66 FR 11269, February 23, 2001
C-475-819
Administrative Review
POR: 1998
Public Document
MEMORANDUM
DATE: February 5, 2001
TO: Bernard T. Carreau, fulfilling the duties of
Assistant Secretary for Import Administration
FROM: Susan H. Kuhbach
Acting Deputy Assistant Secretary
Group I, Import Administration
SUBJECT: Issues and Decision Memorandum: Final Results of the 1998
Countervailing Duty Administrative Review of Certain Pasta from Italy
--------------------------------------------------------------------------
Summary
We have analyzed the case and rebuttal briefs submitted by the interested
parties in the administrative review of the countervailing duty order on
Certain Pasta from Italy. The "Methodology and Background Information" and
"Analysis of Programs" sections below describe the decisions made in this
review. Also below is the "Analysis of Comments" section which contains
the Department's response to the issues raised in the case and rebuttal
briefs. We recommend that you approve the positions we have developed in
this memorandum.
Methodology and Background Information
Change in Ownership
Background
On June 20, 2000, the Court of Appeals for the Federal Circuit
(hereinafter "the Federal Circuit" or "the Court") turned down the
Department's petition for rehearing and suggestion for rehearing en banc
of its February 2, 2000 decision in Delverde, SrL v. United States, 202
F.3d 1360 (Fed. Cir. Feb. 2, 2000), reh'g denied, (June 20, 2000)
("Delverde III"). In this decision, the Federal Circuit rejected the same
change-in-ownership methodology that we applied in Certain Pasta from
Italy: Preliminary Results and Partial Rescission of Countervailing Duty
Administrative Review, 65 FR 48479 (August 8, 2000) ("Preliminary
Results"). It held that "the Tariff Act, as amended, does not allow
Commerce to presume conclusively that the subsidies granted to the former
owner of Delverde's corporate assets automatically 'passed through' to
Delverde following the sale. Rather, the Tariff Act requires that Commerce
make such a determination by examining the particular facts and
circumstances of the sale and determining whether Delverde directly or
indirectly received both a financial contribution and benefit from the
government." Delverde III, 202 F.3d at 1364.
In the Preliminary Results, the Department stated that it had "not
received a remand from the {Court of International Trade ("CIT")} and,"
thus, had "not yet addressed what revisions to our change-in-ownership
methodology are necessary." Subsequent to the Preliminary Results, and
pursuant to the Federal Circuit's ruling, the CIT issued its Delverde III
remand order to the Department on September 29, 2000. In accordance with
this order and a subsequent extension granted by the CIT, the Department
issued its Final Results of Redetermination Pursuant to Court Remand,
Delverde SrL v. United States ("Final Redetermination") on December 4,
2000. The Final Redetermination sets forth a new change-in-ownership
approach, as does the recently issued determination of Grain-Oriented
Electrical Steel From Italy: Final Results of Countervailing Duty
Administrative Review, 66 FR 2885 (January 12, 2001) ("GOES from Italy").
We have applied this new approach in the instant review. The Department's
analysis of Delverde III, a description of our new methodology, and an
application of this methodology to the facts in the instant review follow,
below.
Interpreting Delverde III
In Delverde III, the Federal Circuit first observed that, in order to
find a countervailable subsidy on merchandise imported into the United
States, the Department must determine that a government "provid{ed},
directly or indirectly, a countervailable subsidy with respect to the
manufacture, production, or export of that merchandise." 202 F.3d at 1365,
citing 19 U.S.C. § 1671(a)(1). In order to find that a countervailable
subsidy had been provided to the "manufacture, production, or export" of
the imported merchandise, the Court found that the person who produced or
exported that merchandise must have received a financial contribution and
enjoyed a benefit from that financial contribution. Id. at 1365, 1366. In
the Court's words, a subsidy exists when "an authority provides a
financial contribution, . . . to a person and a benefit is thereby
conferred." Id., quoting 19 U.S.C. § 1677(5)(B) (emphasis added by the
Court). The Court stated that this meant that "{i}n order to conclude that
a 'person' received a subsidy, Commerce must determine that a government
provided that person with both a 'financial contribution' (or equivalent
as described in §§ 1677(5)(B)(ii) and (iii)) and a benefit." 202 F.3d at
1365 (footnote omitted). (1)
The Court next turned to the question of whether, once these conditions
had been satisfied, a change in the ownership of the subsidy recipient
would affect the countervailability of those subsidies. The Court noted
that the statute's change-in-ownership provision (§ 771(5)(F)) states that
"a subsidy cannot be concluded to have been extinguished solely by an
arm's length change of ownership." 202 F.3d at 1366. On the other hand,
the Court pointed out that "Congress did not intend the opposite, that a
change in ownership always requires a determination that a past
countervailable subsidy continues to be countervailable, regardless
whether the change in ownership is accomplished by an arm's length
transaction or not." Id. (emphasis in original). Instead, the Court stated
that the change in ownership provision "simply prohibits a per se rule
either way." Id.
The Court then considered the change-in-ownership provision in the
context of the provisions for determining the existence of a subsidy and
concluded that "the statute does not contemplate any exception" to those
requirements (of a financial contribution and a benefit) in situations
where the person who is the producer/exporter acquired corporate assets
from a distinct person who had been subsidized. Id. The Court emphasized
that the change-in-ownership provision "does not change the meaning of
'subsidy,'" and therefore "{a} subsidy can only be determined by finding
that a person," meaning the producer or exporter of the imports in
question, "received a 'financial contribution' and a 'benefit' . . . ."
Id.
The Court then held that the methodology the Department employed to
determine whether previously bestowed subsidies continued to be
countervailable following a change in ownership was not in accordance with
the statute. Id. at 1367. In particular, apparently viewing Delverde as a
different person from the original subsidy recipient based on the record
from the Department's investigation, the Court noted that
{n}owhere following its methodology did Commerce determine whether
Delverde directly or indirectly received a financial contribution and
benefit from one of the acts enumerated. Rather, Commerce's methodology
conclusively presumed that Delverde received a subsidy from the Italian
government -- i.e., a financial contribution and a benefit, simply because
it bought assets from another person who earlier received subsidies.
Id.
