67 FR 3163, January 23, 2002
C-475-830
INVESTIGATION
Public Document
SManiam: Grp1Off1
MEMORANDUM
DATE: January 15, 2002
TO: Faryar Shirzad
Assistant Secretary for
Import Administration
FROM: Richard W. Moreland
Deputy Assistant Secretary, Group I
Import Administration
SUBJECT: Issues and Decision Memorandum: Final Determination in the
Countervailing Duty Investigation of Stainless Steel Bar From Italy
_____________________________________________________________________
BACKGROUND
On June 6, 2001, the Department of Commerce ("the Department") published
the preliminary determination in this investigation. See Preliminary
Affirmative Countervailing Duty Determination and Alignment of Final
Countervailing Duty Determination With Final Antidumping Duty
Determination: Stainless Steel Bar From Italy, 66 FR 30414 (June 6, 2001)
("Preliminary Determination"). The "Analysis of Programs"and "Subsidies
Valuation Information" sections below describe the subsidy programs and
the methodologies used to calculate the benefits from these programs. We
have analyzed the comments submitted by the interested parties in their
case and rebuttal briefs in the "Discussion of Issues" section below,
which also contains the Department's responses to the issues raised in the
briefs. We recommend that you approve the positions we have developed in
this memorandum. Below is a complete list of the issues in this
investigation for which we received comments and rebuttal comments from
parties:
Comment 1: Facts Available Methodology for CAS
Comment 2: Appropriate AUL for Valbruna
Comment 3: Attribution of Subsidies Following Bolzano's Change in Ownership
Comment 4: Interest Subsidy Received by Falck Under Article 3 of Law
193/84
Comment 5: Law 193/84 Capacity Reduction Grants
Comment 6: Repayment of Law 25/81 Benefits by Falck
Comment 7: Bolzano Industrial Site Lease and Extraordinary Maintenance
Comment 8: Bolzano Industrial Site Purchase
Comment 9: Countervailability of Law 44/92
Comment 10: Exclusion of Valbruna's Non-Italian Production from Sales
Denominator
Comment 11: Denominator Used in Calculating Valbruna's Subsidy Rate
Comment 12: Appropriate Discount Rate for Valbruna
Comment 13: Law 451/94 Early Retirement Program
Comment 14: Attribution of 1983 and 1985 Law 25/81 Grants to Valbruna
Comment 15: Law 25/81 Environmental Grants
Comment 16: European Social Fund
Comment 17: Law 549/95
Comment 18: Appropriate AUL for Foroni
METHODOLOGY AND BACKGROUND INFORMATION
I. Changes in Ownership
On February 2, 2000, the U.S. Court of Appeals for the Federal Circuit
("CAFC") in Delverde S.r.l. v. United States, 202 F.3d 1360, 1365 (Fed.
Cir. 2000), reh'g en banc denied (June 20, 2000) ("Delverde III"),
rejected the Department's change-in-ownership methodology as explained in
the General Issues Appendix. (1) The CAFC 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.
Pursuant to the CAFC finding, the Department developed a new change-in-
ownership methodology, first announced in a remand determination on
December 4, 2000, following the CAFC's decision in Delverde III, and also
applied in Grain-Oriented Electrical Steel from Italy; Final Results of
Countervailing Duty Administrative Review, 66 FR 2885 (January 12, 2001).
Likewise, we have applied this new methodology in analyzing the changes in
ownership in this determination.
The first step under this new methodology is to determine whether the
legal person (entity) to which the subsidies were given is, in fact,
distinct from the legal person that produced the subject merchandise
exported to the United States. If we determine the two persons are
distinct, we then analyze whether a subsidy has been provided to the
purchasing entity as a result of the change-in-ownership transaction. If
we find, however, that the original subsidy recipient and the current
producer/exporter are the same person, then that person benefits from the
original subsidies, and its exports are subject to countervailing duties
to offset those subsidies. In other words, we will determine that a
"financial contribution" and a "benefit" have been received by the
"person" under investigation. Assuming that the original subsidy has not
been fully amortized under the Department's normal allocation methodology
as of the POI, the Department would then continue to countervail the
remaining benefits of that subsidy.
In making the "person" determination, where appropriate and applicable,
we 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 person to be the same person as the pre-sale person if, based on
the totality of the factors considered, we determine the entity in
question can be considered a continuous business entity because it was
operated in substantially the same manner before and after the change in
ownership.
CAS and Valbruna are the only respondents with changes in ownership
requiring this analysis because no other respondent (or its predecessor)
received subsidies prior to a change in ownership that were not fully
expensed or allocated prior to the POI. Our findings with regard to the
relevant changes in ownership are as follows:
CAS:
As noted below in the "Use of Facts Available" section, CAS withheld
requested information regarding its changes in ownership. Consequently,
the Department is unable to determine, inter alia, whether CAS and its pre-
sale predecessors constitute a continuous business entity. Consistent with
section 776(b) of the Tariff Act of 1930, as amended (the "Act"), we have
made an adverse inference in selecting from the facts available with
respect to CAS. Specifically, we find that CAS and its predecessors are a
continuing business entity for the purposes of our subsidy benefit
analysis. Accordingly, we determine that certain subsidies provided to the
predecessor companies continue to benefit the privatized CAS.
Valbruna:
As we did in the Preliminary Determination, for the final determination,
we have not made a finding as to whether pre-sale Bolzano and pre-sale
Valbruna are distinct persons from the respondent Valbruna. We note the
potential POI benefits for any pre-sale subsidies to Bolzano (e.g.,
Bolzano Law 25/81) remain insignificant, amounting to 0.07 percent.
Assuming arguendo that these pre-sale subsidies continued to benefit
Valbruna in the POI, the final ad valorem rate (reflecting, in full, any
POI benefits of pre-sale subsidies) for Valbruna would be de minimis.
Therefore, application of the change in ownership methodology is not
relevant for this company.
II. Use of Facts Available
Sections 776(a)(2)(A) and (B) of the Act require the use of facts
available when an interested party withholds information requested by the
Department, or when an interested party fails to provide the information
required in a timely manner and in the format requested. In selecting from
among facts available, section 776(b) of the Act provides that the
Department may use an inference adverse to the interests of a party if the
Department determines that the party has failed to cooperate to the best
of its ability.
In this investigation, we are presented with an unusual situation. CAS, a
company that was selected to respond to our CVD questionnaire, declined to
do so. However, in their responses to our questionnaires, the government
of Italy ("GOI") and the European Commission ("EC") reported much of the
information regarding the assistance provided to CAS. Also, because CAS
was investigated in Final Affirmative Countervailing Duty Determination:
Certain Stainless Steel Wire Rod From Italy, 63 FR 40474 (July 29, 1998)
("Wire Rod"), the record of that proceeding is a source of additional
information about CAS and the programs from which CAS benefitted.
Although CAS failed to cooperate to the best of its ability in refusing
to respond to our questionnaire, we cannot ignore the information reported
to us by the GOI and EC regarding subsidies given to CAS. The petitioners
have argued that we should ignore the information from the GOI and EC as
partial information. We disagree (see Comment 1 for further discussion).
Therefore, for the final determination, as in the Preliminary
Determination, for those programs where information provided by the GOI or
EC permits calculation of the subsidy to CAS, we have relied upon that
information. See Comment 1 for further discussion.
With respect to information from Wire Rod, several programs investigated
in that proceeding are also being investigated in this case. If a program
was found to be specific, to have constituted a financial contribution, or
to have conferred a benefit in Wire Rod, and no new information to the
contrary has been provided in this investigation, we have adopted the
finding reached in Wire Rod.
Where the value of CAS' exports during the POI was required, we derived
this amount using a ratio of CAS' export sales to total sales provided in
the Dunn & Bradstreet report ((see Memorandum to the File, "Miscellaneous
Information used for the Calculations," dated May 29, 2001 at Attachment 1
("Miscellaneous Information Memo")).
In those instances where the available information does not provide a
basis for calculating the subsidy to CAS, we have drawn an adverse
inference due to CAS' failure to cooperate to the best of its ability in
this investigation. Specifically, because no information was provided
regarding the issue of whether CAS was the same entity before and after
privatization, we have treated CAS as the same entity, with the result
that CAS' full share of ILVA's subsidies has been attributed to CAS (see
section below on Programs Determined to Be Countervailable: Company-
Specific Subsidies Conferred by the Government of Italy). In addition, it
is also necessary to have information on the value of CAS' sales in order
to calculate the ad valorem benefit of the subsidy and, where necessary,
to perform the 0.5 percent expense test described in 19 CFR 351.524(b)(2).
We obtained CAS' total sales revenue amounts for the years 1997- 1999 from
a public Dunn & Bradstreet report. Because a total sales value for the POI
(2000) is not available, as adverse facts available and unlike in our
Preliminary Determination, we used the lowest sales value from the
previous three years to represent the POI sales. Finally, for a long-term
benchmark rate, we added the highest spread to the ABI rate (as opposed to
adding the average of the spread), and for a short-term rate, we used the
highest rate in the POI (as opposed to using the average of the rates for
the POI) (for further discussion, see section below on "Subsidies
Valuation Information: Benchmarks for Loans and Discount Rate").
In the Preliminary Determination, we stated that we used as facts
available the maximum amount of waste disposal benefits provided by the
Regional Government of Valle D'Aosta ("Regional Government") to CAS
because we did not have information on the actual amount of waste disposal
offset payments received by CAS during the POI. 66 FR at 30417. However,
at verification, the Regional Government was able to provide us
information regarding the actual amount of waste disposal benefits
received by CAS. See Memorandum to Susan H. Kuhbach, "Autonomous Regional
Government of Valle D'Aosta Verification Report," dated August 10, 2001 at
4-5 ("GOA Verification Report"). Because we have sufficiently complete
verified data relating to waste disposal, we have used this information in
our calculation of benefits to CAS from the waste disposal benefits (see
section below on Programs Determined to Be Countervailable: Company-
Specific Subsidies Conferred by the Regional Government of Valle D'Aosta).
When employing an adverse inference, the statute indicates the Department
may rely upon information derived from, inter alia, the petition. In doing
so, however, the Department should "to the extent practicable" corroborate
the information from independent sources reasonably at its disposal. See
Statement of Administrative Action accompanying H.R. 5110 (H.R. Doc. No.
103-316) (1994), at 870 ("SAA") regarding use of "secondary" information.
In this case, we have reviewed information on the CAS website
(www.cogne.com/en/history.html) regarding the change in ownership of the
company. See Memorandum to the File, "Information on the Ownership of
CAS," dated January 9, 2002. While the company has undergone some
restructuring in recent years, there is no indication that CAS is not the
same entity before and after its privatization in 1994. Therefore, we
determine that the information supplied by the petitioners regarding CAS'
change of ownership has probative value, and that we may appropriately
rely upon it.
III. Subsidies Valuation Information
A. Allocation Period
Under 19 CFR 351.524(b) of our regulations, non-recurring subsidies are
allocated over a period corresponding to the average useful life ("AUL")
of the renewable physical assets used to produce the subject merchandise.
19 CFR 351.524(d)(2) creates a rebuttable presumption that the AUL will be
taken from the U.S. Internal Revenue Service's 1977 Class Life Asset
Depreciation Range System (the "IRS Tables"). For stainless steel bar, the
IRS Tables prescribe an AUL of 15 years.
As in the Preliminary Determination, we have used the 15-year allocation
period for all respondents, with the following exceptions:
Subsidies to CAS and Valbruna That Were Countervailed in Wire Rod:
Certain subsidies to CAS and Valbruna were countervailed in Wire Rod. At
the time of Wire Rod, it was our practice to calculate company-specific
AULs. For both CAS and Valbruna, the calculated AUL was 12 years. As a
matter of practice, where a subsidy has been allocated over a particular
period, we will continue to use the same allocation period for that
subsidy from proceeding to proceeding. See, e.g., Final Affirmative
Countervailing Duty Determination: Stainless Steel Sheet and Strip from
France, 64 FR 30774, 30778 (June 8, 1999); see also Final Affirmative
Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality
Steel Plate from France, 64 FR 73277, 73280 (December 29, 1999).
Therefore, for those subsidies to CAS and Valbruna that were allocated
over a 12-year period in Wire Rod, we have continued to use the 12-year
allocation period calculated in that proceeding.
The petitioners have argued that the 12-year AUL for Valbruna results
from distorted data and, therefore, we should use the presumed 15-year AUL
from the IRS Tables. We find that the 12-year AUL was calculated in Wire
Rod with full knowledge of the facts that the petitioners allege constitue
distortions in the data. Therefore, we have continued to allocate those
subsides previously investigated in Wire Rod over a 12-year AUL. For
further discussion of this issue, see Comment 2.
For subsidies to these companies that were not countervailed in Wire Rod,
we have used the 15-year allocation period from the IRS Tables.
Foroni:
For this investigation, Foroni calculated its company-specific AUL
pursuant to 19 CFR 351.524(d)(2)(iii). This AUL differs significantly from
the 15-year AUL in the IRS Tables. Further, Foroni claims its calculation
is an estimate of its actual useful life of assets and excludes any
effects from the application of accelerated depreciation, special charges,
and/or asset revaluations over the relevant years. This claim was
verified. See Memorandum to Susan H. Kuhbach, "Results of Verification of
Foroni S.p.A.," dated September 5, 2001 at 4. Therefore, for the final
determination, we find that Foroni has rebutted the presumption in favor
of the IRS Tables, according to 19 CFR 351.524(d)(2), and, accordingly, we
have allocated non-recurring subsidies to this company over its company-
specific AUL.
Valbruna:
Valbruna/Bolzano also calculated its company-specific AUL. However, this
company-specific AUL does not differ significantly from the 15-year AUL in
the IRS Tables. Therefore, pursuant to 19 CFR 351.524(d)(ii), we have
allocated all subsidies received by Valbruna/Bolzano, except those
countervailed in Wire Rod, over 15 years as presumed in the IRS tables.
For non-recurring subsidies to all respondents, we have applied the "0.5
percent expense test" described in 19 CFR 351.524(b)(2) of our
regulations. Under this test, we compare the amount of subsidies approved
under a given program in a particular year to sales (total or export, as
appropriate) in that year. If the amount of subsidies is less than 0.5
percent of sales, the benefits are allocated to the year of receipt rather
than being allocated over the AUL period.
B. Benchmarks for Loans and Discount Rates
Pursuant to 19 CFR 351.505(a) and 351.524(d)(3)(i), the Department will
use as long-term loan benchmarks and discount rates the actual cost of
long-term borrowing by the company, when available. For the reasons
discussed below, we have not accepted actual borrowing rates as reported
by respondents. Instead, pursuant to 19 CFR 351.505(a)(3)(ii), we have
calculated the average cost of long-term fixed-rate loans in Italy.
