62 FR 41945
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
[C-428-823]
Preliminary Affirmative Countervailing Duty Determination: Steel Wire Rod From
Germany
Monday, August 4, 1997
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AGENCY: Import Administration, International Trade Administration, Department of
Commerce.
EFFECTIVE DATE: August 4, 1997.
FOR FURTHER INFORMATION CONTACT: Cindy Thirumalai or Daniel Lessard, Office of
Antidumping/Countervailing
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Duty Enforcement, Group 1, Import Administration, U.S. Department of Commerce, Room
1874, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202)
482-4087 or 482-1778 respectively.
PRELIMINARY DETERMINATION: The Department preliminarily determines that countervailable
subsidies are being provided to Saarstahl AG (Saarstahl) and Ispat Hamburger Stahlwerke GmbH
(IHSW), producers and exporters of steel wire rod from Germany. We have also preliminarily
determined that Walzdraht Hochfeld GmbH (WHG) received de minimis subsidies and that we have
insufficient information at this time to make a determination with respect to Brandenburger
Elektrostahlwerke GmbH (BES). For information on the estimated countervailing duty rates,
please see the Suspension of Liquidation section of this notice.
Case History
Since the publication of the notice of initiation in the Federal Register (62 FR 13866; March 24,
1997), the following events have occurred.
On April 2, 1997, we issued countervailing duty questionnaires to the Government of the
Federal Republic of Germany (GOG), the Government of the Free
and Hanseatic City of Hamburg (GOH), the Government of Saarland (GOS), Saarstahl, BES, IHSW,
and WHG. We received responses to our questionnaires on May 27, 1997. We issued supplemental
questionnaires to parties in June and July for which responses were receive in the same months.
On May 2, 1997, we postponed the preliminary determination in this investigation until July 28,
1997 (62 FR 25172; May 8, 1997).
Scope of Investigation
The products covered by this investigation are certain hot-rolled carbon steel and alloy steel
products, in coils, of approximately round cross section, between 5.00 mm (0.20 inch) and 19.0
mm (0.75 inch), inclusive, in solid cross- sectional diameter. Specifically excluded are steel
products possessing the above noted physical characteristics and meeting the Harmonized Tariff
Schedule of the United States (HTSUS) definitions for
(a) stainless steel; (b) tool steel; (c) high nickel
steel; (d) ball bearing steel; (e) free machining steel that contains by weight
0.03 percent or more of
lead, 0.05 percent or more of bismuth, 0.08 percent or more of sulfur, more than 0.4 percent of
phosphorus, more than 0.05 percent of selenium, and/or more than 0.01 percent of tellurium; or
(f) concrete reinforcing bars and rods.
The following products are also excluded from the scope of this investigation:
Coiled products 5.50 mm or less in true diameter with an average partial decarburization per coil
of no more than 70 microns in depth, no inclusions greater than 20 microns, containing by weight
the following: carbon greater than or equal to 0.68 percent; aluminum less than or equal to 0.005
percent; phosphorous plus sulfur less than or equal to 0.040 percent; maximum combined copper,
nickel and chromium content of 0.13 percent; and nitrogen less than or equal to 0.006 percent.
This product is commonly referred to as "Tire Cord Wire Rod."
Coiled products 7.9 to 18 mm in diameter, with a partial decarburization of 75 microns or less in
depth and seams no more than 75 microns in depth; containing 0.48 to 0.73 percent carbon by
weight. This product is commonly referred to as "Valve Spring Quality Wire Rod."
The products under investigation are currently classifiable under subheadings 7213.91.3000,
7213.91.4500, 7213.91.6000, 7213.99.0030, 7213.99.0090, 7227.20.0000, and 7227.90.6050
of the HTSUS. Although the HTSUS subheadings are provided for convenience and customs
purposes, our written description of the scope of this investigation is dispositive.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are references to the
provisions of the Tariff Act of 1930, as amended by the Uruguay Round Agreements Act effective
January 1, 1995 (the "Act").
Injury Test
Because Germany is a "Subsidies Agreement Country" within the meaning of section 701(b) of
the Act, the ITC is required to determine whether imports of steel wire rod from Germany
materially injure, or threaten material injury to, a U.S. industry. On April 30, 1997, the ITC
published its preliminary determination finding that there is a reasonable indication that an
industry in the United States is being materially injured or threatened with material injury by
reason of imports from Germany of the subject merchandise (62 FR 23485).