In accordance with the Court's holding, we have developed a two-step
inquiry into changes of ownership. See GOES from Italy. The first
requirement is to determine whether the person to which the subsidies were
given is, in fact, distinct from the person that produced the pasta
exported to the United States. If the two persons are distinct, the
original subsidies may not be attributed to the new producer/exporter. The
Department would, however, consider whether any subsidy had been bestowed
upon that producer/exporter as a result of the change-in-ownership
transaction. (2)
On the other hand, if the original subsidy recipient and the current
producer/exporter are demonstrated to be the same person, that person
benefits from the original subsidies, and its exports are subject to
countervailing duties to offset those subsidies. In other words, if the
firm under investigation is the same person as the one that received the
subsidies, nothing material has changed since the original bestowal of the
subsidy, so that the statutory requirements for finding a subsidy are
satisfied with regard to that person. In the change-in-ownership context,
the existence of a "financial contribution" and a "benefit" (conferred
prior to the change in ownership) depends on the "person" requirement and,
specifically, whether the firm under investigation is the same person as
the original, pre-change-in-ownership subsidy recipient. Where it is
demonstrated that those two entities are the same "person," we will
determine that all of the elements of a subsidy are established, i.e., we
will determine that a "financial contribution" and a "benefit" have been
received by the "person" that is the firm under investigation. Assuming
that the original subsidy had not been fully amortized under the
Department's normal allocation methodology (3) as of the period of
investigation, the Department would then continue to countervail the
remaining benefits of that subsidy. (4)
Although it is not directly relevant here, see Delverde III, 202 F.3d at
1369, we note that the decision of the WTO's Appellate Body in U.K. Lead
Bar is consistent with the analysis set forth by the Delverde III Court,
as it sets forth essentially the same two-step analysis as the Delverde
III Court. Addressing a privatization rather than a purely private
transaction, the Appellate Body's first inquiry addressed the identity of
the firm under investigation and specifically whether it was the person
that had originally received certain pre-privatization subsidies. Then,
having found that the two entities were distinct, the Appellate Body
inquired into whether a subsidy had been provided through the
privatization transaction. (5)
New Change-in-Ownership Analysis
The Delverde III Court did not explain how the Department should
determine whether the firm under investigation is or is not the same
"person" as the one that received the original subsidies. (6)
Consequently, in addressing this issue, the Department has sought
guidance, in part, from how this type of issue has been handled under U.S.
law in the general corporate context. There, a set of principles has been
developed regarding whether a legal person (7) is the same or different
for the purpose of determining whether it is appropriate to attribute
prior liabilities (or assets) to a company once it has undergone a change
in ownership.
Under these principles of corporate successorship, a mere change in a
company's name does not automatically create a new legal person, nor does
a mere change in the owners of a company, without more. Rather, the change
in name or the change in the owners may or may not result in a change in
the legal person, depending on a number of factors.
It is generally accepted that if a change in ownership is accomplished
through a simple sale of shares, the purchaser steps into the shoes of the
company being sold and becomes legally responsible for all existing and
potential liabilities of that company, absent contractual agreement to the
contrary. The most obvious example of a change in ownership accomplished
through a simple sale of shares would be where a company's shares turn
over through public trading on a stock market. In other situations, it is
a factual question as to whether the purchaser becomes legally responsible
for all existing and potential liabilities of the company or assets being
sold. Specifically, it is a question of whether the company carries on
substantially the same business after the change in ownership. Here, the
factors examined include whether there is a continuation of assets,
general business operations, locality, management, personnel, whether the
seller exits the business after the transaction, and whether the company
after the change in ownership holds itself out to be the effective
continuation of the original enterprise. If an examination of these
factors shows that the company is carrying on substantially the same
business after the change in ownership, it is legally responsible for all
existing and potential liabilities. (8)
The Department notes that, in its experience, particularly when dealing
with privatizations, it often does not encounter straightforward changes
in ownership where the status of the firm under investigation is readily
apparent. For example, it is not common for the Department to be
confronted with a change in ownership accomplished through a simple sale
of shares, which is the type of case that would most readily reveal no
change in the legal person. Similarly infrequent are cases where the firm
under investigation has simply purchased some but not all of another
firm's subsidized assets outright, which, conversely, would normally mean
that the firm under investigation was a different legal person from the
original subsidy recipient. Rather, in the cases that the Department more
usually sees, the transactions are complex and do not lend themselves to
such straightforward analysis.
In any event, although the Department has not adopted the test used in
the area of corporate successorship, it considered the principles
developed in that area to provide useful guidance to it in its development
of an approach for determining whether, in the countervailing duty
context, the firm under investigation is the same "person" as the one that
received the original subsidies. For one thing, the basic purpose in both
contexts is to determine whether there has been any meaningful change in
an entity. In addition, although the particular focus in the
countervailing duty context is on the attribution of previously bestowed
subsidy benefits rather than previously incurred liabilities as in the
corporate successorship context, the ultimate question in the
countervailing duty context is whether any liability for countervailing
duties can be attributed to an entity based on subsidy benefits bestowed
prior to a change in ownership. Furthermore, essentially the same
principles that govern corporate successor liability also govern how
previously obtained rights accrue to the corporate successor, and the
nature of those rights is not unlike that of subsidy benefits.
In developing our approach, we also considered the petitioners' arguments
regarding precedent specifically in the countervailing duty context. (9)
In this regard, the petitioners have suggested that we adopt an analysis
similar to the successor-in-interest test that the Department uses to
assign antidumping duty or countervailing duty cash deposit rates
following changes in a company's ownership or structure. Under that test,
the Department uses a fact-based approach and attempts to determine
whether the successor remains essentially the same entity as the
predecessor following a sale or merger so that it is appropriate to impose
the existing antidumping or countervailing duty cash deposit rate of the
predecessor on the successor. In making this determination, the Department
examines a number of factors including, but not limited to, changes in
management, production facilities, supplier relationships, and customer
base in an attempt to determine how the successor will likely act
subsequent to its sale or merger. (10)
We note that the inquiry that we are attempting to follow in the change-
in-ownership context is somewhat different from this inquiry. We are not
attempting to determine how the entity in question will act subsequent to
its change in ownership. Rather, our determination focuses more
fundamentally on whether the post-sale entity is the same "person" as the
subsidized pre-sale entity. For this reason, in making the "person"
determination contemplated by Delverde III, we believe that only limited
guidance can be obtained from the Department's successor-in-interest test.
With these various considerations in mind, the Department has developed
its own approach for assessing changes in the entity under consideration
that relies on a variety of factors, while regarding no single factor or
group of factors as dispositive. We did not establish an all-inclusive
list of factors to be applied in every such analysis to be conducted by
the Department. Rather, we recognized that the specific facts and
circumstances surrounding each change in ownership will be unique and,
therefore, will require a flexible approach. We did anticipate, however,
that certain factors will generally be found to be relevant to many or
most transactions examined by the Department.
As part of this approach, where appropriate and applicable, we will
analyze factors such as (1) continuity of general business operations,
including whether the successor holds itself out as the continuation of
the previous enterprise, as may be indicated, for example, by use of the
same name, (2) continuity of production facilities, (3) continuity of
assets and liabilities, and (4) retention of personnel. No single factor
will necessarily provide a dispositive indication of any change in the
entity under analysis. Instead, the Department will generally consider the
post-sale entity to be the same person as the pre-sale entity if, based on
the totality of the factors considered, we determine that the entity sold
in the change-in-ownership transaction can be considered a continuous
business entity because it was operated in substantially the same manner
before and after the change in ownership.
We note that, by taking this more comprehensive approach to analyzing the
facts and circumstances surrounding a change-in-ownership transaction, we
have attempted to address the concerns previously raised by the Department
and the courts regarding restructuring changes, namely, that such changes
not permit respondent firms to avoid prior liabilities while retaining the
benefits underlying those liabilities. For example, the CIT has noted that
while a producer may be incorporated under a different name from the
person that was previously identified as the subsidy recipient, the "new"
company may be the successor-in-interest of the original subsidy recipient
and, thus, constitute "for all intents and purposes the same entity."
