CITE = 62 FR 54990 (10/22/97) Filename = 97-a22.htm
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-428-823]
Final Affirmative Countervailing Duty Determination: Steel Wire
Rod From Germany
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 22, 1997.
FOR FURTHER INFORMATION CONTACT: Cynthia Thirumalai or Daniel Lessard,
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Office
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.
Final Determination
The Department 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 also determine that Walzdraht Hochfeld GmbH (``WHG'') and
Brandenburger Elektrostahlwerke GmbH (``BES'') received de minimis
subsidies.
Case History
Since the publication of the preliminary affirmative determination
(``Preliminary Determination'') in the Federal Register, 62 FR 41945
(August 4, 1997), the following events have occurred.
Verification of the responses of 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''), the
European Union (``EU''), Saarstahl, IHSW, WHG, and BES was conducted
between August 20 and September 5, 1997.
Petitioners and respondents filed case and rebuttal briefs on
September 19, 1997, and September 23, 1997, respectively. The hearing
was held on September 24, 1997. Per the Department's request, post-
hearing submissions were received from parties.
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 19.00 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'').
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
(``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: Since benefits from nonrecurring subsidies are
not confined to a single period of time, the Department must determine
a reasonable period over which to allocate such benefits. 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) (``GIA'')). 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
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
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British Steel. Therefore, for the purposes of this determination, the
Department has calculated a company-specific AUL for IHSW. However, we
did not rely on Saarstahl or BES's company-specific AULs for purposes
of this final determination because the calculations were significantly
distorted by the asset valuation methodologies employed by the
companies in 1989 and 1992, respectively. This issue is addressed with
respect to Saarstahl in Comment 11, below.
Based on information provided by IHSW regarding the company's
depreciable assets, the Department has determined that the appropriate
allocation period for IHSW is 10 years. With respect Saarstahl and BES,
we based the companies' AUL on the depreciation schedule in Germany for
Technical Machinery and Equipment (i.e., 11 years). The calculation of
an allocation period for WHG 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:
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 obligations 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 HSW and IHSW were
uncreditworthy in 1984 and 1994, respectively.
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 IHSW's current, quick, and interest/debt coverage ratios in
addition to their net profit/loss for the three preceding years. Both
Saarstahl and IHSW 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, these ratios were very small,
demonstrating the companies' 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 obligations. We determine that Saarstahl was uncreditworthy in
1989 and IHSW was uncreditworthy in 1994.
Because Saarstahl did not receive any countervailable benefits in
the form of loans, loan guarantees, or nonrecurring grants from the GOG
or the GOS 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: Information on the record indicates that German
banks set interest rates for long-term, fixed rate commercial loans in
reference to the yield earned on government bonds to which they
normally add a margin, or spread, depending upon the borrower's
creditworthiness. Because Saarstahl, IHSW, and BES did not provide
company-specific discount rates, we used the German government bond
rate plus a spread of 1.75 and 1.5 percent as the discount rate for
Saarstahl in 1989 and IHSW in 1994, respectively. This rate represents
the highest long-term interest rate which we could locate. As the
discount rate for BES in 1994, we used the German government bond rate
plus a spread of 1.15 percent (i.e., the average of the spread between
0.8 and 1.5) because BES was not found to be uncreditworthy. We added a
risk premium, as described in section 355.44(b)(6)(D)(iv) of the
Countervailing Duties; Notice of Proposed Rulemaking and Request for
Public Comment, 54 FR 23366, 23374 (May 31, 1989) (``Proposed
Regulations''), to establish the uncreditworthy discount rate for
Saarstahl in 1989 and IHSW in 1994.
Privatization: In the GIA, we applied a new methodology with
respect to the treatment of subsidies recestived 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 nonrecurring subsidies would be attributable to the POI (i.e., in
this case 1986 for Saarstahl and 1987 for IHSW) and ending one year
prior to the privatization.
For Saarstahl, we modified this methodology pursuant to the Remand
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel
Products from Germany, p. 4-5 (October 12, 1993). Specifically, we
calculated the ratios in question by including in the calculation the
assistance that Saarstahl received prior to privatization in the year
the assistance was received. We did so even though we do not consider
this prior assistance, at the time it was received, to be nonrecurring
in nature and, thus, allocable over time. We followed a similar
approach with respect to assistance received by IHSW in 1993.
We then take the simple average of the ratios of subsidies to net
worth. This simple average of the ratios 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 the 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
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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: (1) the
privatization of Saarstahl in 1989 and subsequent spin-off in 1994 and
(2) the privatization of IHSW in 1994. For BES we find it unnecessary
to conduct a spin-off calculation because its potentially
countervailable subsidies were received after BES was spun off.
Based upon our analysis of the petition, the responses to our
questionnaires and the information reviewed at verification, we
determine the following:
I. Programs 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 eventually became 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 Ruckzahlungsverpflichtung (``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 two
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 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 on the grounds that they
were so subordinated that the GOG and GOS would never be repaid. 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'') and the Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Germany, 58 FR 37315 (July 9, 1993) (``Certain Steel''), we found
that Saarstahl's RZVs and similar related debt were 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 GOS disqualifies the signing of the 1989 EV as the
countervailable event. However, as noted above, the EV-related
bankruptcy claims of the GOG and GOS 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 at
6237, Certain Steel at 37323 and the attendant litigation (see
Saarstahl AG v. United States, 967 F. Supp. 1311 (CIT 1997), and
British Steel plc v. United States, 936 F. Supp. 1053, 1069-70 (CIT
1996).
Therefore, we 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
nonrecurring 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 at 6233 and Certain Steel at 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 the 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 16.62 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 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 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
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typical loan guarantee which potentially confer a benefit were not
manifested in the liquidity assurance (e.g., lower borrowing costs in
the form of fees and/or reduced interest rates). Because there is no
information on the record of this investigation indicating that the
liquidity assurance resulted in more favorable terms on the remaining
loans, we do not find additional countervailable benefits conferred by
this assurance. Rather, the consequence of the assurance was that
Saarstahl received partial debt forgiveness from the banks. Because of
this, we are not using our normal methodology with respect to loan
guarantees. Instead, we are calculating the benefit conferred by the
liquidity assurance as the amount of debt forgiven. (We note however,
that the assurance of future liquidity could have led to a finding of
additional countervailable benefits, if it had resulted in lowering
Saarstahl's borrowing costs on the unforgiven portion of the company's
debt.)
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 0.91 percent ad valorem for Saarstahl.
3. ECSC Redeployment Aid Under Article 56(2)(b)
Under Article 56(2)(b) of the European Coal and Steel Community
(``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 make an equivalent contribution. Payments were made to
Saarstahl, on behalf of its 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 GOG, we must decide whether the government payments have relieved
Saarstahl of an obligation it would otherwise have.
In Germany, benefits for workers who retire 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 GIA at
37257, we have determined that Saarstahl and its workers were aware
when they negotiated their social plans that the German government
would pay a portion of the costs. Therefore, unless it can be
specifically documented that benefits under this program did not lower
a company's social plan obligations, we have determined that one half
of the amount paid by the government constitutes a countervailable
subsidy.
We consider the benefits provided under this program to be
recurring because a company can expect to receive the benefits on an
ongoing basis. Therefore, we limited our analysis to funds received in
the POI, 1996. In the case of Saarstahl, funds received by the company
during the POI relate to five social plans, the last of which relates
to Saarstahl's 1993 bankruptcy. We verified that this bankruptcy social
plan provides the maximum allowable benefits to workers under German
bankruptcy law; therefore, we determine that the knowledge of ECSC
56(2)(b) benefits did not affect the company's social plan obligations.
Consequently, GOG payments that relate to this social plan are not
countervailable. For the payments made pursuant to the pre-bankruptcy
social plans, we first calculated the GOG portion of assistance by
taking 50 percent of the funds received by Saarstahl in 1996. As noted
above, half of this amount is countervailable. We divided this amount
by Saarstahl's total sales during the POI. On this basis, we determine
the net subsidy to Saarstahl for this program to be 0.14 percent ad
valorem.