Consistent with previous cases, we relied on the Italian Interbank Rate
("ABI") as the basis for the long-term benchmark rate. See, e.g., Wire
Rod, 64 FR at 40476-77; Final Affirmative Countervailing Duty
Determination: Stainless Steel Plate in Coils From Italy, 64 FR 15508,
15511 (March 31, 1999) ("Plate in Coils"); Final Affirmative
Countervailing Duty Determination: Stainless Steel Sheet and Strip in
Coils From Italy, 64 FR 30624, 30627 (June 8, 1999) ("Sheet and Strip");
Final Affirmative Countervailing Duty Determination: Certain Cut-to-Length
Carbon Quality Steel Plate From Italy, 64 FR 73244, 73248 (December 29,
1999) ("CTL Carbon Plate").
We added two amounts to the rate. First, an upward adjustment is
necessary because the ABI rate represents a long-term interest rate to
banks' most preferred customers with established low-risk credit
histories. For other customers, banks will typically add a spread ranging
from 0.55 percent to 4 percent, to the ABI rate depending on the company's
financial health. To reflect this, we have added the average of this
spread, 2.28 percent, to the ABI rate. Second, an additional amount is
needed to reflect the expenses associated with long-term lending
activities. See Plate in Coils, 64 FR at 15511; Sheet and Strip, 64 FR at
30627; CTL Carbon Plate, 64 FR at 73248. Specifically, we found these
expenses amounted to 8.5 percent of the interest charged and have added
this amount to our benchmark. Id. For CAS, however and as an adverse
inference, because it did not respond in this investigation, we calculated
the long-term benchmark rate by using the highest spread as opposed to the
average spread.
Rodacciai provided the ABI rate as its cost of long-term capital in the
years it received certain subsidies. However, because Rodacciai provided
no evidence the company was actually able to receive loans at the ABI
rate, we have allocated non-recurring benefits and calculated long-term
loan benefits using the rate described above.
For the final determination, Valbruna has asked the Department to use as
its long-term benchmark rate, the interest rate paid on a 1999 bond
issuance for long-term debt. The Department's regulations at 19 CFR
351.524(d)(3) state that the Department will select a discount rate based
upon the year in which the government agreed to provide the subsidy. We
find that no allocable subsides were received in 1999 and, therefore, we
have continued to allocate countervailable subsides to Valbruna using the
same rate as in the Preliminary Determination. For further discussion, see
Comment 12.
For the years in which CAS/ILVA was uncreditworthy (see section below on
"Creditworthiness"), we calculated discount rates for uncreditworthy
companies in accordance with 19 CFR 351.524(c)(3)(ii). To construct these
benchmark rates, we used the formula described in 19 CFR
351.505(a)(3)(iii), which requires values for the probability of default
by uncreditworthy and creditworthy companies. For the probability of
default by an uncreditworthy company, we relied on the average cumulative
default rate reported for the Caa to C-rated category of companies as
published in Moody's Investors Service, "Historical Default Rates of
Corporate Bond Issuers, 1920 - 1997," (February 1998). For the probability
of default by a creditworthy company we used the average cumulative
default rates reported for the Aaa to Baa-rated categories of companies as
reported in this study. (2) See Miscellaneous Information Memo at
Attachment 3.
In certain instances for CAS and Bedini, we needed short-term interest
rates for Italian lire denominated loans. However, neither of these
companies provided company-specific short-term rates. Therefore, for
Bedini, as a benchmark, we relied on the average, short-term interest rate
in Italy as reported in the International Financial Statistics (see
Miscellaneous Information Memo at Attachment 6). For CAS, however and as
an adverse inferece, because they did not respond in this investigation,
we used the highest short-term rate for the POI as reported in the
International Financial Statistics. For Valbruna, in the Preliminary
Determination, we rejected the use of its company-specific EURIBOR rate as
a long-term rate because we considered it a short-term rate. 66 FR at
30418. For the final determination, because we needed a short-term rate to
calculate certain benefits to Valbruna, we used this company-specific
EURIBOR rate as the benchmark short-term rate.
Certain loans received by CAS were variable-interest rate loans
denominated in currencies other than in Italian lire. Similar to Wire Rod,
we were unable to find long-term rates denominated in the appropriate
currency in Italy. Nor were we able to find comparable long-term, variable-
interest rates on such loans. Therefore, as in Wire Rod, for these loans
we used the average yield-to-maturity on long-term bond rates in the
country of the currency, as reported in the International Financial
Statistics (see Miscellaneous Information Memo at Attachment 6).
IV. Equityworthiness
In the case of a government equity infusion, the Department measures the
benefit by examining the investment decision against the usual investment
practice of a private investor. 19 CFR 351.507(a)(1). Specifically, the
Department will compare the purchase price paid by the government to
prices paid for new shares by private investors, if such prices exist. 19
CFR 351.507(a)(2). If actual private investor prices are unavailable, the
Department will determine the equityworthiness of a company at the time of
the equity infusion. 19 CFR 351.507(a)(3). Moreover, unless a company
provides new information leading us to reconsider a previous finding of
unequityworthiness, once a determination of unequityworthiness has been
made for certain years, the Department's practice is to continue to find
that company unequityworthy for those same years in subsequent cases. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Brazil, 58 FR 37295, 37297 (July 9, 1993) ("Certain Steel
from Brazil").
In Wire Rod, ILVA and its predecessors were found to be unequityworthy
from 1985 through 1988, and from 1991 through 1992. 64 FR at 40477. No new
information has been presented in this investigation to warrant a
reconsideration of this finding. Therefore, based on this previous finding
of unequityworthiness, in this investigation, we continue to find ILVA
(the prior owner of CAS) and its predecessors unequityworthy from 1985
through 1988, and from 1991 through 1992. CAS did not directly receive any
equity infusions during these years and, thus, we do not need to make a
decision as to its equityworthiness at this time.
V. Creditworthiness
The examination of creditworthiness is an attempt to determine if the
company in question could obtain long-term financing from conventional
commercial sources. 19 CFR 351.505(a)(4). Moreover, unless a company
provides new information leading us to reconsider a previous finding of
uncreditworthiness, once a determination of uncreditworthiness has been
made for certain years, the Department's practice is to continue to find
that company uncreditworthy in those same years in subsequent cases. See,
e.g., Id.; Certain Steel from Brazil, 58 FR at 37297.
In Wire Rod, ILVA and its predecessors were found to be uncreditworthy
from 1982 through 1993. 64 FR at 40477. No new information has been
presented in this investigation to warrant a reconsideration of this
finding. Therefore, based on this previous finding of uncreditworthiness,
in this investigation, we continue to find ILVA and its predecessors
uncreditworthy from 1982 through 1993. Thus, any benefits received by CAS
or its predecessors in these years have been determined using rates for
uncreditworthy companies.
Also, in the Notice of Initiation of Countervailing Duty Investigation:
Stainless Steel Bar from Italy, 66 FR 7739 (January 25, 2001), the
Department stated it would examine Falck's creditworthiness in 1993-1994
and Bolzano's creditworthiness in 1995-1996, if it was discovered that
these companies received equity infusions, loans or loan guarantees in
these years. Based on the responses and our findings at verification,
neither Falck nor Bolzano was approved for any countervailable loans or
allocable subsidies during these years. Therefore, we have not examined
these allegations of uncreditworthiness for these years.
ANALYSIS OF PROGRAMS
I. Programs Determined To Be Countervailable
Government of Italy Programs
A. Capacity Reduction Payments under Article 2 of Law 193/1984
In the Preliminary Determination, we determined that Rodacciai received
countervailable subsidies during the POI from the capacity reduction
payments under Article 2 of Law 193/84.
In its original questionnaire response, Italfond stated that it had
provided total sales figures that were exclusive of transportation costs.
At verification, however, we found that Rodacciai had added transportation
costs to the total sales figures (listed as "freight costs" in their
calculations). See Memorandum to Susan H. Kuhbach, Results of Verification
of Rodacciai S.p.A., dated September 5, 2001 at 3. Because transportation
costs should have been excluded to reach an F.O.B. value, we have used as
Rodacciai's POI sales its total sales figure without any additions, as
verified.
For the final determination, the petitioners commented that the
Department should countervail the grants received by Valbruna and Falck,
attributing to Valbruna the grants received by Falck in 1986. We have not
done so because we are using a 12-year AUL to allocate these previously
countervailed subsidies. Accordingly, the grants received by Falck under
this program have already been fully allocated prior to the POI, and no
benefit exists in the POI for Valbruna. See Comments 2 and 5 for further
discussion.
Because of the use of a different sales figure for the POI, the net
subsidy for this program has changed from the Preliminary Determination
and is 0.02 percent ad valorem for Rodacciai. All other aspects in the
Preliminary Determination regarding this issue remain the same.
B. Law 451/94 Early Retirement Benefits
In the Preliminary Determination, we determined that Valbruna and
Italfond received countervailable subsidies during the POI from early
retirement benefits granted to their employees under this program.
For the final determination, Valbruna commented that Law 451/94 imposed a
cost, rather than a benefit, to Valbruna. Alternatively, Valbruna
commented that if we continue to countervail these benefits, the benchmark
should be based on the "Mobility Provision." The petitioners commented
that we should continue to countervail these benefits according to the
methodology employed in the Preliminary Determination. We agree with the
petitioners and continue to find these benefits countervailable but we
have made adjustments to our net subsidy calculations to reflect: (a) the
correct average salary, both in amount and category (i.e., worker, middle
manager, upper manager), for Valbruna employees; and (b) the reaching of
normal retirement age for certain of Valbruna's employees during the POI.
For further information regarding this program, see Comment 13. Thus, the
net subsidies for this program are 0.09 percent ad valorem for Valbruna
and 0.18 percent ad valorem for Italfond.
C. Law 10/91
In the Preliminary Determination, we determined that Valbruna received
countervailable subsidies during the POI under Law 10/91. No new
information, evidence of changed circumstances, or comments from
interested parties were received on this issue. However, because of the
different facts available data used for the final determination, the net
subsidy for this program has changed from the Preliminary Results and is
now 0.16 percent ad valorem for CAS.
D. Law 549/95
In the Preliminary Determination, because we determined that Bedini and
CAS had been ordered to repay certain tax savings that were received in
tax year 1996, but had not yet done so, we found that the GOI had foregone
revenue by financing the repayment of the tax benefits. We treated the tax
these companies owe as short-term, zero-interest-rate loans.
For the final determination, Bedini commented that we inadvertently
failed to calculate the benefit to Bedini based on the actual amount of
tax saved by the Law 549/95 deduction. We agree with Bedini and continue
to find these benefits countervailable. However, we have made adjustments
to our net subsidy calculations to reflect: (a) the benefit to Bedini
under this program equaling the amount of the deduction multiplied by the
relevant tax rate (b) the benefit to CAS under this program equaling the
amount of the deduction multiplied by the relevant tax rate. Thus, the net
subsidies for this program are 0.00 percent ad valorem for Bedini and 0.04
percent ad valorem for CAS. See Comment 17.
Government of Bolzano Subsidies
E. Province of Bolzano Law 25/81, Articles 13 through 15
In the Preliminary Determination, we determined that Valbruna received
countervailable subsidies during the POI from grants under Articles 13
through 15 of Law 25/81.
The petitioners have commented that, in addition to the benefits
countervailed in the Preliminary Determination, the Department should also
countervail the benefits Bolzano received prior to its change in
ownership. We disagree because we find that Falck repaid these benefits
and, thus, no benefit exists in the POI. See Comment 6 for a further
discussion. Valbruna has commented that we used an incorrect sales figure
for the POI in calculating its subsidy rate. We agree and, for the final
determination, we have used the sales figure as reported in Valbruna's
2000 consolidated, audited financial statements. See Comment 11.
Thus, because of the use of a different sales figure for the POI, the net
subsidy for this program has changed from the Preliminary Determination
and is 0.07 percent ad valorem for Valbruna. All other aspects in the
Preliminary Determination regarding this issue remain the same.
Regional Government of Valle D'Aosta Subsidy Programs
F. Valle D'Aosta Regional Law 12/87
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI from grants given under Law
12/87. The petitioners have commented that we applied an inappropriate
facts available methodology for CAS. Except for the selection of the
surrogate sales figure for the POI, we disagree with the petitioners. For
a further discussion, see section above on the "Use of Facts Available"
and Comment 1. Thus, because of the new sales figure for the POI, the net
subsidy for this program has changed from the Preliminary Determination
and is 0.01 percent ad valorem for CAS.
European Union Subsidies
G. ECSC Article 54 Loans
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI from loans given under ECSC
Article 54. The petitioners have commented that we applied an
inappropriate facts available methodology for CAS. Except for the
selection of the surrogate sales figure for the POI, we disagree with the
petitioners. For a further discussion, see section above on the "Use of
Facts Available" and Comment 1. Thus, because of the new sales figure for
the POI, the net subsidy for this program has changed from the Preliminary
Determination and is 0.31 percent ad valorem for CAS.
H. European Social Fund
In the Preliminary Determination, we determined that CAS, Valbruna, and
Rodacciai, received countervailable subsidies during the POI from ESF
grants given for Objective 4 projects involving worker assistance in the
form of employee training.
Valbruna commented that the Department should revisit its treatment of de
jure specificity pertaining to ESF. The petitioners commented that the
Department's finding of de facto specificity should be confirmed in the
final determination. We agree with the petitioners and continue to find
these benefits countervailable but we have made adjustments to our net
subsidy calculations to reflect the correct grant amount received by
Valbruna during the POI. Thus, the net subsidies for this program are 0.11
percent ad valorem for CAS, 0.01 percent ad valorem for Valbruna, and 0.05
percent ad valorem for Rodacciai. See Comment 16.
Company-Specific Subsidies Conferred by the Government of Italy
I. Restructuring Subsidies Provided to the Italian Steel Industry
Attributable to CAS
1. Equity Infusions to Finsider and ILVA
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI from equity infusions made by the
GOI. The petitioners have commented that we applied an inappropriate facts
available methodology for CAS. Except for the selection of the surrogate
sales figure for the POI, we disagree with the petitioners. For a further
discussion, see section above on the "Use of Facts Available" and Comment
1. We have also, for the final determination, used differnt interest rates
based on adverse facts available (see section above on the "Use of Facts
Available"). Thus, because of the new sales figure for the POI and the new
interest rates, the net subsidy for this program has changed from the
Preliminary Determination and is 0.64 percent ad valorem for CAS.
2. Pre-Privatization Assistance and Debt Forgiveness
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI from debt forgiveness provided by
the GOI. The petitioners have commented that we applied an inappropriate
facts available methodology for CAS. Except for the selection of the
surrogate sales figure for the POI, we disagree with the petitioners. For
a further discussion, see section above on the "Use of Facts Available"
and Comment 1. We have also, for the final determination, used different
interest rates based on adverse facts available (see section above on the
"Use of Facts Available"). Thus, because of the new sales figure for the
POI and the new interest rates, the net subsidy for this program has
changed from the Preliminary Determination and is 10.72 percent ad valorem
for CAS.
