66 FR 64214, December 12, 2001
C-475-819
Administrative Review
POR: 1999
Public Document
MEMORANDUM
DATE: December 4, 2001
TO: Bernard Carreau
Acting Assistant Secretary for Import Administration
FROM: Richard W. Moreland
Deputy Assistant Secretary
Group I, Import Administration
SUBJECT: Issues and Decision Memorandum: Final Results of the 1999
Countervailing Duty Administrative Review of Certain Pasta from Italy
Summary
We have analyzed the briefs and other submissions by the interested
parties in the administrative review of the countervailing duty order on
certain pasta from Italy. The "Subsidies Valuation Methodology" 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 of Commerce's response to the issues raised in the briefs.
We recommend that you approve the positions we have developed in this
memorandum.
Subsidies Valuation Methodology
Change in Ownership
In 1991, a respondent, Delverde S.p.A. ("Delverde"), purchased a pasta
factory from an unaffiliated party. The previous owner of the purchased
factory had received non-recurring countervailable subsidies prior to the
transfer of ownership. In Certain Pasta from Italy: Final Results of Third
Administrative Review, 66 FR 11269, February 23, 2001 ("Third Review -
Final Results"), the Department of Commerce ("the Department") applied the
methodology it developed to comply with the Court of Appeals for the
Federal Circuit's ("Federal Circuit" or "Court") decision in Delverde, SrL
v. United States, 202 F.3d 1360 (Fed. Cir. Feb. 2, 2000), reh'g denied,
(June 20, 2000) ("Delverde"), to Delverde's purchase of the pasta factory.
In that review, we determined that the post-sale entity was, for all
intents and purposes, the same "person" as the pre-sale entity.
Consequently, all the elements of a subsidy are established with regard to
the post-sale Delverde and it continues to benefit in full from all of the
subsidies that were provided to the previous owner prior to the sale of
the pasta factory.
No new information has been submitted in this review to warrant
reconsideration of our determination regarding the countervailability of
these subsidies. Therefore, we have included these subsidies in the
countervailing duty rate calculated for Delverde. See Comments 2, 3, 4, 5
and 6 of this memorandum.
2. Benchmarks for Long-term Loans and Discount Rates
In accordance with sections 351.505(a)(1) and 351.524(d)(3) of the
regulations, we have used the amount the company actually paid on a
comparable commercial loan as the benchmark/discount rate, when the
company had a commercial loan in the same year as the government loan or
grant. However, there were several instances where a company did not take
out any loans which could be used as benchmarks/discount rates in the
years in which the government grants or loans under review were received.
In these instances, consistent with section 351.505(a)(3)(ii) of the
regulations, we used a national average interest rate for a comparable
commercial loan. Specifically, 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.
Two respondents, De Matteis Agroalimentare S.p.A. ("De Matteis") and N.
Puglisi & F. Industria Paste Alimentari S.p.A. ("Puglisi"), commented that
the Department should use the interest rates they paid on certain loans as
benchmark and discount rates. We agree with Puglisi that the interest rate
it paid on a commercial loan taken out in 1993 should be used as the
discount rate for allocating the industrial development grant that was
approved for the company in that year. See Comment 11. Our calculation of
the net subsidy received by Puglisi under this program has been revised
accordingly.
We do not agree that the other loans cited by De Matteis and Puglisi are
commercial loans and, therefore, have not used them as benchmarks/discount
rates. See Comment 12.
3. Allocation Period
In the Final Affirmative Countervailing Duty Determination: Certain Pasta
("Pasta") from Italy, 61 FR 30288, June 14, 1996, ("Pasta Investigation"),
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 U.S. Court of International Trade ("CIT") 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")).
Consistent with the ruling in British Steel II, we developed company-
specific AULs in the first and second administrative reviews of this order
(see Certain Pasta from Italy: Final Results of Countervailing Duty
Administrative Review, 63 FR 43905, 43906, August 17, 1998 ("First Review -
Final Results") and Certain Pasta from Italy: Final Results of the Second
Countervailing Duty Administrative Review, 64 FR 44489, 44490-91, August
16, 1999 ("Second Review - Final Results"). We used these company-specific
AULs to allocate any 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).
The third review of this order was subject to section 351.524(d)(2) of
the regulations. Under this regulation, 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. In Third Review - Final
Results, all subsidies received in the POR were assigned a 12-year
allocation period consistent with the IRS tables.
In the current review, no respondent has contested the 12-year AUL in the
IRS tables. Therefore, we are assigning a 12-year allocation period to non-
recurring subsidies received in the POR, as well as any non-recurring
subsidies received in prior years by companies that were not included in
previous reviews.
No interested party has objected to this allocation methodology or
commented on this issue in the briefs.
4. Attribution
Agritalia S.r.L. ("Agritalia"): Agritalia is a trading company which buys
and sells pasta produced by non-affiliated suppliers. In accordance with
section 351.525(c) of the regulations, we have cumulated the benefits
received by Agritalia and by the two major companies supplying Agritalia
to calculate the countervailing duty rate applicable to Agritalia.
F.lli De Cecco di Filippo Fara San Martino S.p.A. ("De Cecco"): De Cecco
has responded on behalf of three members of the De Cecco Group: De Cecco,
Molino e Pastificio F.lli De Cecco S.p.A. ("Pescara") and Molino F.lli De
Cecco di Filippo S.p.A. ("Molino"). De Cecco and Pescara manufacture pasta
for sale in Italy and the United States; Molino produces semolina for De
Cecco and Pescara. De Cecco and Pescara are directly or indirectly 100
percent-owned by members of the De Cecco family. Effective January 1,
1999, Molino was merged with De Cecco and ceased to be a separate entity.
In accordance with section 351.525(b)(6)(i) and (ii) of the regulations,
we have attributed subsidies received by all three entities to the
combined sales of all three.
Delverde: Consistent with section 351.525(b)(6)(ii) of the regulations
and Third Review - Final Results, we have continued to treat the two
affiliated companies, Delverde and Tamma, as separate respondents. Thus,
subsidies received by Delverde have been assigned solely to that company.
Tamma is not being reviewed, and no subsidies received by Tamma have been
attributed to Delverde.
De Matteis: De Matteis is 100 percent owned by De Matteis Costruzioni
S.r.L ("Costruzioni"). Costruzioni also owns 100 percent of Demaservice
S.r.L, ("Demaservice"). De Matteis produces and sells pasta products.
Costruzioni, a real estate management company, built a warehouse and
office building for De Matteis. Demaservice provides accounting services
to Constuzioni and miscellaneous administrative and support services to De
Matteis. De Matteis has responded on behalf of all three of these
companies. In accordance with section 351.525(b)(6)(iii) of the
regulations (see, in particular, discussion in the preamble to this
regulation regarding "non-producing" subsidiaries), we have attributed
subsidies received by all three entities to the combined sales of all
three.
Pastificio Antonio Pallante, S.r.L. ("Pallante"): Pallante has responded
on behalf of itself and Industrie Alimentari Molisane S.r.L. ("IAM"), two
separately incorporated companies. Pallante produces pasta. IAM is an
integrated company that purchases wheat, mills it into semolina, and uses
its semolina to produce pasta. We have treated Pallante and IAM as a
single respondent, in accordance with section 351.525(b)(6)(ii) of the
regulations, because a single shareholder, Antonio Pallante, has a
controlling interest in both companies. Therefore, subsidies received by
both companies have been attributed to the sales of both companies.
P.A.M. S.r.L.- Prodotti Alimentari Meridionali ("PAM"): PAM has responded
on behalf of five companies: PAM, Liguori, Pastificio D'Apuzzo S.p.A.
("D'Apuzzo"), Comimpex, S.r.L. ("Comimpex"), and En.Le.Ve. S.r.L.
