82-907

47 FR 39356

NOTICES

DEPARTMENT OF COMMERCE

Final Affirmative Countervailing Duty Determinations: Certain Steel Products
From Italy

Tuesday, September 7, 1982

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AGENCY: International Trade Administration Commerce.

ACTION: Final Affirmative Countervailing Duty Determinations.

SUMMARY: We have determined that certain benefits which constitute subsidies
within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in Italy of certain steel products, as
described in the "Scope of the Investigations" section of this notice. The estimated
net subsidy for each firm and for each product is indicated under
the "Suspension of Liquidation" section of this notice. The U.S. International Trade
Commission (ITC) will determine within 45 days of the publication of this notice
whether these imports are materially injuring, or threatening to materially injure, a
U.S. industry.

EFFECTIVE DATE: September 7, 1982.

FOR FURTHER INFORMATION CONTACT:

Charles E. Wilson, Office of Investigations, Import Administration,
International Trade Administration, U.S. Department of Commerce, 14th
Street and Constitution Avenue, NW., Washington, D.C. 20230, telephone: (202)
377- 5288.
SUPPLEMENTARY INFORMATION:

Final Determinations

Based upon our investigations, we have determined that certain benefits which
constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as
amended (the Act), are being provided to manufacturers, producers, or exporters in
Italy of certain steel products, as described in the "Scope of the
Investigations" section of this notice. The following programs are found to confer
subsidies:
Recapitalizations and a conversion of debt to equity.
Preferential loans.
Capital grants.
Social security payment exemption.
Preferential transportation rates.
European Communities (EC) labor assistance.
European Coal and Steel Community (ECSC) interest rebates.
We determine the estimated net subsidy to be the amount indicated for each firm
and for each product in the "Suspension of Liquidation" section of this notice.

Case History

On January 11, 1982, we received petitions from United States Steel Corporation;
counsel for Bethlehem Steel Corporation; and counsel for Republic Steel
Corporation, Inland Steel Company, Jones & Laughlin Steel, Inc., National Steel
Corporation, and Cyclops Corporation (the Five), filed on behalf of the U.S. industry
producing cold-rolled carbon steel sheet and strip and hot-rolled carbon steel sheet
and strip. The petitions alleged that certain
benefits which constitute subsidies within the meaning of section 701 of the Act are
being provided, directly or indirectly, to the manufacturers, producers, or
exporters in Italy of the steel products listed above. Counsel for Bethlehem Steel
Corporation and counsel for the Five alleged that "critical circumstances" exist, as
defined in section 703(e) of the Act. We found the petitions to contain sufficient
grounds upon which to initiate countervailing duty investigations and, on
February 1, 1982, we initiated countervailing duty investigations (47 FR
5746).
Since Italy is a "country under the Agreement" within the meaning of section
701(b) of the Act, injury determinations are required for these investigations.
Therefore, we notified the ITC of our initiations. On February 26, 1982, the ITC
determined that there is a reasonable indication that these imports are materially
injuring, or threatening to materially injure, a U.S. industry (47 FR 9087).
We presented questionnaires concerning the allegations to the Delegation of the
Commission of the European Communities and to the government of Italy in
Washington, D.C. On April 30, 1982, we received the responses to the
questionnaires. On June 10, 1982, we issued our preliminary determinations in
these investigations (47 FR 26327). We stated in our preliminary determinations
that the government of Italy was providing its manufacturers, producers, or
exporters of certain steel products with benefits which
constitute subsidies. The programs preliminarily determined to bestow subsidies
were:

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Recapitalizations and a conversion of debt to equity.
Preferential loans.
Capital grants.
Social security payment exemption.

Scope of the Investigations

The products covered by these investigations are:
Cold-rolled carbon steel sheet and strip.
Hot-rolled carbon steel sheet and strip.
The products are fully described in Appendix 1 which appears with the notice of
"Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Belgium", in this isue of the Federal Register. The product definition
of hot-rolled carbon steel sheet and strip has been amended since the initiation of
these investigations (47 FR 5739).
Italsider S.p.A., now reorganized in part as Nuova Italsider S.p.A., Teksid S.p.A., and
A.F.L. Falck S.p.A. are the only known producers and exporters in Italy of the
subject products which were exported to the United States. The period for which we
are measuring subsidization is the calendar year 1981.

