65 FR 39129 June 23, 2000
C-475-812
Sunset Review
Public Document
MEMORANDUM TO: Troy H. Cribb
Acting Assistant Secretary
for Import Administration
FROM: Jeffrey A. May
Director
Office of Policy
SUBJECT: Issues and Decision Memo for the Full Sunset Review of the
Countervailing Duty Order on Grain-Oriented Electrical Steel from Italy;
Preliminary Results
Summary:
We have analyzed the substantive responses of the interested parties in
the full sunset review of the countervailing duty order on grain-oriented
electrical steel ("GOES") from Italy. We recommend that you approve the
positions we have developed in the Discussion of the Issues section of
this memorandum for these preliminary results of review. Below is the
complete list of the issues in this full sunset review for which we
received substantive responses by parties:
1. Likelihood of continuation or recurrence of countervailable subsidies
A. Programs from the investigation
B. Changes in programs
C. Other factors
2. Net countervailable subsidy likely to prevail
A. Net countervailable subsidy from the investigation
B. Adjustments to the subsidy
History of the Order:
On June 7, 1994, the Department issued the countervailing duty order on
GOES from Italy (59 FR 29414). In the final affirmative countervailing
duty determination, the following programs were found to confer
countervailable subsidies:
(1) Benefits Associated with the 1988-90 Restructuring;
(2) Interest-Free Loans to ILVA, S.p.A. ("ILVA");
(3) Equity Infusions;
(4) The Transfer of Lovere and Trieste to Terni in 1982;
(5) Law 675/77 Preferential Financing;
(6) Urban Redevelopment Financing Under Law 181/89; and
(7) ECSC Article 54 Loans.
See Final Affirmative Countervailing Duty Determination: Grain-Oriented
Electrical Steel from Italy, 59 FR 18357 (April 18, 1994). The Department
determined the ad valorem countervailing duty rate for all manufacturers,
producers, or exporters of GOES from Italy to be 24.42 percent. Id. at
18369.
There has been one administrative review of the subject countervailing
duty order, initiated July 29, 1999, for the period from January 1, 1998,
through December 31, 1998, which is ongoing (64 FR 41075).
On November 4, 1993, the Department determined that the term "certain" be
deleted from the first sentence of the "Scope of Investigations" section
as published in the notice of initiation. In addition, the Department
corrected four of the Harmonized Tariff Schedule numbers specified in the
scope section of the notice of initiation (58 FR 58838, November 4, 1993).
There have been no circumvention determinations or changed circumstances
reviews.
Background:
On December 1, 1999, the Department initiated a sunset review of the
countervailing duty order on GOES from Italy (64 FR 67247), pursuant to
section 751(c) of the Tariff Act of 1930, as amended, ("the Act"). The
Department received a notice of intent to participate on behalf of
Allegheny Ludlum Corporation ("Allegheny Ludlum"), AK Steel Corporation
("AK Steel"), Butler Armco Independent Union, the United Steelworkers of
America AFL-CIO/CLC, and the Zanesville Armco Independent Union
(collectively, "domestic interested parties"), within the applicable
deadline (December 16, 1999) specified in section 351.218(d)(1)(i) of the
Sunset Regulations. Allegheny Ludlum and AK Steel claimed interested-party
status under section 771(9)(C) of the Act, as U.S. producers of a domestic
like product. The unions listed above are interested parties pursuant to
section 771(9)(D) of the Act, because they are certified or recognized
unions or groups of workers representative of the industry engaged in the
manufacture, production, or wholesale in the United States of the domestic
like product.
Domestic interested parties state that Allegheny Ludlum, Armco Inc.
("Armco"), United Steel Workers of America, Butler Armco Independent
Union, and Zanesville Armco Independent Union were the petitioners in the
initial investigation (see January 3, 2000, substantive response of
domestic interested parties at 5). Domestic interested parties note that,
on
September 30, 1999, AK Steel acquired Armco, and assumed control of
Armco's productions of GOES. Id. Accordingly, AK Steel is the successor of
petitioner Armco, and has replaced Armco as a domestic interested party
for purposes of this sunset review and all other administrative reviews.
Id. Additionally, domestic interested parties state that the petitioners
participated fully in the initial investigation and in the subsequent
ongoing administrative review. Id.
On December 20, 1999, we received a response from the European Union
Delegation of the European Commission ("EC") expressing its willingness to
participate in this review as the authority responsible for defending the
interest of the Member States of the European Union ("EU") (see December
20, 1999, response of the EC at 1-2). On December 29, 1999, we received a
response from the Government of Italy ("GOI") expressing its willingness
to participate in this review, as the government of a country in which
subject merchandise is produced and exported. The EC and GOI note that
they have in the past participated in this proceeding (see December 20,
1999, response of the EC at 2, and the December 29, 1999, response of the
GOI at 1).