Company-Specific Subsidies Conferred by the Provincial Government of
Bolzano
J. Province of Bolzano Assistance
1. Lease of Bolzano Industrial Site to Valbruna
In the Preliminary Determination, we determined that Valbruna received
countervailable subsidies during the POI through its lease of the Bolzano
industrial site from the Province of Bolzano ("GOB") at less than a
commercial rate.
The petitioners commented that the Department should reject the benchmark
used in the Preliminary Determination and instead should use a benchmark
from the record of Wire Rod. Valbruna commented that the Department should
reject the benchmark used in the Preliminary Determination and instead
should use the average rate of return for real estate in Milan as the
benchmark. Furthermore, Valbruna commented that adjustments should be made
in our calculations to reflect extraordinary maintenance expenses. We
disagree with both the petitioners and Valbruna. We continue to find this
lease countervailable and have made adjustments to our net subsidy
calculations to reflect a late payment made by Valbruna to the GOB during
the POI. However, we have not made adjustments for extraordinary
maintenance expenses. Thus, the net subsidy for this program is 0.11
percent ad valorem for Valbruna. See Comment 7.
2. Environmental and Research and Development Assistance to Bolzano under
Law 25/81
In the Preliminary Determination, we determined that Valbruna received
countervailable subsidies during the POI from grants for the adaptation of
existing facilities to new environmental requirements.
Valbruna commented that we should adjust the discount rate and the sales
denominator used in the Preliminary Determination. The petitioners
commented that we should affirm the discount rate used in the Preliminary
Determination and exclude non-Italian production from the sales
denominator. We continue to find these grants countervailable and have
made adjustments to our net subsidy calculation for Valbruna to reflect
the revised sales denominator, as described in Comment 11. Also, we have
continued to use the discount rate used in the Preliminary Determination,
as stated in Comment 12. Thus, the net subsidy for this program is 0.14
percent ad valorem for Valbruna.
Company-Specific Subsidies Conferred by the Regional Government of Valle
D'Aosta
K. Valle D'Aosta Regional Assistance Associated With the Sale of CAS
1. Lease of Cogne Industrial Site
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI resulting from the lease with the
regional government. The petitioners have commented that we applied an
inappropriate facts available methodology for CAS. Except for the
selection of the surrogate sales figure for the POI, we disagree with the
petitioners. For a further discussion, see section above on the "Use of
Facts Available" and Comment 1. We have also, for the final determination,
used different interest rates based on adverse facts available (see
section above on the "Use of Facts Available"). Thus, because of the new
sales figure for the POI and the new interest rates, the net subsidy for
this program has changed from the Preliminary Determination and is 0.20
percent ad valorem for CAS.
2. Waste Plant
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI to assist in the transportation
of its waste. The petitioners have commented that we applied an
inappropriate facts available methodology for CAS. Except for the
selection of the surrogate sales figure for the POI, we disagree with the
petitioners. For a further discussion, see section above on the "Use of
Facts Available" and Comment 1. We have also, for the final determination,
used different interest rates based on adverse facts available (see
section above on the "Use of Facts Available").
Because CAS did not respond to our questionnaire, in the Preliminary
Determination, as facts available, we determined that CAS received the
maximum amount that would have been provided by the regional government.
Since the Preliminary Determination, we have obtained further information
from the Regional Government.
For the final determination, we continue to determine that the payments
made to assist with the transportation of CAS' waste provides a
countervailable subsidy. However, at verification, the Regional Government
provided information regarding the actual payments made to CAS. See
Memorandum to Susan H. Kuhbach, "Autonomous Regional Government of Valle
D'Aosta Verification Report," dated August 10, 2001 at 4-5. In light of
this verified information, the use of a new sales figure for the POI, and
the use of the new interest rates, the net subsidy for this program has
changed from the Preliminary Determination and is 0.24 percent ad valorem
for CAS.
3. Loans to CAS to Transfer its Property
In the Preliminary Determination, we determined that CAS received
countervailable subsidies during the POI from the loans provided by the
regional government. The petitioners have commented that we applied an
inappropriate facts available methodology for CAS. Except for the
selection of the surrogate sales figure for the POI, we disagree with the
petitioners. For a further discussion, see section above on the "Use of
Facts Available" and Comment 1. We have also, for the final determination,
used different interest rates based on adverse facts available (see
section above on the "Use of Facts Available").
In the Preliminary Determination, because the Regional Government had not
substantiated its claim regarding the availability of benefits to a wide
range of companies or use of these loans by multiple and various
companies, we found that, as facts available, these benefits are de facto
specific. At verification, we reviewed information regarding the
industries receiving benefits. This information indicated that CAS
received the vast majority of funds under this program. See GOA
Verification Report at 6 and Exhibit 5a. Therefore, based on the verified
information, we find this program to be de facto specific.
Because of the new sales figure for the POI and the new interest rates,
the net subsidy for this program has changed from the Preliminary
Determination and is 0.74 percent ad valorem for CAS.
II. Programs Determined To Be Not Countervailable
Environmental and Research and Development Assistance to Bolzano under
Law 44/92
In the Preliminary Determination, we determined that the loan provided to
Valbruna under Law 44/92 was not a countervailable subsidy because
evidence on the record indicated that this assistance is widely and evenly
distributed with no one sector or enterprise receiving a disproportionate
amount.
The petitioners commented that Law 44/92 should be countervailed because
it is de facto specific. Valbruna commented that the Department should
confirm the results of the Preliminary Determination. At verification, we
confirmed that this program is neither de jure nor de facto specific (see
Comment 9). Therefore, we continue to find that Valbruna did not receive a
countervailable subsidy under this program during the POI.
III. Programs Determined To Be Not Used
Government of Italy Programs
A. Capacity Reduction Payments under Articles 3 and 4 of Law 193/1984
B. Law 796/76 Exchange Rate Guarantees
C. Article 33 of Law 227/77, Export Credit Financing Under Law 227/77,
and Decree Law 143/98
D. Grants under Laws 46/82 and 706/85
E. Law 181/89 and Law 120/89
F. Law 488/922, Legislative Decree 96/93 and Circolare 38522
G. Law 341/95 and Circolare 50175/95
H. Law 675/77
1. Interest Grants on Bank Loans
2. Mortgage Loans
3. Interest Contribution on IRI Loans
4. Personnel Retraining Aid
I. Law 394/81 Export Marketing Loans
J. Law 481/94 (and Precursors) Grants for Reduced Production
K. Law 489/94
Regional Government of Valle D'Aosta Subsidy Programs
L. Valle D'Aosta Regional Law 64/92
European Union Subsidies
M. ECSC Article 56 Conversion Loans, Interest Rebates, and
Restructuring Grants
N. European Regional Development Fund
O. Commission Decision 88/588 and Resider II.
Company Specific Subsidies Conferred by the Government of Bolzano
P. Province of Bolzano Assistance: Lease Exemption Under
Valbruna/Bolzano Lease
Company Specific Subsidies Conferred by the Regional Government of
Valle D'Aosta
Q. Valle D'Aosta Regional Assistance Associated With the Sale
of CAS: Provision of Electricity
DISCUSSION OF ISSUES
Comment 1: Facts Available Methodology for CAS
Petitioners' Argument: The petitioners argue that the Department should
revise its facts available methodology for CAS because it inappropriately
rewards CAS for its non-cooperation. The petitioners state that the
Department's regulations provide for the use of an adverse inference for a
respondent that has failed to cooperate by not acting to the best of its
ability to comply with a request for information. According to the
petitioners, reviewing courts have made clear that the purpose of this
rule is to ensure that a respondent is not rewarded for it non-cooperation
(citing to Smith Corona v. United States, 796 F. Supp. 1532, 1536, appeal
after remand, 802 F. Supp. 467 (Ct. Int'l Trade 1992) (in which court
rejected the use of a petition rate, where a higher rate calculated for
the preliminary determination became unusable after the respondent was
allowed to withdraw its proprietary data from the record. Instead the
court ordered the use of a higher rate calculated using the respondent's
public data because any other result unfairly rewards the respondent for
its nonparticipation and is contrary to the statute and the Department's
past practice) and Ta Chen Stainless Steel Pipe, Inc. v. United States,
Court No. 97-08-01344, slip op. 00-107, 2000 WL 1225799 (Ct. Int'l Trade
Aug. 25, 2000) (in which court stated that one of the purposes of using
adverse facts available is to ensure that the party does not obtain a more
favorable result by failing to cooperate than if it had cooperated fully).
In this case, according to the petitioners, the Department found that CAS
did not cooperate to the best of its ability, warranting the use of
adverse facts available. The petitioners argue that the adverse facts
available rule reasonably assumes that CAS's decision not to cooperate in
this investigation reflects its assessment that had it participated, the
company would have been unable to provide data demonstrating that its
level of subsidization was lower than the worst case scenario resulting
from information in the Department's possession (i.e., the rate determined
in Wire Rod). They claim that had CAS been able to establish a lower level
of subsidies, it would have opted to participate in this case. The
petitioners argue that the Department ignored this point by calculating a
facts available rate more favorable than the rate calculated in Wire Rod
using the company's own data.
The petitioners, citing to D & L Supply Co. v. United States, 113 F.3d
1220, 1223 (Fed. Cir 1997), claim that a facts available rate must meet
two goals: to ensure that a respondent does not benefit from its non-
cooperation and that the margin chosen bear some relationship to the
market. According to the petitioners, the subsidy rate calculated in the
Preliminary Determination does not meet the first goal. The petitioners
then cite to F.LLI De Cecco Di Filippo Fara S. Martino S.p.A. v. United
States, 216 F.3rd 1027, 1032 (Fed. Cir. 2000) for the proposition that the
Department must use its expertise to choose an adverse facts available
rate "that will create the proper deterrent to non-cooperation with its
investigations and reach a reasonable margin." The subsidy rate calculated
in the Preliminary Determination, the petitioners claim, which is half the
rate calculated in Wire Rod, is not a deterrent to non-cooperation.
The petitioners argue that the Department was wrong in stating that it
could not ignore information presented by the GOI and the EC regarding
CAS. According to the petitioners, this information is partial information
and should be accorded no more consideration than partial information from
CAS itself. Because the Department did not have access to CAS's data, the
petitioners argue that there is no means by which to determine whether
other offsetting information obtained from CAS would have led to a higher
subsidy rate. In addition, the petitioners claim that the Department's
statement in the Preliminary Determination that it was required to
consider the information from the GOI and EC is wrong. Instead, citing to
the Act, they argue that the Department can disregard some or all of the
information on the record if the information is so incomplete that it
cannot serve as a reliable basis for the final determination. In this
case, the petitioners maintain that the Department does not have the
company-specific information about AULs and domestic sales of subject
merchandise to be able to accurately allocate the subsidies found.
Next, the petitioners contend that the Act and the Department's
regulations provide that the rate calculated in a previous proceeding
represents a proper starting point for the Department's construction of a
facts available rate. The petitioners point to the Wire Rod decision in
which a 22.2 percent ad valorem rate was calculated based primarily on
CAS's own information. This is the only rate, according to the
petitioners, from this or any other investigation which is available to
the Department for use as a facts available rate. Thus, they claim that in
order to properly apply adverse facts available, the Department should
assign a facts available rate larger than the 22.2 percent ad valorem rate
calculated in Wire Rod. Specifically, the petitioners request that the
Wire Rod rate be increased to reflect the recent revisions to the
Department's change in ownership methodology. They argue that in a recent
remand determination, after applying the new change in ownership
methodology, the final ad valorem rate increased by 13.8 percent.
Presuming that the application of the new change in ownership methodology
in this case would yield similar results for CAS, the petitioners request
that the Wire Rod rate of 22.2 percent be increased by 13.8 percent to
arrive at a final ad valorem rate for CAS of 25.26 percent.
The petitioners argue that this rate is reasonable not only because it is
based on CAS' own information, but also is sufficiently adverse as to
effectuate the purpose of the facts available rule to induce respondents
to provide the Department with complete and accurate information in a
timely manner.
Finally, the petitioners take issue with the Department's preliminary
decision to use the average of the prior three years' sales figures as a
surrogate for the unavailable POI sales. Specifically, they claim that the
Department has no idea whether the data for this period is representative
of the POI and has no means to determine its accuracy. However, if the
Department continues to use, as facts available, the sales figures from
prior years to estimate the sales amount for the POI, the petitioners
request that the Department use the most adverse (i.e., lowest) sales
figure rather than averaging the figures.
Respondent's Argument: No respondent commented on this issue.
Department's Position: We disagree with the petitioners that our facts
available methodology used in the Preliminary Determination rewards CAS
for it non-participation in this investigation. The Act provides the
following regarding adverse inferences:
If the [Department] . . . finds that an interested party has
failed to cooperate by not acting to the best of its ability
to comply with a request from the [Department] . . ., the
[Department] . . ., may use an inference that is adverse to
the interests of that party in selecting from among the facts
otherwise available. Such an adverse inference may include
reliance on information derived from:
1. the petition,
2. a final determination in the investigation . . .,
3. any previous review . . ., or
4. any other information placed on the record.
Section 776(b) of the Act (italics added); see also, 19 CFR 351.308(a),
(b), and (c).
The Act also provides the following regarding the use of certain
information:
In reaching a determination, the [Department] . . . shall
not decline to consider information that is submitted by an
interested party and is necessary to the determination but
does not meet all the applicable requirements established by
the [Department] . . ., if:
1. the information is submitted by the deadline established
for its submission,
2. the information can be verified,
3. the information is not so incomplete that it cannot serve
as a reliable basis for reaching the applicable determination,
4. the interested party has demonstrated that it acted to the
best of its ability in providing the information and meeting
the requirements established by the [Department] . . . with
respect to this information, and
5. the information can be used without undue difficulties.
Section 782(e) of the Act.
The Statement of Administrative Action ("SAA") provides further guidance
regarding these two provisions of the Act. Specifically, the SAA states
that (referring to cases in which facts available are used):
"[i]n such cases, Commerce . . . must make [its] determination[]
based on all evidence of record, weighing the record evidence
to determine that which is most probative of the issue under
consideration. The [Department] will be required, consistent
with the new section 782(e), to consider information requested
from interested partes that: 1) is on the record; 2) was filed
within the applicable deadlines; and 3) can be verified.
The SAA at 870.
In addition, the SAA states that "[i]n employing adverse inferences, one
factor the agencies will consider is the extent to which a party may
benefit from its own lack of cooperation." Id.
There is no question in this investigation that CAS did not act to the
best of its ability and, therefore, the use of adverse inferences is
warranted. At issue is what information the Department may properly use.
In this investigation, for certain programs, we had information from the
GOI and the EC regarding subsidies received by CAS. We also had
information from another proceeding, Wire Rod, in which CAS did fully
participate. This information included subsidy information (including
program descriptions, usage, and the benefit stream), the AUL,
equityworthiness and creditworthiness findings, sales data for years 1985
through 1996 (which has been placed on the record of this investigation
(see Memorandum to the File, "Miscellaneous Information used for the
Calculations," dated May 29, 2001 at Attachment 1 ("Miscellaneous
Information Memo"))), and the calculation methodologies.