Italsider and Nuova Italsider's fiscal years coincide with the calendar year.

Analysis of Programs

In their responses, the government of Italy and the Delegation of the
Commission of the European Communities provided data for the applicable periods.
Additionally, we received information from Nuova Italsider S.p.A. This company
produced and exported cold-rolled sheet and strip and hot-rolled carbon steel sheet
and strip which were exported to the United States during 1981. We received no
response from Teksid S.p.A. Therefore, we are applying to it and any other
manufacturer, producer, or exporter the highest subsidy rate found in Italy for
each product under these investigations. We received a response from A.F.L. Falck,
S.p.A. too late to perform a verification and proper analysis. Therefore, we are
applying to it the subsidy rates for other manufacturers, producers, or exporters,
except that, because no allegation was made and we have no information of
government equity participation in this company, we will not include in the subsidy
rate for Falck benefits arising from government equity participation.
Throughout this notice, general principles and conclusions of law applied by the
Department of Commerce to the facts of the current investigations concerning
certain steel products are described in detail in
Appendices 2 through 4, which appear with the notice of "Final Affirmative
Countervailing Duty Determinations: Certain Steel Products from Belgium",
in this issue of the Federal Register. Unless otherwise noted, one subsidy rate is
calculated for each company for all products under investigation produced by that
company.
Where benefits were provided to specific products, they were allocated over the
value of sales of only those products in calculating the subsidy rate. Where subsidies
were provided to specific factories producing the products under investigation, we
allocated the subsidies by multiplying them by the percentage that these products
represented of the factory's total value of sales in order to determine the value of the
subsidy for the products under investigation. We then divided this amount by
Italsider's total value of sales of cold- and hot-rolled carbon steel sheet and strip.
Based upon our analysis of the petitions, responses to our questionnaires, our
verification, and oral and written comments by interested parties, we determine the
following.

I. Programs Determined To Confer Subsidies

We have determined that subsidies are being provided under the programs listed
below to manufacturers, producers, or exporters in Italy of cold-rolled carbon
steel sheet and strip and hot-rolled carbon steel sheet and strip.

A. Recapitalizations and a Conversion of Debt to Equity. As we noted in our
preliminary determinations in these investigations, Italsider, an indirectly
government-owned steel producer, received five equity infusions (including a
conversion of debt to equity in 1977) from 1977 through 1981. Italsider is
approximately 98 percent owned by its parent, Finsider. Finsider, in turn, is owned
by a public agency of the Italian government, the Istituto per la Ricostruzione
Italiana (IRI). Because of government ownership of Finsider, we consider money
from Finsider to Italsider to represent a pass through of money from the Italian
government and not simply money passing between a parent company and its
subsidiary.
For each of these years 1977 through 1981 in which Italsider received equity
infusions, we examined standard financial ratios for Italsider, as well as the pattern
of its losses, and found that this company exhibited unhealthy financial behavior.
We have concluded that these infusions were made on terms inconsistent with
commercial considerations at the time and that, therefore, a subsidy potentially
exists (see Appendix 2).
We have further determined that these equity infusions in 1978 through 1981 were
available to cover losses in those years and thus we expensed, in the year it was
received, the amount of the subsidy which arises from this infusion that was used to
cover losses of the previous year (see Appendix 2). This subsidy is expensed and is
equal to the difference between the market price and the
government's purchase price for the equity used to cover losses. The equity
infusions in 1978, 1980 and 1981 were less than the losses and were entirely
expensed in the year received. For 1979, we treated the residual recapitalization,
i.e., the amount of the infusion after subtracting losses, according to the equity
methodology outlined in Appendix 2.
We measured the potential subsidy for this residual recapitalization by comparing
the price the Italian government paid per share when it bought Italsider's stock
through Finsider with the average price of Italsider's stock the month before the
equity infusion was announced. We used the market price for Italsider's stock as our
comparison because the stock was traded on the Italian stock market and because
we believe our countervailing duty law indicates a strong presumption for
using market-based methods of value.
Since equity infusions give the purchaser ownership rights to the entire company,
we allocated the subsidy amount (the entire 1981 equity infusion plus the 1981
subsidy amounts from the 1977 debt to equity conversion and the remainder of the
1979 infusion) over Italsider's total value of sales. This resulted in an ad valorem
subsidy of 8.24 percent for each of the two products under investigation.