("En.Le.Ve."). PAM, D'Apuzzo, and Comimpex were involved in the production
and sale of pasta during the POR, or in related milling operations.
En.Le.Ve. provided administrative services to these three companies. Given
the nature and extent of the common ownership between PAM, D'Apuzzo,
Comimpex, and En.Le.Ve (the details of which are proprietary), we have
attributed subsidies received by these four companies to the combined
sales of the four companies. Details of Liguori's relationship with PAM
are proprietary. Therefore, Liguori is discussed separately (see, July 31,
2001 Proprietary Memorandum from Meg Weems to Richard W. Moreland
regarding PAM - Attribution Issues).
PAM has objected to being asked to respond on behalf of Comimpex. Its
reasons are proprietary. PAM's arguments and our position are also
discussed in the July 31, 2001 Proprietary Memorandum from Meg Weems to
Richard W. Moreland regarding PAM - Attribution Issues.
Puglisi: Puglisi has responded on behalf of N. Puglisi & F. Industria
Paste Alimentari S.p.A. and its 100-percent owned subsidiary, CE.S.A.P.
S.r.L. ("CE.S.A.P."). CE.S.A.P. provides quality control and maintenance
services to Puglisi. In the Preliminary Results, we stated that we had
attributed the subsidies received by Puglisi and CE.S.A.P. to the combined
sales of the two companies. In its comments, however, Puglisi pointed out
that CE.S.A.P.'s sales had not been included. We agree and have used both
companies' sales for these final results. See Comment 10.
Pastificio Riscossa F.lli Mastromauro S.r.L. ("Riscossa"): Riscossa is an
integrated pasta producer, buying its wheat, milling the wheat into
semolina, and producing pasta from its semolina. In accordance with
section 351.525(b)(6)(i) of the regulations, the Department has attributed
subsidies received by Riscossa for the production of semolina and pasta to
Riscossa's sales of pasta.
Rummo S.p.A. Molino e Pastificio ("Rummo"): Rummo is a family-owned
business with no affiliated companies producing subject merchandise or
inputs into subject merchandise. Therefore, all subsidies received by
Rummo have been attributed to pasta it produces and sells, and to the
"pasta waste" (a by-product) it sells as animal feed.
With the exception of Puglisi, no interested party has objected to our
attribution methodology or commented on this issue in the briefs.
Sales Values
Pallante and Riscossa submitted comments regarding the sales values used
for the Preliminary Results. In both cases, we agree that we relied on
incorrect values and have used the correct amounts for the final results.
See Comments 8 and 15. Also, for the reasons discussed above in the
"Attribution" section, we have amended the sales values for Puglisi.
II. Analysis of Programs
A. Programs Previously Determined to Confer Subsidies
1. Law 64/86 Industrial Development Grants
In the Preliminary Results, we determined that De Cecco, Delverde, De
Matteis, Pallante, Puglisi, and Riscossa received countervailable
subsidies during the period of review ("POR") from industrial development
grants given under Law 64/86.
We continue to find these grants to be countervailable but we have made
certain adjustments to our net subsidy calculations to reflect: (a) the
amended 1993 discount rate for Puglisi; (b) the correct sales values for
Pallante, Puglisi, and Riscossa, and (c) the fact that certain Law 64/86
industrial development grants received by Riscossa benefitted sales of all
products by the company (see, Comment 16). Thus, the net subsidies for
this program are 0.94 percent ad valorem for De Cecco, 1.55 percent ad
valorem for Delverde, 0.16 percent ad valorem for De Matteis, 1.23 percent
ad valorem for Pallante, 2.6 percent ad valorem Puglisi, and 0.71 percent
ad valorem for Riscossa.
2. Law 488/92 Industrial Development Grants
In the Preliminary Results, we determined that De Cecco, Delverde, De
Matteis, Pallante, and Puglisi received countervailable subsidies during
the POR from industrial development grants given under Law 488/92.
We continue to find these grants to be countervailable but we have made
certain adjustments to our net subsidies calculations to reflect the
correct sales values for Pallante and Puglisi. In addition, the Department
preliminarily calculated the net subsidy rate for the grant benefit
received by Pallante under this law using only the portion of the benefit
received by IAM. We have corrected the error. Thus, the net subsidies for
this program are 0.31 percent ad valorem for De Cecco, 0.28 percent ad
valorem for Delverde, 1.17 percent ad valorem for De Matteis, 0.88 percent
ad valorem for Pallante, and 2.53 percent ad valorem for Puglisi.
3. Law 183/76 Industrial Development Grants
In the Preliminary Results, we determined that Riscossa received
countervailable subsidies during the POR from industrial development
grants given under Law 183/76.
We continue to find these grants to be countervailable but we have made
an adjustment to our net subsidy calculation to reflect the correct sales
value for Riscossa and the fact that certain Law 183/76 industrial
development grants received by Riscossa benefitted sales of all products
by the company. Thus, the net subsidy for this program is 0.07 percent ad
valorem for Riscossa.
4. Industrial Development Loans Under Law 64/86
In the Preliminary Results, we determined that De Cecco, Delverde, De
Matteis, Pallante, and Puglisi, received countervailable subsidies during
the POR from industrial development loans given under Law 64/86.
We continue to find these loans to be countervailable but we have made
adjustments to our net subsidy calculations to reflect: (a) the correct
sales values for Pallante and Puglisi, (b) a guarantee fee paid by Puglisi
on its Law 64/86 loan taken out in 1990 (see, Comment 13), and (c) the
correct loan amortization schedule for Pallante. Thus, the net subsidies
for this program are 0.63 percent ad valorem for De Cecco, 0.35 percent ad
valorem for Delverde, 0.08 percent ad valorem for De Matteis, 0.24 percent
ad valorem for Pallante, and 0.14 percent ad valorem for Puglisi.
Law 341/95 Interest Contributions on Debt Consolidation Loans
In the Preliminary Results, we determined that De Cecco received
countervailable subsidies during the POR from interest contributions given
under Law 341/95. No new information, evidence of changed circumstances,
or comments from interested parties were received on this issue. Thus, the
net subsidy for this program has not changed from the Preliminary Results
and is 0.02 percent ad valorem for De Cecco.
6. Law 598/94 Interest Subsidies
In the Preliminary Results, we determined that De Matteis, Riscossa, and
Rummo received countervailable subsidies during the POR from interest
subsidies paid under Law 598/94.
We continue to find these interest contributions to be countervailable
but we have made adjustments to our net subsidy calculation for Riscossa
to reflect the correct sales value for that company and the fact that the
interest contributions received by Riscossa benefitted sales of all
products by the company. Thus, the net subsidies for this program are 0.18
percent ad valorem for De Matteis, 0.17 percent ad valorem for Riscossa,
and 0.20 percent ad valorem for Rummo.
7. Social Security Reductions and Exemptions-Sgravi
In the Preliminary Results, we determined that all the responding
companies received countervailable subsidies during the POR from social
security reductions and exemptions.
We continue to find these social security reductions and exemptions to be
countervailable but we have made adjustments to our calculations to
reflect: (1) the correct sales values for Pallante, Puglisi, and Riscossa,
and; (2) additional information received from Pallante (at our request)
about the amount of benefit received by that company. Thus, the net
subsidies for this program are 0.21 percent ad valorem for Agritalia, 0.11
percent ad valorem for De Cecco, 0.22 percent ad valorem for Delverde,
0.61 percent ad valorem for De Matteis, 0.14 percent ad valorem for
Pallante, 0.26 percent ad valorem for PAM, 0.55 percent ad valorem for
Puglisi, 0.04 percent ad valorem for Riscossa, and 0.46 percent ad valorem
for Rummo.
