with respect to whether the Saarland government's capital contribution to DHS was made on terms
inconsistent with commercial considerations.
2. Debt Forgiveness by Private Banks
Commercial banks also participated in the restructuring of Saarstahl during the period from 1978
through the final restructuring of the company in 1989. During part of this time period they
provided both short- and long-term loans to Saarstahl which were not guaranteed by the
Governments of Germany or Saarland. In the years 1983 through 1985, the banks forgave Saarstahl
DM 106.8 million in interest on these loans. According to the response of Saarstahl,
this forgiveness was in response to the company's poor financial condition and was not made at the
request of, or related to any assistance provided by, the Governments of Germany and Saarland.
Toward the end of 1985, the Government of Saarstahl presented a long-term restructuring plan for
Saarstahl to Saarstahl's creditors and requested that they forgive an additional amount of DM 350
million in loans. Based on this request, the banks agreed to forgive DM 217.1 million of debt owed
to them by Saarstahl, if the Governments of Germany and Saarland would forgive all the debt owed
to them by Saarstahl, and if the Government of Saarland would assure the liquidity of Saarstahl.
With the signing of the EV, the governments forgave Saarstahl's debt owed to them, as discussed
above, and the commercial banks forgave a portion their unguaranteed loans to Saarstahl.
According to the response of the Governments of Germany and Saarland, the talks on the
forgiveness of Saarstahl's debt were based on the common notion that all of the participants,
including the private and public creditors, would have to contribute to restoring the company to
health. The response states that the Governments of Germany and Saarland made their forgiveness
dependent on private creditors also waiving a portion of their claims against Saarstahl. The private
creditors laid down the same condition with regard to the claims of the Governments of Germany
and Saarland.
We preliminarily determine the forgiveness of interest payments in the years
1983 through 1985 did not confer a countervailable subsidy on Saarstahl because the banks were
acting independently without any direction or participation by the Governments of Germany and
Saarland. However, we also preliminarily determine that the subsequent forgiveness of DM 217.1
million in principal to be countervailable because it was required by the governments as part of a
government-led debt reduction package for Saarstahl.
Saarstahl's response states that the forgiveness of the bank loans was effective as of January 1,
1989. However, according to the financial statements of Saarstahl, a grace period was extended on
these loans until they were forgiven as part of the 1989 package. The financial statement for 1989
shows that these loans were removed from the company's reported liabilities owed to credit
institutions in that year, the same year the EV was signed. Therefore, we are treating the debt
forgiveness of DM 217.1 million as having occurred in 1989.
Using the same methodology used to calculate the subsidy for the government forgiveness of
Saarstahl's debt in 1989, we calculated an estimated net subsidy of 0.93 percent ad valorem for
Saarstahl.
3. Worker Assistance Program
Under Article 56 of the European Coal and Steel Community (ECSC) Treaty,
persons employed in the coal and steel industry who lose their jobs may receive assistance for
"social adjustment." This assistance is provided for workers affected by restructuring measures,
particularly as workers withdraw from the labor market into early retirement or are forced into
unemployment. Assistance is also provided for training and redeployment efforts. The ECSC
disburses assistance on the condition that the affected country makes an equivalent contribution.
German companies seeking assistance under Article 56 of the ECSC Treaty must apply to both the
Federal Minister of Labor and Social Affairs and to the Federal Minister of Economics. Notification
of approval is provided by the Federal Minister of Labor and Social Affairs which is also in charge of
distributing such funds on its own account and on behalf of the ECSC.
During the period of investigation, Saarstahl and Thyssen received payments for their workers
under Article 56(2)(b) of the ECSC Treaty. The payments were made to provide for the early
retirement of company employees. According to the responses of Saarstahl and Thyssen, the
companies include payments under Article 56 as part of the severance pay arrangements which
they have with their employees. These arrangements are part of the social plans the companies
have with their employees.