On January 3, 2000, we received a complete substantive response from
domestic interested parties, within the 30-day deadline specified in the
Sunset Regulations under section 351.218(d)(3)(i), and a complete
substantive response from Acciai Speciali Terni S.p.A. ("AST") and its
U.S. affiliate, Acciai Speciali Terni USA, Inc. ("AST-USA"), respondent
interested parties under section 771(9)(A) of the Act because AST is a
foreign producer and exporter of the subject merchandise and AST-USA is an
importer of subject merchandise.
On January 10, 2000, we received rebuttal comments from domestic
interested parties. Pursuant to 19 CFR 351.218 (e)(2)(i), the Department
determined to conduct a full (240-day) sunset review of this order. (1)
On January 12, 2000, we requested from the GOI and AST clarification of
the data submitted in their responses of December 29, 1999, and January 3,
2000, respectively, to be submitted by January 22, 2000. (2) On January
21, 2000, we received a response from AST for additional information
concerning the volume of company shipments; we also received a request
from the GOI, which we granted, for an extension of the deadline to submit
a response until February 1, 2000. Subsequently, on February 1, 2000, we
received a response from the GOI to our above request.
On February 11, 2000, the Department received the public version of a
document from domestic interested parties in which they state that,
despite the new information from the GOI, their research indicates that
there have been significant volumes of GOES shipped by AST to the United
States (see February 11, 2000, comments of domestic interested parties at
2-3). Further, domestic interested parties requested that the Department
ask AST to provide specific information in a supplemental response
concerning the disposition of each shipment listed in the domestic
interested parties' exhibit (id. at 3); however, the Department did not
comply with their request.
In accordance with section 751(c)(5)(C)(v) of the Act, the Department may
treat a review as extraordinarily complicated if it is a review of a
transition order (i.e., an order in effect on January 1, 1995). This
review concerns a transition order within the meaning of section
751(c)(6)(i) of the Act. Accordingly, on January 20, 2000, the Department
determined that the sunset review of GOES from Italy is extraordinarily
complicated, and extended the time limit for completion of the preliminary
results of this review until not later than June 19, 2000 (65 FR 3206), in
accordance with section 751(c)(5)(B) of the Act.
Discussion of the Issues:
In accordance with section 751(c)(1) of the Act, the Department is
conducting this review to determine whether revocation of the
countervailing duty order would be likely to lead to continuation or
recurrence of a countervailable subsidy. Section 752(b) of the Act
provides that, in making this determination, the Department shall consider
the net countervailable subsidy determined in the investigation and
subsequent reviews, and whether any change in the program which gave rise
to the net countervailable subsidy has occurred and is likely to affect
that net countervailable subsidy. Pursuant to section 752(b)(3) of the
Act, the Department shall provide to the International Trade Commission
("the Commission") the net countervailable subsidy likely to prevail if
the order is revoked. In addition, consistent with section 752(a)(6) of
the Act, the Department shall provide to the Commission information
concerning the nature of the subsidy and whether it is a subsidy described
in Article 3 or Article 6.1 of the 1994 World Trade Organization ("WTO")
Agreement on Subsidies and Countervailing Measures ("Subsidies Agreement").
Below we address the responses of interested parties.
1. Continuation or Recurrence of a Countervailable Subsidy:
Interested Party Comments
In their January 3, 2000 substantive response, domestic interested
parties argue that revocation of the countervailing duty order on GOES
from Italy would lead to continued unfair subsidization by foreign
producers and exporters, as well as material injury to the U.S. industry.
Domestic interested parties cite the Statement of Administrative Action
("SAA"), H.R. Doc. No. 316, Vol. 1, 103d Cong., 2d Sess. at 889 (1994),
and the Department's Sunset Policy Bulletin at 18875, and assert that an
examination of the record indicates that the allocated benefit stream of
several subsidy programs countervailed in GOES, including Benefits from
the 1988-90 Restructuring of Finsider and Equity Infusions provided to
Terni S.p.A. ("Terni"), Terni Acciali Speciali ("TAS"), and ILVA S.p.A.
("ILVA"), will extend beyond the end of this review (see January 3, 2000,
substantive response of domestic interested parties at 13).
Further, domestic interested parties cite the Sunset Policy Bulletin at
18874, and contend that AST continues to receive many of the subsidy
benefits identified in the GOES investigation. Id. at 14. Specifically,
they assert that at least two subsidy programs countervailed in the GOES
investigation, Law 675/77 and ECSC Article 54 Loans, continue to provide
benefits to AST, as recently determined in the Italian Stainless Steel
Plate in Coils ("Plate") and Stainless Steel Sheet and Strip in Coils
("Sheet and Strip") investigations. Id. Therefore, domestic interested
parties argue, these affirmative findings are highly probative of the
likelihood of the continuation or recurrence of countervailable subsidies.