British Steel plc v. United States, 879 F. Supp. 1254, 1276, 1279, 1283,
1287 (CIT 1995) (British Steel I), rev'd, 127 F.3d 1471 (Fed. Cir. 1997).
(11)
As is evident below, when we apply this approach to the facts and
circumstances of the Delverde change in ownership, as shown by the record
of this reviw, we find that the pre-sale and post-sale entities are not
distinct persons. It is on that basis that we have attributed the
Government of Italy ("GOI") subsidies provided prior to the change in
ownership to the post-sale entity, Delverde, and we, therefore, do not
reach the question of whether a subsidy has been provided to Delverde as a
result of the change-in-ownership transaction.
The Delverde Change in Ownership
In the investigation and prior reviews of pasta from Italy, the
Department's change-in-ownership methodology focused on the amount of
remaining unallocated subsidies, the transaction price, and an average
historic ratio of subsidies to the company's net worth. The Department's
so-called "gamma" methodology applied this ratio to the transaction price
to determine what portion of the price constituted payment for prior
subsidies. That amount was subtracted from the remaining amount of
unallocated subsidies at the time of the sale and the difference passed
through to be countervailed.
The nature of the transaction, including the manner in which it was
structured, e.g., a sale of assets or a sale of shares, was wholly
irrelevant to the Department's analysis. Indeed, the Federal Circuit
stated that the Department "did not consider any of the facts or
circumstances of the sale relevant." Delverde III, 202 F.3d at 1367
(emphasis in original). (12) One result of this approach was that the
Department did not analyze the transaction in order to make a
determination regarding the identity of the "person" that received the
subsidies at issue and whether that person was the same as the firm under
investigation.
In the instant review, the Department has carefully considered the
Federal Circuit's opinion in Delverde III and, in particular, its
admonition that the Department's inquiry seek to determine whether "an
authority provides a financial contribution, . . . to a person and a
benefit is thereby conferred." Id., 202 F.3d at 1365 (emphasis in
original) (citation omitted). To this end, the Department has begun its
analysis here by analyzing the transaction in question for the purpose of
addressing the one subsidy element that it initially places in issue,
i.e., the "person" determination. In other words, we are seeking to
determine whether the entity under review (Delverde) itself received a
government-provided financial contribution and a benefit.
Concurrently, the Department has undertaken a review of all of the
evidence on the record of this review concerning the nature of the
transaction in question. This review is detailed in the February 5, 2001
Memorandum to the File regarding the Delverde Change in Ownership ("CIO
Memorandum"). A public version of this memorandum is available in room B-
099 of the Department's main building.
Based on a review of this evidence, as more fully explained in the CIO
Memorandum, we conclude that post-sale Delverde is, for all intents and
purposes, the same "person" as the pre-sale entity. As a result, all the
elements of a subsidy are established with regard to post-sale Delverde,
and it therefore continues to benefit in full from all of the subsidies
that were provided to Old Delverde prior to the sale of the FSM pasta
operation.
The Department has applied its normal allocation methodology to these
prior subsidies and will countervail the benefits that remain as of the
period of review. Under this approach, we calculated the benefit to
Delverde from allocable non-recurring subsidies during the POR, in
accordance with 19 CFR 351.524. See, also, Comments 2 through 6, below,
and the February 5, 2001 Calculation Memorandum for Delverde.
Subsidies Valuation Information
A. Benchmarks for Long-term Loans and Discount Rates
The companies under review did not take out any long-term, fixed-rate,
lira-denominated loans or other debt obligations which could be used as
benchmarks in any of the years in which the government grants or loans
under review were received. Therefore, for years prior to 1995, we used
the Bank of Italy reference rate, adjusted upward to reflect the mark-up
an Italian commercial bank would charge a corporate customer, as the
benchmark interest rate for long-term loans and as the discount rate. For
subsidies received in 1995 and later, we used the Italian Bankers'
Association ("ABI") interest rate, increased by the average spread charged
by banks on loans to commercial customers plus an amount for bank charges.
No interested party has objected to this methodology or commented on this
issue in the case or rebuttal briefs. Our benchmark interest rates have,
therefore, not changed in these final results.
B. Allocation Period
In the investigation of this case, the Department used, as the allocation
period for non-recurring subsidies, the average useful life ("AUL") of
renewable physical assets in the food-processing industry as recorded in
the Internal Revenue Service's 1977 Class Life Asset Depreciation Range
System ("the IRS tables"), i.e., 12 years. However, the CIT subsequently
ruled against this allocation methodology for non-recurring subsidies (see
British Steel plc v. United States, 879 F.Supp. 1254, 1289 (CIT 1995)
("British Steel I")). In accordance with the CIT's remand order, the
Department determined that the most reasonable method of deriving the
allocation period for non-recurring subsidies was a company-specific AUL
of renewable physical assets. This remand determination was affirmed by
the CIT on June 4, 1996 (see British Steel plc v. United States, 929
F.Supp. 426, 439 (CIT 1996) ("British Steel II")).
Therefore, in past administrative reviews of this case, we used a company-
specific AUL to allocate non-recurring subsidies that were not
countervailed in the investigation. However, for non-recurring subsidies
which had already been countervailed in the investigation, the Department
used the original allocation period, i.e., 12 years, because it was deemed
neither reasonable nor practicable to reallocate those subsidies over a
different time period. This methodology was consistent with our approach
in Certain Carbon Steel Products from Sweden; Final Results of
Countervailing Duty Administrative Review, 62 FR 16549 (April 7, 1997).
In this review, the Department is operating under new countervailing duty
regulations which were not in effect during the investigation or previous
reviews of this case. Pursuant to section 351.524(d)(2) of these
regulations, the Department will use the AUL in the IRS tables as the
allocation period unless a party can show that the IRS tables do not
reasonably reflect the company-specific AUL or the country-wide AUL for
the industry. If a party can show that either of these time periods
differs from the AUL in the IRS tables by one year or more, the Department
will use the company-specific AUL or the country-wide AUL for the industry
as the allocation period.
Neither Rummo nor Riscossa has argued that a company-specific or country-
wide AUL is appropriate. Therefore, as in the Preliminary Results, we have
continued to use an AUL based on the IRS tables (i.e., 12 years).
In the Preliminary Results we allocated non-recurring subsidies for
Delverde and Tamma as follows:
a) Subsidies countervailed in the investigation (i.e., subsidies received
in 1994 and earlier) were allocated over 12 years.
b) Subsidies countervailed in the first two administrative reviews (i.e.,
subsidies received in 1995, 1996, and 1997) were allocated over the
respondents' company-specific AULs.
c) Subsidies received during the current POR (i.e., 1998) were allocated
over 12 years as specified in the IRS tables, in accordance with our
regulations, because no company demonstrated that its AUL differed from
the 12-year period in the IRS tables.
