58 FR 37315
NOTICES
DEPARTMENT OF COMMERCE
(C-428-817)
Final Affirmative Countervailing Duty Determinations: Certain Steel Products
from Germany
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: Paulo F. Mendes or Kristin M. Heim, Office of
Countervailing Investigations, U.S. Department of Commerce, room 3099, 14th
Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482- 4412 or
482-3798, 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), are being provided to manufacturers,
producers, or exporters in Germany 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 the preliminary determinations (57 FR 57772, December 7, 1992), the
following events have occurred.
We conducted verification from January 27 through February 17, 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merchandise entered, or withdrawn for consumption, on or after that date (see Suspension of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).
The parties submitted case and rebuttal briefs on April 1 and 6, 1993, respectively. A public
hearing was held on April 8, 1993.
Scope of Investigations
The products covered by these investigations, certain steel products, constitute four separate
"classes or kinds" of merchandise, as found in the Scope Appendix to the Final Affirmative
Countervailing Duty Determination: Certain Steel Products from Austria which is published
concurrently with this notice: (1) Certain hot-rolled carbon steel flat products, (2) certain cold-
rolled carbon steel flat products, (3) certain corrosion-resistant carbon steel flat products, (4)
certain cut-to-length carbon steel plate.
Injury Test
Because Germany is a "country under the Agreement" within the meaning of section 701(b) of
the Act, the U.S. International Trade Commission (ITC) is required to determine whether imports
of the certain steel products from
Germany materially injure, or threaten material injury to, a U.S. industry. On August 21,
1992, the ITC determined that there is a reasonable indication that industries in the United States
are being materially injured or threatened with material injury by reason of imports from
Germany of the subject merchandise (57 FR 38064, August 21, 1992).
Respondents
The GOG and the Governments of Niedersachsen and Nordrhein-Westfalen are respondents for
each class or kind of merchandise subject to these investigations. The Government of Saarland is a
respondent only with respect to certain cut-to-length carbon steel plate. The following is a list of
the respondent companies for each class or kind of merchandise subject to these investigations:
Certain Hot-Rolled Carbon Steel Products:
Hoesch
Klo4ckner
Preussag
Thyssen
Certain Cold-Rolled Carbon Steel Products:
Hoesch
Klo4ckner
Preussag
Thyssen
Certain Corrosion-Resistant Carbon Steel Flat Products:
Hoesch
Preussag
Thyssen
Certain Cut-To-Length Carbon Steel Plate:
Dillinger
Ilsenburg
Preussag
Thyssen
Analysis of Programs
Based on our analysis of the petition, the responses to our questionnaires, verification and
comments by interested parties, we determine 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. These included:
- Allocation Issues;
- Denominator Issues;
- Equity Issues;
- Prepension Program Issues;
- Privatization Issues; and
- 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 Affirmative
Countervailing Duty Determination: Certain Steel Products from Austria which is published
concurrently with this notice.
Period of Investigation
For purposes of these determinations, the period for which we are measuring subsidies (the period
of investigation (POI)) is 1991.
Calculation of Country-Wide Rate
In determining the benefits received under the various programs described below, we used the
following calculation methodology. We first calculated a country-wide rate for each program. This
rate comprised the ad valorem subsidy received by each firm weighted by each firm's share of
exports, separately for each class or kind of merchandise, to the United States. The rates for all
programs were then summed to arrive at a country-wide rate for each class or kind of merchandise.
Pursuant to 19 CFR 355.20(d) and to the extent practicable, for each class or kind of merchandise,
we compared the total ad valorem subsidy received by each firm to the country-wide rate for all
programs to determine whether a significant differential existed. On the basis of this comparison,
the rates for Ilsenburg, Preussag and Thyssen were significantly different from the country-wide
rate with respect to certain cut-to-length carbon steel plate. Therefore, these firms received
individual company rates. For the remaining firm, Dillinger, we recalculated the country-wide rate,
based on the benefits received
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by this firm. We then assigned the recalculated overall country-wide rate to Dillinger, and all other
manufacturers, producers, and exporters.
Privatization
In these final determinations, we have decided that a portion of the price paid for a formerly
government-owned company represents partial repayment of prior subsidies. We reduced the
benefit streams for each program of the prior subsidies by the ratio of the repayment amount to the
net present value of all remaining benefits from those prior subsidies at the time of privatization. A
further explanation of the Department's determination on privatization and these calculations can
be found in the Privatization section of the General Issues Appendix. The subsidies allocated to the
POI for Dillinger reflect, where appropriate, the application of the privatization methodology.
Spin-offs
In these final determinations, we have also decided that a portion of the price paid when a
"productive unit" is sold is allocable to the value of subsidies received in prior years by the seller of
the "productive unit." The subsidies allocated to the POI have been reduced (where appropriate) as
described above, but adjusted by the asset value of the "productive unit." For a further explanation
of the Department's determination regarding "spin-offs" and these calculations, see, the
Restructuring section of the General Issues
Appendix.
A. Programs Determined To Be Countervailable
We determine that countervailable subsidies are being provided to manufacturers, producers, or
exporters in Germany of certain steel products under the following programs:
1. Capital Investment Grants
The Steel Investment Allowance Act promotes investment for the modernization of the iron and
steel industry. As amended on December 22, 1983, this program provided grants amounting to 20
percent of the acquisition cost of assets purchased or produced prior to January 1, 1986, and
ordered or produced after July 30, 1981. If the Minister of Finance approved the application, a
certificate of approval would be forwarded to the German tax authorities. The tax authorities
would then decide whether to provide the funds directly to the company or whether to offset them
against taxes due.
Because benefits under this program are available only to the iron and steel industry, we determine
the program is provided in law to a specific enterprise or industry or group of enterprises or
industries. See Countervailing Duties;
Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23368, 23379 (May 31,
1989) (Proposed Regulations), section 355.43(b)(2)(i). Therefore, the grants provided to Dillinger,
Hoesch, Klo4ckner, Preussag, and Thyssen under this program are countervailable.
Three of the companies had to return small portions of their grants after audits by the German tax
office. These amounts were returned before the POI. Interest was charged on the disallowed
portion of the grant from the date of the original disbursement to the date of repayment. We
deducted the returned portions of the grant from the amount of funds initially received by the
companies before calculating the benefit under this program.
We have determined that benefits received under this program are nonrecurring and calculated the
benefit in accordance with the allocation issues section of the general issues appendix. For the
discount rates, we used, whenever possible, each company's actual cost for long-term, fixed-rate
debt. If a company did not report this cost, or when a company had no long-term borrowing in the
year in which a grant was approved, we used the rates for industrial bonds provided by the
Deutsche Bundesbank.
We calculated the portion of the benefit attributable to the period of investigation and divided that
benefit by the total steel sales of each company within each respective class or kind of
merchandise. On this basis, we determine the net subsidies for this program to be 0.45 percent ad
valorem for
hot-rolled carbon steel products; 0.39 percent ad valorem for cold-rolled carbon steel products;
0.39 percent ad valorem for corrosion-resistant carbon steel flat products; and 0.15 percent ad
valorem for cut-to-length carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which
have significantly different aggregate benefits. The net subsidy rates for these three companies are
0.00, 0.44, and 0.36 percent ad valorem, respectively.
2. Structural Improvement Aids
On December 28, 1983, the Federal Minister of Economics enacted the "Directive for the Provision
of Structural Improvement Assistance to Companies in the Iron and Steel Industry." This program
provided funds for companies in the iron and steel industry to (1) cover severance pay and
transitional assistance for steel workers affected by the restructuring plan within the industry, and
(2) assist steel companies with the costs associated with plant closures. Funds were provided to
cover expenses incurred in laying off employees from the period January 1, 1980, through
December 31, 1986. Plant closures had to occur by December 31, 1985, or in exceptional cases by
December 31, 1989, in order for steel companies to receive funds under this program.
To qualify for assistance, a company had to file an application with the Federal Minister of
Economics. This program was funded by the federal and state governments.
Structural improvement assistance was provided on a conditionally repayable, interest-free basis.
Repayment of this assistance was scheduled to begin in 1986 and was tied to the company's yearly
profits. During the period of investigation, three companies, Hoesch, Klo4ckner, and Preussag, had
outstanding balances under this program. Thyssen also used this program, but repaid all the funds
it received before the period of investigation.