Id.
Domestic interested parties contend that AST continues to receive
subsidies identified in the original GOES investigation for its production
of GOES and, in fact, is currently receiving new subsidies that did not
exist during the GOES period of investigation ("POI"). Id. at 20.
Moreover, domestic interested parties note, AST has not requested or
participated in any complete administrative review since the issuance of
the order. Given that subsidy benefits will continue past the end of this
review, and that the Department has no evidence on record of the GOES
proceeding that any subsidy to AST has been terminated or been suspended
in whole and in part (id. at 14), the Department should find revocation of
the order will lead to continuing subsidization of GOES from Italy. Id. at
22.
In their individual responses, the EC and the GOI state that revocation
of the order is not likely to lead to recurrence of subsidization because
the EU steel sector has undergone a restructuring in recent years under
the careful monitoring of the EC, and steel producers are now mostly
privately operated and compete on commercial terms in international
markets (see December 20, 1999, response of the EC at 2, and December 29,
1999, response of the GOI at 2). Further, the EC and GOI state that
revocation of the order will not impact on the EC policy on aid to the
steel sector which is one of the strictest among WTO Members following the
adoption of a series of Commission Decisions ("the Community Steel Aid
Codes"). Id.
AST and AST-USA contend that, on the basis of three central facts,
revocation of the order will not result in any negative effects on the
domestic industry producing GOES (see January 3, 2000, substantive
response of AST at 4). First, AST and AST-USA state that AST does not
benefit from any subsidies previously bestowed upon ILVA or other
predecessor entities; AST was purchased at arm's length for fair market
value in 1994, and is now privately-owned and operated on completely non-
subsidized capital. Id. AST and AST-USA also assert that there is no
benefit as defined by the Subsidies Agreement, from financial
contributions made to the state-owned predecessors of AST. Id. In
addition, AST and AST-USA cite a recently released WTO Panel Report which,
they assert, found the U.S. practice regarding the fair market value
privatization of former state-owned enterprises in direct violation of
U.S. obligations under the Subsidies Agreement.
Second, AST and AST-USA argue that AST competes in the market on the
basis of entirely commercial criteria and will continue to do so; there is
no reason to believe that AST's private and unsubsidized operations would
at any time in the foreseeable future revert to a state-owned, subsidized
pattern. Id. at 5. Therefore, given that AST does not benefit from any pre-
privatization subsidies and countervailing duties because of the strict
policies of the EU and the GOI regarding prohibition of any future
subsidies to the steel sector, the Department should not find that
revocation of the order will result in the recurrence of countervailable
subsidies and thereby continue to apply a practice that violates U.S.
international legal obligations and conflicts with U.S. legal
requirements. Id. at 4-5.
In their January 10, 2000, rebuttal brief, domestic interested parties
argue that the Department should reject respondent interested parties'
arguments that AST receives no subsidies and, instead, abide by its stated
policy and find that, because no administrative review has occurred in
this case, AST continues to be subsidized (see January 10, 2000, rebuttal
of domestic interested parties at 2). Domestic interested parties also
assert that respondent interested parties are incorrect to imply in their
substantive responses that the company and plant that have been renamed
AST did not exist a few short years ago, and that AST does not continue to
benefit from substantial subsidies found in the investigation. Id. at 3.
Rather, the Department has found that the Terni facility that produces
GOES is the same production facility subject to this sunset review, and
that AST is the corporate successor to the company that received the
subsidies identified in the investigation. Id. 2-3.
Domestic interested parties assert that respondent interested parties do
not support their argument that AST does not benefit from any subsidies
previously bestowed upon ILVA or other corporate predecessors. Id. at 3.
Rather, the underlying investigation determined that ILVA and the Terni
Specialty Steel Division did benefit from subsidies bestowed on
predecessor companies and, thus, AST continues to benefit from those
subsidies. Id. at 4. Moreover, that AST benefits from additional subsidies
provided following the Department's determination in the investigation is
supported by recent findings in the Plate and Sheet and Strip
countervailing duty investigations that found massive subsidies to AST in
1993 that are not tied to the production of any particular product. Id. In
addition, domestic interested parties restate that there have been no
completed administrative reviews which support a Department finding that
subsidies have stopped, or that the investigation rate should be
reevaluated. Id. at 3.
The Department's Position
Drawing on the guidance provided in the legislative history accompanying
the Uruguay Round Agreements Act ("URAA"), specifically the SAA, H.R. Doc.