In order to calculate a subsidy rate for the POI, the Department must
have the sales amount for the POI. The GOI and EC could not provide this
information. Instead, we relied on public data from a Dunn and Bradstreet
report. This report, however, contained sales information only for the
years 1996 through 1999.
We did not have information in this investigation regarding the
circumstances surrounding CAS' change in ownership and any potential new
subsidies received after 1997. As a result, in the Preliminary
Determination, we made an adverse inference with respect to this
information. Specifically, 1) we assumed that CAS was the same entity
before and after the privatization and, as a result, CAS' full share of
ILVA's subsidies were attributed to CAS and 2) because we did not receive
any information on the actual amount of waste disposal offset payments
received by CAS during the POI, we used the maximum amount calculated by
the granting regional government.
Citing to several cases, the petitioners assert that the respondent
should not benefit from non-cooperation. We do not disagree with this
position. However, the issue is how we measure the "benefit from non-
cooperation." The petitioners have argued that this benefit should be
measured against the rate calculated in Wire Rod (i.e., CAS would benefit
if it received a rate lower than that calculated in Wire Rod). However, in
this proceeding, we received information from the GOI and the EC which
supports and, more importantly, updates the subsidy information provided
in Wire Rod. Using this information, we are able to calculate a more
precise subsidy rate for the POI. Therefore, we do not believe the
petitioners' approach is appropriate.
We believe, instead, that the appropriate measure of "benefit from non-
cooperation" in this case is to determine whether CAS would have received
a better rate by not cooperating in this investigation than it would have
if it had cooperated in this investigation. If CAS had participated, we
might not, inter alia, have made a determination that CAS and ILVA are the
same person (in which case benefits received prior to the change in
ownership would not affect CAS) and we would have CAS' sales amount for
the POI, which may have been higher than the amount we used. Because CAS
could have received a lower rate if it cooperated, we find that CAS did
not benefit from not cooperating.
The petitioners further argue that the information we received in this
investigation from the GOI and the EC is only partial information and,
therefore, should be ignored. We do not agree. As stated above, section
782(e) of the Act requires the Department to consider information
submitted by an interested party if it meets certain criteria. Here, the
information from the GOI and EC was properly submitted by an interested
party, verified (except for the information from the EC, which the
Department chose not to verify), was complete enough to rely upon, and can
be used without undue difficulties. In addition, both the GOI and EC
cooperated fully in this investigation and acted to the best of their
ability. Therefore, we find that we cannot ignore the information provided
by the GOI and EC. Moreover, the Department has relied on information from
governmental sources in the absence information directly from the company.
See, e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products From Belgium, 58 FR 37273, 37274 (July 9, 1993).
The petitioners, citing to D & L Supply Co. v. United States, 113 F.3rd
at 1223, state that a facts available rate must meet two goals of the
statute: to ensure that a respondent does not benefit from its non-
cooperation and that the margin must bear some relationship to the market.
We note first that that case involves an antidumping duty case. In a
countervailing duty case, however, it is possible for cooperating
governmental interested parties to be an additional source of information.
In the instant investigation, the EC, GOI, and GOA have all supplied
information that the Department has used. This information is sufficiently
complete and verified such that the Department must use it. See 782(e) of
the Act. As discussed, the Department employed adverse inferences whenever
appropriate (e.g., in the case of loan benchmarks), thus ensuring that CAS
is not being rewarded for its lack of cooperation.
We have not, as the petitioners request, automatically increased the rate
from Wire Rod to account for our new change-in-ownership methodology.
First, as stated above, we have not simply adopted the rate from Wire Rod.
Second, we have already attributed to CAS, as adverse facts available,
CAS' full share of ILVA's subsidies, thus employing the Department's new
change-in-ownership methodology. Therefore, any hypothetical increase from
our current methodology is already reflected in our calculations.
Finally, because CAS did not respond in this investigation, we agree with
the petitioners that we should use a more adverse inference to reach an
estimated sales amount for the POI for CAS. Instead, for the final
determination, we have used the lowest sales amount for the last three
years as a surrogate for POI sales, as opposed to the average of the prior
three years' sales data.
Comment 2: Appropriate AUL for Valbruna
Petitioners' Argument: The petitioners argue that the use of a 12-year
AUL in the Preliminary Determination would perpetuate a mistake by
allocating previously investigated subsidies over a company-specific AUL
that is aberrational or unrepresentative of Valbruna's actual AUL. While
generally affirming the Department's practice of using the same allocation
period from proceeding to proceeding, citing to Rhone Poulenc, Inc. v.
United States, 899 F.2d 1185, 1191 (Fed. Cir. 1990), the petitioners state
that the Department has a duty to determine countervailing duty rates as
accurately as possible. In keeping with this duty, the petitioners argue
that the Department must correct errors brought to its attention that
affect the accuracy of the countervailing duty rate calculations.
The petitioners state that the CVD Regulations provide that a company-
specific AUL will be rejected in situations where the company-specific AUL
is determined not to be representative of the company's actual AUL.
Further, according to the petitioners, the CVD Regulations state that a
company-specific AUL will not be representative unless the company bases
its depreciation on an estimate of the actual useful lives of assets and
uses a straight-line depreciation or demonstrates that the calculation is
not distorted through irregular or uneven additions to the pool of fixed
assets. Citing to the Preamble to the CVD Regulations, the petitioners
claim a company-specific AUL calculation will likely be inappropriate if a
company revalues its assets, is sold, or claims accelerated or special
depreciation.
According to the petitioners, Valbruna admitted it engaged in these
distorting practices, and that the large discontinuity in its AUL on a
year-to-year basis further evidences that its AUL calculations are
distorted. Specifically, the petitioners claim that Valbruna had two asset
revaluations in 1991 and 2000, and claimed accelerated or additional
depreciations. Moreover, the petitioners claim, Valbruna's and Bolzano's
annual ratios of asset values to depreciation exhibit large variances over
time. These large variances, according to the petitioners, cannot be
accounted for because Valbruna did not submit the relevant data in a
format requested by the Department. In fact, the petitioners argue that
Valbruna did not respond to the Department's requests for information
regarding the company-specific AUL calculation because it did not report
separately additional depreciation charges and did not revise its AUL
calculation for the period 1987 through 1996.
Finally, the petitioners argue that the use of a 12-year AUL would be
inconsistent with the Department's precedent. The petitioners cite to
Plate in Coils, 64 FR 15508, 15521, for the proposition that a company-
specific AUL is inappropriate if the AUL calculation demonstrates a large
discontinuity over time in the annual ratios of asset value to
depreciation amount. In addition, according to the petitioners, in CTL
Plate, 64 FR 73244, 73260, the Department found that, "while the
preference is to apply the same AUL to the same subsidies across cases, we
were not able to do that in Italy due to changes in our allocation
methodology mandated by the Court and our subsequent decision to use the
IRS table as a rebuttable presumption."
By using the aberrational 12-year AUL, the petitioners claim the
Department contravened both its duty to calculate countervailing rates as
accurately as possible and its practice of rejecting a distorted company-
specific AUL. Because Valbruna's company-specific AUL is not usable due to
its distorted nature, the petitioners request that, for the final
determination, the Department use the presumptive 15-year allocation
period reported in the IRS tables to allocate all subsides received by
Valbruna.
Respondent's Argument: Valbruna argues that the petitioners are incorrect
that the information it provided regarding the calculation of its AUL is
aberrational or unrepresentative, or that it was not responsive to the
Department's questions regarding AUL.
Valbruna claims that the decision to establish a 12-year AUL in Wire Rod
was investigated thoroughly without challenge from the petitioners in that
case. Valbruna argues that the Department should not change the AUL in
this investigation absent a compelling reason to do so. In this case,
according to Valbruna, the record is the same as the record in Wire Rod,
where the Department calculated the 12-year AUL. Moreover, the distortions
that the petitioners refer to, Valbruna claims, are not distortions, but
rather reflect the normal effect of additional asset acquisitions.
Valbruna states that it is not realistic to expect that the ratio of
depreciation expenses to asset valuations will be constant, or similar,
year after year. In fact, Valbruna maintains that the normal depreciation
rate in Italy for buildings is 20 years, while for most other assets the
depreciation rate is 10 years. For 1999, given that Valbruna's and
Bolzano's buildings account for approximately 22.75 percent of the total
asset value, while most of the other assets were subject to a 10-year
depreciation schedule, Valbruna argues that a 12-year AUL is reasonable
(i.e., (.2275 x 20) + (.7725 x 10) = 12.275 years, which is roughly
similar to the 12-year AUL).
Regarding the petitioner's argument that asset revaluations in 1991 and
2000 evidence distortion of the AUL, Valbruna argues that the 1990
revaluation was already fully considered in Wire Rod. Morever, according
to Valbruna, the revaluation was accounted for because, while the revalued
assets are in the denominator, the depreciation expense in the numerator
reflected these revalued assets. As for the revaluation in 2000, Valbruna
argues that this is irrelevant for the benefit streams relating to
programs previously investigated in Wire Rod and cannot possibly distort
the AUL calculation made in Wire Rod. Valbruna states that it has not
contested the use of a 15-year AUL to allocate benefits not previously
investigated in Wire Rod, the only benefits that could possibly be
affected by revaluations in 2000.
Valbruna requests that the Department continue to use a 12-year AUL for
those subsidies previously investigated in Wire Rod and a 15-year AUL for
new subsidies.
Department's Position: In Wire Rod, we used a 12-year AUL to allocate
countervailable subsides received by Valbruna. 63 FR at 40477. The
petitioners request, essentially, that we now revisit that determination
to recalculate the AUL. We decline to do so.
The AUL calculated in Wire Rod was determined using a full set of facts
developed in that case. Therefore, at the time, the Department and all
interested parties were fully aware of the 1990 revaluations, all
depreciation concerns, and all discontinuities in the annual ratios of
asset value to depreciation amounts. Based on these facts, a 12-year AUL
was determined to be representative of the useful life of the company's
assets. The petitioners have provided no new information in this
investigation that would warrant us revisiting that determination.
Instead, the petitioner's arguments are based solely on already reviewed
information from Wire Rod, except for the reference to the 2000
revaluations.
Regarding the 2000 revaluations, we agree with Valbruna. As stated above,
any revaluations in 2000 would only affect a company-specific AUL
calculated in the POI (and not the 12-year AUL calculated in Wire Rod in
1997). Because we are already using the presumed 15-year AUL from the IRS
tables for these subsidies after 1997, and not calculating a company-
specific AUL, the effect of these revaluations on Valbruna's company-
specific AUL are irrelevant.
Regarding the petitioners' claims that Valbruna did not respond to our
supplemental questions regarding the AUL calculation for the period 1987
through 1996, we find this argument to be irrelevant. The supplemental
questions were issued because Valbruna had calculated a company-specific
AUL in its original questionnaire response. In the supplemental questions,
we attempted to gather information to calculate an AUL for programs not
previously investigated in Wire Rod. However, because Valbruna's
calculated company-specific AUL in 2000 did not differ significantly from
the 15-year AUL in the IRS Tables, we used the presumed 15-year AUL. See
19 CFR 351.524(d)(2)(ii). Therefore, we did not need or use the
information regarding Valbruna's company-specific AUL. Moreover, even if
we found that Valbruna was not responsive, the result would have been the
same, i.e., the use of the presumed 15-year for those subsides not
previously investigated. The Department notes that the petitioners suggest
that Valbruna Group's 1998 balance sheet provides new information
regarding accelerated depreciation charges made in 1993. See Petitioners'
Case Brief, at 17, footnote 4. We find that these notes to this balance
sheet refer to the effects of the anticipated depreciation for the year
1993 (i.e., meaning that this information is not new information, but
instead merely stating that the anticipated depreciation charges incurred
in 1993 still affect the balance sheet in 1998). In fact, Valbruna's 1997
balance sheet, which was available at the time of the Wire Rod decision,
makes the same statement. See Valbruna's Original Questionnaire Response,
dated March 26, 2001, at Volume 1, Exhibit 11.
Finally, we agree that in CTL Plate, we stated "while the preference is
to apply the same AUL to the same subsidies across cases, we were not able
to do that in Italy due to changes in our allocation methodology mandated
by the Court and our subsequent decision to use the IRS table as a
rebuttable presumption." However, upon further reflection, we find that
our practice of applying the same AUL to the same subsidies across cases
to be consistent with the Department's regulations. CTL Plate
notwithstanding, this practice was applied in Final Affirmative
Countervailing Duty Determination: Certain Cut-to-Length Carbon-Quality
Steel Plate From France, 64 FR 73277, 73280-81 (December 29, 1999).
Comment 3: Attribution of Subsidies Following Bolzano's Change in Ownership
Petitioners' Argument: The petitioners argue that, in the Preliminary
Determination, the Department did not analyze the impact of the sale of
Bolzano to Valbruna because the total ad valorem rate would be de minimis
regardless of the outcome of the analysis. According to the petitioners,
after accounting for the changes requested in their case briefs, the total
ad valorem rate would now be above de minimis.
Using the Department's recent change in ownership methodology, as re-
stated in the Preliminary Determination, the petitioners conclude that
Bolzano continued as the same business entity after the sale to Valbruna
and that, as a result, Bolzano and Valbruna are the "same person."
Specifically, they argue that the sale transaction was effectuated through
a straightforward sale of shares and a transfer of production assets,
Bolzano continued to produce the same merchandise after the sale as before
the sale, and that there was no effect on the company's personnel.
Respondent's Argument: Valbruna argues that the Department cannot
attribute subsidies received by Falck or Bolzano to Valbruna without
making a "same person" finding. Nevertheless, Valbruna claims that this
"same person" analysis is not necessary in this case because, under the
same reasoning as in the Preliminary Determination, the total ad valorem
rate for the final determination would not exceed the de minimis level,
regardless of the attribution to Valbruna of any benefits received by
Bolzano and Falck.
Department's Position: As stated above in the "Change in Ownership"
section, for the final determination and as in the Preliminary
Determination, we have not addressed this issue because Valbruna's final
ad valorem rate, which already reflects in full any POI benefits of pre-
sale subsidies (including applicable Falck/Bolzano subsidies), remains de
minimis and, therefore, it is not necessary.
Comment 4: Interest Subsidy Received by Falck Under Article 3 of Law 193/84
Petitioners' Argument: The petitioners argue that the Department did not
countervail the interest subsidy received by Falck under Article 3 of Law
193/84 in the Preliminary Determination either because 1) it was not
greater than 0.5 percent of the company's sales in the year of receipt or
2) the underlying financial instruments were repaid prior to the POI. The
petitioners note that, regarding the first issue, the record in this case
indicates that the 1986 interest subsidy to Falck was greater than 0.5
percent of the company's sales.