8. IRAP Exemptions
In the Preliminary Results, we determined that De Cecco received
countervailable subsidies during the POR from IRAP tax exemptions. No new
information, evidence of changed circumstances, or comments from interest
parties were received on this issue. Thus, the net subsidy for this
program has not changed and is 0.08 percent ad valorem for De Cecco.
9. Law 236/93 Training Grants
In the Preliminary Results, we determined that Delverde received
countervailable subsidies during the POR from training grants provided
under Law 236/93. No new information, evidence of changed circumstances,
or comments from interested parties were received on this issue. Thus, the
net subsidy for this program has not changed and is 0.02 percent ad
valorem for Delverde.
Law 304/90 Export Marketing Grants
In the Preliminary Results, we determined that Delverde received
countervailable subsidies during the POR from export marketing grants
provided under Law 304/90. No new information, evidence of changed
circumstances, or comments from interested parties received on this issue.
Thus, the net subsidy for this program has not changed and is 0.34 percent
ad valorem for Delverde.
European Regional Development Fund ("ERDF")
In the Preliminary Results, we determined that De Matteis and PAM
received countervailable subsidies during the POR from grants provided
under the ERDF. No new information, evidence of changed circumstances, or
comments from interested parties were received on this issue. Thus, the
net subsidy for this program has not changed and is 0.13 percent ad
valorem for De Matteis and 0.12 percent ad valorem for PAM.
Export Restitution Payments
In the Preliminary Results, we determined that Agritalia, De Cecco,
Delverde, Pallante, PAM, Puglisi, and Rummo received countervailable
subsidies during the POR from export restitution payments.
We continue to find these restitution payments to be countervailable but
we have made adjustments to our calculations to reflect the correct sales
values for Pallante and Puglisi. Thus, the net subsidies for this program
are 0.07 percent ad valorem for Agritalia, 0.11 percent ad valorem for De
Cecco, 0.51 percent ad valorem for Delverde, 2.43 percent ad valorem for
Pallante, 0.70 percent ad valorem for PAM, 1.36 percent ad valorem for
Puglisi, and 0.60 percent ad valorem for Rummo.
13. Duty-Free Import Rights
In the Preliminary Results, we determined that Agritalia received
countervailable subsidies during the POR through the sale of its duty-free
import rights. Since the Preliminary Results, we have obtained further
information from Agritalia, which submitted comments on this issue.
For these final results, we continue to determine that the duty-free
import rights which Agritalia received and sold confer a countervailable
benefit. Moreover, based on the additional information we received from
Agritalia, we determine that the import rights were not sold to
producers/exporters of subject merchandise (see, Comment 1). Thus, the net
subsidy for this program has not changed and is 0.38 percent ad valorem
for Agritalia.
B. Programs Determined Not To Confer Countervailable Subsidies in the POR
IRPEG Exemptions
In the Preliminary Results, we determined that De Cecco applied a partial
exemption it received under Law 449/97 to estimated IRPEG payments it made
during the POR. However, because the ultimate liability for these IRPEG
taxes would not be known until 2000, we reasoned that any benefit from the
exemption would not occur in the 1999 POR.
Since the Preliminary Results, we have obtained further information from
De Cecco confirming our assumption in the Preliminary Results that the
ultimate liability for the IRPEG taxes will be recognized when De Cecco
files its 1999 tax return in 2000. On that basis we continue to find that
the partial exemption did not confer a countervailable subsidy in the POR.
See November 29, 2001 Memorandum to File regarding De Cecco's IRPEG
Exemptions.
2. Remission of Taxes on Export Credit Insurance Under Article 33 of Law
227/77
In the Preliminary Results, we determined that Pallante received
remissions of taxes on export credit insurance in 1998 but not in 1999. On
this basis, we found no benefit during the POR.
No new information, evidence of changed circumstances, or comments from
interested parties were received on this issue. Therefore, we continue to
find that Pallante did not receive a countervailable subsidy under this
program during the POR.
ADAPT
In the Preliminary Results, we determined that the grant provided to De
Cecco under the ADAPT program was not a countervailable subsidy because
evidence on the record indicated that ADAPT assistance is focused on small-
and medium-sized businesses, is widely available throughout the EU, and is
widely used.
No new information, evidence of changed circumstances, or comments from
interested parties were received on this issue. Therefore, we continue to
find that De Cecco did not receive a countervailable subsidy under this
program during the POR.
4. Law 1329/65 Interest Contributions (Sabatini Law)
In the Preliminary Results, we determined that interest contributions
received by Pallante under this law were received prior to and did not
confer a countervailable subsidy during the POR. No new information,
evidence of changed circumstances, or comments from interested parties
were received on this issue. Therefore, we continue to find that Pallante
did not receive a countervailable subsidy under this program during the
POR.
European Social Fund ("ESF")
In the Preliminarily Results, we determined that De Matteis received an
ESF grant in 1995 and that the benefit of the grant was properly assigned
to the year of receipt.
No new information, evidence of changed circumstances, or comments from
interested parties were received on this issue. Therefore, we continue to
find no countervailable subsidy to De Matteis under this program during
the POR.
C. Programs Determined to Be Not Used
Law 64/86 VAT Reductions
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
Urban Redevelopment under Law 181
Grant Received Pursuant to the Community Initiative Concerning the
Preparation of Enterprises for the Single Market ("PRISMA")
European Agricultural Guidance and Guarantee Fund ("EAGGF")
No new information, evidence of changed circumstances, or comments from
interested parties were received on these programs. Therefore, we continue
to determine that these programs were not used by the respondents in this
review.
Analysis of Comments
Comment 1: Sale of duty-free import rights (Agritalia)
Agritalia argues that the Department erred in finding the company's sales
of its duty-free import rights under the Riesportazione Preventiva to be
countervailable. According to Agritalia, the record is clear that the
amount of wheat imported duty free does not exceed the amount of wheat
used to produce the exported pasta and the scheme is monitored to ensure
that it does not provide an excessive drawback. Further, Agritalia claims,
the scheme was established specifically as part of a settlement of a GATT
dispute between the EU and the United States, and the Department has
previously ruled that it is not countervailable.
Agritalia objects to the Department's conclusion in the Preliminary
Results that the program is not equivalent to a non-excessive duty
drawback scheme. Agritalia states that although the Department admitted
the program would be a non-excessive duty-drawback scheme if Agritalia had
both imported the wheat and exported the pasta, the Department did not
explain why the system becomes countervailable simply because the importer
and exporter are different. Nor did the Department cite to any statutory
or regulatory provisions, or to any precedents, to support its analysis,
Agritalia claims. The Department should, in Agritalia's view, follow the
logic used in antidumping proceedings, i.e., a scheme is non-excessive
when the imported input and the exported output are dependent upon one
another.
Agritalia further objects to the analysis of the benefit received by the
company under the
Riesportazione Preventiva for two reasons. First, any benefit Agritalia
receives does not come from the government but instead from the wheat
importer that purchases the duty-free import rights from Agritalia. This
wheat importer, according to Agritalia, is not an "authority" within the
meaning of 19 U.S.C.§1677(5)(B).
Second, the Department entirely missed the point of the scheme when it
preliminarily determined that the total benefit is equal to the duty
savings. Instead, Agritalia claims, the amount of any benefit is not equal
to nor dependent upon the contemporaneous level of import duties on wheat.
Instead, the wheat importer that purchases the import right is paying for
the certainty of avoiding an unexpected large increase in future wheat
duties. To demonstrate its point that the benefit cannot equal the
contemporaneous level of duties, Agritalia points to the fact that it has
sold duty-free import rights even when the contemporaneous level of duties
was zero. Under the Department's logic, Agritalia claims, the wheat
importer in this situation is receiving a negative benefit. Thus, the
result of the Department's reasoning is to over-countervail in this
situation, according to Agritalia. Agritalia concludes that because its
logic is flawed, the Department should not find the Riesportazione
Preventiva scheme to be countervailable.