B. Preferential Loans. Italsider has received benefits from several types of
preferential loans, both in years when we consider it creditworthy and years when
we consider it uncreditworthy for purposes of these investigations. Three
of these we have determined not to be countervailable: loans for disaster relief, a
loan given from the United States Export-Import Bank, and ECSC housing loans (see
also Appendix 3). These three loans are discussed below in the section entitled
"Programs Determined Not to Confer Subsidies."
At the verification we learned that Italsider did not pay the entire amount of
principal and interest due in 1981 for every long- and medium-term loan
outstanding. Since the firm could not tell us, loan by loan, which loan payments had
been made and which had not, we were forced to use the best information

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available. Therefore, for each loan, we subtracted from the original amount due to
be repaid in 1981 the average percentage that, in fact, had not been repaid.
The Department also discovered at the verification that a number of loans were tied
to more than one facility. Where we verified that a loan was used both for a facility
producing the products under investigation and other facilities not producing the
products under investigation, we considered only the portion of the loan which
benefitted the products under investigation to be countervailable. The respondent
provided information for all loans made through 1981 with outstanding principal in
1981. Since loans made in 1981 would not usually have any payments due in 1981,
no benefits, and therefore no subsidy, flow from 1981 loans until 1982.
1. Loans granted in years in which Italsider was creditworthy.

We have determined that Italsider was creditworthy for the years through 1975 for
reasons described below. For loans made in those years with principal outstanding
in 1981, we compared a repayment schedule of the loan with a repayment schedule
of a comparable commercial loan made at a commercial interest rate. Where we
found preferential loans, we used the general loan methodology in Appendix 2 to
calculate the subsidy.
According to our methodology, we would prefer to compare Italsider's loans from
special credit institutions to comparable loans from private lenders. However,
almost all long- and medium-term lending in Italy is done by these special credit
institutions which are non-private lenders in which the Italian government is
involved. These institutions provide loans to all sectors of the Italian economy, at
both subsidized and non-subsidized rates. The iron and steel sector receives a
substantial portion of the subsidized loans.
Since these special credit institutions represent such a large part of the country's
debt rate, they may reasonably be expected to influence that debt rate significantly.
Therefore, we assume that a loan to Italsider from a special credit institution
provides a countervailable benefit if Italsider's interest rate is preferential
compared to the average long-term interest rate in Italy at the time the loan was
made. For our final determinations, we relied on average industry debt rates from
the special credit institutions, by quarter, for the benchmark rates.

When comparing the interest rate Italsider paid for a loan to the benchmark rate, we
added to Italsider's interest rate an amount which Italsider paid to its parent,
Finsider, as a guarantee fee for all loans which Finsider guaranteed. In creditworthy
years we consider this guarantee fee, which we verified as a normal commercial fee,
to be part of Italsider's cost of debt.
We have evidence that a grace period is a normal commercial term in Italy for a
long-term captial expansion loan and that the length of the deferral depends upon
when the loan project becomes productive. Italsider's loans have been for large
capital expansion projects and, according to our information, it takes at least two
years for major improvements in a steel mill to become productive. Because we
have no evidence to sustain a finding that a longer grace period is normal in Italy
for similar projects for major capital investments, we have determined that
deferral of payments on such loans for a period in excess of two years constitutes a
countervailable element of preferentiality.
Some loans to Italsider from the Cassa per il Mezzogiorno (Casmez), a regional
development program for southern Italy, contained an interest rebate
provision, as well as having an interest rate potentially below the benchmark
interest rate. After the preliminary determinations, we learned that, instead of
receiving an interest rebate, Italsider pays a reduced interest rate. The government
pays the difference between that rate and the commercial interest
rate directly to the creditor. Therefore, we are treating these loans using the
methodology for low-interest rate loans and comparing the reduced interest rate
actually paid by Italsider with the benchmark interest rate. The difference is treated
according to the loan methodology in Appendix 2.