No interested party has objected to this methodology or commented on this
issue in the case or rebuttal briefs. Our allocation of non-recurring
subsidies has, therefore, not changed in these final results.
C. Benefits to Mills
During the POR, Tamma and Riscossa owned semolina mills (semolina is the
main input product in pasta). Neither Tamma nor Riscossa's mills were
separately incorporated, i.e., both the semolina and the downstream
product (pasta) were produced within a single corporate entity. Therefore,
in accordance with section 351.525(b)(6)(i) of the regulations, the
Department has attributed subsidies provided for the production of
semolina to the sales of the corporate entities that received them, i.e.,
Tamma and Riscossa, respectively. No interested party has objected to this
methodology or commented on this issue in the case or rebuttal briefs.
Therefore, there have been no changes in our approach since the
Preliminary Results.
3. Affiliated Parties
In prior reviews of this case, we treated Delverde SrL, Sangralimenti SrL
("Sangralimenti"), Pietro Rotunno, SrL ("Rotunno") and Tamma as a single
company with a combined rate. As described in the Preliminary Results,
Delverde began a company reorganization during the POR that continued
through 1999. This reorganization was made legally effective for
accounting and tax purposes as of January 1, 1998. As a result of this
reorganization, Delverde SrL merged with its holding company,
Sangralimenti SrL, and the merged entity changed its name to Delverde SpA.
In addition, Sangralimenti sold its interest in Rotunno, which ceased
producing pasta in 1994, to an unrelated company. Rotunno had no
outstanding unallocated portions of non-recurring subsidies at the time of
its sale.
In the Preliminary Results, we calculated separate rates for Delverde and
Tamma in light of the newly applicable 1998 countervailing duty
regulations (Counterviling Duties; Final Rule, 63 FR 65348, 65401 (Nov.
25, 1998)) and, in particular, 19 CFR § 351.525(b)(6). That regulation
provides that "{i}f two (or more) corporations with cross-ownership
produce the subject merchandise, the Secretary will attribute the
subsidies received by either or both corporations to the products produced
by both corporations," and it defines cross-ownership as existing where
"one corporation can use or direct the individual assets of the opther
corporation(s) in essentially the same ways it can use its own assets." 19
CFR § 351.525(b)(6)(ii) and (vi). It then adds that, "Normally, this
standard will be met where there is a majority voting ownership interest
between two corporations or through common ownership of two (or more)
corporations." 19 CFR § 351.525(b)(6)(vi). We explained in the Preliminary
Results that Tamma's ownership interest in Delverde did not meet the
normal threshold of majority ownership, and we proceeded to treat this
ownership interest as insufficient to establish cross-ownership. We also
noted our serious concerns regarding the significance of Tamma's minority
interest in Delverde and other aspects of the corporate relationship,
which taken together might establish cross-ownership. See Counterviling
Duties; Final Rule, 63 FR at 65401. We therefore invited the parties to
comment further on this issue. Since then, however, we have not received
any comments from the parties on this issue. For that reason, and in view
of the minimal practical impact on Delverde and Tamma resulting from the
use of separate rates versus one common rate, we have not re-visited this
issue in these final results. We therefore have continued to calculate
separate rates for Delverde and Tamma.
II. Analysis of Programs
1. Programs Previously Determined to Confer Subsidies
A. Law 64/86 Industrial Development Grants
Delverde, Tamma and Riscossa benefitted from industrial development
grants under Law 64/86 during the POR. In the Preliminary Results we found
that this program conferred countervailable subsidies on the subject
merchandise. No new information, evidence of changed circumstances, or
comments from interested parties were presented in this review to warrant
any reconsideration of this finding. As a result of our new change-in-
ownership methodology (see Change in Ownership section, above), the rate
for Delverde has changed to 1.84 percent ad valorem. For Tamma and
Riscossa, the net subsidies for this program have not changed from the
Preliminary Results and are 3.10 percent ad valorem and 0.77 percent ad
valorem, respectively.
B. Law 488/92 Industrial Development Grants
Delverde and Tamma benefitted from industrial development grants under
Law 488/92 during the POR. In the Preliminary Results, we found that this
program conferred countervailable subsidies on the subject merchandise. No
new information, evidence of changed circumstances, or comments from
interested parties were presented in this review to warrant any
reconsideration of this finding. Accordingly, the net subsidy for this
program has not changed from the Preliminary Results and is as follows:
Delverde 0.28 percent ad valorem and Tamma 0.09 percent ad valorem.
C. Law 183/76 Industrial Development Grants
Riscossa received industrial development grants under Law 183/76 during
the POR. In the Preliminary Results, we found that this program conferred
a countervailable subsidy on the subject merchandise. No new information,
evidence of changed circumstances, or comments from interested parties
were presented in this review to warrant any reconsideration of this
finding. Riscossa's net subsidy for this program has not changed from the
Preliminary Results and is 0.08 percent ad valorem.
D. Industrial Development Loans Under Law 64/86
Delverde and Tamma received industrial development loans with interest
contributions from the GOI. In the Preliminary Results, we found that this
program conferred countervailable subsidies on the subject merchandise. No
new information, evidence of changed circumstances, or comments from
interested parties were presented in this review to warrant any
reconsideration of this finding. As a result of our new change-in-
ownership methodology (see Change in Ownership section, above), the rate
for Delverde has changed to 0.63 percent ad valorem. For Tamma, the net
subsidy for this program has not changed from the Preliminary Results and
is 0.23 percent ad valorem.
E. Law 304/90 Export Marketing Grants
Delverde received a grant under this program for a market development
project in the United States. In the Preliminary Results, we found that
this program conferred countervailable subsidies on the subject
merchandise. No new information, evidence of changed circumstances, or
comments from interested parties were presented in this review to warrant
any reconsideration of this finding. Accordingly, the net subsidy for this
program has not changed from the Preliminary Results and is 0.26 percent
ad valorem for Delverde.
F. Social Security Reductions and Exemptions-Sgravi
Delverde, Tamma, Rummo and Riscossa received countervailable social
security reductions and exemptions during the POR. In the Preliminary
Results, we found that this program conferred countervailable subsidies on
the subject merchandise. No new information, evidence of changed
circumstances, or comments from interested parties were presented in this
review to warrant any reconsideration of this finding. Accordingly, the
net subsidy for this program has not changed from the Preliminary Results
and is as follows: Delverde 0.30 percent ad valorem, Tamma 0.21 percent ad
valorem, Rummo 0.36 percent ad valorem, Riscossa 0.26 percent ad valorem.
G. Law 598/94 Interest Subsidies
Under Law 598/94, the GOI pays a portion of the interest on certain loans
granted to small- and medium-sized industrial companies. Rummo received
interest subsidies under this program in the POR in connection with a long-
term, variable-rate loan obtained prior to the POR. The GOI paid the
interest subsidies directly to the lending bank shortly after Rummo had
made the full twice-yearly interest payments to the bank. The bank then
credited the amount of the GOI's payments to Rummo's account.