Regarding the second point, repayment of the loans prior to the POI is
not relevant, in the petitioners' view, unless Falck knew before it took
out the loans that it would receive the interest subsidy. The petitioners
maintain that Valbruna's statements regarding the latter point are
unresponsive. Specifically, the petitioners point to Valbruna's statement
in a supplemental response that the references to Bolzano in the Wire Rod
determination should be interpreted to mean that the Department
investigated the subsidies to both Falck and Bolzano. However, the
petitioners claim that there is no basis to interpret the references in
Wire Rod to "Bolzano" as "Falck and Bolzano."
Second, the petitioners claim that the shear magnitude of the interest
subsidy received by Falck make it questionable that all of the loans that
give rise to the subsidy were taken out in a three-month period (Law
1983/98 provided interest subsidies to debt already contracted or to be
contracted within three months after June 6, 1984). The more plausible
explanation, the petitioners argue, is that the debt on which Falck
received the interest subsidy in 1986 were taken out before June 6, 1984,
and, hence, Falck did not know of the interest subsidy prior to taking out
the debt.
Third, the petitioners claim that, at verification, the Department
learned that Valbruna received interest subsidies in 1986 based on
financing that was taken out in 1981 and in February 1984. These findings,
according to the petitioners, show that Valbruna was not aware that it
would receive the interest subsidies at the time it took out the financing.
Finally, the petitioners argue that Valbruna did not respond to the
Department's request to provide information on grants under Article 3 of
Law 1983/84. Accordingly, the petitioners request that an adverse
inference be applied because the failure to provide the information would
not allow the Department to assess the countervailability of the interest
subsidies. As an adverse inference, the petitioners request that the
Department treat the interest subsides to Falck as grants.
Respondent's Argument: Valbruna argues that there are no facts on the
record of this investigation supporting the theory advanced by the
petitioners. In fact, according to Valbruna, to accept the petitioner's
theory, the Department would have to overlook its previous findings in
Final Affirmative Countervailing Duty Determinations: Certain Steel From
Italy, 58 FR 37327 (July 9, 1993) ("Certain Steel") (in which the
Department found that Falck knew of the interest rebates at the time it
took out the debt and treated the interest subsidies as reduced interest
rate loans that were repaid prior to the POI) and Wire Rod (in which the
Department did not attribute to Valbruna any benefits received by Falck's
interest subsidies).
Regarding the petitioner's claim that Valbruna was unresponsive to the
Department's requests for information, Valbruna argues that it responded
by providing excerpts from the Wire Rod responses demonstrating that the
Department investigated Falck's 1985 and 1986 interest grants in that
case. In addition, Valbruna claims it also provided excerpts from Falck's
public financial statements supporting the Department's conclusion in
Certain Steel that the loans on which the interest subsidies were provided
were received after June 6, 1984 and were repaid prior to the POI in that
case. Accordingly, Valbruna argues that it has been fully responsive to
the Department's questions and that all of the record evidence indicates
that the underlying loans over which any benefits would be allocated were
fully repaid prior to the POI.
Regarding the issue of whether Falck knew it would receive interest
subsidies at the time it took out debt, Valbruna argues that, of the two
decrees issued to Falck by the GOI, only the second decree could have
provided benefits that would extend into the POI (assuming the use of a 15-
year AUL). This decree, however, according to Valbruna, relates to loans
after July 1, 1984 (after the publication of law announcing the interest
rate contribution). Valbruna claims that it is not logical that Falck
would be unaware of the program after the publication of the law,
especially when Bolzano, Falck's subsidiary at the time, was aware of the
interest subsidies.
Finally, Valbruna claims that, in any event, the effect on the final ad
valorem rate from attributing to Valbruna any Law 193 benefits received by
Falck would be insignificant.
Department's Position: We agree with the petitioners that the interest
subsidy amount for Falck was greater than 0.5 percent of total sales in
the year of receipt. However, we disagree that Falck did not know of these
interest subsidies at the time it took out the underlying loan.
As noted by Valbruna, in Certain Steel, we stated that:
Given Falck's knowledge that it would receive rebates on loans
provided after June 6, 1984, we are treating these interest rebates
as reduced interest loans. However, because the loans on which
interest rebates were provided after June 6, 1984 were repaid
prior to the POI, there is no benefit attributable to the POI.
58 FR at 37332.
Moreover, in Wire Rod, we did not attribute to Valbruna the interest
subsidies received by Falck. 63 FR at 40488.
The issue of whether Falck knew of the interest subsidy at the time it
took out the underlying loan has, therefore, already been settled. The
petitioners provided no new evidence that would cause us to revisit this
issue. We find the arguments made by the petitioners, i.e., the
impossibility of Falck obtaining such a large amount of financing in the
short three-month period after June 6, 1984, to be mere speculation. The
petitioners also note that, because it was verified that Valbruna received
interest grants on loans it obtained prior to June 1984, that it is likely
Falck also obtained its interest subsidies on loans obtained prior to June
1984. There is simply no record evidence that this is the case. Indeed, as
noted above, in Certain Steel, we clearly stated that Falck obtained these
loans after June 6, 1984. Accordingly, we continue to find that Falck knew
of these interest subsidies at the time it took out the loan and,
therefore, the subsidies should be allocated over the life of the loan, as
opposed to over Valbruna's AUL.
Because there is no record evidence supporting the petitioners' argument,
because Falck's knowledge of the interest subsides has already been
verified, and because the underlying loan for which the interest subsides
were received has been repaid, for the final determination, we continue to
find no countervailable benefit to Valbruna in the POI.
Comment 5: Law 193/84 Capacity Reduction Grants
Petitioners' Argument: As argued in Comment 2, the petitioners claim that
the use of 15-year AUL is appropriate for Valbruna, instead of the 12-year
AUL used in the Preliminary Determination. The use of a 15-year AUL,
according to the petitioners, would capture the 1986 benefits received by
Falck under Law 193/84.
Respondent's Argument: According to Valbruna, in Wire Rod, the Department
allocated benefits under Law 193/84 over a 12-year AUL for
Valbruna/Bolzano. Valbruna argues that these benefits could only affect
the POI if the Department accepts the petitioner's claim that the 12-year
AUL calculation was a mistake. Even then, Valbruna states that a 15-year
AUL would only extend the benefit into 2000, not into 2002, the earliest
that any deposit rate arising from this investigation could go into
effect. As argued in Comment 2, Valbruna states that the 12-year AUL was
not a mistake and there is no information in this investigation warranting
a re-calculation of the AUL.
Department's Position: As stated in Comment 2, we have continued to use a
12-year AUL to allocate those subsidies to Valbruna that were previously
investigated in Wire Rod. The Law 193/84 capacity reduction grants at
issue here were previously investigated in Wire Rod and were found to be
received in 1986. As these grants have been fully allocated prior to the
POI, Valbruna did not receive benefits under these grants during the POI
and we have not countervailed them in this investigation.
Comment 6: Repayment of Law 25/81 Benefits by Falck
Petitioners' Argument: The petitioners argue that the Law 25/81 benefits
received by Falck after January 1, 1986, continue to benefit Valbruna.
According to the petitioners the Department's decision finding these
benefits not countervailable was based on two erroneous assumptions: 1)
that Falck could repay in 1996 subsidies received by an entity over which
it no longer had any control or affiliation, and 2) that repayment can be
achieved by reducing the benefit Falck would have received under another
GOI subsidy program.
First, the petitioners claim that Falck was not in a position to repay
Law 25/81 benefits received by Bolzano after 1995 because Falck had sold
Bolzano. According to the petitioners, U.S. law is concerned with
countervailing the benefit to production and the benefit to the recipient.
In this case, according to the petitioners, it was Bolzano (not Falck)
that was both the recipient of the subsidy and the entity responsible for
production of the subject merchandise. As a result, the petitioners
maintain that the repayment of benefits by Falck, after it had divested
itself of ownership in Bolzano, is not sufficient to offset the benefit
bestowed on Bolzano for its production of the subject merchandise.
Instead, they argue that repayment can only occur when the entity that
benefitted from the subsidy dedicates some portion of its own assets to
repay the subsidy.
Second, the petitioners argue that Falck's forgoing of benefits under a
separate assistance program is not sufficient to repay benefits received
by Bolzano. Specifically, the petitioners claim that Falck did not repay
the benefits from its own assets, but rather simply transferred a portion
of another subsidy it was to receive to the Province of Bolzano. As a
result, according to the petitioners, the parties here have received the
entire amount of the Law 25/81 subsidies plus a lesser amount of another
subsidy. They claim that this method of repayment runs counter to the
purpose of repayment and to the basic goals of countervailing duty law to
offset the trade-distortive effect of subsidies.
Finally, the petitioners argue that a finding that a company with no
current affiliation with the recipient of a countervailable subsidy may be
deemed to repay that subsidy by accepting a diminished subsidy under
another program would provide a roadmap to foreign governments and
producers on how to evade the application of U.S. countervailing duty law.
Respondent's Argument: Valbruna argues that the petitioners have ignored
the new developments regarding this issue and, instead, argue that Falck
could not repay the benefits and the ineffectiveness of the method in
which repayment was made. Both these arguments, according to Valbruna,
ignore the share transfer agreement through which Valbruna acquired
Bolzano and the nature of the GOI's decision to withhold the funds
otherwise due to Falck as a repayment.
Valbruna claims that, while Falck sold Bolzano to Valbruna, it remained
contractually responsible for Bolzano's unforseen or contingent
liabilities occurring after the share transfer. Because of this
contractual obligation, Valbruna states that Falck accepted responsibility
for the repayment of Law 25/81 benefits as ordered by the EC. This
repayment, according to Valbruna, was made by transferring funds otherwise
due to Falck to the Province of Bolzano, and was already investigated in
Wire Rod. Valbruna claims that repayment could have been made by Falck
writing a check to the Province of Bolzano, Valbruna writing a check to
the Province of Bolzano, or, if the liability was known at the time of the
share transfer, it would have been reflected in a lower purchase price,
with Valbruna then paying the funds directly to the Province of Bolzano.
In any event, Valbruna argues that the economic effect of any of these
payment methods, including the method actually used, is exactly the same:
Falck's resources are depleted (either through direct payment or forgone
revenue) to at least the same extent by which they were increased when
Bolzano first received the benefits.
Valbruna disagrees with the petitioner's statement that the withholding
of funds from Falck from another subsidy program as repayment for Law
25/81 benefits has the effect of continued subsidization. Valbruna claims
this argument is illogical because, regardless of the nature of the funds
owed to Falck, they still represent Falck assets, which were depleted in
order to repay the subsidy. In addition, Valbruna argues that, by the time
of repayment, because Falck no longer produced the subject merchandise,
any new subsidy to Falck would be legally irrelevant to the Department's
investigation of Valbruna's production of stainless steel bar.
Department's Position: We agree with Valbruna. As noted above, the
petitioners contend that the Department made two erroneous assumptions in
finding that the Law 25/81 benefits to Bolzano were not countervailable:
1) that Falck could repay in 1996 subsidies received by an entity over
which it no longer had any control or affiliation and 2) that the
repayment method used by Falck is sufficient to repay subsidies previously
received by Bolzano. We disagree that these assumptions are erroneous.
First, in claiming that Falck could not repay subsidies received by an
entity it no longer owns, the petitioners ignore the share transfer
agreement between Falck and Valbruna. Under that agreement, as stated in
the Preliminary Determination, Falck is responsible for any negative
consequences arising from the ordered repayment of Law 25/81 subsidies.
Therefore, notwithstanding the petitioner's arguments, we find that this
legal obligation means that Falck could effectively repay the subsidy
received by Bolzano, even though it no longer owned or was affiliated with
Bolzano.
Moreover, this conclusion is consistent with our descriptions in Wire
Rod. The respondents in Wire Rod argued that a repayment had been made
and, therefore, no subsidy existed. 63 FR at 40490. However, we determined
in that case that, at that time, we did not need to consider the repayment
because the matter was still in litigation. Id. We did not, however, mean
that we did not consider the effectiveness of the repayment. In fact,
elsewhere in the Wire Rod decision, we explicitly stated that "Falck
effectively repaid the assistance under Law 25/81 . . . ," that
"[r]epayment was effected though Falck receiving a lower payment from the
GOI under the assistance program and the GOI transferring that amount to
the budget of the Province of Bolzano," and that "we do not consider the
payment by Falck to affect our analysis of the benefit to Bolzano." Wire
Rod, 63 FR at 40486. Moreover, in Wire Rod, we verified that the repayment
funds had been transferred into the Province of Bolzano's budget. See
Letter to Mr. Enrico Nardi, Minister for Economic and Commercial Affairs
regarding the Verification Outline, dated June 15, 2001, at Attachment 1,
pg. 5.
Second, we find that the method of repayment made by Falck was sufficient
to repay the subsidy as required. We agree with Valbruna that, even though
the payment was made through Falck's receipt of a lesser amount of another
subsidy, the final result is that Falck has less assets than it would have
had had it not been required to repay the subsidy. The economic effect of
this payment method is exactly the same as any other conventional payment
method (i.e., a check written by Falck to the Province of Bolzano). The
fact that repayment funds came from another subsidy program has no bearing
on the issue of whether a repayment was made. As Valbruna notes, funds
under this other subsidy program were provided after the sale of Bolzano
and, therefore, would not have affected the subject merchandise anyway.
Accordingly, we find, consistent with the Preliminary Determination, that
Falck did repay the subsidy on behalf of Bolzano and, therefore, no
countervailable benefit exists for Valbruna.
Comment 7: Bolzano Industrial Site Lease and Extraordinary Maintenance
Petitioners' Argument: The petitioners argue that the Department should
adjust its methodology in calculating the benefit received by Valbruna
under the lease with the GOB. Specifically, the petitioners argue that the
Department should use a different benchmark in determining the adequacy of
remuneration. The petitioners assert that information on the record of the
Wire Rod investigation, together with information received at verification
in this proceeding, indicate that the Department should use a benchmark of
8.6 percent (which was placed on the record in Wire Rod) in determining
the adequacy of remuneration instead of the 5.8 percent benchmark used in
the Preliminary Determination. Furthermore, the petitioners maintain that
using the average rate of return for the Milan area as the benchmark, as
Valbruna suggests, is inappropriate. The petitioners state that this rate
of return has not been factually established on the record of the instant
proceeding and, thus, the Department should use the average lease rate for
the Province of Bolzano from the record in Wire Rod, 8.6 percent. The
petitioners argue, alternatively, that if the Department declines to use
the rate specific to the Province of Bolzano, it should continue to use
the national average rate relied upon in the Preliminary Determination.
Second, the petitioners argue that Valbruna has received interest-free
loans from the GOB by making these lease payments late and without
penalty. The petitioners further argue that: 1) the GOB's non-collection
of these monies provided Valbruna with a financial contribution in the
direct transfer of funds; 2) the benefit from this interest-free loan is
the amount of interest that would be due on a comparable commercial loan;
3) similar to the lease, the Province of Bolzano's interest-free loan is
limited to Valbruna, and therefore, is specific as a matter of law.