2. Loans in years in which Italsider is considered uncreditworthy for purposes of
these investigations.
As stated in the preliminary determinations, petitioners alleged that Italsider has
been uncreditworthy. Italsider has lost money consistently in recent years, losing
72 billion lire in 1975, 130 billion lire in 1976, 395 billion lire in 1977, 349 billion
lire in 1978, 258 billion lire in 1979, 747 billion lire in 1980, and 1,688 billion lire in
1981. Having examined several standard financial ratios, as well as the pattern of
Italsider's losses, we concur with the petitioners with respect to the period from
1976 through 1981. Key ratios in which Italsider exhibited unhealthy financial
behavior in the years 1974 through 1981 are: times interest earned (operating
income divided by interest charges); the current ratio (current assets compared to
current liabilities); equity as a percentage of debt; net income as a percent of sales;
and cash flow. Our preliminary determinations stated that Italsider was
uncreditworthy in 1975, because of large losses incurred that year. While losses
occurred in 1975, we cannot say that Italsider was uncreditworthy in that year
because commercial lenders during 1975, not having the year-end
figures for this year, might have made loans to Italsider. We do not consider
Italsider creditworthy in 1976 for purposes of these investigations because, despite
a positive operating income of 224 billion lire in that year, the other financial
indicators we examined showed Italsider to be increasingly unhealthy. For 1977
through 1981, our preliminary determinations in this respect did not change
because of continued unhealthy financial ratios, increasing losses, almost annual
government infusions of capital, and a lengthening picture of preceding unhealthy
years.
Having decided to consider Italsider uncreditworthy for years 1976 through 1981,
we treated loans during these years with principal outstanding in 1981 as similar to
equity investments. We compared Italsider's rate of return in 1981 with the average
rate of return for equity in Italy (see Appendix 2 for further details).
Italsider received one loan given under Article 54 of the ECSC which included an
interest rebate for environmental purposes. Following the methodology in
Appendix 3, we determine that the rebate is given through ECSC budget, 20.05
percent of which is countervailable, and we have expensed the 1981 rebate in 1981.
Since Article 54 loans are funded through ECSC borrowings, the loan itself is also
countervailable. We verified that 81.6% of the loan was tied and went to a factory
which produces the products under investigation (the remainder was tied to a
factory not producing the products under investigation). Therefore,
we consider that percentage of the loan principal as an infusion of equity.
Italsider received a preferential loan for R&D from a special credit institution which
we consider countervailable. In the preliminary determinations we allocated this
loan over all of Finsider's value of production because our information indicated
that the results of the research were shared by the entire Finsider group companies.
We verified that, while the R&D results were theoretically available to all Finsider
group companies, only one of Italsider's factories producing the products under
investigation could actually benefit from this R&D. Therefore, we consider this

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loan to confer a subsidy and for the final determinations we have calculated the loan
subsidy using the uncreditworthy company loan methodology and allocated the
subsidy as described above in the "Analysis of Programs" section.
The ECSC granted an industrial reconversion loan to Italsider under Article 56. At
the verification, Italsider did not satisfy us that this loan was not used to benefit a
factory which produces the products under investigation. Therefore, we consider
this loan to be countervailable (see also Appendix 3). Italsider also received an
interest rebate as part of this loan. See section G. below for our analysis of this
rebate. We used the uncreditworthy loan methodology to calculate the subsidy
amount of the loan itself and allocated the subsidy as described above

in the "Analysis of Programs" section.
Using the methodology described in the "Analysis of Programs" section above, we
have determined that the net subsidy arising from preferential loans for each of the
two product under investigation is 15.37 percent ad valorem.

C. Capital Grants. Firms locating in the Mezzogiorno (southern Italy) are eligible
for special incentives. As we stated in the preliminary determinations and later
verified, Italsider received grants from the Cassa per il Mezzogiorno as well as loans.
These grants were awarded from 1967 through 1981 for the construction and
expansion of its facilities in southern Italy. We find these grants to be
countervailable because they are available only to plants located in this region.
To determine the amount of the subsidy, we used the grant methodology in
Appendix 2 and allocated the grants over 15 years. To determine the ad valorem
benefit from this program, we allocated the subsidy as described above in the
"Analysis of Programs" section. Based on our calculations, we have determined the
subsidy on cold- and hot-rolled sheet and strip to be 0.70 percent ad valorem.