Because benefits under this program were available only to the iron and steel industry, we
determine the program is provided in law to a specific enterprise or industry or group of
enterprises or industries. It is, therefore, countervailable to the extent that it was
inconsistent with commercial considerations.
Because of the possibility of repayment, we have treated the funds as short- term zero interest rate
loans, rolled-over each year until repayment. Zero- rate loans are inconsistent with commercial
considerations. Therefore, we determine this program to be countervailable.
To calculate the benefit, we took the amounts outstanding during the POI and calculated the
interest that would have been paid on those amounts at a commercial interest rate. We calculated
the national average short-term interest rate benchmark for 1991 by adding a spread to the
Frankfurt Interbank Offer Rate (FIBOR). We determined the benchmark to be 10.00 percent.
We then divided these results by the total steel sales of each company within each respective class
or kind of merchandise. On this basis, we determine the net subsidies for this program to be 0.25
percent ad valorem for hot-rolled carbon steel products; 0.22 percent ad valorem for cold-rolled
carbon steel products; 0.05 percent ad valorem for corrosion-resistant carbon
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steel flat products; and 0.00 percent ad valorem for cut-to-length carbon steel plate for all
companies.
3. Investment Premium Act
Under the Investment Allowance Act, in effect from 1969 through 1989, grants were provided to
companies investing in three regions of Germany: the zonal border area (a zone bordering
Czechoslovakia and the former German Democratic Republic (GDR)), the hard-coal mining region
in Saarland and the areas laid out in the Federal/State Joint Scheme for the Improvement of
Regional Economic Structures (Joint Scheme). Under the Joint Scheme, federal and state officials
provided guidelines for designating certain regions as depressed areas (Gemeinschaftsaufgabe or
"GA" Areas). The investment allowance grant equalled 10 percent of eligible expenditures in the
zonal border area and 8.75 percent of eligible expenditures in the GA Areas.
A condition for approval of the investment allowance was that the
investment project be particularly worthy of promotion from the perspective of the economy as a
whole. A certification for the investment allowance is issued only for a specific investment project.
Generally, the project must be implemented by the company within three years of the certification.
The investment allowance is paid by the local tax office, although the program is funded by both
federal and state tax revenues. Dillinger and Preussag were the only companies to use this
program.
Because this program is limited to enterprises or industries located in specific geographical areas
within Germany, we determine the program to be specific and, therefore, countervailable.
(Proposed Regulations, 54 FR at 23379, section 355.43(b)(3)). We further determine the grants
under this program to be nonrecurring. Therefore, we calculated the benefit under this program
using the methodology for nonrecurring grants as described in the "Capital Investment Grant"
program (see A.1., above). We divided these results by the total steel sales of each company within
each respective class or kind of merchandise. On this basis, we determine the net subsidies for this
program to be 0.05 percent ad valorem for hot-rolled carbon steel products; 0.02 percent ad
valorem for cold-rolled carbon steel products; 0.00 percent ad valorem for corrosion-resistant
carbon steel flat products; and 0.06 percent ad valorem for cut-to-length carbon steel plate except
for Ilsenburg, Preussag, and Thyssen, which have significantly different aggregate benefits. The net
subsidy rates for these three companies are 0.00, 0.29, and 0.00 percent ad valorem,
respectively.
The rate calculated for Dillinger under this program is based upon the best information available as
provided for under section 355.37 of the Department's regulations (19 CFR 355.37). In its response
to our questionnaire, Dillinger stated that it did not recall receiving any funds under this program.
At verification, however, Dillinger was unable to document that no benefits were received under
this program. Moreover, according to the Official Journal of the European Communities, which was
provided in the petition, and the Department's Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from the Federal Republic of Germany 47 FR 39345
(September 7, 1982), Dillinger did receive funds under this program. Therefore, we calculated the
benefit for Dillinger using the information provided in the Official Journal of the European
Communities.
4. Joint Scheme: Improvement of Regional Economic Structure--GA Investment Grants and Other
GA Subsidies
The primary goal of this program is to assist companies in depressed areas. Pursuant to the
Grundgesetz (the constitution of the Federal Republic of Germany), regional policy basically
lies within the competency of the
individual states. However, pursuant to Article 91 of the Grundgesetz, the federal government
participates in regional economic assistance measures through the Federal/State Joint Scheme for
the Improvement of Regional Economic Structures. The law governing the Joint Scheme was
signed October 6, 1969, and came into force on January 1, 1970. The European Communities' (EC)
Commission Decision 322/89/ECSC of February 1, 1989, prohibited regional aid to the iron and
steel industry after January 1, 1989 (exceptions were made for the new states of the former GDR).
Therefore, iron and steel companies within the EC, except those in eastern Germany, are no
longer eligible to receive assistance under this program.
The German federal government and the states participate in the planning and the financing of the
Joint Scheme. Although the financing is shared equally by the federal government and the states,
the implementation of the Joint Scheme is left to the states.
The body responsible for implementing the Joint Scheme is the Planning Committee for Regional
Economic Structures. This Committee designates GA Areas. At the point of German unification, all
of the former GDR states became GA areas. The Committee also adopts five-year framework plans.
Under this program, companies located in GA Areas are eligible for grants equal to 10 to 23
percent of fixed investments, depending on the location and type of investment. Once approved,
the grants are paid out based on the
progress of the investment project. The investment project must be completed within three years
of approval. If a company makes several investments in various years and wishes to receive
assistance under this program, then applications must be made for each investment. Applications
must be submitted to the economic ministry of the state prior to the start of the investment.
Because this program is limited to enterprises or industries located in specific geographical
regions, we determine that federal assistance provided under this program is specific and,
therefore, countervailable. Moreover, except for the five former East German states, the GA Areas
are not co- extensive with state boundaries. For these reasons, we determine that state assistance
under this program in all but the former GDR states limited to enterprises or industries located in a
specific geographic region and, therefore, is specific and countervailable. (Proposed Regulations,
54 FR at 23380, sections 355.43(5)).
For the former GDR states we did not request information on actual usage of the program. Such
information is necessary to determine whether the state- provided portion is specific.
Sachsen-Anhalt is the only former GDR state in which a respondent company, Ilsenburg, operates.
Because we did not ask for information, we are deferring examination of Sachsen-Anhalt
contributions under this program until an administrative review, pursuant to section 775 of the
Act (19 USC 1677d (1988)) and 19 CFR 355.39. Therefore, we are not including
the portion funded by Sachsen-Anhalt in our calculation of benefits provided to Ilsenburg.
Thyssen and Ilsenburg received grants under this program, which were tied to the production of
subject merchandise. However, Hoesch only received assistance under this program for
investment projects involving pipes, tinplates, and technical gases, which are not subject to these
investigations. Therefore, we determine that Hoesch did not use this program with respect to the
production of the subject merchandise.
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We also determine that these grants are nonrecurring. Therefore, we calculated the benefit under
this program using the methodology for nonrecurring grants as described in the section on the
"Capital Investment Grant" program (see A.1., above). We then divided these results by the total
steel sales of each company within each respective class or kind of merchandise.
In addition, Ilsenburg made one investment eligible for a grant prior to the currency unification.
That investment subsequently was revalued and written down by company auditors to reflect the
effects of the currency unification. In auditing the grant for this investment, the internal revenue
auditors adjusted the investment grant accordingly. The company has been advised that it will be
required to repay a part of the grant. The company is also liable for interest on the amount to be
repaid. Therefore, this amount
was deducted from the amount of Ilsenburg's grant before the calculation of the grant benefit.
To calculate a benefit conferred by the repayable amount of the grant, we treated the amount
outstanding during the period of investigation as a short- term loan with an interest rate of six
percent. As discussed above in the "Structural Improvement Aids" program section (see A.2
above), the average short-term lending rate in Germany during the POI was 10.00 percent.
We calculated the difference in the amount of interest paid and the national average short-term
lending rate of 10.00 percent. We then divided that difference by Ilsenburg's total sales of steel
products.
We added this benefit to the benefit calculated from the grants received under this program. On this
basis, we determine the net subsidies for this program to be 0.00 percent ad valorem for
hot-rolled, cold-rolled, and corrosion- resistant carbon steel flat products; and 0.00 percent ad
valorem for cut-to- length carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which
have significantly different aggregate benefits. The net subsidy rates for these three companies are
0.11, 0.00, and 0.00 percent ad valorem, respectively.