No. 103-316, vol. 1 (1994), the House Report, H.R. Rep. No. 103-826, pt.1
(1994), and the Senate Report, S. Rep. No. 103-412 (1994), the Department
issued its Sunset Policy Bulletin providing guidance on methodological and
analytical issues, including the basis for likelihood determinations. The
Department clarified that determinations of likelihood will be made on an
order-wide basis (see section III.A.2 of the Sunset Policy Bulletin).
Additionally, the Department normally will determine that revocation of a
countervailing duty order is likely to lead to continuation or recurrence
of a countervailable subsidy where (a) a subsidy program continues, (b) a
subsidy program has been only temporarily suspended, or (c) a subsidy
program has been only partially terminated (see section III.A.3.a of the
Sunset Policy Bulletin). Exceptions to this policy are provided where a
company has a long record of not using a program (see section III.A.3.b of
the Sunset Policy Bulletin).
Because there have been no administrative reviews of this order and no
evidence has been submitted to the Department demonstrating the
termination of the countervailable programs, the Department includes that
the programs from the investigation continue to exist and are utilized.
We disagree with respondent interested parties that the WTO interim panel
finding requires the Department to conclude that privatization has
eliminated any subsidies granted prior to privatization. Although we are
aware that the May 10, 2000, adoption by the WTO Appellate Body of the
panel's report (see United States - Imposition of Countervailing Duties on
Certain Hot-Rolled Lead and Bismuth Carbon Steel Products, WT/DS138/AB/R,
May 10, 2000) impacts the Department's privatization methodology, the
United States, pursuant to Article 21 of the WTO Dispute Settlement
Understanding, has a reasonable time in which to comply with the ruling.
Because the United States is in the process of determining how to
implement that ruling, the Department, in the meantime, will continue to
use its current privatization methodology until very specific statutorily
mandated actions have been fulfilled and the appropriate congressional
committees have been consulted. Thus, until a final decision has been made
with respect to implementation of the Appellate Body ruling, we continue
to determine that a portion of subsidies bestowed on a government-owned
company prior to privatization continues to benefit the production of the
privatized company.
The Department notes the EC and the GOI assert that the subsidy programs
to the Italian steel industry have been terminated due to specific
governmental action and subsidization of the steel sector in the EU that
is strictly prohibited following the adoption of the EU Commission
Decision. However, without evidence that the programs have been
terminated, or that the benefits from programs for which benefits are
allocated over time will not continue beyond this sunset review, we
determine that revocation of the countervailing duty order is likely to
lead to continuation or recurrence of a countervailable subsidy.
2. Net Countervailable Subsidy Likely to Prevail
Interested Party Comments:
In their substantive response, domestic interested parties, citing the
SAA, note that the Department normally will select the rate from the
investigation, because that is the only calculated rate that reflects the
behavior of exporters and foreign governments without the discipline of an
order in place. Accordingly, domestic interested parties contend, the rate
set forth in the original investigation is the only calculated rate that
reflects the behavior of exporters and foreign governments without the
discipline of a countervailing duty order on GOES from Italy, and the
Department should select the rate from the investigation as the rate that
is likely to prevail if the order is revoked (see January 3, 2000,
substantive response of domestic interested parties at 23-24). Without a
completed administrative review of the Italian GOES countervailing duty
order, the Department normally will not make adjustments to the net
countervailable subsidies and, therefore, should not decrease the rate
determined in the original investigation. Id. at 24.
However, domestic interested parties add, the Department may, for good
cause, consider "other factors" identified in paragraph III.C of the
Sunset Policy Bulletin, and increase the rate of subsidization that is
likely to prevail. Id. In this case, domestic interested parties assert,
there is good cause for the Department to add to the original rate based
on countervailable programs used by AST (or potentially useful to AST)
that did not exist at the time the order was issued. Id. at 25. First, the
Department has recently conducted two separate countervailing duty
investigations involving AST's (the identical company investigated in the
GOES proceeding) production of stainless steel plate in coils and
stainless steel sheet and strip in coils, and found countervailable
subsidies granted to AST that did not exist during the GOES investigation
and were not tied to the production of any particular product produced by
AST. Id. at 26. Thus, domestic interested parties assert, the new
subsidies uncovered and verified in these investigations also benefit
AST's production of GOES that is exported to the United States. Id.
Domestic interested parties contend that, following the 1992 POI, ILVA,
in 1993, provided AST with massive debt forgiveness - a countervailable
subsidy that did not exist at the time of the GOES investigation - which
the Department treated as a non-recurring grant because it was a one-time
extraordinary event. Id. at 26. Because this program has been verified in
Sheet and Strip to provide benefits to AST that were not tied to the
production of any one product, and the program did not exist during the
GOES POI, domestic interested parties assert good cause exists for the
Department to consider this program as an "other factor" in its
determination of the rate likely to prevail if the order were revoked. Id.