D. Social Security Payments Exemption. Under the Cassa per il Mezzogiorno
regional development program, the government of Italy allows exemptions
from social security payments in 1981 for companies with plants in the south of
Italy. We have determined these exemptions to be countervailable because they
are available only to plants located in this region. Upon verification, we learned that
the actual benefit to Italsider's Taranto facility (Italsider's only factory located in the
Mezzogiorno which produces the products under investigation) was different than
that reported in Italsider's response. We used the verified figure for the final
determinations and expensed this amount in the year received. We allocated this
amount as described above in the "Analysis of Programs" section. This resulted in a
subsidy of 1.65 percent ad valorem for the products under investigation.

E. Preferential Transportation Rates. Petitioners alleged that Italian steel companies
receive preferential transportation rates. We were told at the verification that the
state-owned Italian railroad gives volume rebates to many firms in Italy which
ship a certain amount of freight over a certain time period. Italsider received such
rebates. However, we do not know whether the volume rebate to Italsider received
in 1981 is more favorable than that to other companies. We asked both the company
and the government for further information; this information, however, was not
provided and we have no evidence demonstrating that the rebates are not
preferential. Based upon the best information available, we conclude that the
volume rebate is preferential to Italsider. We therefore consider the rebate received
by Italsider to be a subsidy. We have allocated the subsidy amount actually
received in 1981 over total Italsider sales because we have no knowledge that it was specifically tied to a
product or factory under investigation. We found the ad valorem subsidy to be 0.02
percent for each of the products under investigation.

F. EC Labor Assistance. Italsider received labor aid in the form of training grants
from the EC's European Social Fund (ESF) to factories producing the products under
investigation. The ESF funds come from the EC budget and are financed by the EC's
"own resources". Our analysis of the "own resources" section of the EC budget (98% of
the entire EC budget in 1981) is that 87% is derived directly from Member States
(through customs duties and the value added tax) and that 13%, agricultural and
sugar levies, is generated from the agricultural sector, primarily under the Common
Agricultural Policy. As indicated in Appendix 3, we do not consider levies paid by
steel producers and funds generated from those levies, when simply paid back to the
steel producers, to confer subsidies. In this case, however, levies are paid into the
EC by the agricultural sector, and customs duties are paid by importers, while the
funds are paid out of the budget to steel producers, inter alia. Consequently, ESF
grants to steel producers from the EC's "own resources" are not self-financing by the
steel producers, and are countervailable in the appropriate circumstances.
Over half of the total budget of the ESF is used for deprived regions for each Member
State, including Italy. We have no information indicating that these
training grants are not used for workers engaged in steel production. Therefore, we
find this benefit to be a subsidy. We have expensed these grants in the year received
and have allocated the subsidy as described in the section entitled "Analysis of
Programs" above. This resulted in a subsidy amount of 0.07 percent ad valorem for
each of the two products under investigation.

G. ECSC Interest Rebate. As part of an ECSC industrial reconversion loan under
Article 56, Italsider received an interest rebate of three percent for five years, 1976
through 1980. The funds for these rebates come from the ECSC budget, a portion of
which we consider countervailable (see Appendix 3). We consider the
countervailable rebates to be untied grants to Italsider; therefore, we first looked to
see if Italsider used these rebates to cover losses in these years (see Appendix 2).
We determined that Italsider used the entire countervailable interest rebate
received in each year to cover losses and we have expensed the rebates in the year
they were received. Since the rebates ended in 1980, there is no subsidy because of
the interest rebates in 1981.

II. Programs Determined Not To Confer Subsidies

We have determined that subsidies are not being provided under the following
programs to manufacturers, producers, or exporters in Italy of cold-rolled
carbon steel sheet and strip and hot-rolled carbon steel sheet and strip.
A. Italian Government Labor Assistance. Petitioners alleged that the Italian steel
industry benefits from labor assistance programs under which the government of
Italy assumes such costs as redundancy payments, housing allowances, and
special assistance to support employment. Italsider has received such assistance
from the ordinary and the extraordinary Fund for Wages Integration (CIG);
however, we have determined that these programs are not countervailable because
Italian laws indicate that these programs are generally available on equal terms to
all firms in Italy.