Department's Position: We do not dispute Agritalia's claim that the
amount of wheat that is imported duty free is not excessive in relation to
the amount of wheat used to produce the exported pasta. However, as we
stated in the Preliminary Results, where the exporter of the processed
product (pasta) is not the importer and processor of the imported input
(wheat), we do not equate the system with a duty drawback scheme. Instead,
we view the government as having provided Agritalia with a right or
privilege to import wheat duty free and the ability to sell that right or
privilege. Consequently, the excessiveness or non-excessiveness of the
amount imported in relation to the amount exported is not relevant to our
analysis.
Based on Agritalia's comment, we have closely reviewed the Department's
Final Affirmative Countervailing Duty Determination: Certain Pasta from
Italy, 61 FR 30288, June 14, 1996 ("Pasta Investigation"). (According to
Agritalia, this is the decision in which we found the scheme non-
countervailable.) In Pasta Investigation, we described the export
restitution scheme, including the parallel "Inward Processing Relief"
("IPR") system. The IPR system was established, as Agritalia points out,
as a result of a GATT dispute about restitution payments. Under the IPR
system, wheat could be imported into the EU free of any levy and pasta
made from IPR wheat that was exported to the United States was not
eligible to receive restitution payments (as no levy had been paid).
At the time of Pasta Investigation, Agritalia claimed that the Department
should not countervail the fees it received related to IPR. The argument
the company made then is virtually identical to the argument it makes
here, i.e., that the IPR is not countervailable, so the fees received by
Agritalia related to the IPR are not countervailable. In Pasta
Investigation, the Department disagreed and found the fees received by
Agritalia to be countervailable subsidies. See Pasta Investigation,
"Comment 9," at 30301. It is not clear whether the fees or payments found
to be countervailable in Pasta Investigation are the same fees/ payments
that are at issue here, but we find no support in Pasta Investigation for
Agritalia's claim that we have previously found the program non-
countervailable.
The Department continues to distinguish between duty drawback and the
situation where the importer/processor of the raw material differs from
exporter of the processed good. In the former, the importer pays or is
liable for import duties, and those duties are rebated or waived when the
imported inputs are used (or, in substitution drawback, could be used) to
produce the exported product. In Agritalia's situation, Agritalia does not
import or process the raw material. Instead, because it exports pasta, it
is given the right to import wheat duty free and it sells that right.
Exportation yields a windfall to Agritalia.
Furthermore, we believe that our treatment of the payments Agritalia
receives is consistent with our practice. As noted above, it is not clear
but these may, in fact, be the same payments we countervailed in Pasta
Investigation. More recently, the Department has treated a similar duty-
waiver program in India, Advance Licenses and sales thereof, identically
to the way we have treated duty-free import rights received by Agritalia.
See, e.g., Final Affirmative Countervailing Duty Determination: Certain
Cut-to-Length Carbon-Quality Steel Plate from India, 64 FR 73131, 73134,
December 29, 1999. Moreover, we disagree with Agritalia that we are
following a policy in this review that is inconsistent with our treatment
of duty drawback in antidumping cases. In none of the antidumping cases
cited by Agritalia did the Department address systems where the right to a
waiver or drawback of duties was sold, and it appears from all the cited
cases that it was the producer and exporter of the subject merchandise
that paid the duties. See Rajinder Pipes Ltd. v. United States, 70 F.
Supp. 2d 1350 (Ct. Int'l Trade 1999); Stainless Steel Wire Rod from India,
65 FR 31302, May 17, 2000; and Stainless Steel Bar from India, 65 FR
48965, August 10, 2000.
Finally, we do not agree with Agritalia's arguments regarding our benefit
analysis. First, under 19 U.S.C. §1677(5)(B), a subsidy is described as
"the case in which an authority - (i) provides a financial contribution
... to a person and a benefit is thereby conferred." Thus, the "authority"
must provide a financial contribution. As we stated in the Preliminary
Results, the financial contribution occurs when the government, the
"authority," grants Agritalia the right to import wheat duty free and the
government, thereby, forgoes revenue that is otherwise due. In receiving
that right and the ability to sell the right, Agritalia receives a
benefit. The benefit to Agritalia may not be quantifiable or realized
until Agritalia sells the duty-free import right, but there has been a
financial contribution by the government and it has conferred a benefit on
Agritalia.
In the Preliminary Results, we stated that the total benefit is equal to
the duty savings. In particular, we reasoned that a benefit would accrue
to the importer that used the duty-free import rights in the amount of the
duty saved, less the amount paid to Agritalia to purchase the right.
Additionally, a benefit would accrue to Agritalia in the amount it
received from the sale of its duty-free import rights. As noted above
under the "Duty Free Import Rights" section, the purchasers of Agritalia's
duty-free import rights did not produce or export subject merchandise.
Therefore, this element of the benefit is not being assigned to any of the
companies subject to this review.
Although Agritalia has objected to this measurement of benefit and
pointed out possible anomalies, i.e., that the duties at the time the duty-
free import rights are purchased or redeemed may be zero, we continue to
believe that the benefit to Agritalia is best measured by the price it
receives when it sells its duty-free import rights. It is a price
negotiated between two parties and, thus, reflects the market value of the
right the government has granted to Agritalia at the time the right is
sold. Although the right may have a different value when it is actually
used by the importer, that does not detract from the fact that Agritalia
receives a benefit in the amount of revenue it receives from selling the
right.
Comment 2: Application of the Department's privatization methodology to
Delverde (Delverde)
Delverde argues that the Department's "same person" methodology adopted
in response to the remand ordered by the U.S. Court of Appeals for the
Federal Circuit ("Federal Circuit" or "Court") in Delverde, SrL v. United
States, 202 F.3d 1360 (Fed. Cir. Feb. 2, 2000), reh'g denied, (June 20,
2000) ("Delverde"), and followed in the preliminary determination of this
review and in the Third Review - Final Results, contravenes the Court's
decision in Delverde. Specifically, Delverde contends that the Federal
Circuit invalidated the Department's change in ownership methodology that
had been articulated in the 1993 General Issues Appendix, Final
Affirmative Countervailing Duty Determination: Certain Steel Products from
Austria, 58 FR 37217 (July 9, 1993) ("GIA") and ordered the Department to
examine the "facts and circumstances" of the sale and to determine whether
Delverde received a "financial contribution and a benefit" as a result of
this change in ownership transaction. Delverde states in its case brief at
8 that the Department failed to comply with these explicit instructions of
the Court, and instead developed and applied a methodology in which the
Department did "not reach the question of whether a subsidy {had} been
provided to Delverde as a result of the change in ownership transaction."
Delverde explains that the Department, instead of following the Court's
instructions, analyzed whether the "person" that received the pertinent
subsidies prior to sale of the pasta operation was the same "person"
subject to the instant review. Delverde claims that this approach is
outside the scope of the Court's Delverde-specific instructions, and that
the Department misconstrued the Court's decision as permitting such an
analysis.
Department's Position: As a preliminary matter, the Department had no
choice but to set out its new approach for the handling of changes in
ownership in response to the Federal Circuit's decision. In that case, the
Federal Circuit invalidated the privatization/restructuring methodology
that the Department had used to address the Delverde change in ownership
transaction in the underlying investigation and subsequent reviews. At the
same time, however, the Federal Circuit did not attempt to impose a
specific, new approach on the Department. Instead, it explained why the
Department's old methodology was inconsistent with the countervailing duty
statute, and it directed the Department essentially to remove those
inconsistencies when it re-visited the Delverde change in ownership
transaction on remand. Therefore, the Department developed a new approach
in light of the pronouncements made by the Federal Circuit. See Third
Review - Final Results.