5. Special Subsidies for Companies in the Zonal Border Area
This federal program was established in 1971 by the Act to Promote the Zonal Border Area. The
aim of the program was to mitigate the competitive disadvantages for the companies in the zonal
border area and to maintain attractive jobs in order to prevent the population from moving out of
the region. Assistance under this program was open to all companies headquartered in the zonal
border area.
The need for this assistance disappeared with unification of the country. Therefore, all of the
assistance measures offered under this program will expire by 1996.
Because this program is limited to enterprises or industries located in specific geographical regions
of Germany, we determine the program is specific and, therefore, countervailable. German
steel companies received two types of benefits under this program: special depreciation for
investments in the zonal border area up to 50 percent and freight assistance.
Both Preussag and Hoesch were eligible to use the special depreciation allowance on tax returns
filed during the period of investigation. Although Hoesch claimed this special depreciation, it did
not use the allowance to offset taxes paid during the period of investigation. Therefore, we
determine that only Preussag received a benefit under this program during the POI.
To calculate the benefit, we divided the tax savings under the program by the total sales of the
company. On this basis, we determine the net
subsidies for this program to be 0.17 percent ad valorem for hot-rolled carbon steel products;
0.07 percent ad valorem for cold-rolled carbon steel products; 0.01 percent ad valorem for
corrosion-resistant carbon steel flat products; and 0.00 percent ad valorem for cut-to-length
carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which have significantly different
aggregate benefits. The net subsidy rates for these three companies are 0.00, 0.95, and 0.00
percent ad valorem, respectively.
6. Ruhr District Action Program
From 1980 through 1984, the Ruhr District Action Program provided grants for investments in the
Ruhr region. Funds for this program were provided by both the federal government and the
Government of Nordrhein-Westfalen. Under this program, grants relating to environmental
protection were available exclusively to the steel industry.
Because benefits under the portion of the program that involves environmental clean-up grants
were available only to the steel industry, we determine the program is provided in law to a specific
enterprise or industry and it is, therefore, countervailable. Hoesch and Thyssen received grants
under this program.
We further determine that the grants received under this program are
nonrecurring. Therefore, we calculated the benefit under this program using the methodology for
nonrecurring grants as described above in the section on "Capital Investment Grant" program (see
A.1., above). We then divided these results by the total steel sales of each company within each
respective class or kind of merchandise.
On this basis, we determine the net subsidies for this program to be 0.01 percent ad valorem for
hot-rolled carbon steel products; 0.01 percent ad valorem for cold-rolled carbon steel products;
0.00 percent ad valorem for corrosion-resistant carbon steel flat products; and 0.00 percent ad
valorem for cut-to-length carbon steel plate for all companies.
7. Aid for Closure of Steel Operations
The GOG adopted two measures to reduce the economic and social costs of plant closings in the
steel industry between 1987 and 1990. First, pursuant to the Rules on Providing Funds to Iron and
Steel Companies to Give Social Assistance for Structural Adjustment, adopted on May 3, 1988, the
federal and state governments provided grants to the iron and steel industry for expenses incurred
with respect to displaced employees. This program was administered by the Federal Ministry of
Economics and the equivalent state ministry. The total amount of federal and state aid provided to
steel companies was not permitted
to exceed 50 percent of a company's net expenditures incurred as a result of these plant closings.
Second, on June 27, 1988, the federal government adopted the Guideline for Granting Aid to the
Iron and Steel Industry. This measure increased the amount of aid provided to employees under
Article 56(2)(b) of the European Coal and Steel Community (ECSC) Treaty.
Although it was claimed that closure assistance was provided so that companies would lay off older
rather than younger workers, the amount of assistance provided by the GOG does not appear to
take into account the difference in the costs of laying off the differently aged workers.
Instead, it is
calculated using the total costs of reducing the work force. Therefore, in accordance with the
Department's general determination regarding early retirement, we determine that the assistance
did not merely benefit the older employees who were retired early. Instead, it relieved the
company of a portion of the early retirement costs it otherwise would have incurred. The
Department has determined that this benefit constitutes a countervailable subsidy pursuant to
section 771(5) of
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the Act. (See Prepension Programs section of the General Issues Appendix.) On this basis, and
because benefits under the Aid for Closure program were provided in law to a specific enterprise or
industry, we determine the program to be countervailable. We further determine the grants
provided under the program to be nonrecurring.
Therefore, we calculated the benefit under this program using the methodology for nonrecurring
grants as described in the "Capital Investment Grant" program (see A.1., above). This program was
used by Hoesch, Preussag, and Thyssen.
Two of the companies had to repay portions of their grants after audits by the German tax
authorities. To calculate a benefit conferred by the repayable amount of the grants, we treated the
amount outstanding during the period of investigation as a short-term interest-free loan.
Short-term interest free loans are not consistent with commercial considerations and are,
therefore, countervailable. As discussed above in the "Structural Improvement Aids" program
section (see A.2 above), the average short-term lending rate in Germany during the POI was
10.00 percent. Using this interest rate, we calculated the interest that should have been paid on the
outstanding repayable portion of the grant.
We added the benefits calculated from the grants and the interest savings and divided that sum by
the total steel sales of each company within each respective class or kind. On this basis, we
determine the net subsidies for this program to be 0.03 percent ad valorem for hot-rolled carbon
steel products; 0.04 percent ad valorem for cold-rolled carbon steel products; 0.06 percent ad
valorem for corrosion resistant carbon steel flat products; and 0.00 percent ad valorem for
cut-to-length carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which have
significantly different aggregate benefits.
The net subsidy rates for these three companies are 0.00, 0.00, 0.07 percent ad valorem,
respectively.
8. Joint Program: Upswing East
For the region encompassing Germany's new states of the former GDR, a special Federal/State
Joint Scheme Program was enacted. (For additional information on the Joint Scheme Program, see
A.3., above.) This new program is called Joint Program: Upswing East. According to the GOG, this
special program was designed only for 1991 and 1992, and will not be extended. The Upswing East
program was created by the Investment Act of 1991, which provided a special investment
allowance in the five new states and in Berlin. Applications for this investment grant are submitted
to the local tax office. The program is equally funded by the GOG and state government. Only one
company under investigation, Ilsenburg, which is located in the former GDR state of
Sachsen-Anhalt received a grant under this program.
Because federal government funding under this program is provided only to enterprises or
industries located in specific regions of Germany, we determine the federal government
portion to be specific and, therefore, countervailable. With respect to the state portion, as noted
above, we learned during verification that the entire state of Sachsen-Anhalt was designated a GA
Area. Based on our examination of the actual usage of the program in Sachsen- Anhalt during the
POI, we determine that the state funded portion is not provided to a specific enterprise or industry
or group of enterprises or industries. Over twenty separate industries in various sectors received
benefits under this program (e.g., plastics, foodstuffs, timber, chemicals, construction, education,
etc.). Furthermore, the steel industry was not a disproportionate user of this program. For these
reasons, we determine that the portion of the program funded by the state of Sachsen-Anhalt is not
de facto specific and, therefore, not countervailable. (See Proposed Regulations, section
355.43(b)(2)).
We further determine that grants provided under this program are nonrecurring. Therefore, we
calculated the benefit under this program using the methodology for nonrecurring grants as
described in the "Capital Investment Grant" program (see A.1., above). We then divided these
results by the total steel sales of each company within each respective class or kind of
merchandise. On this basis, we determine the net subsidies for this program to be 0.00 percent ad
valorem for hot-rolled carbon steel products, for cold- rolled carbon steel products, and for
corrosion-resistant carbon steel flat products; and 0.00 percent ad valorem for cut-to-length
carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which have significantly different
aggregate benefits. The net subsidy rates for these three companies are 0.67,
0.00, and 0.00 percent ad valorem, respectively.
9. Treuhandanstalt Subsidies
The Treuhandanstalt (TRA) is an institution under the federal government. The task of the TRA is to
take over the "people's-owned" assets in the former GDR and place them within the
competition-directed market-economy of the unified country.
To achieve this, the GOG stated that the TRA is privatizing as many companies as possible. Where
rapid privatization is not possible, viable companies are being prepared for later privatization and
non-viable companies are being closed down. The TRA aims to reach its goal of comprehensive
privatization by 1995.
