65 FR 41950, July 7, 2000
[C-475-812]
Grain-Oriented Electrical Steel From Italy; Preliminary Results
of Countervailing Duty Administrative Review and Extension of Time
Limit for Final Results of Countervailing Duty Administrative Review
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary results of countervailing duty
administrative review.
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SUMMARY: The Department of Commerce (the Department) is conducting an
administrative review of the countervailing duty order on grain-
oriented electrical steel from Italy for the period January 1, 1998
through December 31, 1998. For information on the net subsidy for the
reviewed company, as well as for all non-reviewed companies, see the
Preliminary Results of Review section of this notice. If the final
results remain the same as these preliminary results of administrative
review, we will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Preliminary Results of Review
section of this notice. Interested parties are invited to comment on
these preliminary results. (See Public Comment section of this notice.)
EFFECTIVE DATE: July 7, 2000.
FOR FURTHER INFORMATION CONTACT: Stephanie Moore or Darla Brown, Office
of AD/CVD Enforcement VI, Group II, Import Administration, U.S.
Department of Commerce, Room 4012, 14th Street and Constitution Avenue,
NW., Washington, DC 20230; telephone (202) 482-2786.
SUPPLEMENTARY INFORMATION:
Background
On June 7, 1994, the Department published in the Federal Register
(59 FR 29414) the countervailing duty order on grain-oriented
electrical steel from Italy. On June 9, 1999, the Department published
a notice of ``Opportunity to Request Administrative Review of Grain-
Oriented Electrical Steel from Italy'' (64 FR 30962). We received a
timely request to conduct a review from Acciai Speciali Terni S.p.A.
(AST). We initiated the review covering the period January 1, 1998
through December 31, 1998 on July 29, 1999 (64 FR 41075).
In accordance with 19 CFR 351.213(b), this review covers only those
producers or exporters of the subject merchandise for which a review
was specifically requested. Accordingly, this review covers AST. This
review also covers 21 programs.
On January 20, 2000, the Department extended the period for
completion of the preliminary results pursuant to section 751(a)(3)(A)
of the Tariff Act of 1930, as amended (the Act). See Grain-Oriented
Electrical Steel from Italy: Extension of Preliminary Results of
Countervailing Duty Administrative Review, 65 FR 3206 (January 20,
2000).
Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Act of 1930, as amended by the
Uruguay Round Agreements Act (URAA) effective January 1, 1995. In
addition, unless otherwise indicated, all citations to the Department's
regulations reference 19 CFR part 351 (1999).
Scope of the Review
Imports covered by this review are shipments of grain-oriented
electrical steel from Italy, which is a flat-rolled alloy steel product
containing by weight at least 0.6 percent of silicon, not more than
0.08 percent of carbon, not more than 1.0 percent of aluminum, and no
other element in an amount that would give the steel the
characteristics of another alloy steel, of a thickness of no more than
0.56 millimeters, in coils of any width, or in straight lengths which
are of a width measuring at least 10 times the thickness. The products
covered by this review are provided for under the following item
numbers of the Harmonized Tariff Schedule of the United States (HTSUS):
7225.10.0030, 7226.10.1030, 7226.10.5015, and 7226.10.5065. Although
the HTSUS subheadings are provided for convenience and customs
purposes, the written description of the scope of this proceeding is
dispositive.
Corporate History of AST
Prior to 1987, Terni Societa' per l'Industria e l'Elettricita'
S.p.A. (Terni), an operating company within the Finsider S.p.A.
(Finsider) group, produced electrical steel. Finsider was a holding
company that controlled all state-owned steel companies in Italy.
Finsider, in turn, was wholly-owned by a government holding company,
Instituto per la Ricostruzione Industriale (IRI). During 1987, Finsider
was restructured into four main operating companies: Terni Acciai
Speciali S.p.A. (TAS) (flat-rolled stainless steel, electrical steel);
Italsider S.p.A. (carbon steel flat-rolled products); Nuova Deltasider
S.p.A. (long products) and Dalmine S.p.A. (pipe and tube). During the
restructuring, Terni's steel facilities, including electrical steel
were transferred to the newly formed TAS.
In 1988, the Government of Italy (GOI) submitted a new
restructuring plan for the steel industry to the European Commission
(EC) for approval. Under this plan, which was approved in December
1988, Finsider and its main operating companies (TAS, Italsider S.p.A.,
and Nuova Deltasider S.p.A.) entered into liquidation and a new
company, ILVA S.p.A. (ILVA) was created with some of the assets and
liabilities of the liquidating companies. The plan also envisioned the
closure of certain plants and the sale of others to private investors,
which was carried out by ILVA between 1990 and 1992. With respect to
TAS, some of its liabilities, as well as its manufacturing and other
assets were transferred to ILVA on January 1, 1989, except for the
production of forgings, round bars, and pressure vessels, which
remained with TAS in liquidation until April 1, 1990. On April 1, 1990,
these production units and certain additional liabilities were also
transferred to ILVA. After that date, TAS no longer possessed any
operating assets; only certain non-operating assets remained in TAS.
From 1989 to 1993, ILVA S.p.A. consisted of several operating
divisions: Carbon Steel Flat Products; Pipe Division; Long Products
Division; and the Specialty Steel Division located in Terni, which
produced electrical steel. In addition to these operating divisions,
the ILVA S.p.A. was the majority owner of a large number of separately
incorporated subsidiaries. Some of these subsidiaries produced various
types of steel products. Others constituted service centers, trading
companies, and an electric power company, among others. ILVA S.p.A.
together with its subsidiaries constituted the ILVA Group, which was
wholly-owned by IRI. All subsidies received prior to 1994 were received
by ILVA or its predecessors.