(Citations omitted). Therefore, the petitioners argue that the Department
should countervail two aspects of the Bolzano industrial site lease: 1)
the lease for the provision of goods at less than adequate remuneration
and 2) an interest-free loan resulting from the GOB's failure to collect
lease payments within the terms of the lease.
Regarding Valbruna's extraordinary maintenance obligation, the
petitioners argue that in Wire Rod, the Department found that this
obligation was "balanced by the fact that {the} lease term is much longer
than the norm. Therefore, the average rate of return is an appropriate
benchmark without any adjustments for these terms." Wire Rod, 63 FR at
40484. Thus, the petitioners argue that no adjustment is required to
account for the extraordinary maintenance expenses.
Respondent's Argument: Valbruna argues that shifting the extraordinary
maintenance obligation under the lease from the GOB was an integral
assumption on which this lease was based. Thus, Valbruna maintains that
these expenses must be considered in evaluating adequate remuneration
under the lease. Specifically, Valbruna argues that the record of the
instant proceeding establishes three facts related to this obligation: 1)
no party would accept an additional obligation under a lease, such as the
extraordinary maintenance obligation, without receiving consideration; 2)
Italian law obliges the landlord to pay for extraordinary maintenance on a
leased property; 3) in practice, the extraordinary maintenance obligation
is often shifted to the lessee.
Furthermore, Valbruna argues that using a market benchmark rate of return
is appropriate only in circumstances where the standard allocation of
rights and responsibilities exists. However, as the foregoing indicates,
Valbruna argues that the Bolzano industrial site lease is not one in which
the standard allocation of rights and responsibilities exists. Rather,
Valbruna argues, this lease shifts the extraordinary maintenance
obligation from the landlord, therefore changing the allocation of rights
and responsibilities from the standard allocation under Italian law.
Therefore, Valbruna maintains that in comparing the rent paid under the
lease to a market benchmark rate of return without accounting for
extraordinary maintenance expenses, the Department failed to account for
the fact that the reallocation of contractual responsibilities has a
value. Valbruna argues that this value is the actual amount that Valbruna
has spent on extraordinary maintenance on the GOB's buildings. Valbruna
argues that when these expenses are added to the lease payments, the
actual expenses under the lease are nearly equivalent to the Department's
benchmark rate of return for leases whose terms reflect the standard
allocation of rights and responsibilities.
Regarding the appropriate market benchmark used in analyzing benefits
under the lease, Valbruna argues that the Department should use a region-
specific lease benchmark instead of a national average rate of return.
Valbruna maintains that the average rate of return for real estate in the
Milan area would be an appropriate benchmark for the following reasons: 1)
Milan and Bolzano are geographically proximate; and 2) both areas have
relatively high real estate values which correlate to lower-than-average
returns on real estate investments. Thus, Valbruna argues that the
appropriate benchmark is the return on real estate investments in Milan,
or 5.6 percent.
Valbruna further maintains that the Department cannot use the 8.6 percent
benchmark suggested by the petitioners because it is not on the record of
this proceeding, but rather on the record of the Wire Rod investigation.
Valbruna notes that were the Department to examine this benchmark, it
would find that it is based on a study averaging 1995 and 1996 rates of
return. Since the Department must use benchmark rates for the POI,
Valbruna argues this benchmark is inadequate. Moreover, Valbruna argues
that the study on which these rates were based assumed that the landlord
would remain responsible for extraordinary maintenance and accounted for
building depreciation during the lease. Valbruna argues that the study
concluded that by accepting the extraordinary maintenance obligation under
the lease and adjusting for depreciation, Valbruna paid the equivalent of
an 8.96 percent lease rate and therefore did not receive any benefit.
Ultimately, Valbruna argues that the Department cannot use the 8.6 percent
benchmark because there is insufficient information on the record of this
proceeding with which to adequately analyze this rate.
Valbruna disagrees with the petitioners' argument that the Department
should countervail, as an interest-free loan, the GOB's failure to collect
lease payments within the terms of the lease. Valbruna argues that because
the lease does not provide any penalty for late payment, there is no
additional benefit to Valbruna. Furthermore, Valbruna maintains that prior
to the POI no pattern of significant delay existed and the circumstances
surrounding the late payments were adequately resolved and explained in
the verification report. Alternatively, Valbruna argues that if the
Department does countervail the late payments as an additional benefit,
the Department should limit this benefit to the period beginning 60 days
after the invoice date to December 31, 2000. Valbruna argues that because
the two invoice dates for the POI were April 17, 2000 and November 9,
2000, that the benefit should be calculated for 197 days and 0 days,
respectively.
Department's Position: We have continued to use the average rate of
return on leased commercial property in Italy as the benchmark for
determining whether the GOB has received adequate remuneration for the
Bolzano lease. Moreover, we have not adjusted this rate to reflect the
fact that under the terms of the lease, Valbruna has assumed the
obligation to perform extraordinary maintenance.
We have not adopted the benchmark rate proposed by the petitioners
because we do not have sufficient information on the record of this
proceeding to evaluate the rate. In particular, Valbruna has claimed that
the 8.6 percent rate reflects the situation in which the landlord retains
the responsibility for performing extraordinary maintenance. If Valbruna's
characterization is correct, then it does not appear appropriate to
compare the 8.6 percent rate to the rate Valbruna pays, without some
attempt to adjust for the differences.
Similarly, we have not accepted Valbruna's suggested rate of 5.6 percent,
which reflects the rate of return on real estate investments in Milan.
Valbruna has not provided evidence to support its claim that the real
estate markets in Milan and Bolzano are similar. We also note that GOB
officials considered the 5.7 percent rate to be representative of the
rates in Bolzano. See Bolzano Verification Report at 10.
Instead, we have used the 5.7 percent benchmark rate adopted in the
Preliminary Results and in Wire Rod, the average rate of return on
commercial property in Italy. As we stated in Wire Rod, "this rate
reflects different terms, lengths, and locations of lease contracts
throughout Italy." (63 FR 40484) Hence, we concluded that it was a
"reliable and representative rate to use in examining whether the facility
is being leased for less than adequate remuneration." Id.
Also consistent with Wire Rod, we have not adjusted the benchmark rate to
reflect the assumption by Valbruna of responsibility for extraordinary
maintenance on the facility. Although we acknowledge that under the law
this responsibility falls to the landlord, it may be shifted to the lessee
under the terms of the lease. For example, at verification GOB officials
stated the GOB does not assume responsibility for extraordinary
maintenance on any of the industrial properties it owns and leases. This
is consistent with our finding in Wire Rod, "long-term leases often oblige
the lessee to bear responsibility for these costs because of the long-term
costs involved." (63 FR 40484) Also, in its arguments in this proceeding,
Valbruna has stated that the extraordinary maintenance obligation is often
shifted to the lessee. To the extent that this responsibility is shifted
to lessees throughout Italy, then the national average return on
commercial real estate already reflects the shifting and there is no need
to adjust the benchmark rate to account for these obligations.
Regarding Valbruna's late lease payments to the GOB, we agree with the
petitioners that this constitutes an additional benefit to Valbruna. The
lease states that these payments are due no later than sixty days after
the invoice date. Therefore, we find that the non-collection of these
monies provided Valbruna with a financial contribution in the form of a
direct transfer of funds, i.e., a zero-interest loan. The benefit from
this interest-free loan is the amount of interest that would be due on a
comparable commercial loan. The GOB's interest-free loan is limited to
Valbruna, and therefore, is specific as a matter of law. However, we also
agree with Valbruna that the period for calculating these benefits should
be limited. Therefore, we are calculating the benefit based on a period
beginning at the point in time the payments became late under the lease
terms and ending when Valbruna actually paid the invoice: sixty days after
the invoice dates, April 17, 2000 and November 9, 2000, respectively. We
note that for the November 9, 2000 invoice, payment was not due during the
POI, therefore we are not countervailing this benefit in this
investigation. However, for the April 17, 2000 invoice, payment was due no
later than June 16, 2000. Therefore, a benefit exists for the period from
June 17, 2000 to December 31, 2000, or 197 days.
Comment 8: Bolzano Industrial Site Purchase
Petitioners' Argument: The petitioners argue that the Department should
have investigated and verified the GOB's purchase of the Bolzano
industrial site. Petitioners state that they raised this issue on "at
least three other occasions prior to the preliminary determination or
prior to verification" thus providing the Department with notice that the
countervailability of this purchase was in question due to changed facts.
The petitioners note that whether or not this issue was characterized as a
"new" subsidy allegation is irrelevant. Rather, they argue that language
in the petition (at 51-52) and their letters of April 9, 2001, May 16,
2001 and June 29, 2001, which the petitioners argue contain new
information, should have placed the Department on notice that its prior
determination on the countervailability of the Bolzano industrial site
purchase was wrong. The petitioners argue that the Department must analyze
the purchase of the Bolzano industrial site in order to determine whether
a subsidy was provided by the GOB to Falck and Bolzano. Moreover, the
petitioners state that because the Department has extended the deadline
for the issuance of the final determination, the Department should use the
additional time to verify this purchase.
Additionally, the petitioners argue that the Department's practice of not
investigating programs that previously were found non-countervailable
absent new information prevented them from presenting extensive arguments
as to the Bolzano Industrial site purchase in the petition. However, the
petitioners now find that the factual premise on which the Wire Rod
decision was based is possibly flawed. Specifically, the petitioners argue
that the land may have been purchased for more than adequate remuneration.
The petitioners point to factual discrepancies regarding the negotiation's
timing and the land's appraisal as meriting the Department's further
examination. They argue that the Department ignored these discrepancies
and the petitioners' request to verify this issue.
The petitioners argue that the Department "is not free to ignore
information that casts new light on the previous investigation when the
results of that investigation are used as the basis for the decision not
to investigate an issue in a subsequent case." Therefore, the petitioners
argue that the Department's decision not to examine the purchase of the
Bolzano industrial site is legal and factual error. In support of their
contention, the petitioners cite to Allegheny Ludlum Corp., et al. v.
United States ("Allegheny"), 112 F. Supp. 2d 1141 (Ct. Int'l Trade 2000)
in which the court "found erroneous the agency's failure to investigate an
equity infusion even though the subsidy had not been alleged in the
petition." The petitioners argue that the factual circumstances
surrounding the Department's investigation of Stainless Steel Plate in
Coils from Belgium; Final Affirmative Countervailing Duty Decision, 64 FR
15567 (March 31, 1999), which generated the Allegheny appeal, are similar
to those in the instant proceeding.
Specifically, the petitioners argue that Allegheny requires the
Department to examine all subsidy-related evidence that is before it
regardless of whether a new subsidy is being alleged. The petitioners
maintain that the evidence on the record of the instant proceeding places
the Department on notice that its decision in Wire Rod was wrong and that
the Bolzano purchase provided a possible countervailable subsidy. Thus,
the petitioners assert that the Department's failure to investigate this
program is legal error.
The petitioners note that the publication of the Department's final
countervailing duty regulations occurred after the Wire Rod investigation.
According to the petitioners, these regulations require the Department to
measure the adequacy of remuneration based on actual market transactions.
The petitioners further claim that no comparable market transaction are on
the record in this proceeding which would confirm that the price paid by
the GOB was consistent with market principles. Rather, the petitioners
note, the GOB did not "behave as a normal commercial actor" because: 1)
the GOB did not conduct an independent evaluation of the property prior to
its decision to purchase the land; and 2) the GOB acted for political and
socio-economic reasons including the reallocation of properties to
entities investing within the Province.
Furthermore, although the Department noted in Wire Rod that Valbruna
agreed to purchase the land at the same price agreed to by the GOB, the
petitioners claim that evidence in the current proceeding indicates that
Valbruna was not a serious purchaser of this land and therefore should not
be considered a market actor for purposes of determining adequate
remuneration.
In establishing a benchmark to evaluate the purchase, the petitioners
argue that the Department should reject the Cadastral Office's appraisal
and other purchases of industrial land by the GOB. Therefore, the
petitioners argue that the Department should use the book value of
Bolzano's land and buildings as the benchmark. Thus, the petitioners argue
that the difference between the 1994 book value and the GOB's purchase
price should be treated as more than adequate remuneration.
Respondent's Argument: Valbruna argues that there is no basis for the
Department's reinvestigating the purchase of the Bolzano industrial site.
Valbruna argues that the Department appropriately declined to investigate
this program because the petitioners failed to adequately allege that this
purchase constituted a subsidy and the Department found this program to be
not countervailable in Wire Rod. Furthermore, Valbruna maintains that the
petitioners offered no new factual information which would lead the
Department to revisit its prior determination. Valbruna argues that the
petitioners' referencing of their appeal in Wire Rod does not sufficiently
allege a subsidy.
However, if the Department were to revisit its prior decision, Valbruna
argues that the petitioners' arguments do not support a finding different
from that in Wire Rod. Specifically, Valbruna argues that the petitioners
have merely reformulated their arguments from Wire Rod and that the
Department would once again come to the same conclusion. Valbruna argues
that the only conclusion which the Department could reach is that the
purchase does not constitute a subsidy. Finally, Valbruna notes the
contradiction between the petitioners' arguments that the purchase price
for the Bolzano Industrial Site was too high, while the lease return was
too low. Specifically, Valbruna notes that the lease payment was set as a
percentage of the purchase price. Thus, because the purchase price and the
lease rate are expressly linked, Valbruna argues that if the Department
were to reconsider the land purchase, it would also have to adjust the
benefit calculation for the lease payment.
Department's Position: We agree with Valbruna that the Department should
not reinvestigate the GOB's purchase of the Bolzano industrial site.
Contrary to their claims, the petitioners have provided no new information
that would cause the Department to revisit this purchase, which was found
to be not countervailable in Wire Rod. Nor do we agree with the
petitioners that the Department's regulations published after the Wire Rod
case provide a basis for investigating or determining this purchase to
confer a countervailable subsidy.
The petitioners are correct that they raised the purchase of the Bolzano
site in several filings. In the petition they stated that they appealed
the determination of non-countervailability in Wire Rod, but did not ask
the Department to investigate the purchase. In their letter of April 9,
2001, the petitioners again referred to their appeal in Wire Rod and
stated: "Based on the pending appeal and the potential development of new
information, it is important that a complete record be established on this
subsidy allegation." The petitioners go on to list numerous questions
about the transaction and ask the Department to request the responses from
the GOB. Again, the petitioners do not provide new information, nor do
they point to any changes in Department practice to warrant investigation
of this transaction.
It is in their letter of May 16, 2001, that the petitioners make their
arguments that the regulations published after Wire Rod should lead the
Department to reinvestigate the purchase of the Bolzano industrial site.