We also disagree with Delverde's suggestion that the Department did not
undertake a case-specific analysis of the Delverde change in ownership.
The Department did so, although it necessarily had to decide on a change-
in-ownership methodology to apply before addressing the particular facts
of the Delverde change in ownership.
As to Delverde's more specific argument that the Department did not
follow the Federal Circuit's mandate to determine whether Delverde
indirectly received a financial contribution and a benefit as a result of
its purchase of the Fara San Martino ("FSM") pasta operation, we disagree
that the Department did not follow the Federal Circuit's instructions. In
order to find that a countervailable subsidy had been provided to the
"manufacture, production, or export" or the imported merchandise, the
Delverde 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
Delverde 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 in original).
After faulting the Department for conclusively presuming that the benefits
of the pre-change in ownership subsidies automatically passed through to
Delverde, the Federal Circuit instructed the Department to "examine the
facts and circumstances, including the terms of the transaction," and then
determine "whether Delverde indirectly received a subsidy" by virtue of
its purchase of the FSM pasta operation. Delverde, 202 F.3d at 1369-70.
Again, that is what the Department has done with regard to Delverde's
change in ownership. The Department examined the facts and circumstances,
including the terms of the transaction, first to determine whether
Delverde, the firm under review, was the same person as the original
subsidy recipient. See Third Review - Decision Memo. On finding that they
were the same person, the Department determined that all of the elements
of a subsidy were established with regard to Delverde, and its analysis of
the transaction necessarily ended. See Id.
Essentially, Delverde is arguing that the Department should have skipped
this first step in its analysis of the change in ownership transaction and
should have examined only whether or not a subsidy was provided to
Delverde on the basis that the purchase price was too low (e.g., less than
adequate remuneration). We disagree with Delverde that the Federal
Circuit's instructions were so limited. It does appear that the Federal
Circuit was under the impression that Delverde was a different person from
the original subsidy recipient. Nevertheless, the Federal Circuit did not
render a holding to that effect. For that reason, as more fully explained
in the February 5, 2001 Issues and Decision Memorandum: Final Results of
the 1998 Countervailing Duty Administrative Review of Certain Pasta from
Italy to Bernard T. Carreau, fulfilling the duties of Assistant Secretary
for Import Administration, (Third Review - Decision Memo), we do not
interpret the Federal Circuit's instructions as precluding an examination
of the facts and circumstances, including the terms of the transaction,
for the purpose of determining whether Delverde, the firm under review,
was the same person as the original subsidy recipient.
Comment 3: Presumption that subsidies continue after a change in
ownership (Delverde)
Delverde argues that the new change in ownership methodology perpetuates
the Department's long-standing presumption that subsidies benefit
production and therefore "travel" from seller to buyer when an entity is
sold. Delverde contends that this is the exact presumption that the Court
deemed unlawful. According to Delverde, the Department's new methodology
"perpetuates this presumption by equating the term 'person,' as used in
the 19 U.S.C. § 1677(5)(B) subsidy definition, to 'productive operation.'"
According to Delverde, this focus on productive operations guarantees that
subsidies will travel in every change of ownership. Delverde argues that
while the statute itself does not define "person" for purposes of this
subsidy definition, the Statement of Administrative Action, accompanying
H.R. Rep. No. 103-826-(I), at 841 (1994), reprinted in 1994 U.S.C.C.A.N.
4040, 4176 (1994) ("SAA") shows that the Department cannot properly equate
the two. Specifically, citing the SAA at 925, Delverde states that
"person" in this context means "the commercial entity, such as a firm or
industry, to which the government . . . provides a financial
contribution," and that the SAA indicates that the term is intended to be
used to distinguish a subsidy recipient from a group of enterprises in
determining whether a subsidy is specific, rather than to find that a new
owner is liable for subsidies granted to a prior owner after a change in
ownership.
Delverde states that Old Delverde, (1) not the FSM pasta operation, was
the legal entity that received the grants at issue and, importantly, the
FSM pasta operation was not a legal entity at all. Delverde argues that by
focusing on the FSM pasta operation as the link between Old Delverde (the
legal entity who received the grants) and Delverde that the Department
imputes to Delverde the financial contribution received by Old Delverde.
Delverde maintains that the Department's consideration of the pasta
operation as a "person" is inconsistent with the narrow meaning attributed
to this term by the SAA.
Delverde argues that application of the new change in ownership
methodology dispels any doubt that this new methodology continues the
Department's pre-Delverde presumption that subsidies benefit and travel
with productive operations in light of the factors considered by the
Department, and that the Department applies these factors only to the
productive assets that changed ownership. Therefore, Delverde concludes in
its case brief at 18 that the Department's methodology "ensures that
whatever changed ownership will be the 'same person' before and after the
change of ownership." According to Delverde, rather than comparing Old
Delverde with Delverde, the Department's results-oriented methodology
compared Old Delverde's FSM pasta operation to Delverde to ensure that the
FSM pasta operation was the same person before and after the sale. Lastly,
Delverde argues that this "benefit to production" presumption is clear in
the four other remand redeterminations issued by the Department since
Delverde. In each of these instances, the Department compared the pre- and
post-change in ownership productive operation rather than the pre-change
subsidy recipient and the post-change company under investigation.
Department's Position: We disagree with Delverde that the Department's
approach for determining whether the firm under investigation is the same
person as the original subsidy recipient in the change in ownership
context creates any kind of presumption. The Department has developed a
fact-based approach that takes into account a number of factors, including
continuity of general business operations, continuity of production
facilities, continuity of assets and liabilities and retention of
personnel. The degree of continuity evidenced by a consideration of these
factors will vary from transaction to transaction, depending on the facts,
and therefore the Department's approach on its face gives rise to no type
of presumption, but rather a consideration of the underlying facts and
circumstances of each case, as directed by the Federal Circuit.
Meanwhile, Delverde's specific contention that the Department's approach
on its face equates "person" and "production" is contradicted by a review
of the factors analyzed by the Department. As the Department's analysis in
this case shows, the Department's consideration of the factors relating to
general business operations and production facilities goes beyond a mere
analysis of production. In addition to these factors, the Department also
examined the continuity of assets and liabilities and the retention of
personnel. The Department also has expressly stated that no one of these
factors is dispositive for the "person" determination. Thus, we see no
basis for Delverde's argument that the Department's approach equates
"person" and "production" and, therefore, is no different from the
Department's old methodology.
For similar reasons, we disagree with Delverde's argument that the
Department's approach is biased and will result in a determination that
the firm under review is the same person as the original subsidy recipient
whenever assets of any significance are sold. In supporting its argument
on this point, Delverde insists that the Department's approach equates
"person" and "production facility" and, therefore, always will result in a
finding of the same person whenever significant assets change hands. In
our view, however, the Department's approach does not equate "person" and
"production facility," just as it does not equate "person" and
"production," as we have explained above.
Regarding the Department's application of its approach in this case, it
is true that the Department found Delverde to be the same person as the
original subsidy recipient. However, that is the result dictated by the
facts and circumstances in this case, not by the Department's approach.
Moreover, as discussed above, we disagree with Delverde's specific
contention that the only proper comparison for the required "person"
inquiry in this case is between MI.BA in its entirety (the seller of the
FSM pasta operation) and Sangralamenti (the purchaser of the FSM pasta
operation). Most importantly, even if this comparison were assumed to be
permissible under the countervailing duty statute, we do not interpret the
countervailing duty statute as requiring Delverde's suggested approach.