Moreover, domestic interested parties assert that AST benefitted from Law
451/94, a law passed in 1994, after the GOES 1992 POI, that created
countervailable pre-privatization employment benefits for AST, and AST was
determined to have received benefits from this program during the POI in
the Sheet and Strip investigation. Because the program has been verified
to provide benefits to AST that were not tied to the product and did not
exist during the GOES POI, good cause exists for the Department to
consider Law 451/94 an "other factor" in the rate likely to prevail if the
order were revoked. Id. at 27.
Domestic interested parties also contend that, additionally, the
Department found that AST benefitted from Law 796/76 Exchange Rate
Guarantees that were not countervailed in the initial GOES investigation.
Id. Because the Department did not have enough information to determine
whether this program was specific, it stated that it intended to
reinvestigate the program in the first administrative review. Id. Although
this review never occurred, the Department's examination of the program in
Plate and Sheet and Strip investigations revealed that AST derived
substantial countervailable benefits from the program. Id. Thus, because
this program did not exist as a countervailable program during the GOES
investigation, good cause exists for the Department to consider it as an
"other factor" in the rate likely to prevail if the order were revoked.
In addition, domestic interested parties reassert that, because no
administrative review has occurred, the Department should use the
countervailing duty rate from the initial GOES investigation as the base
rate for this sunset review. Finally, the Department should consider only
additions to this rate for good cause, as demonstrated, because recent
investigations involving AST show that AST has recently received subsidy
benefits that did not exist during the GOES investigation. Id. at 28.
In their responses, the EC and GOI state that the likelihood of
continuation or recurrence of subsidization is nil and, although they do
not specifically address the net countervailable subsidy likely to prevail
if the order were revoked, they assert that the maintenance of
countervailing duty measures on exports of GOES are unjustified (see
December 20, 1999, response of the EC at 2, and December 29, 1999,
response of the GOI at 2).
The EC and GOI state that AST does not benefit from pre-privatization
subsidies and that, because the state-owned steel sector in Italy was
radically restructured to provide for the privatization of a number of
previously state-owned companies and the closing down of several steel
plants, there has been a drastic reduction in steel production capacity.
In fact, the EC and GOI continue, AST was privatized by means of a bid
procedure and is majority-owned and controlled by Krupp Thyssen Stainless
GmbH; ever since its privatization, AST operates completely on private non-
subsidized capital and competes in the market on the basis of commercial
criteria (see December 20, 1999, response of the EC at 3, and December 29,
1999, response of the GOI at 2). Further, AST after its privatization has
received no further subsidies as demonstrated in recent investigations
Plate and Sheet and Strip from Italy involving other products manufactured
by AST. Thus, AST neither benefits from aid granted to the previously
state-owned ILVA nor has it obtained new benefits, and Department findings
made in the original investigation are no longer valid. Id. Moreover, the
EU and GOI assert that the maintenance of countervailing duties for
subsidies granted to the state-owned predecessors of AST without a
demonstration that the privatized AST benefits from subsidization
constitutes a violation of the U.S. obligations under the Subsidies
Agreement.
The EC and GOI also contend that most of the programs countervailed in
the original investigation have been terminated as they involved one-time
governmental action with regard to the then state-owned steel sector (see
December 20, 1999, response of the EC at 3, and December 29, 1999,
response of the GOI at 3). Specifically, the only EC program
countervailed, Article 54 ECSC Loans, is no longer available in view of
the forthcoming expiry of the ECSC Treaty in 2002. Id. Thus, no loans have
been granted in 1998. Id.
Finally, the EC and the GOI assert that subsidization of the steel sector
in the EC is strictly prohibited following the adoption of a series of the
Community Steel Aids Codes, and this is a major reason for the
unlikelihood of continuation of subsidization. Id. Specifically, they
state that the existence of Commission Decision 2496/96 of December 18,
1996 ("Commission Decision"), which entered into force on January 1, 1997,
prohibits the granting of aid to the steel industry except under three
distinct circumstances, namely the closing of facilities, for
environmental reasons, and for research and development (the last two
types reflect the type of aid which is not actionable under Article 8 of
the Subsidies Agreement). Id. The EC and the GOS add that, in all three
cases, aid must first be notified and approved by the EC following the
procedures provided in the EU Commission Decision. Id.