B. IHSW
1994 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 assumed responsibility for the total
amount loaned to HSW under the line of credit pursuant to an agreement
between the GOH and HLB that extended the Kreditauftrag. At the
beginning of 1994, the line of credit totaled approximately DM 174
million (see Comment 12 below).
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 154 million. Under the terms of the sale, Venuda paid DM 10
million for HSW. 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 for DM 10 million and the sale of debt
for approximately DM 60 million, we have treated this as a single
transaction and we consider the payments made by Venuda to represent
the price paid for HSW (see Comment 13 below).
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 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.
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 during the period 1984 through 1994 regarding the
provision of the credit line clearly demonstrate that although the debt
was owed to HLB, HLB was acting on behalf of the GOH in this instance
(see Comment 16 below). 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 determine that it is limited to a specific enterprise.
To calculate the countervailable subsidy, we used our standard
grant methodology. The amount of the subsidy allocated to the POI was
adjusted in accordance with our privatization methodology (described
above) to reflect the privatization of IHSW in 1994. We then divided
the portion of the benefit attributable to the POI by the total sales
of IHSW during the same period. On this basis, we determine the
countervailable subsidy
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for this program to be 5.61 percent ad valorem for IHSW.
II. Programs Determined to Be Not Countervailable
A. IHSW
Provision of Land Lease
According to section 771(5)(E) of the Act, the adequacy of
remuneration with respect to a government's provision of a good or
service ``* * * shall be determined in relation to prevailing market
conditions for the good or service being provided or the goods being
purchased in the country which is subject to the investigation or
review. Prevailing market conditions include price, quality,
availability, marketability, transportation, and other conditions of
purchase or sale.'' Particular problems can arise in applying this
standard when the government is the sole supplier of the good or
service in the country or within the area where the respondent is
located. In these situations, there may be no alternative market prices
available in the country (e.g., private prices, competitively-bid
prices, import prices, or other types of market reference prices).
Hence, it becomes necessary to examine other options for determining
whether the good has been provided for less than adequate remuneration.
This consideration of other options in no way indicates a departure
from our preference for relying on market conditions in the relevant
country, specifically market prices, when determining whether a good or
service is being provided at a price which reflects adequate
remuneration.
With respect to the leasing of land, some of the options may be to
examine whether the government has covered its costs, whether it has
earned a reasonable rate of return in setting its rates and whether it
applied market principles in determining its prices. In the instant
case, we have found no alternative market reference prices to use in
determining whether the government has leased the land for less than
adequate remuneration. As such, we have examined whether the
government's price was determined according to the same market factors
that a private lessor would use in determining whether to lease land to
a company.
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 450 different lease
agreements. The GOH lease rates in the port area are established by the
GOH Finance Deputation, an administrative authority established by the
City Parliament of Hamburg consisting of government officials and civic
members. The Finance Deputation sets the lease rates 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 location of
the property and other attributes (e.g., land-locked, direct water
access, railway access). Thus, IHSW's lease contains the same terms as
all other similar lease agreements signed with enterprises in the port
area.
We verified that there are a very large number of enterprises
currently leasing land in the port from the GOH. These enterprises
cover a wide variety of industries, such as container storage and
shipping, oil tanks and refineries, shipyards, car importers, and
coffee and grain mills and storage facilities. There are no special
provisions made for different industries.
Because IHSW pays a standard rate charged by the GOH to all
enterprises leasing land similar to IHSW's and because these prices are
set in reference to market conditions, we determine that IHSW's lease
rate is not countervailable.
Adequacy of remuneration is a new statutory provision which
replaced ``preferentiality'' as the standard for determining whether
the government's provision of a good or service constitutes a
countervailable subsidy. The Department has had no experience
administering section 771(5)(E) and Congress has provided no guidance
as to how the Department should interpret this provision. This case and
the other concurrent wire rod cases, mark the first instances in which
we are applying the new standard. We anticipate that our policy in this
area will continue to be refined as we address similar issues in the
future.
B. BES
FRG Backing of THA Loan Guarantees
The German Democratic Republic (``GDR'') created the
Treuhandanstalt (``THA'') via the Trusteeship Act of June 17, 1990. THA
became the owner and administrator of all non-private GDR enterprises.
THA's long-term goal was to privatize these enterprises. Following the
monetary union of the Federal Republic of Germany (``FRG'') and the GDR
on July 1, 1990, THA issued a global loan guarantee to ensure the
liquidity of GDR enterprises. THA guarantees were available to all GDR
enterprises in need of them and were backed up by the FRG's commitment
to fund THA's activities, pursuant to Article 17 of the Treaty Between
the Federal Republic of Germany and the German Democratic Republic
Establishing a Monetary, Economic and Social Union effective July 1,
1990.
Since THA had no independent sources of funds and the GDR economy
was in disarray, the THA loan guarantees standing alone would have been
worthless and, as such, would not have motivated private banks to lend
to GDR enterprises. Rather, it was the secondary backing of the
guarantees by the FRG that led private banks to lend to GDR
enterprises. It follows that any financial benefit to GDR enterprises
in the form of guaranteed loans flowed from the provision of the FRG
guarantee.
BES's predecessor, Stahl- und Walzwerk Brandenburg (``SWB'') took
out three THA-guaranteed loans before unification and one shortly after
unification. A little over a year after unification, THA assumed SWB's
guaranteed loans.
Prior to German Unification on October 3, 1990, the GDR was
recognized by the United States as a sovereign country--separate from
the FRG. Therefore, any provision of assistance by the FRG to former
GDR enterprises is transnational assistance--assistance not provided by
the government having jurisdiction over the enterprises. The preamble
to the Proposed Regulations summarizes our practice with respect to
transnational assistance:
Occasionally, the Department has encountered programs which are
funded through foreign aid, either on a bilateral or multilateral
basis. In such instances, the Department (and Treasury before it)
has determined such programs to be noncountervailable, to the extent
that funds for the program are not provided by the government of the
country in question.
Section 355.44(o)(1) of the Proposed Regulations elaborates on
the above:
[A] countervailable benefit does not exist to the extent the
Secretary determines that funding for a benefit is provided by a
government other than the government of the country in which the
merchandise is produced or from which the merchandise is exported,
or by an international lending or development institution.
Based on the foregoing, we find that the secondary backing by the
FRG of THA loan guarantees on borrowings prior to Unification is
transnational assistance and, therefore, not
---- page 54995 ----
countervailable. Moreover, when THA assumed the debt it was merely
fulfilling the obligations it had taken on as guarantor prior to
Unification. Since the guarantees upon which THA acted were non-
countervailable in nature, the subsequent debt assumption did not give
rise to a countervailable benefit.
As noted above, SWB took one loan under the THA global guarantee
after Unification. However, even if we were to treat the entire amount
of the loan principal as a grant, the amount of the benefit would be
expensed in the year of receipt, which was prior to the POI. Since
there is no benefit allocable to the POI, we have not analyzed whether
FRG backing of THA loan guarantees post-Unification gives rise to a
countervailable subsidy.
III. Programs Determined to Be Not Used
Based on the information provided in the responses and the results
of verification, we determine that the following programs were not
used:
A. Saarstahl
Saarstahl's Bankruptcy Social Plan
In 1993, Saarstahl negotiated a new social plan in accordance with
German bankruptcy law. This new plan provided two and one-half months
salary to laid-off workers, the maximum allowable benefit under
bankruptcy law. To ensure that laid-off workers did not have to wait
for the bankruptcy proceeding to be settled before receiving their
money, the GOS purchased the workers' claims against Saarstahl, paid
off the workers and then filed a claim under its own name against
Saarstahl in the bankruptcy proceeding. The claim filed by the GOS was
in the same amount as a claim filed directly by the workers would have
been and was accepted by the bankruptcy court in its full amount.