The comparison advocated by Delverde focuses solely on the old and new
owners of the FSM pasta operation, as MI.BA in its entirety was the old
owner of the FSM pasta operation and Sangralamenti is the new owner of the
FSM pasta operation that is now called Delverde and is the firm under
investigation. As should be evident, this type of comparison would result
in a per se rule that a new "person" is created whenever a sale occurs
between two unrelated parties, or in other words, whenever there is a
change in ownership. At the very least, we do not interpret the
countervailing duty statute as requiring the Department to base its
"person" determination solely and dispositively on this criterion. In the
context of the countervailing duty statute, with court approval, the
Department has routinely treated a subsidy, in appropriate circumstances,
as benefitting less than the entire company. For example, the Department
has attributed a pro rata portion of a subsidy benefit to divisions or
assets of a company when internal corporate restructurings have occurred.
See GIA, 58 FR at 37266-68. The Department has also applied a "tying"
analysis, which attributes a subsidy benefit to products produced by a
division of a company producing a particular product or to products
produced by particular facilities of a company. See id., 58 FR at 37231-36.
We also consider such an approach to be ill-advised. It would mean, for
example, that a new "person" is created even when a company's shares
simply turn over through public trading on a stock market. Although we
have not adopted the test used under general corporate successorship law,
we note that a mere change in owners in that context is not dispositive of
whether a new person exists for liability purposes. In addition, in the
countervailing duty context, as a policy matter, we view the analysis that
we have developed in this case to be more consistent with the remedial
goals of the countervailing duty statute, namely, to "level the playing
field" by offsetting the benefit conferred by a subsidy.
Comment 4: Privatization and the U.K. Lead Bar Panel (Delverde)
Delverde argues that the principle underlying the "same person" approach
used by the Department in the preliminary results has been found by a WTO
dispute settlement panel to contravene U.S. obligations under the SCM
agreement. According to Delverde, In United States - Imposition of
Countervailing Duties on Certain Hot Rolled Lead and Bismuth Carbon Steel
Products Originating in the United Kingdom, WT/DS/183/R (December 23,
2000) ("U.K. Lead Bar"), the WTO panel found that the Department's
presumption that financial contributions pass through to a new owner in a
change of ownership is rebutted by the circumstances of the change in
ownership. Instead, according to Delverde, the WTO panel found that the
continued existence of a benefit to the new owners must be demonstrated.
Delverde interprets the WTO panel decision as stating that the pertinent
issue is whether the respondent company received a benefit, not whether
the company is the "same person" as the previously subsidized company.
Delverde points out that the WTO appellate body later rejected the
arguments made by the United States that the proper course of action was
to examine if the respondent carried on substantially the same business as
the original recipient of the benefit, and then stated that the Department
was required to examine if a benefit accrued to the respondent. Delverde
claims that since the preliminary results did not conform to the decisions
of the WTO panel and the WTO Appellate Body, the Department disregarded
the international obligations of the United States under the SCM
agreement.
Department's Position: As previously explained in detail in the January
3, 2001 Issues and Decision Memorandum: Final Results of Countervailing
Duty Administrative Review: Grain-Oriented Electrical Steel from Italy,
detailing the Department's findings in Grain-Oriented Electrical Steel
From Italy; Final Results of Countervailing Duty Administrative Review, 66
FR 2885 (January 12, 2001), we believe that our current change in
ownership methodology is consistent with U.K. Lead Bar and the WTO
Appellate Body decisions. See, also,
Third Review - Decision Memo at 4-5 and notes 4 and 5.
Comment 5: Sale of shares vs. assets (Delverde)
Delverde argues that the Department's preliminary results, as detailed in
the February 5, 2001 memorandum to File regarding Delverde Change in
Ownership Analysis ("Third Review - CIO Memo"), relies on bits and pieces
from the record, frequently taken out of context, to support conclusions
that have no factual basis, thus ignoring the record as a whole. On that
basis, Delverde contends that the Department's preliminary results are
unsupported by substantial evidence. Delverde states that the facts do not
support the Department's "critical" characterization of the sale of FSM
pasta operation as "in the nature of a sale of shares." Specifically,
Delverde contests the Department's finding in the Third Review - CIO Memo,
that the actual sale of the FSM pasta operation took place in May 1991
when the so-called "buyout device" was implemented, but rather in March
1991 when the "Preliminary Private Agreement" was reached. Delverde argues
that Preliminary Private Agreement ("PPA") demonstrates that the change in
ownership was an asset sale and control of the FSM pasta operation passed
to Delverde when that agreement was reached. Specifically, Delverde states
that the PPA listed the categories of assets that were and were not being
sold, the schedule upon which Delverde would pay MI.BA., and that control
of the operation would transfer to Delverde immediately. Additionally,
according to Delverde, if the sale had been a sale of shares, the legally-
required asset appraisal would not have been necessary.
Department's Position: We disagree with Delverde's argument. As is clear
from our business proprietary description and analysis of the record
evidence as detailed in the Third Review - CIO Memo, the Department
analyzed the record carefully and thoroughly, finding that the final sale
took place when the new owners obtained the controlling ownership stake in
FSM pasta operation. The fact that the soon-to-be new owners may have
acquired control over the FSM pasta operation in March 1991, prior to
their acquisition of the controlling ownership stake in the operation in
May 1991, does not invalidate the Department's characterization that the
May 1991 transaction was "in the nature of a sale of shares."
In any event, we disagree with Delverde's assertion that the Department's
determination that the sale was a share sale, rather than an asset sale,
was "critical" to its finding that the FSM pasta operation was the same
"person" as Delverde. We would like to reiterate, as should be clear from
our analysis of the Delverde change in ownership in the Third Review -
Decision Memo and Third Review - CIO Memo, the distinction between a sale
of shares and a sale of assets is not crucial to the "person"
determination, despite Delverde's focus on it in its comments. Rather, it
becomes relevant principally to the extent that it helps to clarify the
analysis of one of those factors, namely, the continuity of assets and
liabilities.
Comment 6: Continuity of Business Operations (Delverde)
With regard to the continuity of general business operations, Delverde
questions the Department's findings, stating that the fact that Delverde
maintained the same plant and headquarters before and after the sale only
shows that these were among the assets purchased, and that the offices no
longer housed the administrative functions supporting Old Delverde's other
business lines. Delverde also disputes that the Department's conclusion
that the change in semolina suppliers was an inevitable result of Old
Delverde's on-going disputes with its supplier rather than as a result of
the ownership change. Delverde also argues that the Department's
conclusion that there was a continuity of production facilities, assets
and liabilities is an inevitable result of defining "person" in terms of
the production facilities being sold, and had the Department instead
compared Old Delverde with Delverde there is no continuity of production
operations, assets or liabilities. Lastly, Delverde criticizes the
Department's findings with regard to retention of personnel, stating the
Department ignored substantial organizational and personnel changes
resulting from the ownership change.
Department's Position: We disagree with Delverde that there is not a
continuity of business operations between the FSM pasta operation and
Delverde. While Delverde disputes the Department's conclusions with regard
to several of the issues the Department addressed in its Third Review -
CIO Memo, Delverde does not dispute the majority of the information relied
upon by the Department in concluding that there was continuity of business
operations. Specifically, Delverde does not dispute the fact that there
were not any major changes in the productive operations of the newly
created company, which used the same production facilities to manufacture
and sell the same products using the same brand name and trademarks and
which added no additional facilities nor closed any existing facilities.
As explained in Comment 3, above, we disagree with Delverde's assertion
that it is inappropriate to analyze whether the FSM pasta operation (as
opposed to Old Delverde) is the same "person" as Delverde. We also
disagree with Delverde's argument that the result of the Department's
analysis of the continuity of production facilities, assets and
liabilities, is preordained by its methodology. As we stated in the Third
Review - CIO Memo, the FSM pasta operation had been operating as its own
business entity for several decades prior to its sale to Delverde. As
noted in the Third Review - CIO Memo, and not disputed by Delverde, the
assets and liabilities that were transferred in the sale were those
directly associated with this FSM pasta operation. It is notable that
MI.BA. did not retain production facilities, assets or liabilities that
had been associated with the FSM pasta operation, Delverde did not take on
any production facilities, assets or liabilities that were associated with
Old Delverde's other productive units, nor did the purchasers integrate
the FSM pasta operations with other pasta operations or business lines in
establishing Delverde. Had any of these hypothetical scenarios actually
occurred, then the information regarding such scenarios would have led the
Department to reexamine whether there was a continuity of production
facilities, assets and liabilities (or continuity of business operations).