In September 1993, IRI endorsed a plan for the reorganization and
privatization of the ILVA Group through the splitting of ILVA's core
business into two new companies, and the rest of the ILVA Group was to
be known as ILVA Residua (a.k.a., ILVA in
[[Page 41951]]
Liquidation). In accordance with the plan, on December 31, 1993, the
Terni division of ILVA was separately incorporated by a demerger of
ILVA into Acciai Speciali Terni S.r.l. (AST S.r.l.) (specialty steel),
and ILVA Laminati Piani S.R.l. (ILP) (carbon steel flat products). The
remainder of ILVA's assets and existing liabilities, as well as much of
the redundant workforce, were transferred to ILVA Residua.
On December 31, 1993, AST S.r.l. was established as a separate
corporation, with all shares initially owned by IRI. At approximately
the same time, a public offering for the sale of AST S.r.l. was made.
In preparation for the sale of AST, IRI converted AST S.r.l. from a
limited liability company (S.r.l.) to a stock company (S.p.A.) on
February 11, 1994. On July 14, 1994, a purchase agreement was signed by
IRI and KAI Italia S.r.l. (KAI), a privately-held holding company
jointly owned by German steelmaker Krupp AG Hoesch-Krupp and a
consortium of private Italian companies called FAR Acciai S.r.l.,
subject to approval by the EC. The EC's approval was granted on
December 21, 1994 , with shares formally changing hands effective
December 23, 1994. As of that date, the GOI no longer maintained any
ownership interest in AST or its new owners.
In December 1994, AST was sold to KAI. Between 1995 and 1998, there
were several restructurings/changes in ownership of AST and its parent
companies. As a result, at the end of the POR, AST was owned 90 percent
by Krupp Thyssen Stainless GmbH (part of the Krupp AG Hoesch-Krupp
group) and 10 percent by Fintad Securities S.A., a private Italian
company.
Change in Ownership
The Department is aware that on June 20, 2000, the Court of Appeals
for the Federal Circuit (CAFC) denied the Department's petition for
rehearing and suggestion for rehearing en banc in Delverde, SRL v.
United States, 202 F.3d 1360 (Fed. Cir. 2000) (Delverde). Although this
decision addressed a purely private change in ownership, it appears
that it may impact the Department's privatization methodology. However,
because the CAFC's decision denying a rehearing was only issued one
week before these preliminary results, the Department has not had a
sufficient opportunity to determine how Delverde may affect this
proceeding. Accordingly, for purposes of these preliminary results, we
will 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, as set forth below.
The Department invites interested parties to comment in their case
briefs on the implications of this proceeding, if any, of the Delverde
decision.
In the General Issues Appendix (GIA), appended to the Final
Affirmative Countervailing Duty Determination: Certain Steel Products
from Austria, 58 FR 37217, 37225 (July 9, 1993) (Certain Steel from
Austria), we set forth the methodology applied to the treatment of
subsidies received prior to the sale of a government-owned company to a
private entity (i.e., privatization), or the spin-off (i.e., sale) of a
productive unit from a government-owned company to a private entity.
Under this methodology, we estimate the portion of the purchase
price attributable to prior subsidies. We do this by first dividing the
sold company's subsidies by the company's net worth for each year
during the period beginning with the earliest point at which non-
recurring subsidies would be attributable to the period of review (POR)
and ending one year prior to the sale of the company. We then take the
simple average of these ratios. This average serves as a reasonable
estimate of the percent that subsidies constitute of the overall value
of the company. Next, we multiply this ratio by the purchase price to
derive the portion of the purchase price attributable to the payment 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 the company is sold. See id. at
37263.
With respect to the spin-off of a productive unit, consistent with
the Department's methodology set out above, we analyze the sale of a
productive unit to determine what portion of the sales 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 apply this ratio to the net present
value of the seller's remaining subsidies. The result of this
calculation yields the amount of remaining subsidies attributable to
the spun-off productive unit. We next estimate the portion of the
purchase price going towards repayment of prior subsidies in accordance
with the methodology set out above, and deduct it from the maximum
amount of subsidies that could be attributable to the spun-off
productive unit. Id. at 37269.
Extension of Final Results
Section 751(a)(3)(A) of the Act requires the Department to make a
final determination within 120 days after the date on which the
preliminary results are published. However, if it is not practicable to
complete the review within this time period, section 751(a)(3)(A) of
the Act allows the Department to extend the time period for the final
results to 180 days. Due to the complex nature of the issues in this
case, we have determined that it is not practicable to complete the
final results for this review within the original time limit.
Therefore, the Department is extending the time limit for the final
results to 180 days from the date of publication of the preliminary
results.
Subsidies Valuation Information
Allocation Period
AST was investigated in two recent countervailing duty
investigations. See Final Affirmative Countervailing Duty
Determination: Stainless Steel Sheet and Strip in Coils from Italy, 64
FR 30624, 30627 (June 8, 1999) (Stainless Sheet and Strip); Final
Affirmative Countervailing Duty Determination: Stainless Steel Plate in
Coils from Italy, 64 FR 15508, 15511, 15520 (March 31, 1999) (Stainless
Plate in Coils). In those investigations, the Department allocated
subsidies received by AST using a 12-year average useful life (AUL).
The same subsidies being investigated in this current review of AST
were also investigated in Stainless Sheet and Strip and Stainless Plate
in Coils. Therefore, we preliminarily determine that it is reasonable
to maintain the same 12-year allocation period for the identical
subsidies received by AST.
Equityworthiness
In prior investigations and reviews, we found ILVA/AST's
predecessor companies unequityworthy from 1984 through 1988, and from
1991 through 1992. See, e.g., Final Affirmative Countervailing Duty
Determination: Grain-Oriented Electrical Steel from Italy, 59 FR 18357,
18358 (April 18, 1994) (Electrical Steel); Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from Italy,
58 FR 37327, 37328 (July 9, 1993) (Certain Steel), Stainless Plate in
Coils, 64 FR at 15511, and Final Affirmative Countervailing Duty
Determination: Certain Stainless Steel Wire Rod from Italy, 63 FR
40474, 40477 (July 29, 1998) (Wire Rod). No new
[[Page 41952]]
information or evidence of changed circumstances have been submitted in
this review that would lead us to reconsider these findings.