Within the framework of the privatization, the TRA provides financial assistance to companies on a
case-by-case basis. This assistance is intended to help companies adjust to the normal competitive
situation in a market economy.
Ilsenburg received loan guarantees from the TRA during the period of investigation. The loan
guarantees were for short-term loans provided by commercial banks. The TRA guarantees
terminated in 1992 when the short-term loans were replaced by a long-term loan.
Because this program is limited to industries or enterprises located in a specific geographical
region within Germany, we determine the program to be specific. Therefore, the loan
guarantees received by Ilsenburg were countervailable to the extent that they were provided on
terms inconsistent with commercial considerations.
Ilsenburg was charged a fee of 0.8 percent for the guarantee. According to information in the
record, Ilsenburg could have received a loan guarantee from a commercial bank at the same rate.
Consequently, we determine that the guarantee fee charged by the TRA was consistent with
commercial considerations and, therefore, not countervailable.
However, Ilsenburg has not yet paid the guarantee fee to the TRA. This deferral is inconsistent with
commercial considerations. We determine that the deferred payment of the fee constitutes a
countervailable benefit specific to Ilsenburg.
To calculate the benefit, we treated the outstanding amount of the fee as a short-term interest-free
loan. We calculated the interest that would have been paid on that outstanding fee based on the
national average short-term interest rate in Germany during the POI. (See the "Structural
Improvement Aids" program section A.2 above.) We divided the interest savings by Ilsenburg's
total steel sales.
On this basis, we determine the net subsidies for this program to be 0.00
percent ad valorem for hot-rolled carbon steel products, for cold-rolled carbon steel products, and
for corrosion-resistant carbon steel flat products; and
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0.00 percent ad valorem for cut-to-length carbon steel plate except for Ilsenburg, Preussag, and
Thyssen, which have significantly different aggregate benefits. The net subsidy rates are 0.02,
0.00, and 0.00 percent ad valorem, respectively.
10. Subsidies Related to the Creation of Dillinger Hu4tte Saarstahl AG (DHS)
In April 1989, an agreement was reached between the Government of Saarland and Dillinger's
parent company, Usinor Sacilor, regarding the transfer of Saarstahl Volklingen GmbH (Saarstahl)
and of Dillinger to a newly created holding company, Dillinger Hu4tte Saarstahl AG (DHS). Under
the terms of this agreement, Saarstahl and Dillinger became wholly-owned subsidiaries of 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 the holding company, DHS. Usinor Sacilor contributed its
shares of Dillinger to DHS in return for 70 percent ownership of the holding company. A third party
bought 2.5 percent of DHS. Pursuant to the purchase agreement, the Governments of Germany
and Saarland forgave all of the outstanding debts owed to them by Saarstahl. The amount of
forgiven debt was DM 3.936 billion. In addition, private creditors
forgave debt amounting to DM 217.1 million as part of the restructuring of the two companies.
This transaction was examined in the Final Affirmative Countervailing Duty Determination:
Certain Hot Rolled Lead and Bismuth Carbon Steel Products from Germany, 58 FR 6223
(January 27, 1993), in which Saarstahl was a respondent. However, the Department has
reexamined its earlier analysis regarding the creation of DHS in light of its decisions concerning
privatization and restructuring. Pursuant to the Department's determination regarding
restructuring issues, we determine that because the debt forgiveness afforded by the Governments
of Germany and Saarland was provided in fact to a specific enterprise, it constitutes a
countervailable benefit within the meaning of section 771(5) of the Act. (See Proposed Regulations,
section 355.43(k), and the Restructuring section of the General Issues Appendix.)
In addition, we determine that the private debt forgiveness is countervailable because it was
required by the governments as part of a government-led debt reduction package, and because the
two governments guaranteed the future liquidity of Saarstahl, thereby implicitly assuring the
private banks that the remaining portion of Saarstahl's outstanding loans would be repaid. (See
Proposed Regulations, section 355.44(k); Final Affirmative Countervailing Duty
Determination; Oil Country Tubular Goods from Israel, 52 FR 1649, 1655 (January 15, 1987)).
We also determine that the debt forgiveness provided by the Governments of Germany and
Saarland and the private creditors, provided benefits to Saarstahl which were then passed through
to DHS with the 100 percent spin-off of Saarstahl to DHS.
To derive the benefit arising from the debt forgiveness, we applied the spin- off calculation
described in the Restructuring section of the General Issues Appendix. For each specific class or
kind of merchandise, we divided these results by the total steel sales of all the companies within
each respective class or kind of merchandise. On this basis, we determine the net subsidies for this
program to be 0.00 percent ad valorem for hot-rolled carbon steel products, for cold-rolled
carbon steel products, and for corrosion-resistant carbon steel flat products; and 14.63 percent ad
valorem for cut-to-length carbon steel plate except for Ilsenburg, Preussag, and Thyssen, which
have significantly different aggregate benefits. The net subsidy rates for these three companies are
0.00, 0.00, and 0.00 percent ad valorem, respectively.
Petitioners also alleged that because of the creation of DHS, Dillinger received subsidies indirectly
from the federal government and the Saarland government in connection with the construction of
the ROGESA iron production facility and the Zentralkokerei Saar Company coking plant.
ROGESA was a joint venture between Dillinger and ARBED Saarstahl (a predecessor company of
Saarstahl) which was formed in 1981. ROGESA was created
to produce pig iron for both companies. ARBED Saarstahl made a capital contribution to ROGESA
in the amount of DM 200 million. This amount was financed by a repayable contribution from the
Governments of Germany and the Saarland, which was part of the DM 3.936 billion forgiven
by the Governments of Germany and Saarland. Dillinger made a contribution in kind by
transferring its blast furnace to the newly-created company. According to the response, an
independent accounting firm determined that the market value of the blast furnace was between
DM 218 and 234 million.
Zentralkokerei was founded in 1982 by Dillinger, Stahlwerke Rochling-Burbach GmbH (another
predecessor company of Saarstahl) and Saarbergwerke AG. According to its response, Dillinger
made a capital contribution in the amount of DM 255,000 to Zentralkokerei. The stated capital of
the company is DM one million; therefore, Dillinger acquired ownership of 25.5 percent of
Zentralkokerei's stock.
Because Dillinger received shares in ROGESA and Zentralkokerei equal to the contribution that
Dillinger made into both companies, we determine that these transactions are not countervailable.
To the extent that Dillinger did receive a subsidy based on the assistance provided by the
Governments of Germany and Saarland to Saarstahl as part of the creation of DHS (which was
used to finance a portion of the ROGESA and Zentralkokerei transactions), the subsidy is accounted
for in our calculation pertaining to the forgiveness of debt.
11. ECSC Redeployment Aid Under Article 56(2)(b)
Under Article 56(2)(b) of the ECSC Treaty, persons employed in the iron, steel, and coal industries
who lose their jobs may receive assistance for social adjustment. This assistance is provided to
workers affected by restructuring measures, particularly workers withdrawing from the labor
market into early retirement and workers forced into unemployment. The ECSC disburses
assistance under this program on the condition that the affected country makes an equivalent
contribution. Payments were made to German steel workers under Article 56(2)(b).
Since the ECSC portion of payments under this program comes from the operational budget, which
is funded by levies on the companies, we determine that this portion (i.e., 50 percent of the amount
received) is not countervailable. However, with respect to the portion funded by the Government
of Germany, we must decide whether the government payments have relieved the steel
companies of an obligation they would otherwise have.
In Germany, benefits for workers who retired or are laid off are subject to negotiations
between labor and management. Those negotiations result in a social plan for each company.
Following the policy explained in the Prepension Programs section of the General Issues Appendix,
we have determined that the German steel companies and their workers were aware when they
negotiated their social plans that the German government would pay a portion of the costs.
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Therefore, we have determined that one half of the amount paid by the government constitutes a
countervailable subsidy.
One company, Ilsenburg, is located in the former GDR. During the POI, it had not yet negotiated a
social plan with its workers. Based on this, we find that Ilsenburg had no obligation, legal or
contractual, to provide payments to workers who were laid off. Lacking such an obligation, we have
concluded that the portion of Article 56(2)(b) payments (funded by the GOG) made for Ilsenburg's
workers do not constitute a subsidy because they did not relieve the company of an obligation it
would otherwise have had.