The GOI stated in its initial questionnaire response that the general
level of subsidies under Law 598/94 is 30 percent of the initial interest
payable, but it is 45 percent for companies in disadvantaged regions of
Italy. Because Rummo is located in a disadvantaged region it received the
higher level of benefits. In the Preliminary Results, we found that the
higher level of interest subsidies for companies in disadvantaged regions
under Law 598/94 confers a countervailable benefit within the meaning of
section 771(5) of the Act and treated the subsidy as a reduced-interest
loan in accordance with section 351.508(c)(2) of the regulations. Because
the higher level of subsidies under Law 598/94 is limited to companies in
certain regions of Italy, we preliminarily determined that this portion of
the program benefit is regionally specific within the meaning of section
771(5A) of the Act. No new information, evidence of changed circumstances,
or comments from interested parties were presented in this review to
warrant any reconsideration of this finding.
However, with regard to the portion of the funding available throughout
Italy, the Department requested in its initial questionnaire, as well as
in its October 20, 2000 supplemental questionnaire, information from the
GOI showing how these funds were distributed across Italian industries.
The GOI did not respond to this request in its initial response. In its
supplemental response, the GOI stated that it did not have information
about the types of industries which received such funding. However, other
information on the record indicates that it is reasonable to assume that
this information is available to the government. For instance, the GOI
provided translations of the portions of the regulations governing this
funding. These regulations specify certain industries which are not
eligible for funding (i.e., steel, shipbuilding, fishing, transportation,
sugar production and the tobacco industry), and a number of other
industries which have special limitations (primarily various food- and
beverage-related industries). Thus, it is reasonable to assume that the
government gathers information regarding the industry of its applicants.
Therefore, because this information is not on the record, we must base
our specificity determination on facts available pursuant to section
776(a) of the Act. Pursuant to section 776(b) of the Act, we determine
that it is appropriate to use adverse facts available because the GOI did
not cooperate to the best of its ability to provide information requested
concerning the distribution of benefits by industry as requested by the
Department. We, therefore, determine that the GOI has failed to cooperate
by not acting to the best of its ability to comply with our requests for
information regarding this program (see 19 CFR 351.308(a)). On this basis,
as adverse facts available, we also find the Italy-wide portion of the
funding received by Rummo to be specific.
On this basis, we determine the total countervailable subsidy from the
Law 598/94 interest subsidies to be 0.28 percent ad valorem for Rummo.
H. Law 236/93 Training Grants
Delverde received countervailable training grants under Law 236/93 during
the POR. In the Preliminary Results, based on adverse facts available, we
found that this program conferred countervailable subsidies on the subject
merchandise.
Despite its requests, the Department did not receive any information from
the GOI or the Regional Government of Abruzzo ("GOA") showing how the
funds under Law 236/93 were distributed across Italian regions and
industries. Delverde stated that assistance under the program was
available to production facilities in the region of Abruzzo, but there is
no information on the record as to whether funding under Law 236/93 was
also available to companies in other regions of Italy. Because this
information is not on the record, and we have determined the GOI and the
GOA have failed to cooperate by not acting to the best of their ability to
comply with our request for information regarding this program (see 19 CFR
351.308), we based our preliminary specificity determination on adverse
facts available pursuant to section 776(b) of the Act. No new information,
evidence of changed circumstances, or comments from interested parties
were presented in this review to warrant any reconsideration of this
finding.
Therefore, pursuant to section 776(b) of the Act, we continue to
determine that it is appropriate to use adverse facts available, and we
continue to find the Law 236/93 grant received by Delverde to be specific.
Accordingly, the net subsidy for this program has not changed from the
Preliminary Results and is 0.02 percent ad valorem for Delverde.
I. European Social Fund
Delverde and Riscossa received European Social Fund ("ESF") grants during
the POR. In the Preliminary Results, based on adverse facts available, we
found that these programs conferred countervailable subsidies on the
subject merchandise.
Riscossa's grant was provided under Objective 4. There is no information
on the record specifying under which EU objective Delverde's grant was
funded. However, Delverde's grant was provided under a regional
operational program, which was jointly funded by the ESF and the GOI
through the National Rotational Fund. Previous tranches of this grant were
found to be countervailable in Certain Pasta From Italy: Final Results of
Countervailing Duty Administrative Review, 63 FR 43905 (August 17, 1998).
The Department requested, but did not receive, information from the GOI
and the European Commission ("EC") showing how ESF funds under Objective 4
were distributed across Italian regions and industries. Nor, despite
requests, have we received such information regarding payments from the
National Rotational Fund, the Government of Puglia ("GOP"), or the
regional operational program under which Delverde received its grant.
Therefore, because this information is not on the record, and we
determined that the GOI and the EC have failed to cooperate by not acting
to the best of their ability to comply with our requests for information
about this program (see 19 CFR 351.308), we based our preliminary
specificity determination on adverse facts available pursuant to section
776(b) of the Act.
Pursuant to section 776(b) of the Act, we continue to determine that it
is appropriate to use adverse facts available, and we continue to find the
ESF grants received by Delverde and Riscossa to be specific. See, also,
Comment 1, below.
Accordingly, the net subsidy for this program has not changed from the
Preliminary Results and is 0.01 percent ad valorem for Delverde and 0.02
for Riscossa.
J. Export Restitution Payments
Delverde and Rummo received export restitution payments during the POR on
shipments of subject merchandise to the United States. In the Preliminary
Results we found that this program conferred countervailable subsidies on
the subject merchandise. No new information, evidence of changed
circumstances, or comments from interested parties were presented in this
review to warrant any reconsideration of this finding. Accordingly, the
net subsidy for this program has not changed from the Preliminary Results
and is 0.70 percent ad valorem for Delverde and 0.07 percent ad valorem
for Rummo.
2. Programs Determined Not To Confer Countervailable Subsidies in the POR
Social Security Reductions and Exemptions -- Fiscalizzazione
Fiscalizzazione is a nationwide program that allows for a reduction of
certain social security payments similar to the sgravi program discussed
above. In Pasta Investigation and previous administrative reviews, the
Department found the fiscalizzazione program to confer a countervailable
subsidy on companies in the Mezzogiorno because manufacturing enterprises
in the south were allowed to take higher deductions for certain categories
of social security payments than companies in the north. However, in the
Preliminary Results, we found that the portion of this program that
provided regionally-specific benefits had been abolished as of January 1,
1998. Thus, the particular deductions which we previously found
countervailable no longer exist.
No new information, evidence of changed circumstances, or comments from
interested parties were presented in this review to warrant any
reconsideration of this finding. We, therefore, continue to determine that
the fiscalizzazione program did not confer a countervailable subsidy in
the POR.