Section 351.507(a)(3) of the Department's regulations provides that
a determination that a firm is unequityworthy constitutes a
determination that the equity infusion was inconsistent with usual
investment practices of private investors. In such cases, the
Department will then apply the methodology described in section
351.507(a)(6) of the regulations, and treat the equity infusion as a
grant. Use of the grant methodology for equity infusions into an
unequityworthy company is based on the premise that an
unequityworthiness finding by the Department is tantamount to saying
that the company could not have attracted investment capital from a
reasonable investor in the infusion year based on the available
information.
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. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from France, 58 FR 37304 (July 9, 1993), and Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Venezuela, 62 FR 55014, 55018 (October 21, 1997). The Department will
consider a firm to be uncreditworthy if it is determined that, based on
information available at the time of the government-provided loan, the
firm could not have obtained a long-term loan from conventional
sources. See 19 CFR 351.505(a)(4)(i).
TAS and ILVA were found to be uncreditworthy from 1986 through
1993. See Electrical Steel, 59 FR at 18358; Stainless Plate in Coils,
64 FR at 15511; Wire Rod, 63 FR at 40477. No new information has been
presented in this review that would lead us to reconsider these
findings. Therefore, consistent with our past practice, we continue to
find TAS and ILVA uncreditworthy from 1986 through 1993. See, e.g.,
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Brazil, 58 FR 37295, 37297 (July 9, 1993). We did not
analyze AST's creditworthiness in the years 1994 through 1998, because
the company did not negotiate new loans with the GOI or the EC during
these years, nor did it receive any new subsidies that were allocated
over time.
Benchmarks for Long-Term Loans and Discount Rates
Consistent with the Department's finding in Wire Rod, 63 FR at
40476-77, Stainless Plate in Coils, 64 FR at 15510, and Final
Affirmative Countervailing Duty Determination: Certain Cut-to-Length
Carbon-Quality Steel Plate from Italy, 64 FR 73244, 73247-48 (December
29, 1999) (CTL Plate), we have based our discount rates on the Italian
Bankers' Association (ABI) rates. The ABI rate is the average of the
short-term interest rates on overdraft facilities commercial banks
charge to the segment of high quality borrowers. In calculating the
interest rate applicable to a borrower, commercial banks typically add
a spread ranging from 0.55 percent to 4.0 percent onto the ABI rate,
which is determined by the company's financial health.
In CTL Plate, we found that the published ABI rates do not include
amounts for fees, commissions, and other borrowing expenses. However,
information on the borrowing expenses on overdraft loans for 1998,
which was placed on that record, was used as an approximation of
expenses on long-term commercial loans. That information shows that
expenses on overdraft loans range from 6.0 to 11.0 percent of interest
charged. Such expenses, along with the applied spread, raise the
effective interest rate that a company would pay. CTL Plate, 64 FR at
73248. Because it is the Department's practice to use effective
interest rates, where possible, we are including an amount for these
expenses in the calculation of our effective benchmark rates. See 19
CFR 351.505(a)(1). Therefore, we have added the average of the spread
(i.e., 2.28 percent) and borrowing expenses (i.e., 8.5 percent of the
interest charged) to the yearly ABI rates to calculate the effective
discount rates.
For the years in which AST or its predecessor companies were
uncreditworthy (see ``Creditworthiness'' section above), we calculated
discount rates in accordance with the formula for constructing a long-
term benchmark interest rate for uncreditworthy companies as stated in
section 351.505(a)(3)(iii) of the Department's regulations. This
formula requires values for the probability of default by
uncreditworthy and creditworthy companies. For the probability of
default by an uncreditworthy company, we relied on the weighted-average
cumulative default rates reported for the Caa to C-rated category of
companies as published in Moody's Investors Service, ``Historical
Default Rates of Corporate Bond Issuers, 1920--1997'' (February
1998).\1\ For the probability of default by a creditworthy company, we
used the weighted-average cumulative default rates reported for the Aaa
to Baa-rated categories of companies in the study. For non-recurring
subsidies, we based the average cumulative default rates for both
uncreditworthy and creditworthy companies on a 12-year term, since all
of AST's allocable subsidies were based on this allocation period.
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\1\ We note that since publication of the regulations, Moody's
Investors Service no longer reports default rates for Caa to C-rated
category of companies. Therefore for the calculation of
uncreditworthy interest rates, we will continue to rely on the
default rates as reported in Moody Investor Service's publication
dated February 1998.
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In addition, AST had one long-term, fixed-rate loan under ECSC
Article 54 outstanding during the POR, denominated in U.S. dollars.
Therefore, we have selected a U.S. dollar-based interest rate as our
benchmark. See 19 CFR 351.505(a)(2)(i). Consistent with Wire Rod, 63 FR
at 40486, and CTL Plate, 64 FR at 73248, we have used as our benchmark
the average yield to maturity on selected long-term corporate bonds as
reported by the U.S. Federal Reserve, since the loan was denominated in
U.S. dollars. We used these rates since we were unable to find a long-
term borrowing rate for loans denominated in U.S. dollars in Italy.
Because ILVA was uncreditworthy in the year the loan was contracted, we
calculated the uncreditworthy benchmark rate pursuant to section
351.505(a)(3)(iii) of the Department's regulations.
I. Programs Preliminarily Determined To Be Countervailable Government
of Italy Programs
A. Equity Infusions to TAS and ILVA.--The GOI, through IRI,
provided new equity capital to TAS or ILVA between 1987 and 1992
(although there were no allegations of equity infusions in 1989 and
1990). These equity infusions were found countervailable in Electrical
Steel and Stainless Plate in Coils. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding. For equity infusions originally
provided to TAS, the predecessor company to ILVA that produced
electrical steel, we treated these equity infusions as though they had
flowed directly through ILVA to AST when the specialty steel (including
subject merchandise) assets were transferred from ILVA to AST. See
Electrical Steel, 59 FR at 18360; Stainless Plate in Coils, 64 FR at
15511-12.