In addition, the EC and the GOI assert that, with the exception of the
aid for the closure of facilities, the other two types of aid must be
provided in accordance with the relevant Community Frameworks (namely, the
Community frameworks for State Aid for research and development and on
State Aid for environmental protection - Articles 2 and 3 of the
Commission Decision) which are available throughout the EU for all
sectors. Id. Such aid is non-specific within the meaning of Article 2 of
the Subsidies Agreement. Id.
In its substantive response, AST asserts that, for the reasons discussed
above in the section of their response regarding the likely effects of
revocation, the countervailing duty rate likely to prevail if the order is
revoke is zero or de minimis.
In their January 10, 2000, rebuttal comments, domestic interested parties
state that AST's suggestion that the Department is not required to
consider whether a company sold to private companies continues to benefit
from subsidies provided to its predecessor companies is contrary to the
statute, case law, and its consistent practice (see January 10, 2000,
rebuttal of domestic interested parties at 4). The Department has applied
its court-tested and approved change of ownership as laid out in the
General Issues Appendix to the Final Affirmative Countervailing Duty
Determination: Certain Steel from Austria (58 FR 37225, 37226, July 9,
1993). Id.
Further, domestic interested parties argue that the recent WTO panel
decision involving another country, another product, and different
subsidies is not relevant to the Department's deliberations in this sunset
review for two reasons. First, Congress made clear that decisions issued
by the WTO panels are not binding if they conflict with U.S. law; United
States law should prevail in the event it conflicts with the provisions of
the WTO. Id. at 4. Domestic interested parties state that the decision
issued by the WTO panel cited by respondent interested parties is
inconsistent with the results reached in several decisions issued by the
Court of Appeals for the Federal Circuit that affirmed the Department's
methodology of recognizing that a portion of subsidies may be allocated to
a new owner in an arm's-length change of ownership transaction. Id. at 6.
Second, domestic interested parties assert that the WTO decision in
question is not a final decision and has not been adopted by the WTO
Dispute Settlement Body. Id. They note that Article 17 of the
Understanding on Rules and Procedures Governing the Settlement of
Disputes, contained at Annex 2 of the Final Act Embodying the Results of
the Uruguay Round of Multilateral Trade Negotiations, provide that panel
decisions are subject to appeal. Id. Therefore, domestic interested
parties assert, the WTO panel decision cited by respondents is not
relevant to the Department's deliberations in this sunset review. Id. at 7.
Domestic interested parties also contend that, contrary to the respondent
interested parties' argument, the idea that restrictions imposed by the
State Aid Code of November 27, 1991, will prevent subsidies to AST is not
supported by the facts or history. Id. First, the 1991 State Aid Code,
which is substantially similar to the 1996 State Aid Code cited by
respondents, was published on November 27, 1991, prior to the period of
investigation, and was ineffective in preventing AST from receiving
substantial countervailable subsidies. Id. The GOES investigation
demonstrates clearly that AST received substantial subsidies and that the
1991 State Aid Code could not prevent AST from receiving subsidies of
24.42 percent. Id. Therefore, it is not likely that the virtually
identical 1996 Code will prohibit continuing and future subsidization to
AST.
Third, domestic interested parties assert that neither the 1991 nor the
1996 State Aid Codes have prevented AST from receiving subsidy benefits
from several non-recurring grants (as noted in the domestic interested
parties' substantive response) identified in the original investigation
over a 15-year allocation period that extends beyond the end of this
sunset review.
Finally, domestic interested parties contend that, contrary to the EU's
contention that AST received no further subsidies as demonstrated in the
recent investigations of other products manufactured by AST, AST continues
to receive benefits from subsidy programs that were implemented several
years ago, but whose benefits are distributed on a recurring basis. Id. at
8. For example, in the original GOES investigation, AST received such
benefits from Law 675/77 Preferential Financing, from Law 181/89 Worker
Adjustment and Redevelopment Assistance, and from ECSC Article 54. Based
on the Department's policy of using the investigation rate when no review
has taken place, the Department should determine that AST continues to
receive these benefits and should use the investigation rate. Id.
Furthermore, these benefits were received after the effective date of
both the 1991 and the 1996 State Aide Codes, which ostensibly prohibited
all aid to the steel industry. Id. at 9. In addition, domestic interested
parties restate that AST received new subsidies following the GOES
investigation, including Benefits from the 1993 Restructuring of ILVA, Law
796/76 Exchange Rate Guarantees, Pre-Privatization Employment Benefits
Under Law 451/94, Law 488/92, and benefits from the European Social Fund.
Id. Further, the 1996 State Aid Codes make an explicit exception for plant
closure assistance that would in fact be countervailable and was not
effective in preventing AST from receiving these benefits. Id.