We consider the benefits provided under this program to be recurring. Therefore, we took 50
percent of the funds provided in 1991 by the GOG, and divided it by the total steel sales of each
company within each respective class or kind of merchandise. On this basis, we determine the net
subsidies for this program to be 0.08 percent ad valorem for hot-rolled carbon steel products;
0.07 percent ad valorem for cold-rolled carbon steel products; 0.08 percent ad valorem for
corrosion-resistant carbon steel flat products; and 0.00 percent ad valorem for cut-to-length
carbon steel plate except for Ilsenburg,
Preussag, and Thyssen, which have significantly different aggregate benefits. The net subsidy rates
for these three companies are 0.00, 0.03, and 0.07 percent ad valorem, respectively.
12. ECSC Article 54 Long-Term Loans
ECSC Article 54 long-term loans are available only to the iron, steel, and coal industries to
purchase new equipment or finance modernization. The EC stated in its questionnaire response
that Article 54 loans are direct loans from the EC Commission, and that the funds are loaned at a
slightly higher rate than that at which the Commission obtained the funds in order to cover its
costs. According to the EC response, the Commission developed this program to facilitate the
lending process for companies within the ECSC, some of which may not otherwise be able to
acquire necessary funding. Hoesch, Klo4ckner, Preussag, and Thyssen received loans under this
program.
Because benefits under this program are available only to the iron, steel, and coal industries, we
determine the program is provided in law to a specific enterprise or industry or group of
enterprises or industries. Therefore, these loans are countervailable to the extent they were
provided on terms inconsistent with commercial considerations. We compared the interest rates
charged on these loans to the benchmark which was, whenever possible, each
company's actual cost for long-term, fixed-rate debt. If a company did not report this cost, or when
a company had no long-term borrowing in the year in which a loan was approved, we used the rates
for industrial bonds provided by the Deutsche Bundesbank. We found that some Article 54 loans
were provided at an interest rate below the applicable benchmark. Therefore, we determine that
some loans under this program provided countervailable benefits.
We calculated the benefit for the POI using our long-term loan methodology described in section
355.49(c)(1) of the Department's Proposed Regulations, and used in prior investigations (see, e.g.,
Final Affirmative Countervailing Duty Determination: Certain Granite Products from Spain,
53 FR 24340, 24343 (June 28, 1988)).
Using this methodology, we determine the net subsidies for this program to be 0.02 percent ad
valorem for hot-rolled carbon steel products; 0.02 percent ad valorem for cold-rolled carbon steel
products; 0.00 percent ad valorem for corrosion-resistant carbon steel flat products; and 0.00
percent ad valorem for cut-to-length carbon steel plate for all companies.
13. Interest Rebates on ECSC Article 54 Loans
Article 54 loan interest rebates were available only to the iron, steel and coal industries. Steel
companies received rebates during the restructuring and
modernization of the industry beginning in the 1980's. Steel companies applying for these rebates
had to meet certain criteria such as a reduction in steel production and improvements in
processing that would yield energy savings and improve efficiency.
The interest rebates were limited to a maximum of three percent of the eligible investment and
were provided over a period of three years. The rebates were funded by the ECSC operational
budget which is financed by levies on all ECSC companies. Deficits in the operational budget are
made up by Member State contributions. While no Member State contributions have been made to
the operational budget since 1984, it was supplemented by Member States from 1978 through
1984. Preussag and Thyssen received interest rebates on Article 54 loans.
Because the interest rebates given prior to 1985 were partially financed through Member State
contributions, a portion of those interest rebates are countervailable. Consistent with past cases,
e.g., Bismuth, we have not countervailed the portion financed by the ECSC's operating budget
because those funds are obtained from company levies. To calculate the countervailable portion of
the rebates, we calculated the ratio between the contribution from Member States and the ECSC's
total available funds for the year, and then multiplied this ratio by the rebate amount.
Moreover, because companies were aware that interest rebates would be
available when the loans were taken out, we have treated these interest rate subsidies as reduced
interest loans. Therefore, in calculating the benefits from the ECSC Article 54 Loans, we reduced
the interest paid on those loans by the amount of interest rebates received before 1985. The
estimated subsidy calculated for that program includes all benefits conferred by these interest
rebates.
B. Programs Determined Not To Be Countervailable
We determine that the following programs do not provide countervailable subsidies to
manufacturers, producers, or exporters in Germany of subject merchandise:
1. Wage Subsidies (Kurzarbeitergeld)
Kurzarbeitergeld is a wage subsidy provided within the framework of unemployment insurance.
Benefits under this program consist of payments of unemployment insurance to individual
employees to compensate them for reductions in their hours worked. The program is funded by the
Federal Labor Office whose budget consists solely of premiums paid by German employers and
employees. The period for receiving Kurzarbeitergeld may be extended or
shortened depending on the situation in the labor market.
Assistance provided under this program is paid only to employees. On occasion, an employer will
pay employees the benefits they are due under this program and subsequently receive
reimbursement from the Federal Labor Office.
We determine that benefits under this program are not countervailable because the program is
funded by employees and employers, rather than by the government.
2. Nordrhein-Westfalen's Technology Program Materials and Substances Development
This program provides grants for projects in the field of material development. The program is
administered by Nordrhein-Westfalen's Ministry of Economics and Technology.
*37322
Grants can be provided to companies, universities, polytechnics, and research institutes for the
development of both ferrous and non-ferrous metallic materials, non-metallic materials, ceramics,
composite materials, and fibers.
Recipients must either publish their results or obtain patents and licenses protecting their findings.
However, if the grant recipient receives any revenue from any licensing agreement for up to five
years after the expiration of the grant period, the NRWG will require the repayment of the grant.
We verified that the results of individual projects were made public through articles in technical
journals and through papers given at national and international symposia. Both Thyssen and
Hoesch have received grants under this program.
The Department's practice regarding the countervailability of research and development assistance
is that when the results of the research are made available to the public, the assistance does not
confer a countervailable benefit. (See Proposed Regulations, section 355.44(l); see also, e.g., Final
Affirmative Countervailing Duty Determination; Fresh and Chilled Atlantic Salmon from
Norway, 56 FR 7678 (February 25, 1991)). Applying this standard, we determine that this program
is not countervailable.
3. Loan Guarantees From Nordrhein-Westfalen
Various statutes of the Government of Nordrhein-Westfalen authorize the Finance Minister to issue
loan guarantees to companies. In order to receive a loan guarantee, the applicant must be of good
standing, the projects for which the applicant is seeking financing must provide a benefit to the
economy, and the borrower must demonstrate its ability to repay the guaranteed loan according to
schedule. One company under investigation, Hoesch, received a loan guarantee under this
program.
We verified that these loan guarantees are de jure available to all industries and professionals in
Nordrhein-Westfalen. Furthermore, we examined the actual usage of the program during the
period of review. We noted that over twenty separate industries received benefits under this
program (e.g., services, construction, energy, electronics, textiles, plastics, etc.).
Finally, we noted
that the steel industry was not a disproportionate user of this program. For these reasons, we
determine this program to be not countervailable.
C. Programs Determined Not To Be Used
We determine that the following programs were not used by manufacturers, producers, or
exporters in Germany of the subject merchandise:
1. Loans with Reduced Interest Rates under the Steel Restructuring Plan
2. Federal and State Government Loan Guarantees under the Steel Restructuring Plan
3. Special Ruhr Plan
4. Zukunftsinitiative Montanregionen (ZIM) Initiative
5. Kreditanstalt fu4r Wiederaufbau (KfW) Investment Loans for Eastern Germany
6. Deutsche Ausgleichsbank Investment Loans for Eastern Germany
7. European Recovery Program Loans for Eastern Germany
8. Loan Guarantee Program for Eastern Germany
9. Peine-Salzgitter Profit Transfer Agreement and Other Operating Loss Subsidies
10. Elimination of Duisburg Harbor Tolls
11. Export Credits at Preferential Rates
12. Miscellaneous Tax Subsidies
13. Loans from the Government of Nordrhein-Westfalen
14. Tax Subsidies for Eastern Germany
15. ECSC Article 54 Loan Guarantees
16. ECSC Article 56 Conversion Loans
17. Interest Rebates on ECSC Conversion Loans under Article 56
18. European Investment Bank Loans and Loan Guarantees
19. New Community Instrument Loans
20. European Regional Development Fund Aid
21. Nordrhein-Westfalen's Air Pollution Control Program
D. Program Determined Not To Exist
We determine that the following alleged programs do not exist:
1. Early Retirement Subsidy
2. Nordrhein-Westfalen and Niedersachsen Grants
Comments
All written comments submitted by the interested parties in these investigations which have not
been previously addressed in this notice are addressed below.