[[Page 41953]]
We have treated these equity infusions as non-recurring grants
given in the year the infusion was received because each required a
separate authorization. We allocated the equity infusions over a 12-
year AUL. Because TAS and ILVA were uncreditworthy in the years the
equity infusions were received, we constructed uncreditworthy discount
rates to allocate the benefits over time. See ``Subsidies Valuation
Information'' section, above.
We applied the repayment portion of our change in ownership
methodology to all of the equity infusions described above to determine
the subsidy allocable to AST after its privatization. We divided this
amount by AST's total consolidated sales during the POR. On this basis,
we preliminarily determine the net countervailable subsidy to be 0.97
percent ad valorem for AST.
B. Debt Forgiveness: 1988-90 Restructuring Plan.--As discussed
above in the ``Corporate History'' section of this notice, the GOI
liquidated Finsider and its main operating companies, including TAS, in
1988 and assembled the group's most productive assets into a new
operating company, ILVA. Although most of TAS's productive assets were
transferred to ILVA, not all of its liabilities were transferred;
rather, many liabilities remained with TAS which had to be repaid,
assumed or forgiven. In 1990, additional assets and liabilities of TAS,
Italsider and Finsider were transferred to ILVA. See Electrical Steel,
59 FR at 18359; Stainless Plate in Coils, 64 FR at 15508-09; CTL Plate,
64 FR at 73249.
In 1989, IRI forgave 99,886 million lire owed to Finsider by TAS.
See Electrical Steel, 59 FR at 18359. Even with this debt forgiveness,
a substantial amount of liabilities remained with TAS. In addition,
losses associated with the transfer of assets to ILVA were left behind
in TAS. These losses occurred because the value of the transferred
assets had to be written down. As TAS gave up assets whose book value
was higher than their appraised value, it was forced to absorb the
losses. These losses were generated during two transfers as reflected
in: (1) An extraordinary loss in TAS's 1988 Annual Report and (2) a
reserve account created in 1989 for anticipated losses with respect to
the 1990 transfer.
In Electrical Steel, Stainless Plate in Coils, and CTL Plate, we
determined that the debt and loss coverage provided to ILVA in 1989 and
1990, constituted countervailable subsidies within the meaning of
section 771(5)(B)(i) of the Act. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding.
To determine the benefit from these subsidies, we have treated
IRI's forgiveness of TAS's 1989 debt owed to Finsider and the loss
resulting from the 1989 write-down as grants received in 1989. The
second asset write-down and the debt outstanding after the 1990
transfer were treated as grants received in 1990. We treated these as
non-recurring grants because the company did not receive them on an on-
going basis. Because ILVA was uncreditworthy in 1989 and 1990, the
years in which the assistance was provided, we used constructed
uncreditworthy discount rates to allocate the benefits over time. We
allocated the debt coverage provided in 1989 and 1990, over a 12-year
AUL. See the ``Subsidies Valuation Information'' section, above.
We applied the repayment portion of our change in ownership
methodology to the debt forgiveness and loss coverage to determine the
amount of the subsidy allocable to AST after its privatization. We
divided this amount by AST's total consolidated sales during the POR.
On this basis, we preliminarily determine the net countervailable
subsidy to be 2.66 percent ad valorem for AST.
C. Debt Forgiveness: 1993-1994 Restructuring Plan.--As mentioned in
the ``Corporate History'' section above, in September 1993, IRI
endorsed a plan for the reorganization and privatization of the ILVA
Group, which was submitted to the EC for its approval. The
reorganization provided for splitting ILVA's core business into two new
companies, AST and ILP, and placing the remaining assets, as well as
liabilities and redundant workers in ILVA Residua. Under the
restructuring plan, ILVA Residua would sell the productive units, use
the proceeds to reduce ILVA's debt prior to liquidation, and IRI (i.e.,
the Italian government) would absorb any remaining debt.
As of December 31, 1993, the majority of ILVA's viable
manufacturing activities had been separately incorporated (or
``demerged'') into either AST or ILP, thus, ILVA Residua became
essentially a shell company with liabilities far exceeding assets. In
contrast, AST and ILP, now ready for privatization, had operating
assets and relatively modest debt loads. The EC approved the GOI's
restructuring and privatization plan for ILVA in its Commission
Decision 94/259/ECSC, dated April 12, 1994. This EC decision states
that IRI would take over ILVA Residua's residual indebtedness, cover
expenditures of 1,197 billion lira, and continue to be involved in ILVA
Residua's activities until its liquidation. It further states that if
the privatization and reorganization program was strictly implemented,
the ILVA group, namely AST and ILP would have a reasonable chance of
being viable by the end of 1994. See Stainless Plate in Coils, 64 FR at
15512; CTL Plate, 64 FR at 73251.
In Stainless Plate in Coils and Stainless Sheet and Strip, we
determined that AST received a countervailable subsidy in 1993, when
the majority of ILVA's debt was placed in ILVA Residua, rather than
being proportionately allocated to AST and ILP. See Stainless Plate in
Coils, 64 FR at 15512; Stainless Sheet and Strip, 64 FR at 30628. In
addition to the debt that was placed in ILVA Residua, we determined
that the asset write-downs which ILVA took in 1993, as part of the
restructuring/privatization plan, were countervailable subsidies under
section 771(5)(B)(i) of the Act. The write-down of the assets in 1993
increased the losses to be covered in liquidation. It is the
Department's position that when losses, which are later covered by a
government, can be tied to specific assets, those assets bear the
liability for the losses that resulted from the write-downs. No new
information or evidence of changed circumstances has been submitted in
this review that would warrant reconsideration of these findings. See
also, CTL Plate, 64 FR at 73251.