3. Programs Determined to Be Not Used During the POR
In the Preliminary Results, we determined that the producers and/or
exporters of the subject merchandise did not apply for or receive benefits
under the following programs during the POR:
Law 113/86 Training Grants
Law 64/86 VAT Reductions
Law 357/94 Tax Benefits
Local Income Tax ("ILOR") Exemptions
Remission of Taxes on Export Credit Insurance under Article 33 of Law
227/77
Export Credits under Law 227/77
Capital Grants under Law 675/77
Retraining Grants under Law 675/77
Interest Contributions on Bank Loans under Law 675/77
Interest Grants Financed by IRI Bonds
Preferential Financing for Export Promotion under Law 394/81
Corporate Income Tax ("IRPEG") Exemptions
Urban Redevelopment under Law 181
Debt Consolidation Law 341/95
Interest Contributions under Law 1329/65
Grant Received Pursuant to the Community Initiative Concerning the
Preparation of Enterprises for the Single Market ("PRISMA")
European Agricultural Guidance and Guarantee Fund ("EAGGF")
European Regional Development Fund ("ERDF")
We did not receive any comments on these programs from the interested
parties, and our review of the record has not led us to change our
findings from the Preliminary Results.
Analysis of Comments
Comment 1: European Social Fund
The GOI disagrees with the Department's analysis of the ESF programs in
the Preliminary Results. First, the GOI disputes the Department's
statement that companies normally incur the cost of training to enhance
job-related skills of their own employees. The GOI states that Italian law
does not oblige companies to train their employees or enhance employees'
skills. Second, the GOI contests the Department's claim that the EC, GOI
and GOP did not cooperate to the best of their ability to provide the
requested information on the distribution of European Social Fund benefits
under Objective 4. The GOI contends that sector specific information is
not available because ESF does not operate on a single sector basis.
Department's Position:
The Department has never taken the position that Italian companies are
legally required to train or improve the skills of their employees.
Instead, we have said that companies normally provide training for
workers. It is in the companies' interest to improve the skills of their
own workers to improve productivity and reduce costs, among other benefits
to the companies. Thus, we believe it is reasonable to treat training
grants as a government assumption of costs that companies would otherwise
incur.
As to the GOI's second argument regarding the unavailability of Objective
4 sectoral data, both the EU and the GOI in this and past reviews have
stated that they do not keep sectoral-specific data. As stated in the
previous reviews, we believe that this information was readily accessible
and could have been provided to the Department given a reasonable effort
on the part of the administering agencies. (See, e.g., Certain Pasta from
Italy: Final Results of the Second Countervailing Administrative Review,
64 FR 44489 (August 16, 1999)). Therefore, we continue to find that these
governmental entities did not act to the best of their ability to comply
with our information requests and, on the basis of adverse facts
available, have determined that the ESF Objective 4 aid is de facto
specific.
Comment 2: Change of Ownership Methodology in Preliminary Determination
Respondents Delverde and Tamma ("respondents"), contend that the
Department erred in not applying Delverde III in the Preliminary Results.
According to respondents, there was no need to await a remand from the CIT
in this review because the "change in ownership" transaction in this
review is the same transaction at issue in Delverde III. Moreover,
respondents argue that there is nothing in Delverde III which would permit
the Department to delay the court-mandated, fact-based analysis of the
Delverde change-in-ownership transaction pending development of a new
methodology. Thus, in respondents view, the Preliminary Results are
unlawful and the Department must apply Delverde III to the final results
in this proceeding.
The EC also objects to the Department's Preliminary Results, stating that
Delverde III clearly requires the Department to revise its methodology and
that the Delverde III holding should be applied in the current case as
well as in all cases in which a change of ownership or privatization
occurred. In the EC's view, the Department's request for a rehearing and
suggestion for a rehearing en banc allowed the Department to avoid
implementing Delverde III. By awaiting a remand of the Federal Circuit's
decision, the Department has created an unacceptable delay which is
prejudicial to Delverde. In conclusion, the EC urges the Department to
enforce the Court's decision in Delverde III when making its final
findings in the review.
Petitioners agree with the Department's Preliminary Results and argue
that respondents are not correct in claiming that Delverde III must be
implemented in this review. Petitioners say that in the Delverde III
decision, the Federal Circuit instructed the CIT to remand the case to the
Department for implementation of Delverde III. The Federal Circuit,
however, said nothing about immediately implementing Delverde III or that
such a task should be taken unilaterally by the Department without remand
instructions from the CIT. Petitioners contend that any attempts by the
Department to implement Delverde III without a remand would be both
premature and inappropriate. Depending on the timing of the remand
schedule and final results in this review, petitioners suggest that
addressing Delverde III in the remand proceeding might be more expeditious.
Department's Position:
We disagree with Delverde that the Department acted illegally in its
Preliminary Results. The substantive decision of the Federal Circuit was
final in Delverde III approximately one month prior to the Preliminary
Results. This simply did not allow the Department sufficient time to
decide on a new change-in-ownership approach and to develop an appropriate
record for applying it. Moreover, the Department has now applied its new
approach in these final results, as it indicated it would do. No prejudice
has been experienced by Delverde as a result of this timing.
Comment 3: Interpretation of Delverde III
In response to the Department's request for comments on revisions to the
change-in-ownership approach in light of Delverde III, the petitioners
state that the Court's finding does not preclude the Department from
countervailing subsidies bestowed prior to a change in ownership. Instead,
according to petitioners, Delverde III found unlawful the automatic
presumption that subsidies survive an ownership change because the
presumption did not allow adequate consideration of the facts surrounding
the change in ownership. Thus, the petitioners claim, so long as the
Department examines the facts and does not rely upon an automatic
presumption, it may conclude that subsidies continue despite a change in
ownership. In addition, petitioners argue, Delverde III recognizes that
the statute does not dictate a particular methodology for addressing prior
subsidies after a change in ownership and, hence, the Department has
discretion to develop an appropriate framework for analysis.
Respondents claim that the Department had no need to request comments on
revisions to the change-in-ownership methodology in the context of this
proceeding because the Federal Circuit has already told the Department
what it must examine: whether, based on the facts and circumstances,
Delverde indirectly received a "financial contribution" and "benefit" from
the Italian Government under Law 64/86 by purchasing a pasta factory from
pre-sale Delverde. Further, respondents argue, petitioners have misstated
the analysis mandated by Delverde III when they say that the Department
only needs to examine whether post-sale Delverde benefits from grants
received by Old Delverde, i.e., that Delverde III requires no more than
the Department's pre-URAA analysis without a presumption. In respondents'
view, the Court in Delverde III clearly required the Department to find
both a financial contribution and a benefit to Delverde.
Similarly, the EC cites language from Delverde III which it claims
requires the Department to find both a financial contribution and a
benefit to Delverde by virtue of its purchase of the pasta plant before
any subsidy can be assigned to Delverde. The EC argues that these same
principles were confirmed by the WTO's Appellate Body in U.K. Lead Bar.
Department's Position:
In our view, the Delverde III decision does not dictate the precise
approach that the Department must use, although it is clear that it cannot
be based on a per se rule regarding the continuation or the elimination of
prior subsidies. It must include an analysis of the facts and
circumstances surrounding the change in ownership. The Department has
developed such an approach, first described in the Final Redetermination,
and later in GOES from Italy. This approach also is described, and its
elements applied to the Delverde ownership change, in the Change of
Ownership section, above, and in the CIO Memorandum.