Comment 1: Petitioners argue that the Department correctly used the German "Lending Rate"
published by the International Monetary Fund (IMF) as the long- term benchmark interest rate and
the discount rate in the preliminary determinations. According to petitioners, even though the
IMF lending rate is a short-term interest rate, it constitutes the best information available because
long-term interest rates are not readily available in Germany. Petitioners further assert that
the IMF lending rate is a conservative estimate because in Germany long-term interest rates
are higher than short-term rates. Finally, petitioners object to the use of mortgage-based interest
rates proposed by the GOG because corporate borrowing is far less secured than residential
borrowing.
Respondents collectively disagree with the use of the IMF lending rate as the long-term benchmark
because this rate applies only to loans of less than DM 1 million which are mainly used to meet cash
flow shortfalls. Where company- specific rates are not available, respondents suggest that the
Department use the mortgage-based rate provided by the GOG. They argue that this rate more
accurately reflects the costs of long-term borrowing of companies in Germany, including
those under investigation.
Alternatively, should the Department decide not to use the mortgage-based rate, respondents
suggest that the Department use the "second" lending rate published by the IMF. This rate applies to
short-term loans of between 1 and 5 million German marks. As a third alternative, Preussag
suggests that the Department use the long-term interest rate for loans--applicable to fixed income
securities--provided in its October 5, 1992 response.
DOC Position: The Department has determined that the average preferred benchmark in this case is
the rate for industrial bonds in Germany as published by the Deutsche Bundesbank. Our
practice, as stated in section 355.44(b)(4) of the Proposed Regulations, sets out a hierarchy for
selecting long-term interest rate benchmarks. The most preferred options are (1) the interest rate
the company under investigation pays for long-term loans, (2) the interest rate the company under
investigation pays on debt obligations, i.e., bonds, and (3) the variable rate the company under
investigation pays for long-term loans. The next preferred option is the national average long-term
interest rate in the country in question. The fact that the benchmark hierarchy does not specify
either long-term loan rates or bond rates indicates that either is preferable to a long-term variable
rate or a short-term rate.
This is clear because the Department's aim is to obtain an objective
measure of the company's long-term (rather than short-term) borrowing ability. We obtain such a
measure by comparing the rate charged by the government to the
*37323
company's commercial cost of borrowing, if possible. Absent a company-specific benchmark, we
turn to a national average long-term rate, either for loans or bonds. In this instance, we note that
the national average bond rates are consistent with the bond rates offered by Hoesch, one of the
responding companies.
Accordingly, we are using the yields on industrial bonds, as documented by the Deutsche
Bundesbank, as the long-term interest rate benchmarks and discount rates. During verification, we
examined the yields on "industrial bonds" published by the Deutsche Bundesbank. Similar to the
mortgage-based rates suggested by the GOG, the yields on industrial bonds reflect the cost of
secured long-term borrowing. According to the Deutsche Bundesbank's financial statistics, the
yield on industrial bonds for 1985 and 1989 was 7.1 and 7.2 percent, respectively. These rates are
very similar to the rates shown for the 10-year bonds issued by Hoesch in 1985 and 1989, i.e., 7
percent for both years.
Comment 2: Petitioners argue that the Department should also use the IMF lending rate as its
short-term benchmark interest rate. They argue that the FIBOR rate used by the Department in the
preliminary determinations understates the cost of short-term borrowing in Germany
because this rate reflects the rate
at which German banks lend to each other on a short-term basis. It does not represent the
"predominant source of short-term financing" for German companies.
Klo4ckner argues that the Department should use the overnight rate published by the Deutsche
Bundesbank as the short-term interest rate benchmark. Klo4ckner submits that if the company had
the choice between the overnight rate and the "three-month rate" (apparently Klo4ckner is
referring to the FIBOR interest rate used by the Department in its preliminary determinations), the
former would have been more attractive in 1991.
DOC Position: We disagree with both respondents and petitioners and have continued to use the
FIBOR short-term interest rate, which we have adjusted as explained below. Our practice as stated
in the Proposed Regulations requires that in the case of a short-term loan provided by the
government, " . . . the Secretary will use as a benchmark the average interest rate for an
alternative
source of short-term financing in the country in question. In determining this benchmark, the
Secretary normally will rely upon the predominant source of short-term financing in the country in
question." Although the cost of borrowing for certain companies and commercial banks may be
comparable, usually the cost of borrowing for companies will be higher. In recognition of this, we
contacted a commercial German bank, the Deutsche Bank, in Frankfurt and asked for the average
short-term interest rate charged to firms in 1991. The Deutsche
Bank informed us that for short-term loans in 1991, it added to the FIBOR rate a spread ranging
from 0.5 to 1 percent depending on the risk associated with the transaction.
Accordingly, we have determined that a reasonable short-term benchmark interest rate is 10
percent. This rate was calculated by taking the mid point of the spread range provided by the
Deutsche Bank, i.e., 0.75 percent, and adding it to the FIBOR rate published by the OECD. We
believe this rate represents a reasonable approximation of the predominant source of short-term
financing in Germany.
Comment 3: Klo4ckner argues that the Department should use the company's total sales figure as
the denominator for purposes of calculating its benefit. Klo4ckner states that all of its products
and by-products benefitted from the subsidies provided to the company during the POI.
Petitioners reject this argument because the Department found in the preliminary determinations
that the benefits received by Klo4ckner were tied to the production of subject merchandise.
Therefore, the denominator properly includes only steel sales.
DOC Position: We disagree with both Klo4ckner and petitioners. The total sales figure which we
used includes sale of steel products and by-products (e.g., slag and blast furnace sand) which were
sold during the POI. At verification, however, a close examination of the company's total sales
revealed that certain
items included by Klo4ckner (e.g., sale of oil to employees and personnel costs) did not relate to
the production of the subject merchandise nor to the production of by-products. Accordingly, the
total sales value which we have relied upon reflects an adjustment to exclude revenues from
activities totally unrelated to steel production.
Comment 4: Dillinger contends that contrary to the Department's conclusion in Bismuth and in the
preliminary determinations in these investigations, the forgiveness by private banks of a portion of
debt owed by Saarstahl SVK was commercially rational and was not at the direction of the
government. Dillinger maintains that, absent this debt forgiveness, Saarstahl SVK would have been
forced into bankruptcy and, consequently, private banks would have lost more money than the
amount of debt forgiven. Moreover, if Saarstahl SVK had been forced into bankruptcy, the
inevitable lay-offs would have negatively impacted the banking business in the state of Saarland.
Accordingly, no government incentives were necessary to induce the banks to forgive the debts.
Dillinger, therefore, argues that the Department should not countervail the private debt
forgiveness.
Petitioners state that the forgiveness by private banks of DM 217 million is countervailable because
the forgiveness was limited to a specific enterprise or industry.
DOC Position: In Bismuth, 58 FR at 6234-35, we determined the forgiveness of
DM 217 million to be countervailable because (1) it was part of a government- led debt reduction
package; (2) the Governments of Germany and Saarland guaranteed the liquidity of Saarstahl,
thereby implicitly assuring the private banks that the remaining portion of Saarstahl's outstanding
loans would be repaid; and (3) it was provided to a specific enterprise within the meaning of section
771(5) of the Act. We have reexamined our determination in Bismuth and have determined that it
was reasonable and otherwise in accordance with law. In so doing, we placed on the record of these
investigations the evidence relating to our determination in Bismuth.
Comment 5: Dillinger maintains that the value of the Ruckzahlungsverpflichtungs (RZV), as
determined by the Department, is incorrect. Dillinger argues that, according to the appraisal of
Dillinger and Saarstahl SVK's assets conducted by two independent accounting firms (KPMG and
Treuarbeit), Saarstahl SVK's RZVs had no economic value. Therefore, they were not regarded as a
factor in determining Saarstahl SVK's value. This occurred because the RZVs were subordinate to
all other debt obligations and were contingent upon the unlikely event that Saarstahl SVK would
make a profit.