The amount of debt and losses resulting from the asset write-downs
that should have been attributable to AST, but were instead placed with
ILVA Residua, was equivalent to debt forgiveness for AST at the time of
the ILVA demerger. In accordance with our practice, debt forgiveness is
treated as a grant which constitutes a financial contribution under
section 771(5)(D)(i) of the Act, and provides a benefit in the amount
of the debt forgiveness.
In CTL Plate, we determined that the liquidation process of ILVA
did not occur under the normal application of a provision of Italian
law and, therefore, the debt forgiveness is de facto specific under
section 771(5A)(D)(iii)(II) of the Act. See CTL Plate, 64 FR at 73252.
As stated above, the liquidation of ILVA was done in the context of a
massive restructuring/privatization plan of the Italian steel industry
undertaken by the GOI and approved and monitored by the EC. Because
ILVA's liquidation was part of an extensive state-aid package to
privatize the Italian state-owned steel industry, and the debt
forgiveness was received by only privatized ILVA operations, we
determined that the assistance provided under the 1993-
[[Page 41954]]
1994 Restructuring Plan was de facto specific. See CTL Plate, 64 FR at
73252.
Consistent with the methodology that we employed in Stainless Plate
in Coils, 64 FR at 15513, Stainless Sheet and Strip, 64 FR at 30628,
and CTL Plate, 64 FR at 73252, the amount of liabilities that we
attributed to AST is based on the gross liabilities left behind in ILVA
Residua, as reported in the EC's 10th Monitoring Report.\2\ In
calculating the amount of unattributable liabilities remaining after
the demerger of AST, we started with the most recent ``total comparable
indebtedness'' amount from the 10th Monitoring Report, which represents
the indebtedness, net of debts transferred in the privatization of ILVA
Residua's operations and residual asset sales, of a theoretically
reconstituted, pre-liquidation ILVA. In order to calculate the total
amount of unattributed liabilities which amounted to countervailable
debt forgiveness, we made adjustments (additions/subtractions) to this
figure for the following: the residual assets that had not actually
been liquidated as of the 10th and final Monitoring Report; assets that
comprised SOFINPAR, a real estate company (because these assets were
sold prior to the demergers of AST and ILP); the liabilities
transferred to AST and ILP; income received from the privatization of
ILVA Residua's operations; the amount of the asset write-downs
specifically attributable to AST, ILP, and ILVA Residua companies; and
the amount of debts transferred to Cogne Acciai Speciali (CAS), an ILVA
subsidiary that was left behind in ILVA Residua and later spun-off, as
well as the amount of ILVA's debt attributed to CAS and countervailed
in Wire Rod, 63 FR at 40478.
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\2\ In CTL Plate, 64 FR at 73252, we stated that we would prefer
to base our calculation on information at the time the relevant
portion of ILVA's assets were demerged. However, the information
contained in ILVA's financial statement was found to be unreliable
by the company's auditors. Therefore, as facts otherwise available,
we used the information contained in the EC's 10th Monitoring Report
which provides the most reliable data for determining the benefit
conferred by this program.
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The amount of liabilities remaining represents the pool of
liabilities that were not individually attributable to specific ILVA
assets. We apportioned this debt to AST, ILP, and operations sold from
ILVA Residua based on their relative asset values. We used the total
consolidated asset values reported in AST's and ILP's financial
statements for the year ending December 31, 1993. For ILVA Residua, we
used the sum of the purchase price plus debts transferred as a
surrogate for the viable asset value of the operations sold from ILVA
Residua. Because we subtracted a specific amount of ILVA's gross
liabilities attributed to CAS in Wire Rod, we did not include its
assets in the amount of ILVA Residua's privatized assets. Also, we did
not include in ILVA Residua's viable assets the assets of the one ILVA
Residua company sold to IRI, because this sale does not represent sales
to a non-governmental entity.
We have treated the debt forgiveness to AST as a non-recurring
subsidy because it was a one-time, extraordinary event. The discount
rate we used in our grant formula was a constructed uncreditworthy
benchmark rate based on our determination that ILVA was uncreditworthy
in 1993. See ``Benchmarks for Long-Term Loans and Discount Rates'' and
``Creditworthiness'' sections, above. We followed the methodology
described in the ``Change in Ownership'' section above to determine the
amount appropriately allocated to AST after its privatization. We
divided this amount by AST's total consolidated sales during the POR.
On this basis, we preliminarily determine the net countervailable
subsidy to be 7.74 percent ad valorem for AST.
D. Interest Contributions on IRI Loans/Bond Issues Under Law 675/
77.--Law 675/77 was designed to provide GOI assistance in the
restructuring and reconversion of Italian industries. There are six
types of assistance available under this law: (1) Grants to offset
interest payable on bank loans; (2) mortgage loans provided by the
Ministry of Industry (MOI) at subsidized interest rates; (3) grants to
reduce interest payments on loans financed by IRI bond issues; (4)
capital grants for the South; (5) value-added taxed (VAT) reductions on
capital good purchases for companies in the South; and (6) personnel
retraining grants.
Under Law 675/77, IRI issued bonds to finance restructuring
measures of companies within the IRI group. The proceeds from the sale
of the bonds were lent to IRI companies. During the POR, AST had long-
term variable interest rate loans outstanding that were financed by IRI
bond issues for which the effective interest rate was reduced by
interest contributions made by the GOI.
The Department previously found this program to be countervailable
in Electrical Steel, 59 FR at 18361 and Stainless Plate in Coils, 64 FR
at 15513. No new information or evidence of changed circumstances has
been submitted in this proceeding to warrant reconsideration of this
finding.