In particular, the petitioners refer to 19 CFR § 351.511(a)(2)(iii),
claiming that the Department will measure adequacy of remuneration based
on actual market transactions in the country in question or, where no
market price is available, whether the government price is consistent with
market principles. The petitioners claim that the purchase of the Bolzano
industrial site was suspect because there were no market prices to serve
as benchmarks and because the government's actions were not consistent
with market principles.
In response, we note first that the regulation relied upon by the
petitioners, 19 CFR § 351.511(a)(2)(iii), addresses the government
provision of goods or services. Since we are dealing with the government
purchase of an industrial site, the cited regulation is not applicable.
The petitioners also cited 19 CFR § 351.507 to support their claim that
commercial actors typically undertake objective market assessments prior
to an investment. Again the cited regulation is not applicable to the
transaction under consideration here because the regulation expressly
deals equity purchases by governments. Of the topics identified for
rulemaking in the Department's regulations, governmental "Purchase of
Goods" arguably deals most nearly with the petitioners' claim. However,
the Department declined to promulgate a rule on this topic because of our
lack of experience with governmental purchases for more than adequate
remuneration. (See, 19 CFR 351.512) Consequently, contrary to the
petitioners' claim, the regulations published after Wire Rod do not
provide a basis for reinvestigating the GOB's purchase of the Bolzano
industrial site.
The petitioners also point to certain evidence on the record of this
proceeding that, in their view, undermines one of the bases of the
Department's finding of non-countervailability in Wire Rod. Specifically,
the petitioners claim that Valbruna was never a serious potential
purchaser of the site because, inter alia, Valbruna did not identify other
potential purchasers of the land and referred only to the government's
appraisal when asked about studies done to assess the value of the land.
(In Wire Rod, the Department pointed to the fact that Valbruna agreed to
purchase the site and pay the price negotiated between Falck and the GOB
if the Falck/GOB deal fell through as evidence that the "price was
determined in reference to market conditions.") We disagree that the
evidence pointed to by the petitioners contradicts our finding in Wire
Rod. In this proceeding, the responses and information provided by
Valbruna reflect the fact that Valbruna was not privy to the negotiations
between Falck and the GOB. Valbruna's statements do not contradict the
Department's position in Wire Rod that "we verified that Valbruna agreed
to pay the same price as that negotiated between Falck and the Province
(of Bolzano) if those negotiations for the sale of the land fell through."
(63 FR 40484) Valbruna's willingness to agree to this indicates that
Valbruna was, indeed, a serious potential purchaser.
Finally, in their June 29, 2001 letter, the petitioners restate the
arguments they made in their May 16 letter and, additionally, they claim
that Allegheny directs the Department to investigate the potentially
countervailable subsidy.
Regarding this argument, we believe that the Department's decision not to
reinvestigate the GOB's purchase of the Bolzano industrial site is fully
consistent with the Department's redetermination and the CIT's ruling in
Allegheny Ludlum Corp., et al. v. United States, Slip Op 01-87 (July 18,
2001). In that ruling, the court stated:
Although §1677d offers a petitioner the opportunity to call
Commerce's attention to a potentially countervailable subsidy
that was discovered during the course of an ongoing countervailing
duty investigation, it does not force Commerce to fully investigate
any subsidy. Rather, Commerce must review the record evidence
to determine whether the business practice 'appears' to be a
countervailable subsidy. This review must logically afford
Commerce sufficient latitude to weigh and analyze both negative
evidence and positive evidence.
Id.
In the instant proceeding, as discussed above, we have reviewed the
information that the petitioners have called to our attention and the
argumentation they have put forward in light of our prior finding that
this purchase was not countervailable, and we concluded that there was no
basis to reinvestigate whether this transaction was made for more than
adequate remuneration.
Comment 9: Countervailability of Law 44/92
Petitioners' Argument: The petitioners argue that Law 44/92 should be
countervailed because evidence from verification indicates that it is de
facto specific. The petitioners contend that Bolzano received several
times the average benefit per company under this program. Therefore,
Bolzano clearly received a disproportionate amount of funds thus meeting
the criteria for de facto specificity under the Act. The petitioners argue
that in Wire Rod the Department determined the de facto specificity of
other provincial laws by comparing Bolzano's benefits to the average
benefits under the program. Therefore, the petitioners argue that the
Department should countervail this loan in the final determination.
Respondent's Argument: Valbruna argues that the petitioners fail to offer
any evidence which indicates that Law 44/92 is specific, and therefore,
countervailable. Valbruna maintains that the petitioners' arguments rely
on a comparison of Bolzano's benefits to the average benefit for
recipients under Law 44/92. However, Valbruna argues, the petitioners do
not claim the program is de jure specific and do not refute the fact that
benefits are provided on a non-discriminatory, non-specific basis to
applicants who satisfy the program's requirements. Moreover, Valbruna
argues that the petitioners accept the fact that companies from many
sectors receive benefits under this program. Valbruna points to the
Deparment's thorough investigation of this program's specificity, as
documented in the Province of Bolzano Verification Report, as proof that
this program is neither de jure nor de facto specific, and thus, non-
countervailable.
Department's Position: We continue to find that the benefits provided by
the GOB under Law 44/92 are not specific and, hence, not countervailable.
Based on the information provided by the GOB, the funds are not given
predominantly or disproportionately to the steel industry. The steel
industry's share of benefits between 1995 and 1998 was 3.12 percent. Over
that same period, nine industries (engineering, electronics, food
processing, chemical, plastics, textiles, furniture, lumber and
construction) received larger shares.
We note that although the GOB did not normally maintain records of
distribution by industry, for purposes of the questionnaire response it
assembled this information. This was done with the help of a GOB staff
accountant familiar with the applicants to the program. In situations
where the GOB did not know a company's industry classification it
contacted the company to confirm the nature of its operations. At
verification, we noted no apparent inconsistencies in the manner in which
the GOB compiled the information on industry distribution or in the manner
in which companies were identified and categorized.
We do not agree with the petitioners' claim that the evidence indicates
that Valbruna received a disproportionate share of the funds relative to
other enterprises. The petitioners base their assertion on a simplistic
calculation of the amounts received by other enterprises, dividing the
total amount of funds disbursed between 1995 and 1998 by the number of
recipient firms. However, this simplistic approach is not consistent with
the information on the record. At verification, the Department reviewed
the lists of disbursements for each of the years 1995 through 1999. A
sample of this information was included as a verification exhibit and a
review of this sample shows that the amounts disbursed to the various
recipients varied widely, with some companies receiving very large amounts
and other small amounts. While only limited conclusions can be drawn
because we have only a sample of the data, we believe that the information
does not support the petitioners' assertion.
Comment 10: Exclusion of Valbruna's Non-Italian Production from Sales
Denominator
Petitioners' Argument: The petitioners argue that non-Italian production
was included in the sales figures reported by Valbruna which should be
excluded from the denominator in the final determination calculations.
Specifically, the petitioners maintain that Valbruna included sales by
foreign subsidiaries in its consolidated sales figures. The petitioners
argue that the Department's regulations establish that when a firm has
production facilities in two or more countries, the Department will
attribute the subsidies to products produced by the firm within the
country of the government that granted the subsidy. Thus, the petitioners
argue that the Department should exclude all sales revenue generated from
non-Italian production in its final calculations.
Respondent's Argument: Valbruna argues that the petitioners
misinterpreted the results of the Department's verification (see
Memorandum to John Brinkmann, Results of Accaierie Valbruna S.R.L.
Verification ("Valbruna Verification Report," August 28, 2001) by failing
to distinguish between production and sales. Valbruna maintains that the
Valbruna Verification Report does not state that Valbruna produces
merchandise outside of Italy but rather that its non-Italian subsidiaries
sell Valbruna products outside of Italy. Valbruna argues that because all
of the programs which provided benefits to Valbruna during the POI are
domestic subsidies, they are considered to benefit all of Valbruna's
production regardless of where the product is sold. Therefore, Valbruna
argues that the Department should continue to use, as it did in Wire Rod
and the preliminary results of this proceeding, Valbruna's consolidated
sales for 2000 in calculating the ad valorem subsidy rate.
Department's Position: The Department agrees with Valbruna that the
petitioners failed to distinguish between production and sales. See
Valbruna Verification Report at 1. The Department verified that "Accaierie
Valbruna S.R.L., located in Vicenza, Italy" and "Accaierie Bolzano are the
only affiliates or subsidiaries within the Valbruna Group that produce
subject merchandise." See Valbruna Verification Report at 1. Thus, all
production of subject merchandise does in fact occur in Italy.
Furthermore, we verified that the U.S. subsidiaries, Valbruna Corporation
("Valbruna Corp."), Bolzano Steel Corporation ("Bolzano Steel"), and
Golden State Bar Grinding ("Golden State"), and a Mexican subsidiary, do
not produce subject merchandise. Collectively, these subsidiaries either
perform functions involving the sales of merchandise produced by Valbruna
in Italy, or, in the case of Golden State, "grinds steel products sourced
from Valbruna and other steel service centers." (Id. at 2-3). Because
there is no non-Italian production, there is no production which should be
excluded from the sales denominator in the final determination. Finally,
we note that 19 CFR § 351.525(b)(3) directs that the Department will
normally "attribute a domestic subsidy to all products sold by a firm,
including products that are exported." (Emphasis added). Therefore, the
Department properly used Valbruna's consolidated sales for 2000 in
calculating the ad valorem subsidy rate.
Comment 11: Denominator Used in Calculating Valbruna's Subsidy Rate
Respondent's Argument: Valbruna claims that the Department used the wrong
total sales denominator for the POI. Specifically, Valbruna states that it
appears the Department averaged Valbruna's total sales for the three years
prior to the POI. This, according to Valbruna, was a calculation
methodology done for another respondent, and apparently mistakenly done
for Valbruna as well. Valbruna argues that the Department verified its
sales for the POI and submitted its audited financial statements as soon
as they were available. Valbruna requests that the Department correct the
total sales figure used in the calculations for the final determination
based on Valbruna's actual sales amounts for the appropriate years.
Petitioners' Argument: The petitioners did not comment on this issue.
Department's Position: We agree with Valbruna and, for the final results,
have used Valbruna's actual POI sales amount, as reported in its 2000
audited consolidated financial statements, as the denominator for the POI
in our calculations.
Comment 12: Appropriate Discount Rate for Valbruna
Respondent's Argument: Valbruna claims that constructed discount rates
applied to Valbruna are too high, such that they would be considered
usurious in Italy. In Italy, according to Valbruna, the usurious level in
1999 was 7.77 percent and in 2000 was 9.03 percent. Valbruna claims these
rates are a matter of public record and are published periodically by the
Bank of Italy.
Valbruna argues that the Department should use a company-specific
discount rate instead of the constructed discount rate used in the
Preliminary Determination. It claims that in its supplemental responses,
it demonstrated its actual cost of borrowing by providing the rate paid on
a bond issue for long-term debt. According to Valbruna, this information
was verified. Accordingly, given the Department's preference to use
company-specific discount rates, Valbruna requests that the Department use
a discount rate that reflects its actual cost of borrowing.
Petitioners' Argument: The petitioners request that the Department affirm
the discount rate used in the Preliminary Determination. According to the
petitioners, there is no record evidence indicating that the benchmark
rate used in the Preliminary Determination does not reflect commercial
realities in Italy and is, in fact, contrary to the evidence in recent
countervailing duty cases. The petitioners claim that the discount rate
used in the Preliminary Determination was verified in Plate in Coils and,
as a result, is confirmed as accurate and applicable to commercial
transactions in Italy. Secondly, the petitioners argue that the use of a
rate paid by Valbruna on a bond issue for long-term debt in December 1999
contravenes the Department's practice. Referring to the regulations, the
petitioners claim that the Department selects a discount rate based upon
the year in which the government agreed to provide the subsidy. In this
case, according to the petitioners, the record indicates that the GOI
agreed to provide Law 25/81 benefits in 1998. Therefore, the petitioners
argue, the 1999 company-specific rate would not be applicable.
Department's Position: We agree with the petitioners that there is no
record evidence that the benchmark rates used in this investigation, and
as similarly used in several previous cases (see, e.g., Wire Rod, 64 FR at
40476-77; Plate in Coils, 64 FR 15508,15511; Sheet and Strip, 64 FR 30624,
30627; CTL Carbon Plate, 64 FR 73244, 73248), do not reflect commercial
realities in Italy or are usurious. Moreover, because this issue was not
raised until verification, we did not accept any information on or verify
the matter during verification. See Valbruna Verification Report at 7.
Regarding the use of the rate from the 1999 bond issuance as a discount
rate, while we agree with Valbruna that the Department's preference is to
use a company-specific rate when available, any discount rate must be
based upon the year in which the government agreed to provide the subsidy.
19 CFR 351.524(c)(3)(i). The record evidence indicates that the Law 25/81
environmental aid grants received by Bolzano were approved in 1998.
Therefore, for the final determination, because Valbruna does not have a
company-specific discount rate for 1998, we have continued to use the same
discount rate used in the Preliminary Determination to allocate these
subsidies.
Comment 13: Law 451/94 Early Retirement Program
Respondent's Argument: Valbruna argues that the Department should
reconsider whether the Law 451/94 early retirement program provides a
countervailable subsidy to Valbruna. Specifically, Valbruna argues that
Law 451/94 imposed a cost rather than a benefit to Valbruna.
Alternatively, Valbruna argues that if the Department continues to find
this program countervailable in the final determination, then the proper
benchmark with which to analyze the program is the actual cost incurred by
Bolzano under the Mobility program.
In support of its allegation that Law 451/94 imposed a cost rather than a
benefit on Valbruna, Valbruna argues that the Department's methodology
assumes that companies needed to discharge excess employees and that high-
levels of unemployment in Italy increased the cost of reducing payrolls
through lay-offs because companies laying workers off were forced to make
concessions to labor unions. Valbruna claims that these assumptions are
not correct in Valbruna's case. First, Valbruna maintains that the workers
who retired under this program were replaced. Valbruna argues that
evidence gathered at verification documents that total employment at both
the Vicenza and Bolzano plant increased from 1994 through the 2000 POI.
Second, although average unemployment rates in Italy during the POI
surpassed 10 percent, the unemployment rates in Vicenza and Bolzano were
1.5 percent and 2.0 percent, respectively. Therefore, Valbruna argues that
although Law 451/94 may have provided a benefit to other companies, it
provided no benefit to Valbruna. Valbruna argues that if a benefit was
provided under this program, it was to the workers themselves and not to
Valbruna.
Valbruna contends that, unlike large, state-owned steel companies,
neither the Vicenza plant nor the Bolzano plant experienced massive early
retirements resulting from Law 451/94's institution. Valbruna argues that
evidence gathered at verification indicates that employees retiring from
both the Vicenza and Bolzano plants represented only 0.7 percent of total
retirees under Law 451/94. Thus, Valbruna argues that it was not intended
to be, and was not in fact, a target beneficiary of Law 451/94.