Petitioners
The petition in this investigation was filed by Connecticut Steel Corp., Co- Steel Raritan, GS
Industries, Inc., Keystone Steel & Wire Co., North Star Steel Texas, Inc. and Northwestern Steel and
Wire (the petitioners), six U.S. producers of wire rod.
Subsidies Valuation Information
Period of Investigation
The period for which we are measuring subsidies (the "POI") is calendar year 1996.
Allocation Period
In the past, the Department has relied upon information from the U.S. Internal Revenue Service on
the industry-specific average useful life of assets to determine the allocation period for
nonrecurring subsidies. See General Issues Appendix appended to Final Affirmative
Countervailing Duty Determination; Certain Steel Products from Austria (58 FR 37217,
37226; July 9, 1993) (General Issues Appendix). However, in British Steel plc. v. United States,
879 F. Supp. 1254 (CIT 1995) (British Steel), the U.S. Court of International Trade (the Court) ruled
against this allocation methodology. In accordance with the Court's remand order, the Department
calculated a company-specific allocation period for nonrecurring subsidies based on the average
useful life (AUL) of non-renewable physical assets. This remand determination was affirmed by the
Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT 1996).
In this investigation, the Department has followed the Court's decision in British Steel. Therefore,
for the purposes of this preliminary determination, the Department has calculated
company-specific AULs.
Based on information provided by Saarstahl and IHSW regarding the companies' depreciable
assets, the Department has preliminarily determined that the appropriate allocation period for
Saarstahl and IHSW is 10 years. The calculation of allocation periods for WHG and BES was
unnecessary.
Creditworthiness
When the Department examines whether a company is creditworthy, it is essentially attempting to
determine if the company in question could obtain commercial financing at commonly available
interest rates. If a company receives comparable long-term financing from commercial sources,
that company will normally be considered creditworthy. In the absence of comparable commercial
borrowings, the Department examines the following factors, among others, to determine whether
or not a firm is creditworthy:
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1. Current and past indicators of a firm's financial health calculated from that
firm's financial statements and accounts.
2. The firm's recent past and present ability to meet its costs and fixed financial o
bligations with its cash flow.
3. Future financial prospects of the firm including market studies, economic forecasts,
and projects or loan appraisals.
For a more detailed discussion of the Department's creditworthiness methodology, see, e.g., Final
Affirmative Countervailing Duty Determination: Certain Steel Products from France, 58 FR
37304 (July 9, 1993) or Final Affirmative Countervailing Duty Determination: Certain Steel
Products from the United Kingdom, 58 FR 37393 (July 9, 1993).
Petitioners have alleged that Saarstahl was uncreditworthy in 1989 and between 1993 and 1996.
They further allege that Hamburger Stahlwerke GmbH (HSW) was uncreditworthy in 1984 and
1994. Because neither company received long-term financing in the relevant years, we examined
other factors to determine the firms' creditworthiness. In making our determinations, we examined
Saarstahl's and HSW's current, quick, and interest/debt coverage ratios in addition to their net
profit/loss for the three preceding years. Both Saarstahl and HSW experienced operating losses in
those years (except 1988 for Saarstahl), and the financial ratios demonstrate that both companies
were in poor financial health. The current ratio (current assets divided by current liabilities)
measures the margin of safety available to cover any drop in the value of current assets, while the
quick ratio (current assets excluding inventory and prepaids divided by current liabilities) shows
the company's ability to pay its short-term liabilities. For both companies, the ratios were very
small, demonstrating their difficulty in meeting their short-term liabilities and interest expenses.
Furthermore, the interest/debt coverage ratios (net income plus interest expense plus taxes
divided by interest expense), highlighted the firms' inability to meet existing interest payments. We
preliminarily determine that Saarstahl was uncreditworthy in 1989 and HSW was uncreditworthy
in 1994.
Because Saarstahl did not receive any countervailable benefits from the GOS or the GOG following
its 1993 bankruptcy, we do not reach the question of Saarstahl's creditworthiness for this period.
Moreover, because IHSW's allocation period is ten years, we are not examining subsidies received
prior to 1987. Therefore, we do not need to analyze HSW's creditworthiness for that period.