To measure the benefit from these loans, we compared the amount of
interest that should have been paid at the benchmark interest rate to
the amounts paid by AST, less the interest rebates claimed during the
POR. We divided the resulting difference by AST's total consolidated
sales during the POR. On this basis, we preliminarily determine the net
countervailable subsidy from this program to be 0.09 percent ad
valorem.
E. Pre-Privatization Retirement Benefits Under Law 451/94.--Law
451/94 authorized early retirement packages for steel workers for the
years 1994 through 1996. The law entitled men of at least 50 years of
age and women of 47 years of age with at least 15 years of pension
contributions to retire early. Benefits applied for during the 1994-
1996 period continue until the employee reaches his/her natural
retirement age, up to a maximum of ten years.
In Wire Rod, 64 FR at 40480, Stainless Plate in Coils, 64 FR at
15514, and CTL Plate, 64 FR at 73253, we found this program to be
specific, and thus countervailable. In CTL Plate and Stainless Plate in
Coils, the Department stated that at the time the agreement was being
reached with the unions and the labor ministry on the terms of the lay
offs, ILVA and its workers were aware that government contributions
would ultimately be made to workers benefits. In such situations, i.e.,
where the company and its workers are aware at the time of their
negotiations that the government will be making contributions to the
workers' benefits, the Department's practice is to treat half of the
amount paid by the government as benefitting the company. See
Countervailing Duties; Final Rule, 63 FR 65348, 65380 (November 25,
1998). No new information or evidence of changed circumstances has been
submitted in this proceeding to warrant reconsideration of this
finding.
Consistent with the Department's practice with regard to allocation
of worker-related subsidies, we have treated benefits to AST under Law
451/94 as recurring grants expensed in the year of receipt. See
Stainless Plate in Coils, 64 FR at 15515; Wire Rod, 64 FR at 40480. To
calculate the benefit received by AST during the POR, we multiplied the
number of AST employees by employee type (blue collar, white collar,
and senior executive) who retired early by the average salary by
employee type. Since the GOI was making payments to these workers
equaling 80 percent of their salary, we attributed one-half of that
amount to AST. Therefore, we multiplied the total wages of the early
retirees by 40 percent. We then divided this total amount by AST's
total consolidated sales during the POR. On
[[Page 41955]]
this basis, we preliminarily determine a net countervailable subsidy of
0.69 percent ad valorem.
As mentioned in the ``Corporate History'' section of this notice,
in September 1993, IRI endorsed a plan for the reorganization and
privatization of the ILVA Group. In December 1993, IRI initiated the
splitting of ILVA's main productive assets into two new companies, ILP
and AST. On December 31, 1993, ILP and AST became separately
incorporated firms. The remainder of ILVA's productive assets and
existing liabilities, along with much of the redundant workforce, was
placed in ILVA Residua. The GOI issued two decrees under Law 451 to
place the early retirees from ILVA into ILVA Residua. In CTL Plate, the
Department found that by the GOI placing much of the redundant
workforce in ILVA Residua, ILP and AST were able to begin their
respective operations with a relatively ``clean slate'' in advance of
their privatizations. ILP and AST were relieved of having to assume
their respective portions of those redundant workers that were placed
in ILVA Residua and received early retirement benefits under Law 451/
94. See CTL Plate, 64 FR at 73254. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding. Therefore, we preliminarily determine
that AST has received a countervailable benefit since the company was
relieved of a financial obligation that would otherwise have been due.
To calculate the benefit received by AST during the POR, for
retired employees that were placed with ILVA Residua under the first
decree dated December 7, 1994, we first multiplied the number of
employees according to worker type (i.e., blue collar) times the
average salary for each employee type, using the same average salaries
for AST employees. Since the GOI was making payments to these workers
equaling 80 percent of their salary, we attributed one-half of that
amount to AST. Therefore, we multiplied the total wages of the early
retirees by 40 percent. We then divided this total amount by AST's
total consolidated sales during the POR.
The GOI allocated additional slots to workers in ILVA Residua under
a second decree dated December 30, 1996. However, the number of workers
attributable to AST or the worker types were not submitted in the
questionnaire responses. Therefore, we first needed to determine the
appropriate number of early retirees placed in ILVA Residua that should
have been apportioned to AST. To determine this number, we took the
asset value of AST in relation to the asset value of ILVA at the time
of the spin-off of AST. Next, we multiplied this percentage by the
total number of ILVA Residua early retirees, pursuant to the second
decree. It was then necessary to estimate the number of employees
according to worker types. To do this, we calculated the ratio of
employees according to worker types under the first decree. We then
multiplied the number of employees according to worker type (i.e., blue
collar) times the average salary for each employee type, and multiplied
the result by 40 percent. We then divided this total amount by AST's
total consolidated sales during the POR. On this basis, we
preliminarily determine a net countervailable subsidy attributable to
AST for the retirees placed with ILVA Residua under both decrees to be
0.13 percent ad valorem. Therefore, we preliminarily determine the
combined rate for retired employees placed directly with AST and those
placed with ILVA Residua to be 0.82 percent ad valorem.
F. Exchange Rate Guarantees under Law 796/76.--Law 796/76
established the exchange risk guarantee on foreign currency loans
program to minimize the risk of exchange rate fluctuations on loans
contracted in foreign currency. All firms that contract foreign
currency loans from the European Coal and Steel Community (ECSC) or the
Council of Europe Resettlement Fund (CERF) could apply to the Ministry
of the Treasury (MOT) to obtain an exchange rate guarantee. The MOT,
through the Ufficio Italiano di Cambi (UIC), calculates loan payments
based on the lire-foreign currency exchange rate in effect at the time
the loan is contracted (i.e., the base rate). The program establishes a
floor and ceiling for exchange rate fluctuations, limiting the maximum
fluctuation a borrower would face to two percent above or below the
base rate. If the lire depreciates more than two percent against the
foreign currency, a borrower is still able to purchase foreign currency
at the established (guaranteed) ceiling rate. The MOT absorbs the loss
in the amount of the difference between the guaranteed rate and the
actual rate. If the lire appreciates against the foreign currency, the
MOT realizes a gain in the amount of the difference between the floor
rate and the actual rate.