Therefore, the potential liability against Saarstahl in respect of
social plan benefits was unchanged by virtue of the GOS filing the
claim instead of the workers. Since the action by the GOS in pre-paying
the bankruptcy social plan benefits did not alter Saarstahl's potential
liabilities under bankruptcy, the GOS has not assumed a legal
obligation of Saarstahl. As a result, GOS payments to workers under
Saarstahl's bankruptcy social plan do not confer a countervailable
benefit.
B. IHSW
1984 Equity Infusion
In 1984, HSW emerged from bankruptcy proceedings and was taken over
by a limited partnership called Protei Produktionsbeteiligungen GmbH &
Co. KG (``Protei''). The vast majority of the equity Protei invested in
the new HSW was provided via a DM 20 million loan by HLB. This DM 20
million financing was provided to HLB by the GOH. HSW used this capital
to purchase 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 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, the particular structure of the partnership
suggests that 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
ownership/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 GOG 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 analysis.
Given our determination that the DM 20 million financing 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 Steel Investment Allowance Grant
2. 1984 Federal Ministry for Research and Technology (BMFT) Grant
We have determined that subsidies received by IHSW under the
following programs were also not used because they were repaid prior to
the POI:
3. Structural Improvement Assistance Grant
4. Loan Guarantee to HSW
C. BES
Special Depreciation
The special depreciation program described in Section 4 of the
Assisted Areas Act is the current manifestation of a 1990 GDR directive
that allowed investors to claim special depreciation at an accelerated
rate. This program was implemented in tandem with the Investment
Allowance Act by the GDR to provide investment incentives to help
enterprises in the former GDR (New States) transition into a market-
based economy. After Unification, FRG lawmakers included an amended
special depreciation provision, along with the Investment Allowance
Act, in the June 24, 1991 Tax Modification Law (StAendG 1991). A 1996
FRG law forbids the special depreciation provision from being extended
beyond the end of 1998.
The GOG has claimed that this program is not countervailable
because it is a ``green light subsidy.'' We have not determined
whether, in fact, this program meets the green light criteria within
the meaning of section 771(5B)(C), of the Act, because any benefit
would arise at the time of filing a tax return. Because BES did not
file a tax return during the POI, we are treating this program as not
used.
IV. Other BES Programs Examined
BES received assistance under two other programs for which the GOG
has requested green light treatment: (1) Investment Grants Under the
Regional Economies Act and (2) Investment Allowance Act Grants.
---- page 54996 ----
BES received grants under these programs in the years 1994 through 1996.
However, regardless of whether we found the program to be countervailable,
the combined net subsidy to BES does not rise above the de minimis level.
Accordingly, we do not consider it necessary to address the issue of
whether these programs are non-actionable as regional green light
subsidies.
Interested Party Comments
Saarstahl
Comment 1: Effect of Bankruptcy on Saarstahl's 1989 Debt
Forgiveness: Saarstahl argues that because the GOG and the GOS filed
claims against it in the German bankruptcy court with respect to the
RZVs, the 1989 debt forgiveness should be disregarded. Specifically,
Saarstahl contends that the GOG and GOS did not forego revenue due to
them under the RZVs in 1989, because the debts were revived in 1993.
Moreover, when the bankruptcy claims were rejected from 1993 through
1996, Saarstahl's debt was forgiven under the non-specific German
bankruptcy law and not under a specific relief action take by the
Governments. Saarstahl claims that the Department may not disregard the
revival of the Governments' rights to repayment just because the claim
was later rejected by the bankruptcy trustees.
Petitioners state that the bankruptcy was an irrelevant subsequent
event that does not affect the benefit stream from the countervailable
1989 forgiveness. Petitioners argue that the RZVs were not eliminated
or restructured by the bankruptcy proceeding because the claims
themselves were invalid. The revival contingency contained in the EV
with respect to bankruptcy, according to petitioners, was structured in
such a way as to make it meaningless. Because the claims were to be
subordinated below all others, the EV made it impossible to collect on
the RZVs. Thus, the EV effectively forgave the RZVs in 1989 because the
revival contingency was structured not to be a real contingency at all.
Department's Position: We have continued to treat Saarstahl's RZVs
and similar government debt as having been forgiven by the 1989 EV. We
believe that the information in this case clearly supports this
position. First, in its questionnaire response of June 30, 1997,
Saarstahl states that if bankruptcy is initiated on grounds of
insolvency, then subordinated claims do not have any asset value and,
thus, cannot be considered a valid bankruptcy claim. Hence, as noted by
petitioners, the revival contingency contained in the EV was structured
in such a way as to make its possible application meaningless.
Second, Usinor Sacilor required that the RZVs be forgiven by the
GOG and GOS prior to the combination of Saarstahl and Dillinger. This
clear precondition to the combination of the two companies, which was
accepted and fulfilled by the two Governments, demonstrates that from a
commercial actor's perspective, the RVZs were a real liability.
Moreover, the fact that Usinor Sacilor accepted the EV as the legal
instrument by which Saarstahl's RZV debt was forgiven demonstrates the
validity of the debt forgiveness element of the EV from a commercial
perspective. Finally, information obtained at verification indicates
that the GOG realized, prior to the filing of its claims, that the
bankruptcy proceeding would not result in the reinstatement of the RZV
debt obligation. Indeed, the GOG actions appeared to be largely
perfunctory in nature reflecting other concerns, none of which included
the realistic expectation that the claims would be recognized by the
bankruptcy court (see GOG verification report at page 12). Therefore,
we conclude that the debt obligations contained in the RZVs were
relieved in 1989 and that the bankruptcy proceedings had no meaningful
impact on the 1989 debt forgiveness agreement.
Comment 2: The Nature and Timing of Saarstahl's Subsidies:
Saarstahl states that the Department erred by not allocating any
portion of the assistance received by Saarstahl to the company's
production in the years 1978 to 1988. Saarstahl asserts that the
government assistance was a subsidy when it was first received because
it did not comport with commercial considerations. In Saarstahl's view,
the Department cannot delay the countervailable event until 1989 (when
the debt forgiveness was agreed to), but rather must countervail the
subsidies when they were first received.
Petitioners note that the Department has rejected most of these
allocation arguments in the past, with the approval of the CIT.
Petitioners argue that the Department should use the same analysis of
the 1989 EV debt forgiveness as reflected in Lead and Bismuth, Certain
Steel, and the Preliminary Determination. For petitioners, a contingent
liability is different from the benefits allocated or capped by the
Department's grant allocation formula. The recipient is able to use the
full value of the subsidy upon receipt, but must repay all or part of
the payment if the contingency occurs. Because of this repayment
obligation, the face value of the contingent obligation is only treated
as a benefit when forgiven, as occurred in 1989.
Department's Position: We verified that prior to 1989 Saarstahl did
have a financial obligation to repay the RZVs. If the Department had
examined Saarstahl's RZVs prior to 1989, it would have countervailed
them as contingent liabilities and calculated the benefit by treating
the outstanding face amount as an interest-free loan. This is
consistent with the Department's long-standing policy with respect to
contingent liabilities (see e.g., Certain Steel from Sweden, 58 FR
37385, 37388 (July 9, 1993)). Upon the forgiveness of such contingent
liabilities, it is the Department's policy to treat the amount forgiven
as a grant in the year of forgiveness (see e.g., Certain Steel from
Sweden at 37392). We are not persuaded by Saarstahl that we should not
apply our traditional methodology to the facts of this case.