B. Assistance to Coal Suppliers. Petitioners alleged that Italsider received a subsidy
through its purchases of subsidized coking coal from the Federal Republic of
Germany (FRG). Italsider claims that it buys all its coal at world prices from various
suppliers,

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including companies in the United States. A review of Italsider's invoices of
purchases of coal and commercial statistics kept by them, showing different prices
from each supplier, indicated no preferential treatment to Italsider by any vendor,
including those in the FRG. For the reasons described in Appendix 2, we have
determined that Italsider does not receive a countervailable benefit from its
purchases of German coking coal.

C. ECSC Housing Loans. Italsider received housing loans for workers at its Taranto
facility. For the reasons described in Appendix 3, we have determined
that ECSC housing loans are not subsidies to Italian steel producers.

D. ECSC R&D Grant. One of the petitioners alleged that Italsider received subsidies
through ECSC funding of R&D projects directed by the Centro Sperimentale
Metallurgico, an Italian research organization. Italsider reported receiving one
grant from the ECSC under Article 55 for R&D applicable to one of the products
under investigation. As Appendix 3 states, because the results of ECSC R&D grants
are publicly available, we have determined that this program does not confer
countervailable benefits. We have no allegations or evidence of Italian government
funding for R&D grants.
E. Disaster Relief Loan. We do not consider loans made for disaster relief to confer
countervailable subsidies since this was general assistance available to anyone in
affected areas. Although not all areas would be eligible at any one time, disaster
relief is not selective in the same manner as other regional programs since there is
no predetermination of eligible areas and no part of the country, and no industry, is
excluded from eligibility in principle.
F. United States Export-Import Bank Loan. Under the Act, loans granted by the U.S.
Export-Import Bank do not provide countervailable benefits.

III. Programs Determined Not To Be Used

We have determined that the following programs are not used by the
manufacturers, producers, or exporters in Italy of cold-rolled carbon steel
sheet and strip and hot-rolled carbon steel sheet and strip.

A. Preferential Bond Issuances. Petitioners alleged that Italsider has received
benefits from bond issuances containing preferential provisions. Italsider had no
outstanding bonds and our verification of Italsider's financial records did not find
that they received indirectly any preferential funding from bonds issued by another
entity for the period for which we are measuring subsidization.

B. Tax Incentives. Petitioners alleged that under the Cassa per il Mezzogiorno the
Italian steel industry receives exemptions from national and local income taxes. To
be eligible for any decreased national income taxes under this program a company
must be headquartered in the south of Italy. As the preliminary determinations
stated, Italsider is headquartered in Genoa which is not in southern Italy and,
therefore, receives no exemption from national income taxes. We verified through
both Italsider and government officials that Italsider received no local tax
exemption during the period for which we are measuring subsidization.

C. Forgiveness of Utility Payments. One of the petitioners alleged that the Italian
government excused Italsider from paying several of its utility bills for the first half
of 1981 but supplied no other information on the matter. Italsider indicated that the
exemption only applied to electric
furnace operations. Since there are no such furnaces at Taranto or Oscar Sinigaglia,
the two plants producing the products under investigation, these products did not
receive any subsidy under this program. Our verification of Italsider's records found
no evidence of exemptions from utility payments for these plants.

D. Preferential Export Financing. Petitioners alleged that the Italian steel industry
benefits from preferential export financing. Verification of Italsider's financial
records yielded no indicatioin of any preferential export financing.

E. Wage Payment Subsidy. One petitioner asserted that the Italian government paid
Italsider's monthly payroll costs for part of 1981 but gave no further information on
the matter. At the verification we found no evidence of such government
intervention. Italsider stated that it had borrowed short-term funds from Finsider in
order to pay its wages. We therefore examined short- term lending rates between
Finsider and Italsider to see if they were preferential compared to the short-term
interest rate commercial lenders were charging Italsider. We found that Finsider
charged Italsider the same interest rates as three commercial banks charged
Italsider. Therefore, we have determined that there is no countervailable benefit
resulting from these short- term loans from Finsider.

Petitioners' comments

COMMENT 1

Petitioners argued that Italian corporate bond rates were not the appropirate
measure of the cost of capital for an uncreditworthy company such as Italsider. One
petitioner stated that an uncreditworthy company could at most secure short-term
debt; therefore, the correct cost of debt capital rate should be the highest
short-term interest rate charged by a lending institution plus a risk premium. This
petitioner also stated that the venture capital market or the cost of debt should be
the proxy for the cost of equity in the weighted cost of capital.