This program was terminated effective July 10, 1992, by Decree Law
333/92. However, the pre-existing exchange rate guarantees continue on
any loans outstanding after that date. AST had outstanding ECSC loans
during the POR that benefitted from these guarantees. The Department
found this program to be countervailable in Stainless Plate in Coils,
64 FR at 15513, and CTL Plate, 64 FR at 73254. No new information or
evidence of changed circumstances has been submitted in this proceeding
to warrant reconsideration of this finding.
Once a loan is approved for exchange rate guarantees, access to
foreign exchange at the established rate is automatic and occurs at
regular intervals throughout the life of the loan. Therefore, we are
treating the benefits under this program as recurring grants. AST and
its predecessor companies from which these loans were transferred, paid
a foreign exchange commission fee to the UIC for each payment made. We
determine that this fee qualifies as an ``* * * application fee,
deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy.'' See section
771(6)(A) of the Act. Thus, for the purposes of calculating the
countervailable benefit, we have added the foreign exchange commission
to the total amount AST paid under this program during the POR. See
Wire Rod, 63 FR at 40479; Stainless Plate in Coils, 64 FR at 15513; CTL
Plate, 64 FR at 73255.
Under this program, we have calculated the total countervailable
benefit as the difference between the total loan payment due in foreign
currency, converted at the current exchange rate, less the sum of the
total loan payment due in foreign currency converted at the guaranteed
rate and the exchange rate commission. We divided this amount by AST's
total consolidated sales during the POR. On this basis, we
preliminarily determine the net countervailable subsidy to be 0.12
percent ad valorem.
European Commission Programs
A. ECSC Loans Under Article 54.--Article 54 of the 1951 ECSC Treaty
established a program to provide industrial investment loans directly
to the member iron and steel industries to finance modernization and
purchase new equipment. Eligible companies apply directly to the EC
(which administers the ECSC) for up to 50 percent of the cost of an
industrial investment project. The Article 54 loans are generally
financed on a ``back-to-back'' basis. In other words, upon granting
loan approval, the ECSC borrows funds (through loans or bond issues) at
commercial rates in financial markets which it then immediately lends
to steel companies at a slightly higher interest rate. The mark-up is
to cover the costs of administering the Article 54 program.
[[Page 41956]]
The Department has found Article 54 loans to be specific
countervailable subsidies in several proceedings, including Electrical
Steel, 59 FR at 18362, CTL Plate, 64 FR at 73256, and Stainless Plate
in Coils, 64 FR at 15515, because loans under this program are provided
only to iron and steel companies. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this finding.
AST had one long-term, fixed-rate U.S. dollar denominated loan
outstanding during the POR. Consistent with Wire Rod, 63 FR at 40486
and CTL Plate, 64 FR at 73256, we have used as our benchmark the
average yield to maturity on selected long-term corporate bonds as
reported by the U.S. Federal Reserve, since this loan was denominated
in U.S. dollars. We used this rate because we were unable to find a
long-term borrowing rate for loans denominated in U.S. dollars in
Italy. The interest rate charged on AST's Article 54 loan, which was
contracted in 1978 was reduced in 1987. Therefore, for the purpose of
calculating the benefit, we have treated this loan as if it was
contracted on the date of the rate adjustment. Because ILVA was
uncreditworthy in the year this loan was contracted, 1987, we
calculated the uncreditworthy benchmark rate as pursuant to section
351.505(a)(3)(iii) of the Department's regulations. See ``Benchmark for
Long-Term Loans and Discount Rates'' section, above.
To calculate the benefit under this program, pursuant to section
351.505(c)(2) of the regulations, we employed the Department's long-
term fixed-rate loan methodology. We compared the amount of interest
that should have been paid at the benchmark interest rate for
uncreditworthy companies to the amount paid by AST during the POR. We
then divided the benefit by AST's total consolidated sales during the
POR. On this basis, we preliminarily determine the net countervailable
subsidy to be 0.01 percent ad valorem.
B. European Social Fund (ESF).--The ESF, one of the Structural
Funds operated by the EC, was established to improve workers'
opportunities through training and to raise their standards of living
throughout the community by increasing their employability. Like other
EC structural funds, there are six different Objectives (sub-programs)
identified under ESF: Objective 1 covers projects located in
underdeveloped regions; Objective 2 addresses areas in industrial
decline; Objective 3 relates to the employment of persons under 25;
Objective 4 funds training for employees in companies undergoing
restructuring; Objective 5 pertains to agricultural areas; and
Objective 6 pertains to regions with very low population (i.e., the far
north).
During the POR, AST received ESF assistance under Objective 4. To
qualify for Objective 4 funding, AST had to propose programs designed
to re-train its workers to increase their productivity. The Department
considers training programs to provide a countervailable benefit to a
company when the company is relieved of an obligation it would have
otherwise incurred. In Stainless Plate in Coils and Stainless Sheet and
Strip, the Department found this program to be countervailable. See
Stainless Plate in Coils, 64 FR at 15516; Stainless Sheet and Strip, 64
FR at 30630. No new information or evidence of changed circumstances
has been submitted in this review to warrant reconsideration of this
finding.
The Department normally considers the benefits from worker training
programs to be recurring. However, as determined in Stainless Plate in
Coils, these grants relate to specific, individual projects which
require separate government approval, therefore, the benefits under
this program are treated as non-recurring grants. See Stainless Plate
in Coils, 64 FR at 15517; Wire Rod, 63 FR at 40488; see also Final
Affirmative Countervailing Duty Determination: Certain Pasta
(``Pasta'') From Italy, 61 FR 30288, 30295 (June 14, 1996) (Pasta).