Comment 3: RZVs as Equity: Saarstahl claims that the Department's
decision to treat the 1989 forgiveness as the countervailable event
rather than the receipt of the funds in 1978-1988 is inconsistent with
the Department's treatment in this case of government assistance made
to the owners of HSW. Saarstahl states that in the preliminary
determination the Department treated a DM 20 million government loan to
HSW as equity received in 1984. Saarstahl quotes the Department as
saying, ``if the company never became profitable, there was no
obligation for the loan to be repaid.'' (Preliminary Determination at
41950). Saarstahl states that the same situation is true for the monies
received by Saarstahl; the economic effect of the RZVs was no different
than equity. Saarstahl argues that the subsidies should be treated as
equity capital because they served to offset massive losses that
threatened the company's solvency. For Saarstahl, the equity capital
nature of the assistance is even more clear in light of the fact that
the GOG and GOS held a majority interest in Saarstahl during some of
the time when the RZVs were in effect. Saarstahl asks that the
Department treat the contingently repayable loans given to both
Saarstahl and HSW in the same manner.
Petitioners state that the methodology used for IHSW's DM 20
million capital replacing loan is not an appropriate comparison to
Saarstahl's situation. Petitioners argue that the forgiveness of the
credit line in 1994 is a more appropriate comparison. While the credit
line was first granted in 1984, petitioners note that the Department
did not treat the principal as a benefit until
---- page 54997 ----
the loan was forgiven in 1994. Based on this comparison, petitioners
find a consistent treatment of the two companies. Petitioners counter
the RZVs-as-equity argument by referring to the hybrid instruments
analysis from the GIA. Petitioners note that the hybrid instruments
analysis' first test defines an instrument as debt if a repayment
obligation exists when the payment is provided. Thus for petitioners,
because the RZVs had a repayment obligation they cannot be treated as
equity.
Department's Position: The terms of the assistance given to both
IHSW and Saarstahl differ. Of particular note are the managerial and
ownership rights conferred upon IHSW at the time the financing was
provided. The terms of the RZVs did not confer similar rights to the
GOS or GOG. While the GOS and GOG did become Saarstahl's majority
shareholder in 1986, this was after an overwhelming majority of
assistance had been disbursed and after all dispensation agreements had
been put in place. While it is true that repayment in both agreements
was contingent upon profitability, this contingency alone is not enough
to transform a debt instrument to equity. As noted above in the program
description, the repayment contingency for IHSW was just one of many
terms that lead us to determine the assistance was equity.
Comment 4: Forgiveness of Saarstahl's Debt by the Private Banks;
Saarstahl contends that the Department should treat the private bank
loan forgiveness as non-countervailable. Saarstahl notes that for
assistance to constitute a countervailable subsidy it must be provided,
directly or indirectly, by a government or other public entity.
According to Saarstahl, when the private banks forgave debt owed to
them by Saarstahl the banks acted in their own economic self-interests
and their actions cannot be attributed to the GOG and GOS.
Saarstahl notes that one of the lead negotiators on behalf of the
banks confirmed at verification that the decision to forgive a portion
of their loans to SVK was based entirely upon commercial
considerations. The bank representative stated that the statement made
by the GOS regarding the assurance of SVK's future liquidity had no
effect upon the banks' decision to forgive the debt.
Saarstahl adds that if the Department were to treat the private
bank loan forgiveness as a countervailable subsidy, the economic
benefit accrued to SVK in 1986, not 1989. Saarstahl claims that while
the bank loans were not legally forgiven until 1989, the banks treated
the loans as if they were forgiven on January 1, 1986, as evidenced by
the fact that they did not require SVK to make any principal or
interest payments with respect to the portion of debt being forgiven
after that date.
Petitioners argue that the evidence demonstrates that the assurance
of liquidity played a crucial role with respect to the debt forgiveness
by the private banks. Petitioners note that in the banks' February 20,
1986 letter to the GOS, the banks clearly set forth as a prerequisite
for their debt forgiveness that the GOS secure the liquidity of
Saarstahl. Petitioners state that in its April 4, 1986 response to that
letter, the GOS stated that it would, as in the past, secure the
liquidity of Saarstahl. Petitioners further note that the Department
has already determined that the banks acted on the GOS's assurance of
liquidity and that this determination was sustained by the CIT.
Department's Position: We agree with petitioners. The exchange of
letters between the GOS and the banks demonstrates that the banks
agreed to forgive a portion of SVK's (Saarstahl's predecessor) debt
only on the condition that the GOS guarantee the liquidity of the
company. In fact, the banks referred to the liquidity assurance as a
``prerequisite'' for their action. While the banks may have been acting
in their own economic self-interests when they forgave the debt, the
GOS's liquidity guarantee was a factor that made the debt forgiveness
more commercially reasonable because the banks were assured that the
GOS would maintain SVK's ability to service its remaining debts. Thus,
the liquidity assurance provided the incentive necessary to ensure the
banks' debt forgiveness.
With respect to the statements made by one of the banks'
negotiators at verification, we have weighed the negotiator's claims
against the written correspondence exchanged between the banks and the
GOS. We have accorded greater weight to the written correspondence
because it was contemporaneous with the events in question and reflects
the position of all of the lenders as opposed to the views of a single
official from a single bank.
Lastly, although SVK was not required to make principal or interest
payments with respect to the portion of debt forgiven after January
1986, the loans were still recognized by the company as liabilities
until they were forgiven in 1989. In accordance with the Department's
standard practice for calculating the benefit from debt forgiveness,
the benefit does not accrue to the company until the debt is actually
forgiven. While Saarstahl may have enjoyed a benefit from not paying
interest and principal as of 1986, the banks' decision not to collect
interest and principal during that period represented a moratorium on
debt payments until the forgiveness occurred in 1989.
Comment 5: Effect of Saarstahl Privatization; Saarstahl states that
Congress revised the definition of subsidy, bringing countervailing
duty law in accordance with the Uruguay Round, to say that a subsidy
would only exist if a financial contribution is given to a person and
that person thereby receives a countervailable benefit. With respect to
this definition, Saarstahl argues that neither it, nor its parent
company, DHS, received any countervailable benefit from the aid given
to SVK (Saarstahl's predecessor company). Saarstahl notes that the
government assistance to SVK was provided prior to privatization and
that the buyers of SVK made a fair market payment in an arm's length
transaction. Saarstahl further argues that the price paid for SVK
constituted adequate remuneration and, thus, did not result in a
subsidy being received. Hence Saarstahl concludes, assistance received
by SVK prior to privatization should not be countervailed with respect
to Saarstahl.
Petitioners cite the decision of the Court of Appeals for the
Federal Circuit in Saarstahl AG v. United States, (78 F.3d 1539, 1544
(Fed. Cir. 1996)) to counter respondent's argument. Petitioners claim
that the issue is whether the subsidies paid to Saarstahl survived the
privatization and that the Department's decision in its preliminary
determination, that the subsidies did survive the privatization, is in
accordance with the deference given to the Department by the courts in
such matters.
Department's Position: Section 771(5)(F) of the Act makes clear
that the sale of a company at arm's length does not automatically
extinguish prior subsidies. As we stated in the Final Affirmative
Countervailing Duty Determination; Certain Pasta from Italy Pasta 61 FR
30287, 30289 (June 14, 1996), the methodology applied by the Department
in Certain Steel is consistent with the new law. In this investigation
we have applied this methodology to the sale of Saarstahl to DHS and to
the sale of Saarstahl to the GOS.
Comment 6: Treatment of 1989 Repayment Amount; Petitioners argue
that because the GOS repurchased Saarstahl in 1994, the repayment of
subsidies that occurred in 1989 with the privatization should be
reversed. Petitioners argue that the Department
---- page 54998 ----
should add the subsidy repayment back to Saarstahl's total benefit.
Petitioners cite Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products from the United Kingdom, 61 FR 20238 (May 6, 1996) (``UK Lead
and Bismuth'') to support their argument. Petitioners claim that in
that case, the Department decided to aggregate the benefits of a
company and its previously spun-off subsidiary when the two were
reunited. Petitioners state that the Department should follow the same
methodology here because the GOS's purchase of Saarstahl in 1994 placed
the company in the same position it occupied prior to the 1989
privatization. Petitioners fear that if the Department does not
aggregate the subsidies, it will establish a precedent whereby
governments can eliminate subsidies by privatizing an entity and then
reacquiring it and, thus, avoid the application of the countervailing
duty statute.