Domestic interested parties assert that, contrary to respondent
interested parties' contention that AST operates on private non-subsidized
capital and competes in the market on the basis of commercial criteria,
AST has had a long history of subsidization and continues to accept
subsidies, owing its financial strength, and possibly, its very corporate
existence, to its years as a beneficiary of government grants and debt
relief. Id. at 10. Given the lack of an administrative review of the
order, it is critical that the Department follow its policies of finding
that countervailing duties are likely to continue or resume if the order
were revoked and of using the rate from the investigation as the base rate
of likely subsidization. Id.
With respect to the EC Article 54 ECSC Loans, which the EU argues are no
longer available in view of the forthcoming expiry of the ECSC Treaty in
2002, domestic interested parties contend that, because AST benefitted
from countervailable Article 54 loans during the initial investigation,
and no administrative review of this benefit program has occurred, the
program should be presumed to continue. Id. Additionally, they restate
that the Department found in both the Plate and Sheet and Strip final
determinations that AST received ECSC Article 54 Loan benefits as recently
as 1997, and, therefore, the Department should find that this subsidy is
likely to continue or recur if the order is revoked. Id. at 11. Finally,
domestic interested parties urge the Department to reexamine the GOES
export data reported by both the GOI and AST and require clarification
from both parties. Id.
Department's Position:
In the Sunset Policy Bulletin, the Department stated that, consistent
with the SAA and
House Report, the Department normally will select a rate from the
investigation as the net countervailable subsidy likely to prevail if the
order is revoked, because that is the only calculated rate that reflects
the behavior of exporters and foreign governments without the discipline
of an order or suspension agreement in place. However, this rate may not
be the most appropriate rate if, for example, the rate was derived from
subsidy programs which were found in subsequent reviews to be terminated,
there has been a program-wide change, or the rate ignores a program found
to be countervailable in a subsequent administrative review.
Additionally, where the Department determined company-specific
countervailing duty rates in the original investigation, the Department
normally will report to the Commission company-specific rates from the
original investigation or where no company-specific rate was determined
for a company, the Department normally will provide to the Commission the
country-wide or "all-others" rate (see Sunset Policy Bulletin at section
III.B.2.)
The Department agrees with the domestic interested parties' argument
that, without an administrative review, we cannot determine that the
subsidies conferred in the original investigation have been terminated.
Furthermore, the privatization of AST does not eliminate the prior subsidy
programs. We note that the Department normally will not make adjustments
to the net countervailable subsidy rate for programs that still exist, but
were modified subsequent to the order, as applicable, to eliminate exports
to the United States from eligibility. Although the EC and the GOI claim
that some programs, including Law 60/78, the Royal Decree 878/8 and the
1984 Counsel of Minister's Meeting, no longer exist to provide
countervailable benefits to producers/exporters of subject merchandise,
they did not provide substantive evidence to the Department with respect
to the termination of these programs. Thus, we will include all the
programs from the original investigation in our calculation of the net
subsidy.
We do not find that good cause exists in this case to examine programs
newly alleged by domestic interested parties to provide countervailable
subsidies. Specifically, we do not have sufficient information or evidence
to determine the extent to which AST is receiving countervailable benefits
for its GOES production from the subsidy programs in question, including
Debt Forgiveness: ILVA-to-AST, Law 451/94, and Law 796/76 Exchange Rate
Guarantees. Therefore, we will report to the Commission the original rate
as contained in the Preliminary Results of Review section of this memo.
Finally, for the reason noted above in our position on the issue of
continuation or recurrence of a countervailable subsidy, we disagree with
the respondent interested parties that the WTO interim panel finding
presently requires the Department to alter its approach to privatization
in the instant case.
Nature of the Subsidy:
In the Sunset Policy Bulletin, the Department states that, consistent
with section 752(a)(6) of the Act, the Department will provide to the
Commission information concerning the nature of the subsidy, and whether
the subsidy is a subsidy described in Article 3 or Article 6.1 of the
Subsidies Agreement. Interested parties did not address in their
substantive responses the nature of the subsidy.
The following programs, although not falling within the definition of an
export subsidy under Article 3 of the Subsidies Agreement, could be found
to be inconsistent with Article 6.1 if the net countervailable subsidy
exceeds five percent, as measured in accordance with Annex IV of the
Subsidies Agreement. The Department, however, has no information with
which to make such a calculation, nor do we believe it appropriate to
attempt such a calculation in the course of a sunset review. Moreover, we
note that as of January 1, 2000, Article 6.1 has ceased to apply (see
Article 31 of the Subsidies Agreement). As such, we are providing the
Commission with the following program descriptions.