Discount Rates
Saarstahl reported that German banks set interest rates for long-term, fixed rate commercial loans
in reference to the yield earned on public bonds. The company explained that in establishing the
interest rate for the commercial loans the banks normally add a margin of zero percent to two
percent to the yield on public offerings depending upon the borrower's creditworthiness. Because
neither Saarstahl nor IHSW provided a company-specific discount rate,
we used German public bond rate plus a spread of two percent as the discount rate for Saarstahl in
1989 and IHSW in 1994. This rate represents the highest long-term interest rate which we could
locate. For Saarstahl in 1989 and IHSW in 1994, we added a risk premium to establish the
uncreditworthy discount rate.
Privatization
In the General Issues Appendix, we applied a new methodology with respect to the treatment of
subsidies received prior to the sale of a company (privatization) or the spinning-off of a productive
unit.
Under this methodology, we estimate the portion of the purchase price attributable to prior
subsidies. We compute this by first dividing the privatized company's subsidies by the company's
net worth for each year during the period beginning with the earliest point at which non-recurring
subsidies would be attributable to the POI (i.e., in this case 1987 for Saarstahl and IHSW) and
ending one year prior to the privatization. We then take the simple average of the ratios. The simple
average of these ratios of subsidies to net worth serves as a reasonable surrogate for the percent
that subsidies constitute of the overall value of the company. Next, we multiply the average ratio
by the purchase price to derive the portion of the purchase price attributable to repayment of
prior subsidies. Finally, we reduce the benefit
streams of the prior subsidies by the ratio of the repayment amount to the net present value of all
remaining benefits at the time of privatization.
With respect to spin-offs, consistent with the Department's position regarding privatization, we
analyze the spin-off of productive units to assess what portion of the sale price of the productive
unit can be attributable to the repayment of prior subsidies. To perform this calculation, we first
determine the amount of seller's subsidies that the spun-off productive unit could potentially take
with it. To calculate this amount, we divide the value of the assets of the spun-off unit by the value
of the assets of the company selling the unit. We then apply this ratio to the
net present value of the
seller's remaining subsidies. We next estimate the portion of the purchase price going towards
repayment of prior subsidies in accordance with the privatization methodology outlined above.
In the current investigation, we are analyzing the privatization of Saarstahl in 1989 and subsequent
spin-off in 1994. Additionally, we are investigating the privatization of IHSW in 1994.
Based upon our analysis of the petition and the responses to our questionnaires, we preliminarily
determine the following:
I. Programs Preliminarily Determined To Be Countervailable
A. Saarstahl
1. Forgiveness of Saarstahl's Debt in 1989
During the period 1978 to 1989, Saarstahl and its predecessor companies received massive
amounts of assistance from the GOS and GOG. Repayment of these funds was contingent upon
Saarstahl returning to profitability and earning a profit above and beyond the losses accumulated
after 1978. This contingent repayment obligation was known as a Ru4ckzahlungsverpflichtung or
"RZV."
In 1989, the GOS reached an agreement with Usinor-Sacilor to combine Saarstahl with AD der
Dillinger Huttenwerke (Dillinger) under a holding company, DHS- Dillinger Hutte Saarstahl AG
(DHS). Pursuant to the combination agreement and as a condition for sale, in 1989 the GOG and GOS
entered into a debt forgiveness contract (Entschuldungsvertrag, or "EV") which effectively forgave
all the outstanding repayment obligations owed by Saarstahl to the Governments (i.e., a total of DM
3.945 billion in debt was forgiven). The EV specified, however, that if Saarstahl went bankrupt, the
GOG and GOS claims could be revived, but their claims would be subordinated to those of all other
creditors.
After several years of unprofitable operation, Saarstahl filed for bankruptcy
in 1993 under the German Bankruptcy Regulations (Konkursordnung). In 1994, the GOS bought
Saarstahl back from Usinor Sacilor for DM 1. At the time of its bankruptcy, Saarstahl's liabilities
exceeded its assets by a factor of four, not including its liabilities to the GOG and GOS. Both
Governments filed
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claims against the Saarstahl bankruptcy estate based on the RZV debt that was conditionally
forgiven in 1989. These EV-related claims were rejected by the bankruptcy trustee as invalid in
1995. The GOG and GOS chose not to appeal the rejection of their bankruptcy claims, on the
grounds that the subordination of their claims made the likelihood of recovery very small, and not
worth the high cost of litigating the matter.