Saarstahl argues that the GOS's purchase of it in 1994 did not
reverse the 1989 privatization and corresponding subsidy repayment.
When Saarstahl was privatized in 1989, the GOS received stock in
Saarstahl's holding company, DHS. The GOS still holds stock in DHS and,
thus, it has retained the repayment received in the privatization
transaction.
Department's Position: Petitioners' citing of UK Lead and Bismuth
is misplaced. With respect to the ``spin-off'' and ``spin-in'' issues
in UK Lead and Bismuth, the Department faced an issue of allocation of
prior subsidies between business entities, not the repayment of prior
subsidies to a government. In UK Lead and Bismuth, a subsidiary of one
company was spun off, taking a portion of the benefit of subsidies with
it. There is no repayment of subsidies under our methodology in such a
transaction, but rather an allocation of the benefit from prior
subsidies between a productive unit and a corporate entity. When the
productive unit was reunited with the parent company, the formerly
apportioned subsidies were reunited as well. The privatization and
corresponding repayment to the GOS with respect to Saarstahl does not
involve an issue of allocation. When the GOS privatized Saarstahl in
1989 it received stock in DHS, which represents partial repayment and,
therefore, extinguishment of prior subsidies. Thus, we are not adding
back the amount considered to be repaid in 1989.
Comment 7: Creditworthiness of Saarstahl in 1989; Saarstahl argues
that the Department should consider financial information pertaining to
1989 when evaluating the creditworthiness of the firm in that year.
Specifically, Saarstahl is interested in the Department taking into
account the effects of privatization on its financial health and its
increase in net worth.
Petitioners state that a creditworthy analysis does consider a
company's future prospects, but only in the form of market studies,
country and industry economic forecasts, and project and loan
appraisals prepared prior to the loan agreement. The information
present with respect to the privatization of Saarstahl is not
sufficient for either the Department, or a commercial lender, to
determine a company's creditworthiness.
Department's Position: While a company's future financial prospects
can be a factor in a creditworthiness determination, we do not have on
record any market studies, country or industry economic forecasts or
any other information regarding the company's prospects after
privatization. Although we do have an excerpt from an asset appraisal,
the purpose of this appraisal was to value the assets of Dillinger and
Saarstahl prior to their combination. The appraisal does not
meaningfully address the future financial prospects of either Saarstahl
or DHS.
Furthermore, the mere fact that the net worth of the company rose
after privatization does not make the company creditworthy. Standing
alone it does not provide sufficient evidence that Saarstahl was
creditworthy, especially in light of the company's poor economic
performance in previous years.
Comment 8: Maximum Spread on Commercial Financing: Saarstahl argues
that the Department should use a spread of 1.75 percentage points above
the yield on government bonds as opposed to a spread of two to
construct the uncreditworthy discount rate. The 1.75 point spread is
based on the Department's conversation with a German private bank
official, as outlined in the Department's GOS verification report.
Petitioners state that the Department should reject any request to
lower the discount rate. However, if the Department does use the
information provided by the private bank, it should still add a risk
premium.
Department's Position: In its May 27, 1997 response, Saarstahl
reported that German banks base interest rates for long-term commercial
loans on the government bonds yield, adding a spread of zero to two
percent to account for the creditworthiness of the borrower. The bank
representative we spoke to at verification confirmed this mechanism,
but noted that in the years prior to 1990, the spread was from 0.8 to
1.75 percent. When determining a discount rate for uncreditworthy
firms, the Department will use the highest long-term commercial loan
rate commonly available and then add a risk premium in order to reflect
the inability of a company to obtain commercial credit. In this case
then, we are using the yield on government bonds, and adding the 1.75
percentage least-creditworthy margin and a risk premium.
Comment 9: Purchase Price for Saarstahl: Petitioners argue that the
creation of DHS was a merger of Saarstahl and Dillinger. Each owner
contributed its company and in return got an amount of shares in DHS
that reflected the value of its contribution. Petitioners note that the
GOS contributed shares and cash in the creation of DHS and received
back shares worth an equal amount. Because of this, petitioners argue
that the GOS did not receive any compensation in the 1989 transaction.
Instead, it held on to what it already had and then bought a greater
share of DHS. Based on this, petitioners see the real purchase price
for Saarstahl as zero with the result that there should be no repayment
of subsidies.
Saarstahl argues that the Department did not overstate its purchase
price. Rather the Department properly established the price for the
GOS's interest in Saarstahl as the appraised value of the DHS stock
that it received in exchange for its cash and share contribution.
Saarstahl states that it is the nature of any commercial transaction to
give up a valuable in return for another valuable of equal or greater
value. In this instance, the GOS gave stock and cash and in return
received DHS stock. Thus, the value of the DHS stock was an appropriate
mechanism to establish the purchase price.
Department's Position: We agree with Saarstahl. With the
privatization of Saarstahl in 1989, the GOS did not retain what it
already had (shares in Saarstahl) and then buy a little more (shares in
DHS). The GOS held a majority interest in Saarstahl before the
privatization and after the privatization held a minority share in DHS.
While there is no denying that Saarstahl was a part of DHS, the GOS's
interest in the company had changed. The value of DHS was determined by
an independent auditor and the GOS's share in this company reflects the
value it received and thus the value it paid for the company. Thus, the
transaction serves as the basis for calculating the purchase price of
Saarstahl.
---- page 54999 ----
Comment 10: Penalizing Saarstahl Under Countervailing Duty Law and
VRA. Saarstahl argues that because its exports were limited under a
voluntary restraint agreement (``VRA'') from November 1, 1982, to March
31, 1992, the Department's actions in this case are unjust. According
to Saarstahl, under the VRA, the United States did not initiate any
antidumping or countervailing duty investigations during the period of
the agreement. Saarstahl argues that going after such subsidies now
penalizes Saarstahl after already facing export restrictions.
Petitioners state that Saarstahl received benefits from 1978 to
1989 in the form of interest-free contingent liabilities and these
benefits were not countervailed by the Department, regardless of the
export restraints. Petitioners find the Department's treatment of the
RZVs as contingent obligations, which were forgiven in 1989, to be
reasonable.
Department's Position: The VRA agreements neither permitted the
provision of countervailable subsidies during the time in which the
agreements were in effect, nor provided recipients of countervailable
subsidies immunity from the imposition of countervailing duties after
their expiration.
Comment 11: Asset Revaluations and Extraordinary Depreciation in
Saarstahl's AUL: Petitioners contend that Saarstahl's changes to its
fixed asset valuation and depreciation practices in 1989 and 1993
distort the AUL calculation. With respect to the 1989 privatization,
petitioners argue that the new owner valued the transferred assets at
their net book value (i.e., the gross value minus accumulated
depreciation). The company then treated the 1989 net value as the gross
value in subsequent years. Petitioners argue that consistent with its
position in the Final Results of Redetermination Pursuant to Court
Remand on General Issue of Allocation, British Steel plc v. United
States, Consol. Ct. No. 93-09-00550-CVD at 48 (June 30, 1995)
(``British Steel Remand''), the Department should reject net book
values in the AUL calculation because their use results in a
calculation of the average remaining life of the assets, not the
average useful life.
With respect to the extraordinary depreciation claimed by Saarstahl
in 1993, petitioners note that the Department has stated in the Notice
of Proposed Rulemaking and Request for Public Comment, 62 FR 8818, 8828
(February 26, 1997) that it may be necessary to make normalizing
adjustments for factors that may distort the AUL calculation. The
Department goes on to list extraordinary write-downs, as one situation
that would require such an adjustment.
Further, petitioners dispute Saarstahl's claim that the value of
the transferred assets should be viewed as the cost of acquiring those
assets and, hence, treated as the gross book value of those assets
after privatization. First, petitioners contend that the value of the
assets transferred to Saarstahl from DHS (i.e., at net book value)
differed from the value of the same assets in the context of the
privatization (i.e., at ``modified book value''). Second, petitioners
claim that the transfer of assets in this privatization was in the
nature of a corporate restructuring and that the Department has
determined that such restructuring does not constitute a ``sale.''