However, if the Department does countervail this program in its final
determination, the benefit calculation should be revised. Valbruna points
to both Wire Rod and Stainless Steel Sheet and Strip from Italy as prior
cases where the Department's methodology on this issue has differed from
that in the instant proceeding. Valbruna argues that the Department's
articulated concerns which led to abandoning the Mobility benchmark used
in the preliminary decision of Stainless Steel Sheet and Strip from Italy
are inapplicable to Valbruna. Specifically, Valbruna maintains that there
is no need to speculate what the results of the negotiations between labor
unions and Valbruna would have been under Mobility. Because Bolzano did in
fact lay-off workers under Mobility, Valbruna argues that this exact ratio
should be employed as the benchmark in the instant proceeding. Valbruna
argues that the methodology used in the Preliminary Determination should
only be used in instances where no information regarding a company's
actual expenses are available.
Petitioners' Argument: The petitioners argue that the Department should
affirm its preliminary finding and continue to countervail this program.
The petitioners state that Valbruna's assertion that Law 451/94 imposed a
cost on the company is misguided and does not address the salient issue of
analysis: Law 451/94 relieved Valbruna of obligations it otherwise would
incur but for its operation. Furthermore, the petitioners argue that if
Valbruna's arguments are interpreted to mean that the costs of the program
offset the benefits received thereunder, then these costs clearly do not
fall within the "discrete category of offsets" that may be considered in
measuring a benefit under 771(6) of the Act.
Additionally, the petitioners maintain that Valbruna's proposition that
it was not an intended beneficiary of this program is irrelevant.
Specifically, the petitioners argue that Law 451/94's limited
applicability to the Italian steel industry, of which Valbruna is a
member, and ensuing specificity within the meaning of the Act, override
any intent that may have informed Law 451/94's formation.
Moreover, the petitioners state that no record evidence indicates that
workers were replaced because of Law 451/94. The petitioners theorize that
total employment at Valbruna could increase due to a planned expansion and
that had the retired workers merely been replaced, total employment would
have remained constant rather than increasing as it did. Additionally, the
petitioners argue that whether Valbruna replaced workers who retired under
Law 451/94 is a question of the company's behavior after its receipt of
the subsidy. According to the petitioners, the Department's regulations do
not consider the post-receipt effect of a subsidy on a company's
performance or behavior. See 19 CFR 351.503(c). The petitioners reiterate
that the Department's methodology in the instant proceeding properly
focuses on the fact that Valbruna was relieved of an obligation that it
otherwise would incur but for the operation of Law 451/94.
Lastly, the petitioners argue that the Department should reject the
Mobility program as the benchmark for measuring benefits under Law 451/94.
The petitioners state that the "key issue in measuring early retirement
benefits is whether the company and its workers were aware that benefits
would be made available under Law 451/94 at the time of their
negotiations." Accordingly, because Valbruna and its workers knew that Law
451/94 benefits would be available to them, the petitioners argue that the
Department should treat half the amount paid by the GOI as benefitting
Valbruna.
Department's Position: For the final determination, we have continued to
countervail the benefits under Law 451/94 according to the methodology
articulated in the Preliminary Determination.
Regarding Valbruna's argument that Law 451/94 imposed a cost on Valbruna
rather that conferring a benefit, we agree with the petitioners. 19 CFR
351.503(c) states that the Department "is not required to consider the
effect of the government action on the firm's performance...or how the
firm's behavior otherwise is altered." Thus, whether Valbruna replaced
workers because of Law 451's operation or the cost of replacing them, is
extraneous to the Department's analysis. Rather, we look to whether
Valbruna is being relieved of an obligation it otherwise would incur but
for the operation of Law 451/94 to guide our analysis. (See 19 CFR
351.513(a).)
Clearly, our verification indicates that Valbruna's employees received
Law 451/94 payments. Although Valbruna officials stated that "they doubted
the unions would have forced any benefits similar to those received under
Law 451" had Law 451/94 been inapplicable to Valbruna, we note that both
Valbruna and the labor unions representing its workers had knowledge that
the government would make these contributions. See Valbruna Verification
Report at 15. According to our practice, the knowledge that the government
would make contributions impacts the negotiations between labor unions and
companies. See CVD Regulations at 63 FR at 65379. Because Law 451/94 did
exist and because both Valbruna and the labor unions representing its
workers had knowledge that these payments would be made, we cannot assume
that Valbruna would be relieved from making similar payments absent its
operation.
Regarding Valbruna's argument that it was not an intended beneficiary of
Law 451/94, we note that we do not need to find that a particular
enterprise or industry is targeted for benefits under a program in order
to find that the program is specific (Id. at 65359, citing SAA at 932).
Having found that payments under Law 451/94 are specific, our analysis
focuses on the extent to which Valbruna has received a financial
contribution and benefit.
Regarding the benchmark for measuring the benefit, we agree with Valbruna
that our analysis has evolved over time. However, our treatment of this
program in this case is consistent with our two most recent proceeding
involving Law 451/94. See Sheet and Strip, 64 FR 30624, 30630; CTL Carbon
Plate, 64 FR 73244, 73254.
In first rejecting the Mobility provision as a benchmark for Law 451/94
benefits, we stated:
At one extreme, the unions might have succeeded in preventing
any layoffs. If so, the benefit to the companies would be the
difference between what it would have cost to keep those workers
on the payroll and what the companies actually paid under Law
451/94. At the other extreme, the negotiations might have failed
and [ both companies would have incurred only the minimal costs
described under Mobility ]. Then the benefit to AST and Arinox
would have been the difference between what they would have
paid under Mobility and what they actually paid under Law 451/94.
We have no basis for believing either of these extreme outcomes
would have occurred. See Sheet and Strip, 64 FR 30624, 30629.
(Emphasis added).
In the instant proceeding, Valbruna argues that the Department should
return to the Mobility provision benchmark because the Bolzano plant did
in fact lay-off employees under the Mobility provision. However, we
reiterate that the Mobility provision is clearly distinct from Law 451/94
and only "identifies the minimum payment the company would incur when
laying off workers" See CTL Carbon Plate, 64 FR 73244, 73252. Under Law
451/94, "the GOI made payments to these workers equaling eighty percent of
their salary." See Preliminary Determination, 66 FR 30414, 30419. There is
no evidence on the record of the instant proceeding that indicates minimum
Mobility payments are equal to Law 451/94 payments, i.e., 80 percent of a
worker's salary. Therefore, the Department rejects Valbruna's argument
that a return to the Mobility benchmark is warranted.
Comment 14: Attribution of 1983 and 1985 Law 25/81 Grants to Valbruna
Respondent's Argument: Valbruna first argues that the Law 25/81 benefits
received by Bolzano prior to its change in ownership should not be
attributed to Valbruna. Valbruna refers to the Preliminary Determination
which states that the Department did not make a finding as to whether pre-
sale Bolzano and pre-sale Valbruna are distinct persons from respondent
Valbruna. Valbruna argues that without a finding that these companies are
the "same person," there is no basis to attribute to Valbruna in the POI
any benefits received by Bolzano prior to its change in ownership.
Second, in the event the Department continues to attribute to Valbruna
the benefits received by Bolzano prior to its change in ownership,
Valbruna notes that the Department must correct a clerical error.
Specifically, Valbruna claims that the Department used an incorrect amount
to calculate the benefit in 1990.
Petitioners' Argument: The petitioners argue that Valbruna has presented
no evidence that Bolzano and Valbruna are not the same person. As argued
in Comment 3 and despite Valbruna's claims to the contrary, the
petitioners state that Bolzano and Valbruna are, in fact, the same person.
Accordingly, the petitioners request that the Department continue to
allocate the remaining portion of the benefit stream for Law 25/81 to
Valbruna.
Department's Position: As stated in Comment 3, we have continued to not
make a finding with respect to whether Valbruna and Bolzano are, in fact,
the same person because, even assuming they are the same person,
Valbruna's final ad valorem rate remains de minimis. Nevertheless, for
calculations purposes, because we have continued to assume that Valbruna
and Bolzano are the same person, we fully attributed to Valbruna the
benefits received by Bolzano under Law 25/81 and prior to its change in
ownership. However, we agree with Valbruna that we used an incorrect
amount to calculate the benefit in 1990 and have corrected this error for
the final determination.
Comment 15: Law 25/81 Environmental Grants
Respondent's Argument: Valbruna argues that the Department should make
the following adjustments to its calculation in the final determination:
1) the Department should use the verified company-specific cost of long-
term funds rather than the rate used in the Preliminary Determination; 2)
the Department should use Valbruna's actual sales amount for the POI in
its calculations.
Petitioners' Argument: The petitioners argue that the Department should
affirm the discount rate used in the Preliminary Determination while
excluding revenue generated from non-Italian production from the sales
denominator as argued in Comment 10.
Department's Position: For the final determination, we have used
Valbruna's actual sales amount for the POI in our calculations (as stated
in Comment 11), but we have not used Valbruna's company-specific cost of
long-term funds (as stated in Comment 12). Also, because there is no non-
Italian production, there was no such production to exclude (see Comment
10).
Comment 16: European Social Fund ("ESF")
Respondent's Argument: Valbruna argues that although the Department's
analysis in the Preliminary Determination was consistent with Wire Rod,
the salient case to inform such analysis is Stainless Steel Plate in Coils
from Italy. Valbruna argues that the Department acknowledged that its
analysis of Objective 4 funding was incorrect in stating that "it may be
appropriate for the Department to revisit its previous decision regarding
de jure specificity of assistance distributed under the ESF Objective 4
Single Programming Document (SPD) in Italy." See Stainless Steel Plate in
Coils from Italy; Final Affirmative Countervailing Duty Determination, 64
FR 15508 (March 31, 1999).
Alternatively, Valbruna argues that if the Department continues to
countervail benefits under Objective 4, then it should adjust its
calculation to include only those benefits received during the POI.
Valbruna states that the total benefits received during the POI was
inadvertently over-reported in its questionnaire response.
Petitioners' Argument: The petitioners argue that the Department should
reject Valbruna's arguments because the analysis of ESF in the instant
proceeding is consistent with past precedent and record evidence. The
petitioners argue that the Department has consistently found ESF to be
specific and countervailable in numerous investigations. Furthermore,
Valbruna has misinterpreted the Department's statement in Stainless Steel
Plate in Coils from Italy. In that proceeding, the petitioners argue, the
Department found the salient ESF funding to be de facto specific based on
adverse facts available and suggested revisiting the issue based on a
dearth of record evidence in that proceeding. The petitioners argue that
no evidence in the current proceeding calls the specificity of the ESF
program into question, and therefore, the Department should continue to
find it a specific, countervailable subsidy absent facts to the contrary.
Department's Position: Although we do acknowledge that in Stainless Steel
Plate in Coils from Italy, we signaled that further investigation of ESF's
de jure specificity may be warranted, in the instant proceeding we have
found ESF funding to be de facto specific. In the Preliminary
Determination, the Department stated that because neither the EC nor the
GOI provided us with detailed industry and regional distribution
information "despite our explicit request for such information....we find
it appropriate to apply an adverse inference and conclude that these
grants are specific under section 771(5A) of the Act." See 66 FR 30414,
30422. At verification, we again requested detailed industry and regional
distribution information. However, "officials stated that they could not
provide this kind of list because they do not track or maintain data on
the industries the ESF applicants are involved in." See GOI Verification
Report at 9. Regarding the specificity of Law 44/92, we note that although
the GOB did not routinely keep detailed industry distribution information,
it was able to accurately gather this information at our request. See "Law
44/92," supra. However, GOI officials declined to provide industry and
regional distribution information on ESF objective 4 grants because they
stated that the GOI "do{es} not track or maintain data on the industries
the ESF applicants are involved in." (See GOI Verification Report at 9).
We note that in Plate in Coils, 64 FR 15508, 15517, the Department found
this program to be de facto specific based on adverse facts available and
stated that the GOI "declined the opportunity to identify the industry and
region of such grantees." Therefore, for the final results of this
investigation, we continue to find it appropriate to apply an adverse
inference and conclude that these grants are specific under section
771(5A) of the Act.
Comment 17: Law 549/95
Respondent's Argument: Bedini argues that the Department incorrectly
calculated the benefit Bedini received under Law 549/95 in its Preliminary
Determination. Specifically, Bedini argues that a benefit exists from a
tax program "to the extent that the tax paid by a firm as a result of the
program is less than the tax the firm would have paid in the absence of
the program." 19 CFR § 351.509(a). In order to determine the amount a
"firm would have paid," Bedini proposes that the Department multiply "the
total amount of the tax deduction by the applicable tax rate" citing to
Certain Hot-Rolled Carbon Steel Flat Products from Thailand; Preliminary
Affirmative Countervailing Duty Determination, 66 FR 20251 (April 20,
2001) and Certain Carbon Steel Buttweld Pipe Fittings from India; Final
Affirmative Countervailing Duty Determination, 60 FR 10564 (February 27,
1995). In the instant proceeding, Bedini argues that the Department
erroneously calculated the benefit to Bedini based on the total amount of
the deduction rather than the actual amount of tax saved by the deduction.
Finally, Bedini argues that the Department should correct this error and
recalculate its countervailing duty rate.
Petitioners' Argument: The petitioners presented no argument on this
issue.
Department's Position: We agree with Bedini that in the Preliminary
Determination we inadvertently calculated the benefit to Bedini under Law
549/95 based on the total amount of the deduction rather than the actual
amount of tax saved by the deduction. For the final determination, we are
adjusting our calculations by multiplying the total amount of the
deduction by the applicable tax rate.
Comment 18: Appropriate AUL for Foroni
Respondent's Argument: Foroni states that, for the preliminary
determination, it rebutted the fifteen-year AUL presumption and showed
that its company-specific AUL is less than ten years. Foroni further
argues that the Department verified that it, in fact, has an AUL of less
than ten years. Accordingly, Foroni requests that the Department continue
to use the company-specific AUL for the final determination, and, thereby,
continue to find a net subsidy rate of 0.00 percent.
Petitioners' Argument: The petitioners did not comment on this issue.
Department's Position: At verification, we found no information
indicating that Foroni's AUL was inappropriately calculated. Therefore,
for the final determination, as in the Preliminary Determination, we have
continued to use Foroni's company-specific AUL.
RECOMMENDATION
Based on our analysis of the comments received, we recommend adopting all
of the above positions and adjusting all related margin calculations
accordingly. If these recommendations are accepted, we will publish the
final determination in the Federal Register.
AGREE ___________ DISAGREE ___________
Faryar Shirzad
Assistant Secretary for
Import Administration
Date
_________________________________________________________________________
footnotes:
1. See Final Affirmative Countervailing Duty Determination: Certain Steel
Products from Austria, 58 FR 37217, 37225 (July 9, 1993).
2. Since publication of the CVD Regulations, Moody's Investors Service no
longer reports default rates for the Caa to C-rated category of companies.
Therefore, for the calculation of uncreditworthy interest rates, we will
continue to rely on the default rates as reported in Moody Investor
Service's publication as of February 1998.