In the Final Affirmative Countervailing Duty Determination: Certain Hot Rolled Lead and
Bismuth Carbon Steel Products from Germany, 58 FR 6233, 6234 (January 27, 1993) (Lead
and Bismuth), we found that Saarstahl's RZV and related government debt were effectively forgiven
by the 1989 EV, thus conferring a countervailable benefit on Saarstahl as of 1989. Respondents
have argued that the attempt to revive the RZVs by the GOG and the GOS disqualifies the signing of
the 1989 EV as the countervailable event. However, as noted above, the EV- related bankruptcy
claims of the GOS and GOG were rejected as invalid by the bankruptcy trustee. Thus, the 1993
bankruptcy proceeding left completely undisturbed the provisions of the 1989 EV agreement.
Respondents further argue that the RZVs were worthless at the time of the EV. However, this
argument was
rejected in Lead and Bismuth (58 FR 6233, 6237) and the Final Affirmative Countervailing
Duty Determination: Certain Steel Products from Germany, 58 FR 37315, 37323 (July 9,
1993) (Certain Steel) and the attendant litigation. See Saarstahl AG v. United States, 1997 CIT
LEXIS 62, slip op. 97-67 (CIT 1997) and British Steel plc v. United States, 936 F. Supp. 1053,
1069-70 (CIT 1996).
Therefore, we preliminarily determine that the debt forgiveness constitutes a financial
contribution in 1989 within the meaning of section 771(5) of the Act. It is a direct transfer of funds
from the GOG and GOS providing a benefit in the amount of the debt forgiveness, DM 3.945 billion.
Because it was a one time event, we consider it to be a non-recurring grant. Additionally, we
analyzed whether the debt forgiveness provided to Saarstahl was specific "in law or in fact," within
the meaning of section 771(5A) of the Act. Consistent with Lead and Bismuth (58 FR 6233) and
Certain Steel (58 FR 37315), we find that the debt forgiveness provided to Saarstahl was limited to a
specific enterprise or industry because it was provided to one company.
To calculate the countervailable subsidy, we used our standard declining balance grant
methodology. The amount of subsidy allocated to the POI was adjusted in accordance with our
privatization methodology (described above) to reflect the privatization of Saarstahl in 1989 and
the spin-off of Saarstahl from DHS 1994. We then divided the portion of the benefit attributable to
the POI by the total sales of Saarstahl during the same period. On this basis, we
determine the countervailable subsidy for this program to be 16.92 percent ad valorem for
Saarstahl.
2. Assurance of Liquidity Provided to Private Banks by the GOS
Toward the end of 1985, the GOS presented a long-term restructuring plan for Saarstahl to
Saarstahl's creditors and requested that they forgive loans in the amount of DM 350 million. In a
February 20, 1986 letter from the banks to the GOS, the banks agreed to forgive DM 217.33 million
of debt owed to them by Saarstahl (DM 216.82 of which was forgiven in 1989), if the GOG and GOS
fulfilled certain prerequisites. Two of the prerequisites were that the Governments forgive all debt
owed to them by Saarstahl and that the GOS secure the future liquidity of Saarstahl. In an April 4,
1986 letter from the Governor of Saarland responding to the banks, the GOS agreed to forgive all
debts owed to it by Saarstahl and to secure the liquidity of Saarstahl as it had in the past.
We preliminarily determine that in assuring the future liquidity of Saarstahl the GOS provided a
financial contribution to Saarstahl. Specifically, this assurance granted a "potential direct transfer
of funds" within the meaning of section 771(5). By assuring the future liquidity of Saarstahl, the GOS
effectively guaranteed that Saarstahl would have the funds to satisfy its
future obligations, which included the outstanding debt owed to the banks. This assurance was
consistent with the GOS's long history of supporting Saarstahl. We also preliminarily determine that
the assurance was provided to a specific enterprise or industry, Saarstahl.
While the GOS's assurance of future liquidity resembled a loan guarantee, it differed in certain
important aspects from loan guarantees typically examined by the Department. First, the GOS did
not promise to take responsibility for payment of the debt owed to the banks if Saarstahl failed to
perform. Rather, the GOS reached an agreement with the private banks whereby the GOS would
maintain Saarstahl's liquidity (i.e., Saarstahl's ability to service its outstanding debts).
Additionally, other characteristics of a typical loan guarantee which potentially confer a
benefit were not manifested in the liquidity assurance. For example, the assurance did
not necessarily affect the amount that Saarstahl paid on the outstanding loans in the
form of fees and interest costs--the typical indicators of the benefit from a
loan guarantee. Rather, the consequence of the assurance was that Saarstahl
received partial debt forgiveness from the banks. Because of this, we are calculating
the benefit conferred by the liquidity assurance as the amount of debt forgiven.