Lastly, petitioners contend that Saarstahl's compliance with Generally
Accepted Accounting Principles should not affect the determination as
to whether the company's AUL is valid. Because the calculation yields
the average remaining useful life of the assets rather than an average
useful life, it is distortive.
Saarstahl contends that the additional depreciation expenses taken
by the company in 1989 and 1993 did not distort the AUL because these
adjustments were necessary to bring the asset values reported in the
company's financial records in line with the actual economic value of
those assets. Citing the British Steel Remand, respondent claims that
the Department routinely includes extraordinary depreciation expenses
in its calculation of AUL because the inclusion of such expenses
results in a calculation that better approximates a company's actual
experience.
Saarstahl disagrees with petitioners' claim that the company used
net book values in its AUL calculation. Instead, with the privatization
in 1989, it used the cost of acquisition for the assets. In Saarstahl's
view, this accounting treatment comports with the economic and
commercial realities of the transfer. Saarstahl further argues that the
1989 privatization was not simply an internal corporate transfer as
alleged by petitioners. In this privatization, the productive assets
were transferred to a new owner.
Saarstahl adds that while the asset values listed in Saarstahl's
balance sheet are different from those in the appraisal report related
to the privatization transaction, this is explained by the fact that
the values listed in the appraisal report and in the companies'
financial statements were prepared for different purposes and include
different items. Saarstahl notes, however, that these differences in no
way led to an artificial suppression of Saarstahl's AUL. To the
contrary, the amount recorded in the company's financial statements is
actually higher than that suggested in the appraisal report.
Department's Position: We agree with petitioners' argument that
Saarstahl's AUL calculation is distorted. In particular, given the
change in the gross book value of Saarstahl's assets, the methodology
employed in our preliminary determination yields what is essentially a
mixture of the average useful life of the assets and the average
remaining useful life in 1989. This is evident when we compare the AUL
amounts calculated on an annual basis for years prior to 1989 and the
amounts after the privatization and before Saarstahl's bankruptcy in
1993. This change in the gross book value had a significant impact upon
the cumulative AUL calculated by the Department over a ten-year period
(i.e., 1987 through 1996). In this case, the impact was significant
enough that the AUL could not be calculated from Saarstahl's own
records. Thus, to approximate Saarstahl's AUL, we have used the
depreciation schedule in Germany.
IHSW
Comment 12: Forgiveness of the DM 154 million Credit Line Owed to
HLB by HSW: IHSW contends that the Department erred in preliminarily
determining that the alleged forgiveness of the DM 154 million credit
line owed to HLB by HSW constituted a countervailable subsidy. IHSW
asserts that, pursuant to section 355.44(b)(9) of the Proposed
Regulations, the Department will not consider a loan provided by a
government-owned bank, per se, to be a loan from the government unless
the government-owned bank: (1) Provided the loan at the direction of
the government or with funds provided by the government, and (2) the
terms of the loan were inconsistent with commercial considerations.
IHSW argues that the HLB made prudent business decisions when it
increased the credit line at the end of 1992 and 1993, because if the
line of credit had not been extended, the company would have gone
bankrupt, and the HLB's claims would have been worthless. Thus,
according to IHSW, the increases were based on legitimate business
considerations and were not at the direction of the GOH. With respect
to the second factor considered by the Department, IHSW contends that
the line of credit contained commercial loan terms (e.g., interest
rate, security) which were not inconsistent with commercial
considerations.
Petitioners claim that IHSW's justification, or lack of
justification, for
---- page 55000 ----
extension of the line of credit is by no means dispositive of whether
the subsequent forgiveness of the debt under the line of credit was
countervailable. Nonetheless, petitioners provide several arguments as
to why the HLB acted under GOH compulsion and not in a commercially
reasonable manner when it initially provided and subsequently increased
the credit line to HSW. First, petitioners note that at the time of Old
HSW's bankruptcy in 1983, the company owed DM 181 million to the GOH
and the HLB. Petitioners argue that, given the history between HSW and
the HLB as of 1984, it is completely illogical to suggest that a
lender, after losing a significant amount of money on a debtor, would
respond by loaning more funds to the same bad debtor.
Second, petitioners note that the line of credit was extended to
HSW by the HLB pursuant to a 1984 Kreditauftrag, according to which the
GOH was to compensate the HLB for 60 percent of the line of credit if
HSW failed to service its debt. Petitioners state that GOH officials
confirmed at verification that the Kreditauftrag was an exceptional
occurrence.
Third, petitioners note that HSW's financial condition deteriorated
in 1992 and 1993. Citing the EU decision concerning state aid granted
by the GOH to HSW, petitioners contend that at the end of 1993 the HLB
refused to prolong the credit line. At that point, according to
petitioners, the GOH was forced to provide a Kreditauftrag covering 100
percent of the line of credit. Petitioners argue that the GOH's
willingness to give a blanket guarantee to a company whose situation
was steadily worsening eliminated any pretense that the extension of
the line of credit was commercially reasonable.
Fourth, petitioners note that the EU concluded that ``no private
investor, in the situation prevailing in December 1993, would have been
prepared to inject new risk capital * * * {T}he behaviour of the {the
city of Hamburg} could not be deemed to be behaviour of a normal
investor in a market economy.'' Petitioners assert that the law on
kapitalersetzende Darlehen (``KSD's''), a legal term that translates as
``capital-replacing loans,'' buttresses this conclusion. KSD's are
treated as risk capital and are only repaid in insolvency proceedings
if all other creditors receive full compensation. By the end of 1993,
it was recognized that loans from the HLB or GOH would be subordinated
to the claims of all other creditors in the case of bankruptcy. Thus,
petitioners argue that no reasonable lender or investor would put
further money in the company knowing that it would go to the pockets of
other lenders who were less subordinated.
Lastly, petitioners contend that because the GOH refused to provide
the Department with a report that explained the rationale for extending
the line of credit, the Department should make an adverse inference
that the HLB indeed refused to extend the line of credit and that it
was acting under government compulsion. Petitioners add, however, that
even without the use of adverse inferences, the evidence on the record
shows that the HLB agreed to extend the credit line only if the GOH
assumed full responsibility for the line of credit.
Department's Position: While we agree with IHSW's assertion that
the Department will not consider a loan provided by a government-owned
bank, per se, to be a loan from the government, the history of
interaction among the GOH, the HLB, and HSW demonstrates that the HLB
did not act in a commercially reasonable manner, but rather at the
direction of the GOH, when it provided and subsequently extended the
line of credit to HSW. Moreover, the credit line ceased to be
consistent with commercial considerations when the HLB refused to
extend the credit line in 1993.
The history of interaction among the GOH, HLB, and HSW demonstrates
that the line of credit was clearly a loan provided at the direction of
the GOH. In 1983, at the time of HSW's insolvency, the HLB held 49
percent of the company's shares and had claims totaling DM 181 million
(DM 129 million of the claims was covered by the GOH). Also at that
time, the bankruptcy trustee determined under German law that the funds
loaned by the HLB did not qualify as claims against the insolvent
estate because they were considered KSD's. Since the GOH (which had
guaranteed a portion of the loans provided by the HLB) and the HLB had
no chance of recovering their money if HSW was liquidated in
insolvency, they jointly decided to restructure HSW to continue
operations under a new company.
Also in 1984, the GOH provided HSW with DM 20 million in equity,
through the HLB and Protei, so that the company could continue
operations. This contribution contained strict contractual obligations,
such that the EU determined that HSW was now a de facto public steel
company. The EU noted that the ``entire contractual situation created
in 1984 provided for the control of (GOH), through HLB, over HSW.''