We also agree that under Delverde III (and, although not directly
relevant here, (13) U.K. Lead Bar) it is necessary to find that pre-sale
Delverde received a "financial contribution" and a "benefit." However, it
is also clear that the statute links the findings of a financial
contribution and a benefit to a "person," as the Federal Circuit made
clear, although the Federal Circuit did not identify what standard should
be used to determine whether the pre-sale and post-sale entities were the
same or different persons. The Department therefore developed an
appropriate standard as part of its new change-in-ownership approach, and
in that context we sought additional information from Delverde on the
record of this review regarding the ownership change. Based on this
information, as explained in greater detail in the CIO Memorandum, we
found that Nuovo Delverde (later Delverde) for all intents and purposes is
the same entity (i.e., "person") as Old Delverde's FSM pasta operation
upon which the original subsidies were bestowed. Because nothing else
material has changed since the original bestowal of the subsidies with
regard to this person, and the allocation period for those subsidies has
not yet expired, the statutory requirements for finding a countervailable
subsidy are satisfied with regard to Delverde.
Comment 4: Use of the Successor-in-Interest Test
Petitioners argue that in examining the facts surrounding the change in
ownership of Delverde, the Department should focus on whether the post-
change in ownership entity is "substantially similar" to the predecessor
entity. If they are similar, according to the petitioners, then the
subsidies should be found to continue to exist and to benefit the existing
entity.
In analyzing the pre- and post-change-in-ownership entities, the
petitioners urge the Department to adopt its successor in interest test,
under which the Department considers changes in: (1) management; (2)
production facilities; (3) supplier relationships, and (4) customer base.
This test has been used most often in the antidumping context, but has
also been used to determine whether a current owner should be held liable
for the countervailing duties imposed on its predecessor company in
Certain Hot-rolled Lead and Bismuth Carbon Steel Products from the United
Kingdom, 64 F.R. 53,994, 53,995 (October 5, 1999), according to
petitioners. The logic that underlies the Department's successor-in-
interest test is also evident in the so-called "continuing enterprise
approach," a method for assessing successor liability outside of the
antidumping and countervailing duty laws, the petitioners claim. In
petitioners' view, consideration of the factors contained in either or
both of these tests would allow the Department to rely on well established
methodologies that would be consistent with the fact-based approach
required in Delverde III.
Respondents contend that the successor-in-interest test is inapposite in
a change-in-ownership situation. Citing to past cases, respondents point
out that the test has only been applied where the Department has
previously determined a company's antidumping or countervailing duty
liability and then needs to determine whether that liability should be
transferred to the successor company. However, the issue in this case,
according to respondents, is not whether Delverde is a successor to Old
Delverde's countervailing duty liability, but whether Delverde itself
received a subsidy.
Department's Position:
As addressed in detail in the Change in Ownership section, above, we have
drawn guidance from, but not adopted, principles of corporate law and, to
a more limited extent, the Department's established successor-in-interest
test in developing our new change-in-ownership approach. The Department's
new approach focuses on whether the post-sale entity is the same "person"
as the subsidized pre-sale entity. Because the successor-in-interest test
cited by petitioners is designed to determine how an entity will act
subsequent to a change in ownership, rather than whether the same "person"
exists, we found only limited guidance in this test.
Comment 5: Shares v. Assets
Petitioners claim that throughout this proceeding, respondents have
mischaracterized the sale of Delverde as a sale of assets. A close review
of the record, however, shows that Old Delverde sold more than discrete
assets, according to petitioners. Instead, petitioners claim, Delverde
purchased the pasta factory and the ongoing business operations associated
with that factory.
Respondents dispute petitioners' claim, contending that the sale in
question was an asset sale. This is clear, respondents contend, from the
Department's verification report from the original investigation. (14)
Moreover, according to respondents, implicit in petitioners' argument is
the notion that an asset sale can only involve tangible, physical assets,
and not intangible assets, a notion which respondents claim contradicts
the most basic precepts of business law. In a discussion that is largely
proprietary, respondents discuss the specific items involved in the sale
that were in respondents' view intangible assets.
Department's Position:
Our new change-in-ownership approach does not turn on whether the
transaction in question was structured as a sale of assets or a sale of
shares. Instead, the Department examines a number of factors that focus on
the results of the transaction, such as the continuity of general business
operations, the continuity of production facilities, the continuity of
assets and liabilities, and the retention of personnel. As first discussed
in the Final Redetermination, and reiterated in the instant review in the
CIO Memorandum, the Department has analyzed Delverde's proprietary
description of the transaction in question on the record of this review.
It is clear from the record that the change in ownership resulted in more
than a mere transfer of assets. It consisted of the transfer of an entire
business operation, including the operation's tangible assets,
liabilities, production facilities, location, headquarters, name,
trademarks and identity, as well as a significant portion of customers,
suppliers, management, and workforce. For further analysis, see the Change
in Ownership section, above, and the CIO Memorandum. It was a
consideration of these factors that led to our finding that pre-sale and
post-sale Delverde were, for all intents and purposes, the same person.
Lastly, we disagree with respondents that the text of the verification
report and its exhibits "establish conclusively" that the sale was an
asset sale. It is the policy of the Department not to make determinations
in the context of verification reports. As is clear from a complete
reading of the report, it is a restatement of the contentions (15) of
company officials-not the conclusions of the Department based on a review
of all record information. Moreover, as we have discussed above, our
"person" determination does not turn on whether the transaction in
question was structured as a sale of assets or a sale of shares.
Comment 6: Subsidies to Delverde/Analysis of Facts on the Record
Respondents claim that under the fact-based analysis required by Delverde
III, the record clearly demonstrates that Delverde did not receive a
financial contribution or a benefit from the GOI when Delverde purchased
the FSM pasta operation from Old Delverde. Regarding the first element
(financial contribution), Delverde is not the "person" that received the
grants from the Government of Italy, respondents argue. Nor did Delverde
receive the grants indirectly through Old Delverde because Delverde paid
the fair market value for the FSM pasta operation, as evidenced by the
Department's verification report. According to respondents, Old Delverde
(called MI.BA subsequent to selling the FSM pasta operation) retained the
financial contribution through the windfall profit it earned on the sale
of its pasta operation.
Regarding the second element (benefit), respondents argue further that
Delverde received no benefit because it paid the full market value for the
pasta factory, the price that the market dictated. Hence, in respondents'
view, Delverde did not receive production inputs for less than adequate
remuneration.
Petitioners disagree with respondents' analysis. They claim that
respondents have employed a presumption, in contravention of Delverde III,
that a sale of assets at fair market value necessarily extinguishes
subsidies received by the prior owner of those assets. The petitioners
object that respondents' analysis ignores several important facts
indicating that the sold entity was identical to the original entity in
its business operations.
In petitioners' view, there is substantial evidence that the post-sale
Delverde is substantially similar to the pre-sale Delverde and, thus, that
the prior subsidies continued to benefit Delverde after the sale.
Petitioners single out two factors which, in their view, underscore this
conclusion. First, regardless of who owned Delverde, virtually every
aspect of the the management and operation of the factory was dominated by
a single person. Second, the pre- and post-sale Delverde operated under
the same name and used the same trademark. Petitioners elaborate on this
argument relying on proprietary information.