With regard to Delverde's argument regarding personnel changes, as
explained in the Third Review - CIO Memo, while we do not dispute that
certain personnel changes did occur, we based our finding of a continuity
of personnel on the undisputed fact that a significant number of managers
and employees were transferred from Old Delverde to Delverde as part of
the sale.
Comment 7: Sgravi repayment (Delverde)
Delverde contends that the Department should take into account the
repayment of sgravi benefits the company had conditionally received
between December 1, 1994, and November 30, 1996, and which the Department
countervailed in the investigation and past reviews. The Department
preliminarily determined that the repayment of these benefits does not
qualify as a permissible offset within the meaning of 19 U.S.C. 1677(6)
the Act and, thus, did not take the repayments into account. Delverde
claims, however, that the Department has mischartacerized the repayment as
an offset. Delverde contends that the Department should instead consider
the threshold issue of identifying and valuing the financial contribution
to the respondent company. Under this approach, the Department would see
that the amount of sgravi repaid in the POR was greater than the value of
sgravi received. Consequently, the value of the sgravi subsidy in 1999 was
zero and there is no need to reach the issue of an offset.
Department's Position: We disagree that the analytical framework proposed
by Delverde is correct. If Delverde were, for example, repaying a non-
recurring grant that it received prior to the POR, we would agree that any
portion of that grant that had not already been countervailed should be
reduced by the amount repaid. (We would do this without regard to the
offset provision because, as Delverde argues, the repayment would be a
reduction in the financial contribution and benefit.) However, the
situation faced by Delverde is different. This is because the sgravi
benefits in question are treated by the Department as recurring benefits.
Consequently, the benefit of sgravi subsidies is assigned to the period in
which they are received and any sgravi benefit received in the period
December 1, 1994 to November 30, 1996, would have been assigned to
calendar year 1994, 1995, or 1996 as appropriate. Moreover, countervailing
duties have been collected in this case since October 17, 1995. Therefore,
we have already countervailed a portion of the sgravi benefits in question.
Because the financial contributions that gave rise to the sgravi benefits
from December 1, 1994, through November 30, 1996, occurred in the earlier
periods, we have no basis for reducing those financial contributions and
benefits. Nor do we agree with Delverde that we should reduce current
financial contributions by the GOI in the form of current sgravi subsidies
with Delverde's repayment of past financial contributions from the GOI.
Instead, we believe the only means of reducing Delverde's sgravi benefits
during the POR would be if Delverde repaid the sgravi benefits it received
during the POR, or through the offset provision. Neither condition is met
here.
Comment 8: Selection of 1999 sales values (Pallante)
Pallante states that the Department used information reported in the
company's February 15, 2001 supplemental response for the sales figures
from 1988 to 1998, but used information submitted in the company's
November 17, 2000 questionnaire response for the 1999 sales figures.
Pallante requests that the Department use the 1999 sales figures reported
in the February 15, 2001 response.
Department's Position: On January 25, 2001, the Department asked Pallante
to report the sales data requested in question D of the Allocation
Appendix of the September 29, 2000 questionnaire. Pallante provided the
requested data, including sales data for 1999. The sales data for 1999
reported in response to the original questionnaire differed from the sales
data for 1999 reported in response to the first supplemental
questionnaire. At the time of the Preliminary Results, the Department had
no information indicating which set of sales figures was more appropriate,
so the Department used the first set it received. Subsequent to the
Preliminary Results, Pallante clarified this issue for the Department,
stating that the sales figures in its first supplemental response were
correct because they included the FOB adjustments. See Pallante's October
9, 2001 response to the Department second supplemental questionnaire.
Therefore, we have used the adjusted values for these final results.
Comment 9: Law 64/86 industrial development grants and loans (Pallante)
Pallante contends that the Department has erroneously included benefits
for various projects funded with Law 64/86 loans in its calculation of the
net subsidy for Pallante. In support of this claim, Pallante points to
various examples in the Department's preliminary calculations where the
Department stated that benefits had lapsed prior to the POR. Nonetheless,
according to Pallante, the Department assigned a benefit to these
projects.
Department's Position: We disagree with Pallante that we erred in our
calculations. Pallante is correct that we found Law 64/86 industrial
development loans associated with certain projects not to give rise to a
benefit during the POR. However, the amounts we included in our net
subsidy calculations reflected Law 64/86 industrial development grants,
not loans, given for those same projects. We have continued to include
these industrial development grants in these final results.
Comment 10: Sales by CE.S.A.P (Puglisi)
Puglisi argues that the Department should have included sales made by its
affiliate, CE.S.A.P, in the total sales amounts used to calculate the ad
valorem subsidy received by Puglisi in 1999. According to Puglisi,
CE.S.A.P.'s sales figures were inadvertently omitted from the tabulation
of total sales reported in Puglisi's November 16, 2000 response. Puglisi
states, however, that CE.S.A.P.'s sales are reported in the 1999 financial
statements appended as Exhibit 4 in that response. Puglisi argues that the
Department should use the corrected sales figure to recalculate the CVD
rates for Law 64/86 industrial development grants, Law 488/92 industrial
development grants, and Law 64/86 industrial development loans.
Department's Position: As we stated in the Preliminary Results, based on
the extent of cross ownership between Puglisi and CE.S.A.P., subsidies
received by both companies should be attributed to their combined sales.
Therefore, we have corrected our calculation to include CE.S.A.P.'s sales
for the programs listed above as well as for sgravi.
Comment 11: Failure to use company-specific discount rate for 1993
industrial development grant under Law 64/86
According to Puglisi, the Department erred in using the Bank of Italy
reference rate as the discount rate for allocating the 1993 industrial
development grant it received under Law 64/86.
Puglisi argues that the Department should have used the company's own
commercial borrowing rate. Puglisi contends that use of the Bank of Italy
reference rate contradicts the position the Department took in the
Preliminary Results regarding use of company-specific benchmarks and
discount rates, as well as the Department's regulations.
Department's Position: We agree with Puglisi. Under section
351.505(A)(3)(i) of the regulations, we prefer to base our benchmarks and
discount rates on the actual experience of the firm in question when it
takes out commercial loans rather than national averages. Moreover, we
note that we used Puglisi's actual commercial borrowing rate as the
benchmark for the industrial development loan that the company was
approved for and received in 1993. Therefore, we have amended the grant
calculation to use this rate as the discount rate for allocating the
benefit over time.
Comment 12: Failure to use company-specific interest rates for industrial
development loans under Law 64/86 (Puglisi and De Matteis)
Both Puglisi and De Matteis argue that the Department failed to use
company-specific borrowing rates as benchmarks for industrial development
loans granted under Law 64/86.
Puglisi asserts that the industrial development loan it applied for in
1990 had a subsidized interest rate contingent upon approval of the loan
decree. However, if the loan decree had been denied, a prevailing
commercial market interest rate would have been applied for repayment of
the loan. According to Puglisi, it paid two installments of the loan at
this prevailing commercial market rate on June 26, and December 29, 1992.
Puglisi argues that the Department should replace the Bank of Italy
reference rate that it used in the Preliminary Results with the commercial
rate that would have applied to Puglisi if the interest subsidy had not
been approved.