However, because the benefit received under this program is less than
0.5 percent of AST's sales during the relevant year, we have expensed
these grants in the year of receipt. We divided the benefit by AST's
total consolidated sales during the POR. On this basis, we
preliminarily determine the net countervailable subsidy to be 0.03
percent ad valorem.
III. Programs Preliminarily Determined To Be Not Used
1. Rotation Fund
2. Grants Under Law 10/81--Energy Conservation
3. Brite-EuRam Project Grants
4. Loan from IRI to KAI for the Purchase of AST
5. Lending from the Ministry of Industry under Law 675/77
6. Mortgage Loans from the Ministry of Industry Under Law 675/77
7. Personnel Retraining Grants under Law 675/77
8. Capital Grants under Law 675/77
9. Reductions of the VAT under Law 675/77
10. Worker Training under Law 181/89 (Early Retirement Provision)
11. Reindustrialization under Law 181/89
12. Law 488/92 Investment Grants
13. Subsidized Export Financing Under Law 227/77
14. Finsider Loans
15. Interest Subsidies under Law 617/81
16. Financing under Law 464/7
17. Interest Contributions under the Sabatini Law (Law 1329/65)
18. Social Security Exemptions
19. ILOR and IRPEG Exemptions
20. Law 345/92: Benefits for Early Retirement
Preliminary Results of Review
In accordance with section 777A(e)(1) of the Act, we calculated an
individual ad valorem subsidy rate for the producer/exporter subject to
this administrative review. For the period January 1, 1998 through
December 31, 1998, we preliminarily determine the net subsidy for AST
to be 12.44 percent ad valorem.
If the final results of this review remain the same as these
preliminary results, the Department intends to instruct the U.S.
Customs Service (Customs) to assess countervailing duties as indicated
above. The Department also intends to instruct Customs to collect cash
deposits of estimated countervailing duties of 12.44 percent of the
f.o.b. invoice price on all shipments of the subject merchandise from
reviewed companies, entered, or withdrawn from warehouse, for
consumption on or after the date of publication of the final results of
this review.
Because the URAA replaced the general rule in favor of a country-
wide rate with a general rule in favor of individual rates for
investigated and reviewed companies, the procedures for establishing
countervailing duty rates, including those for non-reviewed companies,
are now essentially the same as those in antidumping cases, except as
provided for in section 777A(e)(2)(B) of the Act. The requested review
will normally cover only those companies specifically named. See 19 CFR
351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which
a review was not requested, duties must be assessed at the cash deposit
rate, and cash deposits must continue to be collected, at the rate
previously ordered. As such, the countervailing duty cash deposit rate
applicable to a company can no longer change, except pursuant to a
request for a review of that company. See Federal-Mogul Corporation and
the Torrington Company v. United States, 822 F.Supp. 782 (CIT 1993) and
Floral Trade Council v. United States, 822 F.Supp. 766 (CIT
[[Page 41957]]
1993) (interpreting 19 CFR 353.22(e) (now 19 CFR 351.212(c)), the
antidumping regulation on automatic assessment, which is identical to
19 CFR section 355.22(g). Therefore, the cash deposit rates for all
companies, except those covered by this review, will be unchanged by
the results of this review.
We will instruct Customs to continue to collect cash deposits for
non-reviewed companies at the most recent company-specific or country-
wide rate applicable to the company. Accordingly, the cash deposit
rates that will be applied to non-reviewed companies covered by this
order will be the rate for that company established in the most
recently completed segment of this administrative proceeding under the
Act, as amended by the URAA. If such a review has not been conducted,
the rate established in the most recently completed administrative
proceeding conducted pursuant to the statutory provisions that were in
effect prior to the URAA amendments is applicable. See Electrical
Steel, 59 FR at 18357. These rates shall apply to all non-reviewed
companies until a review is requested. In addition, for the period
January 1, 1998 through December 31, 1998, the assessment rates
applicable to all non-reviewed companies covered by this order are the
cash deposit rates in effect at the time of entry.
Public Comment
Pursuant to 19 CFR 351.224(b), the Department will disclose to
parties to the proceeding any calculations performed in connection with
these preliminary results within five days after the date of
publication of this notice. Pursuant to 19 CFR 351.309, interested
parties may submit written comments in response to these preliminary
results. Case briefs must be submitted within 30 days after the date of
publication of this notice, and rebuttal briefs, limited to arguments
raised in case briefs, must be submitted no later than five days after
the time limit for filing case briefs. Parties who submit argument in
this proceeding are requested to submit with the argument: (1) A
statement of the issues, and (2) a brief summary of the argument.
Further, we would appreciate it if parties submitting written comments
would provide the Department with an additional copy of the public
version of any such comments on diskette. Case and rebuttal briefs must
be served on interested parties in accordance with 19 CFR 351.303(f).
Also, pursuant to 19 CFR 351.310, within 30 days of the date of
publication of this notice, interested parties may request a public
hearing on arguments to be raised in the case and rebuttal briefs.
Unless the Secretary specifies otherwise, the hearing, if requested,
will be held two days after the date for submission of rebuttal briefs.
The Department will publish the final results of this administrative
review, including the results of its analysis of issues raised in any
case or rebuttal brief or at a hearing.
This notice serves as a preliminary reminder to importers of their
responsibility to file a certificate regarding the reimbursement of
countervailing duties prior to liquidation of the relevant entries
during this review period. Failure to comply with this requirement
could result in the Secretary's presumption that reimbursement of
countervailing duties occurred and the subsequent assessment of double
countervailing duties.
This administrative review is issued and published in accordance
with section 751(a)(1) and 777(i)(1) of the Act (19 U.S.C. 1675(a)(1)
and 19 U.S.C. 1677f(i)(1)).
Dated: June 29, 2000.
Troy H. Cribb,
Acting Assistant Secretary for Import Administration.
[FR Doc. 00-17248 Filed 7-6-00; 8:45 am]
BILLING CODE 3510-DS-P