To calculate the countervailable subsidy, we followed the methodology described in the
Forgiveness of Saarstahl's Debt in 1989 section, above. We then divided the portion of the benefit
attributable to the POI by the total
sales of Saarstahl during the same period. On this basis, we determine the countervailable subsidy
for this program to be 0.93 percent ad valorem for Saarstahl.
B. IHSW
994 IHSW Debt Forgiveness
In 1984, Hamburgische Landesbank Girozentrale (HLB), a bank wholly owned by the GOH,
provided HSW with a line of credit in the amount of DM 130 million. The line of credit was granted
for a period of one year and was renewed every year until 1994. Pursuant to a Kreditauftrag
between the GOH and HLB, in the event that HSW failed to service this debt, the GOH was obligated
to compensate the HLB for 60 percent of the credit line (i.e., DM 78 million). In 1992 and 1993,
HSW suffered significant losses, and the HLB refused to extend the credit line. At that point, the
GOH instructed the HLB to extend HSW's line of credit, and the GOH and HLB entered into an
agreement extending the Kreditauftrag so that the GOH assumed responsibility for the total amount
loaned to HSW under the line of credit. At the beginning of 1994, the line of credit totaled
approximately DM 174 million. While the Department will not consider a loan provided by a
government-owned bank to be a loan provided by
the government, per se, the actions taken by the GOH in 1984, 1992, and 1993 pursuant to the
Kreditauftrag clearly demonstrate that the HLB (a bank wholly- owned by the GOH) was acting on
behalf of the GOH in this instance.
In 1994, HSW was sold to Venuda Investments B.V. (Venuda), IHSW's parent company. At the time
of privatization, the line of credit totaled DM 167.5. Under the terms of the sale, Venuda paid DM
10 million for HSW.
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With respect to the line of credit, DM 154 million of the total was sold to Venuda for approximately
DM 60 million according to a formula based on the net current asset value of HSW in 1994 (i.e., the
difference between current assets and liabilities (less the debt owed to HLB)). Although the sale of
HSW was structured to have two components, the sale of shares and the sale of debt, we have
treated this as a single transaction and we consider the payments made by Venuda (i.e., DM 10
million and DM 60 million) to represent the price paid for HSW. The remainder of the credit line,
DM 13.4 million representing "non-cash" deposits (e.g., LCs, drafts, etc.), was repaid to HLB by HSW
in early 1995.
Based on our view of the sale of HSW, i.e., that the proceeds from both the share and debt purchase
comprise the sale price, we preliminarily determine that in the year that HSW was sold the DM 154
million owed by HSW under the line of credit was forgiven. This debt forgiveness constitutes a
financial contribution in the form of a direct transfer of funds from the GOH providing a benefit in
the amount of DM 154 million in 1994. Moreover, we analyzed whether
the program is specific "in law or in fact," within the meaning of section 771(5)(A) of the Act. Since
the debt forgiveness was only provided to one company, we preliminarily determine that it is
limited to a specific enterprise.
To calculate the countervailable subsidy, we used our standard grant methodology. Although HSW
was sold in 1994, the company received no nonrecurring subsidies prior to the year of
privatization and within its allocation period (i.e., during the period 1987 through 1993).
Consequently, under our privatization methodology none of the purchase price paid to the GOH
constitutes repayment of prior subsidies. Thus, we allocated the subsidy according to our grant
methodology and divided the benefit attributable to the POI by the total sales of IHSW during the
same period. On this basis, we determine the countervailable subsidy for this program to be 5.54
percent ad valorem for IHSW.
II. Programs Preliminarily Determined To Be Not Countervailable
A. Saarstahl
Worker Assistance 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. In 1993 through 1995, a supplementary assistance program was available to help
displaced steel workers affected by massive restructuring in the industry. The supplementary
program provided additional payments for early retirement (max. ECU 5,000/worker),
redeployment measures (max. ECU 4,000/worker), and unemployment measures (max. 2,000
ECU/worker).
During the POI, Saarstahl received payments for its workers under Article 56(2)(b). These
payments reimbursed Saarstahl for payments it had made to its workers.