(1) Benefits Associated with the 1988-90 Restructuring. In restructuring
TAS into the
Specialty Steels Division of ILVA, liabilities and losses due to asset
write downs were left behind in TAS, a shell company. Although there was
only one specific act of debt forgiveness, which only covered a portion of
the liabilities in TAS, the Department found that ILVA received a benefit
when it was able to leave the debt and losses remaining in TAS. Because
this benefit was specific to ILVA, the Department found a countervailable
subsidy to ILVA in the amount of the debt and losses that should have been
taken by ILVA when it took on the assets of TAS.
(2) Interest-Free Loans to ILVA. In 1992, ILVA received a 300 billion
lire payment from Instituto per la Recostruzione ("IRI"), a holding
company wholly-owned by the GOI, which the Department established as a
"provisional" or "anticipated" capital increase because authorization was
needed from the shareholders and the EC before it could be considered as
an equity infusion. Because these payments were not converted to equity
prior to the end of the POI, the Department did not find the payments to
be equity, and treated the payments as short-term interest-free loans,
which would be rolled over until such time as they were repaid or
converted to equity upon EC approval.
(3) Equity Infusions. The GOI, through IRI, provided new equity capital
to Terni, TAS, or ILVA in every year from 1978 through 1991, except in
1979, 1983, 1989, and 1990. The Department determined that these companies
were unequityworthy in each year that they received new equity capital
and, therefore, these provisions of equity were inconsistent with
commercial considerations and are countervailable.
(4) The Transfer of Lovere and Triest to Terni in 1982. Lovere and Triest
were transferred from Italsider to Terni as part of a 1982 restructuring.
This transaction was characterized as an internal corporate restructuring
as no new equity capital was provided to Terni through the transfer of
these assets. However, just as subsidies given to Terni and TAS continued
to bestow a benefit on ILVA when ILVA received TAS's assets, subsidies
received by Italsider flowed to Terni when Terni received Lovere and
Trieste.
(5) Law 675/77 Preferential Financing. Designed to bring industrial
assistance measures from the GOI under a single system, Law 675/77 had at
its core three main objectives: (1) the reorganization and development of
the industrial sector as a whole; (2) the increase of
employment in the South; and (3) the promotion of employment in depressed
areas. To achieve these goals, Law 675/77 provided six types of benefits;
(1) grants to pay interest on bank loans; (2) mortgage loans provided by
the Ministry of Industry at subsidized interest rates; (3) other grants to
pay interest on loans financed by IRI bond issues; (4) capital grants for
the South, (5) VAT reductions on capital good purchases for companies in
the South; and (6) personnel retraining grants. While Law 675/77 benefits
were available to, and used by, numerous and various industries, the
Department found that the steel industry accounted for 34 percent of the
benefits and the auto industry accounted for 33 percent of the benefits
and, thus, the benefits were specific to the steel industry. Benefits
under Law 675/77 included (1) Grants to Pay Interest on Bank Loans; (2)
Mortgage Loans from the Ministry of Industry Under Law 675/77; and (3)
Interest Contributions on IRI Loans/Bond Issues
(6) Urban Redevelopment Financing Under Law 181/89. Law 181/89 was
implemented to ease the impact of employment reductions in the steel
crisis areas of Naples, Taranto, Terni, and Genoa. The program had four
main components: (1) reindustrialization projects; (2) job promotion; (3)
training; and (4) early retirement. (Early retirement under Law 181/89 was
not used by ILVA and the job promotion component was found not
countervailable).
(7) ECSC Article 54 Loans and Loan Guarantees. Article 54 Industrial
Investment Loans, which are only available to the iron and steel industry,
are provided for the purpose of purchasing new equipment or financing
modernization. Article 54 Loans are direct loans from the EC loaned at a
slightly higher rate than that at which the EC obtained them in order to
cover its costs.
Preliminary Results of Review:
As a result of this review, the Department preliminarily finds that
revocation of the countervailing duty order would likely lead to
continuation or recurrence of a countervailable subsidy at the rate listed
below:
------------------------------------------------------------------------
Net
countervailable
Producer/exporter subsidy (in
percent)
------------------------------------------------------------------------
All producers/exporters from Italy..................... 24.46
------------------------------------------------------------------------
Recommendation
Based on our analysis of the comments received, we recommend adopting all
of the above positions. If these recommendations are accepted, we will
publish the Preliminary Results of Review in the Federal Register.
AGREE____ DISAGREE____
_________________________________________________________________________
footnotes:
1. See June 19, 2000, Memorandum for Jeffrey A. May, Re: GOES from Italy;
Adequacy of Respondent Interested Party Response to the Notice of
Initiation.
2. See January 12, 2000, Letters from Jeffrey A. May to Lewis E.
Leibowitz, counsel to AST and AST-USA, and Enrico Nardi, First Counselor
for Economic and Commercial Affairs, Embassy of Italy.