DOC Position

For the methodology used in these final determinations concerning the appropriate
discount rate for present value calculations, see Appendix 2.

Comment 2

One of the petitioners stated that the respondent steel companies clearly
could not borrow at average or national rates absent government backing and that,
therefore, a creditworthiness proxy should be included in the benchmark interest
rate for preferential loans.

DOC Position

For the Department's methodology regarding the appropriate type of benchmark
rate to choose for loan comparisons for creditworthy companies, see Appendix 2.

Comment 3

One of the petitioners stated that domestic subsidies that are available to all
industries in a country should be countervailed.

DOC Position

The Department's position regarding this issue is found in Appendix 4.

Comment 4

One of the petitioners alleged that the provision of supplier credit to an
uncreditworthy company constitutes a countervailable subsidy because, once it is
uncreditworthy, suppliers would have required cash payments instead of extending
credit, absent government support of the company.

DOC Position

Our response to this allegation is found in Appendix 2.

Comment 5

Petitioners alleged that the Department allowed an offset or did not give full weight
to the term subsidy, as

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defined in the Act, when it did not countervail ECSC assistance programs to the
extent that funds for these programs were derived from the ECSC budget.

DOC Position

Our methodology regarding the ECSC programs and our response to petitioners'
allegations are contained in Appendix 3.

Comment 6

Petitioners stated that the Department should have looked at the competitive
advantage foreign producers received from assistance given them, not from where
the funds for such assistance came. They also claimed that the Department has
disregarded its own precedents in Lamb Meat from Australia and New Zealand.

DOC Position

See Appendix 3 for our response to this comment.

Comment 7

Petitioners alleged that the Department has improperly applied offsets to
preferential loan benefits by subtracting principal and interest paid in 1981 and by
use of the grant cap.

DOC Posistion

The Department's position on preferential loans is found in Appendix 2.

Comment 8

Petitioners alleged that the Department should have considered purchases of
German-subsidized coal by unrelated European steel producers to be
countervailable because the intent of these subsidies is to stabilize coal supplies to
the ECSC's steel industry and to insure against the risk of adverse price
developments on the world market, and because without this subsidized coal the
ECSC steel companies would have had to pay higher world market prices.

DOC Position

German coal and coking coal issues as they affect non-German steel producers are
discussed in Appendix 2. ECSC coal and coking coal issues are discussed in Apendix
3.

Comment 9

Petitioners alleged that aid programs funded by the ESCS constitute subsidies to
ECSC steel producers, even though they pay levies into the ECSC budget, because
the ECSC has borrowed massively to supplement the levies.

DOC Position

The Department's position on this issue is set forth in Appendix 3.

Comment 10

One of the petitioners alleged that the time period to use to determine if critical
circumstances exist is the time period before a countervailing duty petition is
filed.

DOC Position

Our position on critical circumstances is contained in Appendix 4.

Comment 11

One of the petitioners alleged that in reviewing the critical circumstances allegation
the Department should have considered the cumulative effects of the imported
merchandise during the period prior to the filing of the petitions.

DOC Position

Our position on critical circumstances is contained in Appendix 4.

Comment 12

One of the petitioners claimed that Italsider received subsidies through an IRISIDER
bond issuance in 1981 which the Department should have countervailed.

DOC Position

Through verification, the Department determined that no money from this bond
issuance had been received by Italsider in the calendar year 1981, which is our
period for measuring subsidization. If a countervailing duty order is
eventually issued, any future benefits from this bond will be examined during
annual administrative reviews under section 751 of the Act.

Comment 13

One of the petitioners stated that Italsider did not provide information on all Article
54 loans from the ECSC.

DOC Position

The Department verified all outstanding long- and medium-term loans, including all
outstanding loans received under Article 54.

Comment 14

One of the petitioners claimed that Italsider received an exemption from utility
payments and failed to respond adequately regarding this program.

DOC Position

Through verification the Department learned that exemptions from utility payments
were given under certain conditions which were not present at the factories at which
Italsider produced the products under investigation. Petitioners alleged the
existence of other general subsidies in this category, but the Department found
nothing in Italsider's books to substantiate this allegation.