When analyzing programs which provide assistance to the workers of a company, the Department
examines whether the program in question relieves the company of an obligation it normally
would otherwise incur. As we noted in Certain Steel (58 FR 37315, 37320), German companies
have no legal obligations to compensate severed employees, except to the extent that they assume
obligations under a social plan. Because Saarstahl had no social plan in effect during the POI, the
ECSC assistance did not relieve Saarstahl of an obligation it otherwise
would have had. Thus, we preliminarily determine that the ECSC benefits provided to Saarstahl are
not countervailable.
B. IHSW
Provision of Land Lease
Pursuant to a 1986 lease agreement between HSW and the GOH, IHSW leases land located in the
port of Hamburg from the GOH. The GOH owns approximately one third of the commercial and
industrial land in the port area and leases that land under approximately 500 different lease
agreements. The GOH lease rates in the port area are established by the Office of the Appraisal
Committee for Property Values (Appraisal Committee), an autonomous body which records and
analyzes agreements relating to the purchase and sale of land in Hamburg. According to the GOH
questionnaire response, the lease rates are set according to such factors as: (1) Market value of
property, (2) potential for use and facilities available in specific areas, (3) rentals for comparable
areas being used, and (4) terms and conditions being paid in other Northern ports.
The GOH uses a standard lease for all enterprises in the port area. The lease has four rate categories
which are based on the size and location of the property (e.g., land-locked vs. direct water access).
Thus, IHSW's lease
contains the same terms as all other lease agreements signed with enterprises in the port area.
Because IHSW pays a standard rate charged by the GOH to all enterprises leasing land similar to
IHSW's and because these prices appear to be set in reference to market conditions, we
preliminarily determine that IHSW's lease rate provides adequate remuneration to the GOH and,
thus, is not countervailable. Prior to our final determination, we will attempt to obtain further
information with respect to the number and diversity of industries to which the GOH leases land in
the port of Hamburg and private lease rates for land comparable to that of IHSW in the port area.
III. Programs for Which Additional Information Is Required
BES has claimed that each of the programs under which it received government assistance is a
noncountervailable subsidy to a disadvantaged region in accordance with section 771(5B)(C) of
the Act. For purposes of the final determination, we will be seeking more information and giving
further consideration to whether noncountervailable subsidies are being provided to BES under
the following programs:
1. Improvement of the Regional Economies Act Investment Grants.
2. Investment Allowance Act Grants.
3. Special Depreciation Pursuant to Section Four of the Regional Development Law.
We are also seeking additional information as to any subsidies which BES may have received during
the period 1990 through 1992 and the circumstances surrounding the sale of the plant which
effectively became BES.
IV. Programs Preliminarily Determined To Be Not Used
A. Saarstahl
Post-Bankruptcy Subsidies to Saarstahl
B. IHSW
In 1984, HSW emerged from bankruptcy proceedings and was taken over by a limited partnership
called Protei Produktionsbeteiligungen GmbH & Co. KG (Protei). Because Protei was financially
unable to provide New HSW with equity, the HLB "loaned" DM 20 million to Protei. The DM 20
million financing was provided to HLB by the GOH. HSW used this capital to purchase
*41950
the assets and business of Old HSW from its receiver.
According to the terms of the contract which provided these funds, repayment
became due from the profits of Protei which, in turn, were derived from HSW's profits. The contract
also provided that Protei could not liquidate HSW without the approval of HLB and HLB reserved
rights regarding the appointment of management and members of the supervisory committee.
Between 1987 and 1988, DM 2.8 million in "principal" payments and DM 2.7 million in "interest"
were paid by HSW leaving an unpaid balance of DM 17.2 million.
We have preliminarily determined that the DM 20 million "loan" to Protei should be treated as
equity received in 1984 in light of the terms of the financing. Although the money was given in the
form of a loan to Protei, the circumstances of the loan indicate that the funds were more in the
nature of equity. First, as noted above, payments on the loan were contingent on HSW being
profitable: So, if the company never became profitable, there was no obligation for the loan to be
repaid. Second, under the terms of the loan, Protei relinquished pro rata its share of profits from
HSW based on the ratio between the DM 20 million loan and the total share capital of HSW. Hence,
HLB's share of any future profits generated by HSW would be calculated as if the loan were paid-in
capital. Third, although the loan was made to Protei, neither of the partners in the limited
partnership was liable for the loan, suggesting that the Protei served as a mechanism for the GOH to
invest in HSW. Fourth, as noted above, the lender, HLB, imposed numerous conditions on Protei
which served to insert HLB into important management decisions affecting HSW.