DOC Position: Although the independent appraisals determined that the RZVs had no economic
value, that determination simply reflected the fact that the RZVs would be repaid. Likelihood of
repayment does not, however, mean the company received no benefit from the use of the funds
and the subsequent forgiveness of any obligation to repay them.
In Bismuth, we determined that the debt forgiveness by the Governments of Germany and
Saarland was countervailable because it was provided to a specific enterprise or industry. The
*37324
RZVs were integral to that debt forgiveness. (See Bismuth, 58 FR at 6233-34). As with the "private"
debt forgiveness, we have reexamined our determination in Bismuth regarding the governmental
debt forgiveness, and we have determined that it was reasonable and otherwise in accordance with
law.
Comment 6: Ilsenburg argues that subsidies provided to companies located in a former
nonmarket-economy (NME) which is adapting to a market economy should be exempt from
countervailing duties. According to Ilsenburg, the exemption would be similar to that
which the Department grants companies located in countries still considered to be NMEs.
In addition, Ilsenburg states that if the Joint Scheme grants are treated as countervailable
subsidies, there will be a disparity of treatment between companies in the former GDR and
companies in other former East Bloc countries with respect to the application of U.S.
countervailing duty rules. Ilsenburg states that while antidumping proceedings were
initiated against Poland and Romania, no countervailing duty action was taken with respect
to those countries. Ilsenburg argues that this is because the U.S. countervailing duty law
does not apply to those countries because of their former and transitional nonmarket economy status.
Finally, Ilsenburg states that the United States should consider its obligation under the General
Agreement on Tariffs and Trade (GATT) with respect to most-favored-nation (MFN) treatment, and
exempt U.S. imports produced by companies located in the former GDR from countervailing
duties. According to Ilsenburg, this exemption would be similar to the one granted by the
Department in Oscillating and Ceiling Fans from the People's Republic of China, 57 FR 24018 (June
5, 1992).
Petitioners counter that imports from the Federal Republic of Germany (FRG), not the GDR,
are under investigation, and the subsidy programs being examined were provided and funded by
the FRG. Furthermore, the Department's rationale for exempting NME countries from the
countervailing duty law is founded in part on the notion that subsidies in an NME system
have no meaning and cannot be fairly identified or quantified. Because Ilsenburg is operating
within a market-economy, that rationale does not apply. Petitioners state that the type of
assistance received by Ilsenburg is precisely the type of assistance which the countervailing
duty law was intended to counteract.
Finally, petitioners state that imposing countervailing duties on subsidies received by
Ilsenburg would not be inconsistent with the United States' MFN obligation under the GATT.
Petitioners argue that if the Department were to follow Ilsenburg's suggestion, then it would be
providing
Ilsenburg with preferential treatment. Because producers in other market oriented economies
would be unable to receive such an exemption from the countervailing duty law, this would
be inconsistent with MFN.
DOC Position: The Department has determined that the countervailing duty laws are not
applicable to NME's because the concept of subsidies and the mis- allocation of resources that
result from subsidization have no meaning in an economy that has no markets and in which
commercial activity is controlled according to central plans. Carbon Steel Rod from Poland, 49 FR
19374 (1984). This position was sustained by the Court of Appeals for the Federal Circuit in
Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986).
However, as of October 1990, Ilsenburg has been operating in a market-oriented economy for
which the concept of subsidies does have meaning. As a result, comparison of Ilsenburg's situation
with those of companies within countries which are still NMEs would not be meaningful. With
regard to other Eastern European countries, which were not absorbed into a market-oriented
economy as was the former GDR, but are undergoing a transitional process, U.S. law does not
prohibit a domestic industry from filing a countervailing duty petition. If the Department
initiates an investigation and determines the economy is sufficiently market-oriented, a
countervailing duty order could be issued against subsidies found to exist. Furthermore, the
application of the countervailing duty laws to Ilsenburg is consistent with our GATT
obligations.
Article 15 of the GATT subsidies code allows a country to use either countervailing duty law
or antidumping law for imports from a country with a state-controlled economy.
Comment 7: Petitioners argue that because Ilsenburg did not repay any portion of the grants
received under the Joint Scheme program during the period of investigation, the Department
should not make any adjustments to the grants received by the company.
Ilsenburg argues that because the company will be required to repay a portion of the grant, the
Department properly deducted that portion from its grant calculation. In support of its claim,
Ilsenburg refers to a statement by the German tax office auditor during verification, that "* * * a
repayment schedule would be set soon."
DOC Position: As a result of an audit by the government, Ilsenburg will be required to repay a
portion of grants received under the joint scheme program. During verification, we noted that the
repayment dates had not yet been determined because Ilsenburg was challenging the finding of the
tax office. However, also during verification, we met with an auditor from the German tax office
who indicated that a repayment nevertheless would be required, and that a repayment schedule
should be set soon.
Because Ilsenburg will be required to repay a portion of the grants received with interest, we have
continued to treat this portion of the grant as
a contingent liability, and have continued to adjust the amount of the grant for purposes of the
benefit calculation. To do otherwise, as petitioners suggest, would lead to overcountervailing in the
(likely) event of repayment.
Comment 8: Petitioners argue that because the grant received by Ilsenburg under the Joint
Program Upswing East program was used to improve the company's plate production, the
Department should allocate this grant only over Ilsenburg's sales of plate.
Conversely, Ilsenburg argues that the Department should allocate this grant over sales of plate and
pressed parts (e.g., tops and bottoms for fuel and water tanks) because the grant benefitted both
plate production and the production of pressed parts.
DOC Position: In its response, Ilsenburg stated that the "grant received under this program was
used to improve the quality of plates which benefitted the production of both plate and pressed
parts." The Department has determined that unless a subsidy is expressly tied to a specified aspect
of a production process, the benefits associated with that subsidy should be allocated over a
company's entire production of the subject merchandise. (See Denominator section of the General
Issues Appendix.) Accordingly, because both the production of plate and pressed parts benefitted
from this program, we are allocating the grant received under this program over sales of plate and
pressed parts.
Comment 9: Preussag argues that the special depreciation under the Zonal Border Area (ZBA)
program resulted only in deferral, not forgiveness, of taxes. Therefore, the tax effect should have
been treated as an interest-free loan, rather than as a grant. Although the special ZBA depreciation
provides greater depreciation in the first year, over time the total amount of depreciation taken
under the special ZBA depreciation is the same as under
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"normal" tax rules. Preussag argues that the Department's past treatment of the benefit under such
programs as a grant improperly fails to recognize that the repayment that occurs in later years is
an inherent part of the accelerated depreciation.
According to Preussag, when a company is able to take greater depreciation at an earlier stage, the
company's taxable income will be greater in future years; thus, the tax benefit received during the
initial years of depreciation should be viewed as a mere deferral of taxes, not a reduction in tax
liability. Preussag states that in Preliminary Affirmative Countervailing Duty Determination:
Certain Steel Products from Austria, 57 FR 57781 (December 7, 1992), the Department recognized
that tax deferral is equivalent to an interest-free loan. Because the Austrian scenario is similar to
the accelerated depreciation under the ZBA, Preussag argues that the benefit should be treated as
an interest-free loan, rather than as a grant.
Petitioners argue that special depreciation benefits should be
countervailed to the extent the taxes paid were less than the producer's taxes would have been
absent the subsidy. Furthermore, petitioners state that the tax savings amount should be treated as
a recurring grant in accordance with the Department's proposed regulations.
DOC Position: Preussag's argument that the company will pay more taxes in the future due to a
reduction of its depreciation deduction is speculative. The future tax liability of the company will
depend on a number of factors that cannot be anticipated. However, during the period of
investigation, we know that the company was liable for less taxes than it would have been absent
this program. Therefore, consistent with our past practice on accelerated depreciation schemes
(see, e.g., Final Affirmative Countervailing Duty Determination; Cold-Rolled Carbon Steel
Flat-Rolled Products from Korea; and Final Negative Countervailing Duty Determination;
Carbon Steel Structural Shapes from Korea 49 FR 47284 (December 3, 1984)), we continue to view
this program as a grant. We countervailed the difference between the taxes paid and the taxes that
would have been paid absent this program.