It is against this background that the HLB opened a revolving
credit line in the amount of DM 130 million in favor of HSW. However,
even at that early date the HLB required that the GOH provide a
guarantee (Kreditauftrag) for 60 percent of the credit line. In 1993,
when the HLB refused to extend the credit line, the GOH was forced to
provide an additional Kreditauftrag covering 100 percent of the credit
line.
With respect to whether the loan was consistent with commercial
considerations, the GOG, in response to the EC's investigation,
indicated that the GOH and the HLB were aware that, in the event of
HSW's bankruptcy, they would receive repayment from HSW only in a
subordinated position in view of recent KSD precedent. Moreover, the
HLB was not willing to extend the credit line absent the additional
Kreditauftrag from the GOH covering 100 percent of the credit line. At
that point, the provision of the credit line ceased to be consistent
with commercial considerations. Rather, the HLB, acting as a reasonable
commercial actor, refused to extend the line of credit, and the GOH was
forced to accept full economic risk connected with the line of credit.
Comment 13: Line of Credit Purchased for Full Commercial Value:
IHSW asserts that the line of credit was purchased from HLB by Venuda
for commercial value in an arm's length transaction. Moreover, IHSW
contends that the purchase of the loan was a separate and distinct
transaction from the purchase of HSW's shares. Therefore, according to
IHSW, there was no loan forgiveness and no countervailable benefit
arising from Venuda's purchase of the loan. IHSW further claims that
numerous forms of consideration given by Venuda for the assignment of
the loan, and the fact that HSW may have been on the verge of
bankruptcy, clearly show that Venuda purchased the loan in an arm's
length transaction for commercial consideration. IHSW adds that
numerous other factors (e.g., restrictions from the GOH and lack of
property ownership) further reduce the value of the company's assets
significantly below the purchase price paid by Venuda. Thus, IHSW
argues there was no loan forgiveness in the sale of HSW, and IHSW did
not receive a financial contribution. IHSW adds that, even if the
purchase of the line of credit is considered to be a part of the
purchase of HSW, this would not change the fact that the loan to HSW
was not forgiven because HLB received full commercial value for the
loan.
IHSW further argues that if the credit line purchase by Venuda is
viewed as a ``forgiveness,'' then the Department
---- page 55001 ----
should credit all payments and obligations assumed by IHSW pursuant to
the loan purchase agreement against any alleged or implied benefit.
IHSW adds that, at the very least, the DM 60 million paid by Venuda to
HLB for the loan must be recognized as a repayment of part of the loan
and any possible countervailable benefit curtailed by that amount.
Petitioners assert that the purchase of HSW's shares and the
purchase of the credit line were clearly part of a single agreement by
Venuda to purchase all of the government's interest in HSW, and cannot
be separated. Petitioners note that during verification IHSW officials
admitted that the purchase price of HSW included the approximately DM
60 million paid for the HLB loan. Petitioners add that large
transactions, such as the sale of HSW, typically are complex and
involve multiple parties and agreements. Thus, according to
petitioners, treating the two transactions as the purchase price paid
for HSW is consistent with commercial reality.
Petitioners further argue that IHSW's post-purchase investments and
commitments do not constitute part of the purchase price. Petitioners
contend that the payment for any good, service, or asset is the amount
that is exchanged between the buyer and seller in exchange for the
good, service, or asset. Petitioners assert that the only exchange
between the buyer and seller in this case is the DM 10 million and DM
60 million that was paid to purchase the company. Petitioners add that
IHSW's subsequent investments in the company, whether or not required
by the purchase agreement, do not go to the seller. Therefore,
according to petitioners, these payments do not warrant treatment as
part of the purchase price for HSW or as a repayment of subsidies.
With respect to IHSW's claim that HSW owned too few of its assets
and was encumbered with too many restrictions from the GOH to warrant
the purchase price paid by Venuda, petitioners contend that there is
absolutely no evidence that would permit the Department to evaluate
IHSW's claim. Therefore, according to petitioners, IHSW's argument must
fail.
Department's Position: We continue to view Venuda's purchase of
HSW's loan and HSW's shares as a single transaction. At verification,
IHSW officials explained that the purchase price paid for HSW's shares
(i.e., the DM 10 million) represented their valuation of HSW's non-
current assets taking into consideration HSW's negative equity
position, the company's remaining liabilities, and the obligations that
the company was required to fulfill pursuant to various articles in the
loan purchase agreement between HLB and Venuda. The DM 60 million
payment represented Venuda's valuation and payment for HSW's net
current assets at December 31, 1994 (i.e., the difference between
current assets and liabilities (less the debt owed to HLB)).
These verified facts demonstrate that it was not the HLB debt that
was purchased for commercial value in an arm's length transaction--it
was the company. Venuda valued and purchased a company that was free of
all HLB debt. While part of the purchase price was structured to
resemble a debt purchase, Venuda paid DM 60 million to purchase HSW's
net current assets. Thus, forgiveness of the debt owed to HLB occurred
separate and apart from the purchase of the company. Moreover, the debt
forgiveness constitutes a financial contribution to HSW.
We also disagree with IHSW's argument that the Department should
credit the post-purchase investments and commitments against any
benefit from the alleged debt forgiveness. At verification, officials
explained that the DM 10 million paid for the shares of HSW
incorporated their valuation of HSW's remaining assets taking into
consideration, inter alia, the obligations in question. Thus, the
obligations in question related to the purchase of the company and not
to the loan. Additionally, because we have determined that the debt
forgiveness occurred separate from the sale of the company, the post-
purchase investments and commitments do not affect the amount of debt
forgiven.
Comment 14: The Loan Payments to a Related Party: IHSW contends
that, in fact, the liability for the ``forgiven'' loan is still
outstanding and payments on that loan are currently being made by
IHSW's sister company, DSG, to an affiliated company, Picaro Limited.
Thus, according to IHSW, inasmuch as the loan continues to be paid at
the full amount there is no loan forgiveness and no countervailable
benefit.
Petitioners argue that a loan cannot be said to have been repaid by
the device of simply shifting funds around within a group of related
companies. Petitioners add that the verification shows that the loan
``repayment'' actually returns to IHSW in the form of a shareholder
contribution from Venuda.
Department's Position: The company under investigation, IHSW, does
not carry the loan liability to Picaro Limited on its books. The debt
in question is recorded in the books of an affiliated company, DSG.
Thus, from the perspective of IHSW, the loan has been totally forgiven.
The company is under no obligation to make payments on the loan--all
loan payments are made by DSG.
Furthermore, we agree with petitioners that this loan cannot be
considered outstanding with payments still occurring simply by shifting
the liabilities within a group of related companies. Even if we were to
examine this issue at the larger, corporate level, the loan payments
are being made by DSG, a company which has no income other than the
lease payments it receives from IHSW. These lease payments, which then
become loan payments from DSG, are eventually reinvested into IHSW as
shareholder contributions. Thus, even at this level of analysis the
subject merchandise still benefits from the loan forgiveness because
any payments that are made against the loan are reinvested to benefit
production.
Comment 15: IHSW's AUL calculation: Petitioners contend that there
is an error in IHSW's AUL calculation because the ending gross book
value of productive assets in 1995 does not match the beginning gross
book value in 1996. Petitioners argue that absent a change in
methodology at the end of 1995, which IHSW has not reported, the
closing asset value for one year should equal the opening asset value
for the next.
IHSW asserts that its AUL calculation was correct and based on
verified facts. IHSW notes that, as set forth in the 1996 annual audit
reports for IHSW and HSW/DSG, a transfer of assets and liabilities
occurred between DSG and IHSW. Moreover, respondents claims that the
1996 beginning gross book value was examined by the Department at
verification in DSG's 1996 development of fixed assets.
Department's Position: We agree with IHSW that there is not an
error in the company's AUL calculation. As noted by respondent, there
was a transfer of assets between IHSW and HSW/DSG at the beginning of
1996. The transfer is documented on the record of this investigation
(see e.g., IHSW supplemental questionnaire response, July 3, 1997).