Finally, when this loan was examined by the Commission of the European Communities (the
Commission) to determine whether it constituted state aid, the Commission determined that the
loan should be considered as risk capital. Among the data developed by the Commission was a
statement by the German government that the GOH "was exposed to financial risk fully comparable
to the risk a shareholder injecting risk capital has to bear without becoming owner of the
company." (The Commission's decision is printed in the Official Journal of the European
Communities, No L 78, Vol 39, March 28, 1996, at pp. 31 ff.) While the Commission's
characterization of this loan as equity is not dispositive, their reasoning in this instance is
consistent with our preliminary analysis.
Given our preliminary determination that the DM 20 million loan in 1984 should be treated as
equity and, in light of HSW's AUL of 10 years, this 1984 equity infusion would not give rise to
benefits in the POI even if the infusion were a countervailable subsidy. Therefore, we are treating
this equity as well as two other programs as "not used':
1. 1984 Equity Infusion Through Protei.
2. 1984 Steel Investment Allowance Grant.
3. 1984 Federal Ministry for Research and Technology (BMFT) Grant.
Other programs that were not used by IHSW:
4. 1984 Structural Improvement Assistance Grant.
5. 1984 Loan Guarantee to HSW.
Verification
In accordance with section 782(i) of the Act, we will verify the information submitted by
respondents prior to making a final determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have calculated individual rates for each
of the companies under investigation. WHG reported that the only subsidy it received was research
and development assistance pursuant to the Industrial Technology Program of the State of North-
Rhine/Westphalia. Even assuming this assistance constituted a countervailable subsidy, the benefit
would be de minimis. Therefore, we preliminarily determine that WHG would be excluded from any
potential countervailing duty order with respect to merchandise produced and exported by
WHG.
To calculate the all others rate, we weight-averaged the individual company rates by each
company's exports of the subject merchandise to the United States. We did not include in the
weighted-average rate the companies with zero or de minimis subsidy rates.
In accordance with section 703(d) of the Act, we are directing the U.S.
Customs Service to suspend liquidation of all entries of steel wire rod from Germany, except
those of BES and WHG, which are entered, or withdrawn from warehouse, for consumption on or
after the date of the publication of this notice in the Federal Register, and to require a cash deposit
or bond for such entries of the merchandise in the amounts indicated below. This suspension will
remain in effect until further notice.
Ad Valorem Rate
Saarstahl 17.85 percent
IHSW 5.54 percent
All Others 11.13 percent
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 non- privileged 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 Assistant Secretary for Import Administration.
If our final determination is affirmative, the ITC will make its final determination within 45 days
after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 355.38, we will hold a public hearing, if requested, to afford interested
parties an opportunity to comment on this preliminary determination. The hearing is tentatively
scheduled for September 22, 1997, at the U.S. Department of Commerce, Room 3708, 14th Street
and Constitution Avenue, N.W., Washington, D.C. 20230. Individuals who wish to request a hearing
must submit a written request within 30 days of the publication of this notice in the Federal
Register to the Assistant Secretary for Import Administration, U.S. Department of Commerce,
Room 1874, 14th Street and Constitution Avenue, N.W., Washington, DC 20230. Parties should
confirm by telephone the time, date, and place of the hearing 48 hours before the scheduled time.
Requests for a public hearing 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 the issues to be discussed. In addition, eight copies of the business
proprietary version and three copies of the nonproprietary version of the case briefs must be
submitted to the Assistant Secretary no later than September 8, 1997. Eight copies of the business
proprietary version and three copies of the nonproprietary version of the rebuttal briefs must be
submitted to the Assistant Secretary no later than September 15, 1997. An interested party may
make an affirmative presentation only on arguments included in that
*41951
party's case or rebuttal briefs. Written arguments should be submitted in accordance with 19 CFR
355.38 and will be considered if received within the time limits specified above. Parties who submit
argument in this proceeding are requested to submit with the argument (1) a statement of the issue
and (2) a brief summary of the argument. If this investigation proceeds normally, we will make our
final determination on October 14, 1997.
This determination is published pursuant to sections 703(f) and 771(i) of the Act.
Dated: July 28, 1997.
Jeffrey P. Bialos,
Acting Assistant Secretary for Import Administration.
[FR Doc. 97-20492 Filed 8-1-97; 8:45 am]
BILLING CODE 3510-DS-U