Contrary to Preussag's argument, we believe that this program can be distinguished from the tax
program in the current Certain Steel Products from Austria investigations. In that investigation,
the tax program provides specifically for a tax deferral. There is no speculation as to whether the
company will be liable for the deferred amount in the future. It will.
Comment 10: Petitioners argue that the Department should use the lending rate published by the
IMF as the benchmark for the ECSC loan received by Hoesch in 1988. Petitioners contend that the
benchmark rate provided by Hoesch should be rejected because it "differs substantially from the
publicly-available data presented by Petitioners."
Hoesch argues that petitioners' objection is without merit. Hoesch submits that the Proposed
Regulations express a clear preference for using "the interest rate on fixed-rate debt obligations
issued in the same year by the firm receiving the government loans," as the benchmark interest rate
for long- term loans.
DOC Position: We found no discrepancies between the benchmark information provided by Hoesch
in its response and the source documents examined during verification. Therefore, in accordance
with the Department's Proposed Regulations, section 355.44, we are using Hoesch's
company-specific benchmark information. (See also the explanation in comment 1, above).
Comment 11: Petitioners claim that, according to Hoesch's response, the company received a
higher amount under the Aid for Closure of Steel Operations program than the Department
accounted for in its preliminary determinations.
Hoesch indicates that the figure petitioners refer to reflects the assistance received by the
company under (1) aid for closure of steel operations and (2) Article 56(2)(b) of the ECSC Treaty.
DOC Position: Hoesch is correct. The total amount listed under the Aid for Closure of Steel
Operations comprises assistance from both programs. The two amounts have been dealt with
separately under our calculations.
Comment 12: Thyssen submits that the grants received under the Capital Investment Grants
program do not constitute subsidies because: (1) the payments were received during a period when
the U.S. steel industry was protected by a Voluntary Restraint Agreement (VRA) limiting steel
imports, and (2) Thyssen's general application conditioned payments on Thyssen reducing its steel
production and becoming more energy efficient, goals which are consistent with the U.S. policy.
Petitioners state that Thyssen's belief that the VRAs extinguished countervailable benefits has no
legal foundation. The VRA was merely an agreement by petitioners to refrain from filing petitions
in return for the European Community's agreement to limit its steel exports to the United States.
DOC Position: We agree with petitioners that the VRAs did not serve to extinguish countervailable
benefits. Furthermore, while Thyssen may have reduced output or become more efficient, the
funds that made this possible were received as grants from the GOG. Because the grants were
provided specifically to steel companies, they are countervailable under U.S. law.
Comment 13: Petitioners argue that there is not enough evidence on the record
to support respondents' claim that results of the research funded by grants under
Nordrhein-Westfalen's Technology program are made publicly available. Further, the
dissemination of the results of the research funded by these grants appears to be limited by law.
Petitioners also claim that recipients under the program are actually required to obtain patents or
similar protection for results of funded projects which later might entitle recipients to collect
royalties for licensing the technology.
Even if the results of the research are published, petitioners argue that these grants should be
countervailed because the grants are specific to the steel industry. Petitioners cite Agrexco,
Agricultural Export Co., Ltd. v. United States, 604 F. Supp. 1238 (CIT 1985), in support of this
claim.
Hoesch submits that petitioners' assertions are unsupported. Hoesch notes that the Department's
verification report of Hoesch's data clearly indicates that research results funded under this
program are made public. Furthermore, Hoesch submits that such results are disseminated
worldwide through symposiums given by Hoesch employees or articles published in trade
magazines. Thyssen and Hoesch state that because there is sufficient evidence to support their
claim that results are made publicly available, the program provides no countervailable benefit.
DOC Position: We disagree with petitioners. The Department's practice, as set forth in the Proposed
Regulations, section 355.44(l), is that assistance
provided for purposes of research and development does not confer a countervailable benefit if the
results of the research are made available to the public, including the U.S. competitors of the
recipient of the assistance. Although, as noted by petitioners, this practice was called into question
by the CIT in Agrexco, the Department has consistently disagreed with that aspect of the court's
decision.
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With regard to the allegation that grant recipients are required to obtain patents and licenses, we
note that the verified response of Nordrhein-Westfalen government (NRWG) states that recipients
must either publish their results or obtain patents and licenses protecting their findings. During
verification, we reviewed published results of research conducted by various companies and
institutions. We also reviewed publications at the Hoesch verification. Moreover, if the grant
recipient receives any revenue from any licensing agreement for up to five years after the
expiration of the grant period, the NRWG will require the repayment of the grant.
Therefore, because (1) the research results are made publicly available and (2) there is no evidence
that any company under investigation took out a patent, we determine that grants under this
program are not countervailable.
Comment 14: Petitioners argue that loans from the Kreditanstalt fu4r Wiederaufbau (KfW) should
be considered countervailable. Based on information gathered at verification, petitioners claim
that low-interest rate loans were
provided (1) to companies in East Germany for development and (2) to companies throughout
Germany for environmental protection.
Dillinger claims that KfW loans were examined at verification for purposes of establishing
benchmark rates only. In addition, Dillinger points out that there is no evidence on the record that
these loans are specific to the steel industry or that they are provided at preferential rates. Hoesch
points to the 1982 Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from the Federal Republic of Germany, 47 FR 39345 (September 7, 1982), in which
the Department found KfW loans to be not specific. Hoesch further argues that since the structure
and operation of the KfW have not changed since 1982, the Department should continue to view
KfW loans as not specific and, therefore, not countervailable.
DOC Position: We are not determining whether KfW loans are countervailable for purposes of these
investigations. In their petition, petitioners alleged that certain KfW loans to companies located in
Eastern Germany were countervailable. That program was found to be not used by companies
under investigation. However, no allegation was made in the petition regarding other
countervailable subsidies provided by the KfW.
In light of the fact that KfW loans were found not countervailable in the 1982 Certain Steel from
Germany investigations, and without information indicating otherwise, the Department had
no reason at the outset of these investigations
to examine the program's current status. For these reasons, the Department did not solicit
information regarding this program at any point prior to verification.
At verification, we consulted with company representatives and government officials regarding the
KfW program for purposes of establishing benchmark rates for other programs. In so doing, we
received contradictory information regarding KfW loans, some of which indicated that the program
might provide an unfair subsidy to producers of the subject merchandise and might warrant
further investigation.
However, due to the number of programs being investigated and the limited time to prepare for the
final determinations, after verification the Department did not pursue the issue of whether KfW
loans provide countervailable benefits. We have decided, therefore, that because we did not gather
sufficient information regarding KfW loans during these investigations to determine whether they
are provided to a specific enterprise or industry, or group thereof, we will defer examination of the
program until an administrative review pursuant to section 775 of the Act (19 U.S.C. 1677d) and
19 CFR 355.39.
Verification
In accordance with section 776(b) of the Act, 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 Germany 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 Subsidies Code, 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 suspension of liquidation under
section 703(d) of the Act, if the International Trade Commission (ITC) issues a final affirmative
injury determination, and will require a cash deposit of estimated countervailing duties for
such entries of merchandise in the amounts indicated below.
Certain Hot-Rolled Carbon Steel Flat Products
Country-Wide Ad Valorem Rate--1.06 percent
Certain Cold-Rolled Carbon Steel Flat Products
Country-Wide Ad Valorem Rate--0.84 percent
Certain Corrosion-Resistant Carbon Steel Flat Products
Country-Wide Ad Valorem Rate--0.59 percent
Certain Cut-To-Length Carbon Steel Plate
Country-Wide Ad Valorem Rate--14.84 percent
Ilsenburg--0.80 percent
Preussag--1.72 percent
Thyssen--0.50 percent
ITC Notification
In accordance with section 705(c) of the Act, 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 cancelled. If, however, the ITC determines that
such injury does exist, we will issue countervailing duty
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orders, directing Customs officers to assess countervailing duties on entries of certain steel
products from Germany.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to Administrative Protective Order (APO)
of their responsibility concerning the return or
destruction of proprietary information disclosed under APO in accordance with 19 CFR 355.34(d).
Failure to comply is a violation of the APO.
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. 93-15633 Filed 7-8-93; 8:45 am)
BILLING CODE 3510-DS-P