Comment 16: F.O.B. Sales Value: IHSW contends that basing the ad
valorem subsidy rate calculation on an F.O.B. sales value is not in
accordance with the universal commercial fact that freight costs, if
born by the foreign producer, are included in the value of the
merchandise supposedly benefitting from a subsidy or grant. IHSW
further disputes the Department's rationale for this policy, i.e., that
customs valuation is performed on an F.O.B. basis. According to IHSW,
most countries use
---- page 55002 ----
C.I.F. as the basis for customs valuation. Finally, respondent argues
that the customs treatment has no relationship to the fact that the
value of commercial transactions is the sum of all those factors
embodied in the sale and evidenced by the sales price.
Petitioners contend that IHSW's argument that the denominator in
the ad valorem calculation should be based on the C.I.F. value or
``sale price'' is mathematically invalid. Petitioners note that the
Department allocates the countervailing duty margin over the customs
value of sales because the U.S. Customs Service (``U.S. Customs'') will
later multiply the resulting margin by the customs value to determine
the total duty per entry. Petitioners assert that if the denominator
uses any other measure of value, the duty calculation will be
incorrect.
Department's Position: We agree with petitioners. Pursuant to
section 402(2)(A) of the Act, U.S. Customs is directed to exclude from
the customs value any expenses incident to the international shipment
of the merchandise from the country of exportation to the place of
importation in the United States. Thus, the Department requests sales
data on an F.O.B basis so that the Department and Customs are
consistent in the calculation and assessment of countervailing duties,
respectively. BES
Comment 17: Countervailability of Pre-Unification Assistance to the
New States: The GOG argues that loan guarantees issued by THA prior to
Unification are not countervailable because they were available to all
THA companies and hence, not specific to SWB. Both the GOG and BES
point out that these guarantees were transnational in nature and are,
therefore, not subject to the countervailing duty law (see Georgetown
Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1987)).
Petitioners argue that because the GDR eventually became part of
the unified Germany and the ultimate beneficiary (i.e., SWB/BES)
likewise became a citizen of the same, any assistance provided to SWB/
BES was not transnational in nature. In particular, petitioners point
out that at the time that assistance was granted to SWB, both the FRG
and the GDR had taken major steps in the direction of unification.
Department's Position: We agree with the GOG and BES that any
financial benefit, received directly by SWB and/or indirectly by BES,
through secondary FRG loan guarantees issued prior to Unification is
not countervailable (see the section on FRG Backing of THA Loan
Guarantees under Programs Determined Not To Be Countervailable above).
As previously discussed, the GDR and the FRG were separate sovereign
countries prior to Unification; therefore, the provision of FRG backing
of THA loan guarantees to GDR enterprises constituted transnational
assistance, notwithstanding the steps already taken toward Unification.
That the two countries eventually were joined is not relevant because
our analysis is focused on the nature of the benefit at the time it was
bestowed.
Comment 18: Non-Use of Special Depreciation by BES: Petitioners
acknowledge that the Department's normal practice is to recognize tax
benefits when tax returns are filed. According to petitioners, this
practice is justified in the context of recurring tax benefits (see
Final Affirmative Countervailing Duty Determination: Brass Sheet and
Strip from Brazil, 51 FR 40837, 40841 (November 10, 1986)) .
Petitioners argue, however, that the Department should deviate from
this practice here since BES did not file a tax return during the POI.
By allowing BES to record no benefits in one year and then benefits
from two tax years in another would result in changing two recurring
benefits into a single nonrecurring benefit in the year of filing. In
order to ensure continued treatment of Special Depreciation as a
recurring benefit, petitioners argue that the Department should
countervail the amount of Special Depreciation recorded in BES's books,
regardless of the date of filing.
BES and the GOG argue that since BES did not file a tax return
during the POI, it did not receive a financial benefit in the form of
Special Depreciation.
Department's Position: We agree that with BES and the GOG that BES
did not receive a financial benefit from Special Depreciation during
the POI. This program provides a tax benefit. Therefore, under the
Department's current practice, any financial contribution arising from
Special Depreciation is realized when the ``cash flow'' effect occurs,
i.e., when the tax return is filed (see Proposed Regulations). In past
cases where respondents did not file tax returns during the period in
question, or had an operating loss or were otherwise unable to benefit
from a tax concession, the Department has not altered its methodology
to compensate for any unevenness of benefits over time (see e.g.,
Certain Steel at 37315 and Ferrochrome From South Africa: Preliminary
Results of the 1992 Review, 61 FR 65546, 65547 (December 13, 1996)). A
major reason for waiting until the tax return is filed is that only
then can we be certain of the level of the benefit. In this case, we
found at verification that BES did not file a tax return during the
POI; accordingly, BES did not receive a benefit from the Special
Depreciation program during the POI.
Comment 19: Other Arguments Regarding Countervailability:
Interested parties made other arguments regarding the
countervailability of assistance to BES. These arguments are now moot
since we have found benefits pertaining to the FRG backing of THA loan
guarantees to be not countervailable, special depreciation to be not
used, and benefits from all other programs to be de minimis, assuming,
arguendo, they are countervailable.
Comment 20: Improper Inclusion of BES: BES alleges that the
Department did not have authority to initiate an investigation against
it because petitioners did not allege that BES was receiving any
countervailable subsidies and did not provide evidence of regional
assistance programs targeted at the New States.
Department's position: The statute does not require company-
specific allegations to initiate an investigation. A petitioner must
only allege that the government of a country is providing
countervailable subsidies with respect to the manufacture, production
or export of a class or kind of merchandise imported or sold for
exportation into the United States, and that such subsidies are causing
injury to the U.S. industry. See section 701(a) and 702(a)(b)(1) of the
Tariff Act. The petition met these requirements.
If sufficient allegations are made, the Department initiates a
proceeding to determine whether the government of the country in
question is providing subsidies to the subject industry. As an initial
matter, the Department asks a petitioner to identify all the
manufacturers or exporters of the subject merchandise. Normally, the
Department sends all identified companies questionnaires, in addition
to sending a complete set of questionnaires to the government involved.
The Act requires the Department to attempt to determine an individual
countervailable subsidy rate for each known exporter or producer of the
subject merchandise. See section 777(e)(1). There is no authority to
exclude a respondent from an investigation except through the
determination that the company had an ad valorem subsidy rate of zero
or de minimis. See 19 CFR Section 355.14.
Suspension of Liquidation: In accordance with section
705(c)(1)(B)(i) of the Act, we have calculated an
---- page 55003 ----
individual subsidy rate for each company investigated. For companies
not investigated, we have determined an all-others rate by weighting
individual company subsidy rates by each company's exports of the
subject merchandise to the United States. The all-others rate does not
include zero or de minimis rates.
In accordance with section 703(d)(5) of the Act, we are directing
the U.S. Customs Service to continue 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 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
Company valorem
rate
------------------------------------------------------------------------
Saarstahl.................................................... 17.67
IHSW......................................................... 5.61
All others................................................... 11.08
------------------------------------------------------------------------
Since the estimated net subsidy rate for BES and WHG is de minimis,
these companies are not subject to the suspension of liquidation and
will be excluded from any countervailing duty order.
ITC Notification
In accordance with section 705(d) 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 Acting Deputy Assistant Secretary for AD/CVD Enforcement, Import
Administration.
If the ITC determines that material injury, or threat of material
injury, does not exist, these proceedings will be terminated and all
estimated duties deposited or securities posted as a result of the
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order directing Customs officers to assess
countervailing duties on steel wire rod from Germany.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with government and
company officials, and examination of relevant accounting records and
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).
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.
This determination is published pursuant to section 705(d) of the
Act.
Dated: October 14, 1997.
Robert S. LaRussa,
Assistant Secretary for Import Administration.
[FR Doc. 97-27985 Filed 10-21-97; 8:45 am]
BILLING CODE 350-DS-P
The Contents entry for this article reads as follows:
International Trade Administration
NOTICES
Countervailing duties:
Steel wire rod from--
Germany, 54990