Department's Position:
As detailed above in the Change in Ownership section and in the CIO
Memorandum, the Department has found that the pre- and post-sale entities
in the instant review are the same "person." Based on an analysis of the
facts and circumstances of the ownership change, Nuovo Delverde (later
Delverde), for all intents and purposes, is the same entity (i.e.,
"person") as Old Delverde's FSM pasta operation upon which the original
subsidies were bestowed. Given that nothing else material has changed
since the original bestowal of the subsidies, and the allocation period
for the subsidies has not yet expired, both statutory requirements for
finding a countervailable subsidy remain satisfied with regard to
Delverde. For these reasons, as explained above, we have not reached the
issue of whether a fair market value price was paid for the FSM pasta
operation.
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 final results of review and the final net subsidy rates for
the reviewed producers/exporters of the subject merchandise in the Federal
Register.
________ ________
Agree Disagree
_____________________
Bernard T. Carreau, fulfilling the duties of
Assistant Secretary
for Import Administration
___________________
Date
________________________________________________________________________
footnotes:
1. 1 The term "person" appeared in the countervailing duty statute for
the first time following the amendments made by the Uruguay Round
Agreements Act ("URAA") effective January 1, 1995. In its decision, the
Court distinguished earlier Federal Circuit decisions addressing the
Department's privatization methodology on the basis that "we were
interpreting Commerce's methodology under the earlier statute, which we
had already held was ambiguous." 202 F.3d at 1369. The language in the new
statute was described by the Court as clear. Id. at 1366.
2. 2 We note that, like the Delverde III Court, see 202 F.3d at 1369, we
would expect to see "significant differences" between privatizations of
government-owned firms, on the one hand, and changes in ownership
involving only private parties, on the other hand, when undertaking this
second step in our inquiry, i.e., when inquiring whether a subsidy has
been provided through the change-in-ownership transaction in question. At
a minimum, in our experience, it would be highly unlikely to find a
subsidy resulting from a purely private transaction, particularly where
the parties are unrelated. In this situation, there is no reason to
believe that the private seller would not be seeking the highest price
that it could obtain. Meanwhile, "{t}he government has different concerns
from those of a private seller. . . . {T}he government may have other
goals, such as employment, national defense, and political concerns, which
may affect the terms of a privatization transaction." Id.
3. 3 Normally, in the absence of any changes in ownership, the Department
allocates the measured subsidy benefit over time to the subsidy
recipient's future production pursuant to a standard declining balance
formula that generates a net present value equal to the amount of the
subsidy. The period of time selected for this allocation is based on the
subsidy recipient's average useful life of assets. See Countervailing
Duties; Final Rule, 63 FR 65348, 65415-17 (Nov. 25, 1998) (§§ 351.524 and
525).
4. 4 Delverde III does not directly address this point. The Department
notes that the WTO Appellate Body's recent decision in United States -
Imposition of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth
Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R
(May 10, 2000) ("U.K. Lead Bar"), in which the Department's methodology
was under review in the privatization context, does address this point. It
indicates that, where there has been no change in the person that received
the original subsidy, the investigating authorities may continue to apply
a presumption that the subsidy benefit continues. See id. at para. 62.
5. 5 In U.K. Lead Bar, the Department's methodology was under review in
the privatization context. In construing the Agreement on Subsidies and
Countervailing Measures, the Appellate Body first asked whether the firm
under investigation (the privatized company) was the "legal or natural
person" that had received the subsidies investigated by the Department
(grants and equity infusions provided by the U.K. government years prior
to the privatization). U.K. Lead Bar, para. 58. Finding that the firm
under investigation was not the same person as the one that had received
those subsidies, the Appellate Body ruled that the Department could only
have imposed countervailing duties on the entity under investigation if
the Department had found that that person had itself received a subsidy.
Id., paras. 58, 62. The Appellate Body then examined the privatization
transaction in question in order to determine if the entity under
investigation had received a subsidy. The Appellate Body determined that
the entity under investigation had received no benefit and therefore no
subsidy through this transaction because a fair market value purchase
price had been paid. Id., paras. 67-68.
6. 6 The countervailing duty statute itself does not illuminate this
issue either. According to 1 U.S.C. § 1, which applies to all laws set
forth in the United States Code, including the countervailing duty
statute, 19 U.S.C. §§ 1671 et seq., the term "person" includes
"corporations, companies, associations, firms, partnerships, societies,
and joint stock companies, as well as individuals," unless the context
indicates otherwise. However, there is no further statutory illumination
of this issue.
7. 7 The term "legal person" refers to an entity such as a corporation
rather than an individual.
8. 8 See, e.g., Corporation Practice Guide, para. 2710 (Aspen Law &
Business 1997). In other countries, similar factors govern the
determination of whether the new owner is legally responsible for the
liabilities of the company. In the European Union, for example, the
factors include whether the company under the new owner "continued to
manufacture the same product at the same place with the same staff." It is
not enough that the company "merely changed its name." SCA Holding Ltd. v.
Commission of the European Communities, Case T327/94, 1998 ECJ CELEX LEXIS
1139 (Ct. First Instance 1998).
9. 9 The same methodological suggestions made by the petitioners in the
Final Redetermination were also made in the instant review. See September
7, 2000 case brief of petitioners at 10-19.
10. 10See, e.g., Certain Welded Stainless Steel Pipe from Korea; Final
Results of Antidumping Duty Changed Circumstances Review, 63 FR 16979
(April 7, 1998); Certain Welded Stainless Steel Pipe from Taiwan; Final
Results of Changed Circumstances Antidumping Duty Administrative Review,
63 FR 34147 (June 23, 1998); Certain Welded Stainless Steel Pipe from
Taiwan; Preliminary Results of Changed Circumstances Antidumping Duty
Administrative Review, 63 FR 16982, 16983-84 (April 7, 1998); Brass Sheet
and Strip from Canada; Final Results of Antidumping Duty Administrative
Review, 57 FR 20460 (May 13, 1992).
11. 11 Although the Department in the past disagreed with the CIT's
British Steel I decision, the Federal Circuit in Delverde III has made
clear that the countervailing duty statute was subsequently amended in a
material way by the URAA, and it has emphasized the new language regarding
receipt of a subsidy by a "person." This new language provides a firmer
statutory basis for an approach similar to the one suggested by British
Steel I. While the Department was also concerned that the British Steel I
approach would permit countries to structure privatizations in such a way
as to circumvent the countervailing duty law, we now believe that we have
developed a sufficiently flexible approach to address that concern.
12. 12 At that time, the Department only considered the price paid to be
relevant.
13. See Delverde III, 202 F.3d at 1369.
14. This report, in part, was placed on the record of the instant review
by Delverde in its November 23, 1999 questionnaire response at Volume II,
Exhibit D.
15. Notably, virtually every sentence of relevant portions of the report
contain one of the following phrases: "company officials provided,"
"Company officials argued," "company officials reported," or "company
officials stated."