We consider the assistance provided under this program to be recurring since the program is
longstanding and payments are made automatically, every year,
whenever the eligibility requirements are met. Therefore, we limited our analysis to the period of
investigation, 1991.
The ECSC share of the payments is provided from its budget, which is financed by contributions
from the coal and steel industry and the interest earned on the investment of the contributions.
Deficits in the budget are made up by Member State contributions. However, no contributions have
been made by the Member States since 1984. Because the ECSC payments were financed solely
from producer contributions, we preliminarily determine that they do not confer a countervailable
benefit.
However, we preliminarily determine that the German Government's share of funds under this
program is countervailable because the provision of these funds is limited to a specific industry or
group of industries, and because the funds relieved the companies of obligations they normally
would have incurred. Saarstahl and Thyssen would have otherwise incurred these expenses
because these severance pay benefits are mandated by the social plans the companies have with
their employees.
To calculate the benefit, we took half of the funds received by the companies under this program in
1991, which is that portion attributable to the Government of Germany, and divided it by each
company's total sales during the period of investigation. Using this methodology, we calculated an
estimated net subsidy of 0.39 percent ad valorem for Saarstahl and 0.16 percent ad
valorem for Thyssen.
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Verification
In accordance with section 776(b) of the Act, we will verify the information used in making our
final determination.
Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend
liquidation of all entries of certain hot rolled lead and bismuth carbon steel products from
Germany, which are entered or withdrawn from warehouse, for consumption on or after the date of
publication of this notice in the Federal Register and to require a cash deposit or bond for such
entries of this merchandise in the amount of 18.19 percent ad valorem, except for merchandise
produced by Thyssen. Thyssen is exempt from the suspension of liquidation because its estimated
net subsidy is de minimis. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In
addition, we are making available to the ITC all nonprivileged and nonproprietary information
relating to this investigation. We will allow the ITC access to all privileged and business proprietary
information in our files, provided the ITC confirms that it will not disclose such information, either
publicly or under an administrative protective order, without the written consent of the Deputy
Assistant Secretary for Investigations, Import Administration.
If our final determination is affirmative, the ITC will make its final determination within 45 days
after the Department's final determination.
Public Comment
In accordance with 19 CFR 355.38 of the Department's regulations, we will hold a public hearing, if
requested, on November 13, 1992, at 10 a.m. in room 1412, to afford interested parties an
opportunity to comment on this preliminary determination. Individual parties who wish to request
or participate in a hearing must submit a request within ten days of the publication of this notice in
the Federal Register to the Assistant Secretary for Import Administration, U.S. Department of
Commerce, room B099, 14th Street and Constitution Avenue, NW., Washington, DC 20230.
Requests should contain: (1) The party's name,
address, and telephone number; (2) the number of participants; (3) the reason for attending; and
(4) a list of issues to be discussed. Parties should confirm by telephone the time, date, and place of
the hearing 48 hours before the scheduled time.
In accordance with 19 CFR 355.38(c) and (d), ten copies of the business proprietary version and
five copies of the nonproprietary version of the case briefs must be submitted to the Assistant
Secretary no later than November 4, 1992. Ten copies of the business proprietary version and five
copies of the nonproprietary version of the rebuttal briefs must be submitted to the Assistant
Secretary no later than November 10, 1992. If the case and rebuttal brief contain only
nonproprietary information, then ten copies of each respective brief must be submitted to the
Department. An interested party may make an affirmative presentation only on arguments
included in the party's case or rebuttal briefs. If no hearing is requested, interested parties still may
comment on these preliminary results in the form of case and rebuttal briefs. Written arguments
should be submitted in accordance with § 355.38 of the Department's regulations and will be
considered if received within the time limits specified in this notice.
This determination is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
Dated: September 10, 1992.
Rolf Th. Lundberg, Jr.,
Acting Assistant Secretary for Import Administration.
(FR Doc. 92-22557 Filed 9-16-92; 8:45 am)
BILLING CODE 3510-DS-M