De Matteis makes two arguments concerning the calculation of the
countervailable benefits conferred by the company's industrial development
loans under Law 64/86. First, like Puglisi, it argues that the Department
should have used the interest rate that would have applied had the GOI not
approved an interest subsidy for the company. According to De Matteis, the
administrative record contains no evidence that this loan was not a
commercial loan made on commercial terms. Moreover, De Matteis argues, the
Department's decision to use the Bank of Italy reference rate relies on
the faulty premise that De Matteis would have paid this benchmark rate in
the absence of the industrial development loan program because, as De
Matteis points out, absent approval of the interest subsidy, it would have
paid the alternative rate set out in the loan contract.
If this rate is not used, De Matteis argues that the Department should
use the commercial benchmark it provided for 1993. According to De
Matteis, the Department did not ask it to provide commercially comparable
loans from 1995, the year in which De Matteis' industrial development loan
was approved, but the Department did ask the company to provide all
commercially comparable loans agreed to by De Matteis in 1993. De Matteis
argues that the long-term loan it got in December 1993 and reported to the
Department could serve as a benchmark for the 1995 industrial development
loan because section 351.505(a)(2)(iii) of the Department's regulations
allows for flexibility in selecting a benchmark from an earlier period.
Department's Position: We disagree with Puglisi and De Matteis that we
should use the alternative rates that would have been paid by the
companies if the GOI had not approved the industrial development loans
under Law 64/86. There is no evidence on the record to support the
conclusion that these are commercial rates. In Puglisi's case, this
alternative rate is described in a document with the letterhead "Agenzia
per la Promozione dello Sviluppo del Mezzogiorno" (or "Agency for the
Economic Development of Southern Italy"). In De Matteis' response, the
alternative rate is merely described as the rate the company would pay if
the GOI did not approve its application. There is no support for the claim
that this rate is what the companies would pay to borrow from commercial
lenders. Indeed, a comparison of these rates to the national average
benchmark rate (based on the Bank of Italy's reference rate) indicates
that the alternative rates are low.
Regarding De Matteis' claim that the Department did not request benchmark
information for 1995, we disagree. In our questionnaire at p. III-7, we
ask respondents that have previously been investigated to answer the
questions in the "Loan Benchmark Appendix" for any loans received under
the Law 64/86 Industrial Development Loan program since the company was
last investigated or reviewed. The "Loan Benchmark Appendix," in turn,
asks for information about any "long-term commercial debt incurred
contemporaneously and comparable to the loan(s) in question." De Matteis
was investigated in Pasta Investigation, which had 1994 as the period of
investigation, and has not been covered by any reviews until this fourth
review. Therefore, because the industrial development loan in question was
approved in 1995 loan it would have been received since the De Matteis was
last investigated, and De Matteis should have provided benchmark
information for 1995.
Finally, we disagree that we should use a December 1993 loan as the
benchmark for De Matteis' 1995 industrial development loan. Section
351.505(a)(2)(iii) of the regulations states that the Department will
"normally use a loan the terms of which were established during or
immediately before, the year in which the terms of the government-provided
loan were established." (emphasis added) Thus, while the regulation
provides some flexibility, we do not believe that it supports using a 1993
loan as a benchmark for government-provided loan in 1995.
Comment 13: Deduction of loan guarantee payments (Puglisi)
Puglisi states that the Law 64/86 industrial development loan approved in
1990 requires an annual guarantee fee to be paid on the initial loan
amount. Puglisi argues that the Department has previously determined that
this loan guarantee qualifies as an application fee, deposit or similar
payment paid in order to qualify for, or to receive, the benefit of a
countervailable subsidy, i.e., a permissible offset under 19 USC
1677(6)(a). Consequently, Puglisi argues, the Department should account
for the loan guarantee fee in its subsidy calculation.
Department's Position: Section 351.505(a)(1) of the regulations states
that we will normally determine the benefit from government-provided loans
using effective interest rates. As explained in the preamble to that
regulation: "'Effective interest rates' are intended to take account of
the actual cost of the loan, including the amount of any fees, ... in
addition to the 'nominal interest'." (See 63 FR 65362 (November 25, 1998))
Thus, we agree with Puglisi and have included this guarantee fee in our
calculation for the final results.
Comment 14: Deduction of interest payments on Law 64/86 industrial
development grant advances (Puglisi)
According to Puglisi, the GOI can advance capital contributions to
companies in the Mezzogiorno region prior to the final approval of the
grants given under Law 64/86. When such advances are received, the company
must pay interest on the amount of the advance. Puglisi argues that these
mandatory interest payments qualify as an offset within the meaning of 19
U.S.C. 1677(6)(a). Therefore, Puglisi argues, these amounts should be
subtracted from the gross countervailable subsidy.
In support of its argument, Puglisi cites to: Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order; Certain
Textile Mill Products from Mexico, 50 FR 10824, 10825, March 18, 1985; and
Preliminary Affirmative Countervailing Duty Determination; Certain Red
Raspberries from Canada, 50 FR 42574, 42575, October 21, 1985. In these
cases, a supervision fee and surcharges qualified as acceptable offsets,
according to Puglisi. Puglisi also cites to Pasta Investigation where,
Puglisi claims, the Department found that loan guarantee fees paid under
Law 64/86 should be deducted.
Department's Position: We disagree that interest payments made on
conditional advances should be treated as offsets to the amount of the
gross subsidy. As explained by Puglisi, a company can receive an advance
payment while awaiting final approval by the GOI of the industrial
development grant. During the time this advance is outstanding, we view
the advance as a loan. Once approval is received, we have treated the
amount as a grant from that time forward. Under this framework, the
interest payments Puglisi made on advances are just like interest payments
on a loan, i.e., they are payments for the use of money which Puglisi
would have to repay if the industrial development grant were not approved.
They are not payments made to qualify for or to receive the grants.
Therefore, we have not reduced the gross value of the industrial
development grants to reflect the interest paid by Puglisi on its
advances.
Comment 15: Use of FOB sales values (Riscossa)
Riscossa states that the Department used both FOB and non-FOB values in
its calculation of Riscossa's sales values. Riscossa contends that the
Department should use only FOB values when determining the sales
denominators for use in the calculation of net subsidy rates.
Department's Position: The Department agrees that FOB values are the
proper values to use in the calculation of the sales denominators and we
have used them in these final results.
Comment 16: Attribution of benefits to pasta sales vs. sales of all
product (Riscossa)
Riscossa states the Department used total pasta sales rather than the
total sales of all products as the denominator for determining net subsidy
rates. Riscossa claims that the total sales figure, not the total pasta
sales figure, should be used for the computation of benefits because the
other products its sells (biscuits, tomato products) are warehoused and
reflected in Riscossa's bookkeeping system just like the company's pasta
products.
Department's Position: In the Preliminary Results, the Department
attributed benefits from industrial development grants under Laws 64/86
and 183/76, and interest rate reductions under Law 598/94 to Riscossa's
pasta sales. Sgravi benefits were attributed to sales of all products.
For the final results, we have attributed the benefits of all subsidies
received by Riscossa to its sales of all products. This is consistent with
our treatment of the industrial development grants in Third Review - Final
Results. For the Law 598/94 interest rate reductions, which are being
countervailed for the first time in this review, we have used sales of all
products because there is no information indicating that the benefits are
tied to Riscossa's production or sales of pasta.
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 Carreau
Acting Assistant Secretary
for Import Administration
___________________
Date
__________________________________________________________________________
footnote:
1. We refer to Delverde, SrL as it existed prior to the change in
ownership transaction as "Old Delverde" to avoid confusion. Later, as a
result of the change in ownership transaction, the name "Delverde, SrL"
was changed to "Nuovo Delverde, SrL" and then back to its original name of
"Delverde, SrL." Subsequent to the change in ownership transactions, the
operations of Old Delverde that were not sold changed their name to MI.BA.