Comment 15

One of the petitioners stated that the Department failed to recognize the
benefit conferred upon the Italian steel companies by the commitment of funds
before they were disbursed.

DOC Position

The mere authorization of funds does not ensure their disbursement. Money can be
promised but never paid out. Therefore, any determination of the value of a possible
future receipt would be mere speculation and unsupportable.

Comment 16

Petitioners alleged that the Italian stock market is not a reliable gauge for setting the
true value of Italsider's stock. Therefore, they challenged our calculation of the
value of the subsidy to Italsider conferred by the government's purchase of equity.
Instead, petitioners claimed that the Department should have treated government
equity infusions to Italsider as we treated loans to uncreditworthy companies.

DOC Position

The Department has not changed its methodology in this respect since its
preliminary determinations in these investigations. While we recognize that the
Italian stock market may involve a relatively low volume of shares, we believe the
law shows a strong preference for the use of market standards where available. In
this case there is insufficient evidence to rebut the presumptive correctness of the
market's valuation of the stock.

Respondents' Comments

Comment 1

Italsider objected to the Department's change in practice in calculating subsidies
and to the disregard of the conclusions reached by the Department in prior
countervailing duty investigations of the Finsider Group companies.

DOC Position

The Department's position regarding its practice is set forth in Appendix 2. With
respect to the prior Department of the Treasury (Treasury) investigations of
members of the Finsider group, the Department took these investigations into
account in making its determinations in the instant

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investigations. However, the Department decided that it should not
follow certain of the precedents set by these investigations, because the valuation
methodology used here more accurately reflects the facts and economic reality.
Moreover, there is no substantial evidence in the record from which the Department
could conclude that Italsider and its parent relied to their detriment on these
Treasury precedents in conducting their affairs.

Comment 2

Italsider claimed that the Department's analysis is contradictory because the
preliminary determinations state that, since Italsider is uncreditworthy, loans
would not have been received without government intervention. However, the
Department then quantifies the subsidy assuming such intervention does not exist
because the loans are characterized as having "great risk, very junior status, and low
probability of repayment * * *" (See Appendix B to "Preliminary Affirmative
Countervailing Duty Determinations: Certain Steel Products from Belgium,"
47 FR 26300, 26307).

DOC Position

The Department considered that national or country-wide market interest rates
would not be available to uncreditworthy companies without government
intervention. Therefore, we decided that the most accurate treatment of a
subsidized loan to an uncreditworthy company would be to treat the loan as if it
were a government equity infusion, less principal and interest repaid. New debt
obtained only through government intervention holds a position similar to equity
regarding its junior rights and claims to the assets of the uncreditworthy firm (see
Appendix 2).

Comment 3

Italsider stated that the Department's method of present value analysis has no basis
in financial theory or practice and is not in accord with prior practice under the law.

DOC Position

Our methodology regarding present value and our response to this comment are set
forth in Appendix 2.

Comment 4

Italsider claimed that the Department erred in preliminarily determining that
Italsider was uncreditworthy during the years 1975 through 1981.

DOC Position

The Department, using Italsider's annual reports, calculated a number of standard
financial ratios for the years 1974 through 1981, as well as examining Italsider's
losses in the last ten years. We took into consideration the fact that Italsider had
losses in 1972, made only small profits in 1973 and 1974 (boom years for steel
companies everywhere) and, since 1972, paid only one stock dividend (6% in 1974).
We viewed these facts as we believe a commercial investor would in each year in
question. In 1975, not having available the 1975 end-of-year data, we believe
commerical investors could have considered Italsider creditworthy. The result of
our analysis is that, for purposes of these investigations, we consider Italsider
uncreditworthy from 1976 through 1981.

Comment 5

Italsider stated that the Department overstated the benefit to it of preferential loans,
grants and INPS exemptions to specific facilities producing the products under
investigation by simply allocating these subsidies over
total Italsider cold- and hot-rolled sheet and strip sales.

DOC Position

The Department agrees with the respondent and has recalculated the subsidies
resulting from those programs (see "Analysis of Programs" section above).

Comment 6

Italsider alleged that the Department has applied the commercial benchmark
interest rate (with which to compare loans in years in which Italsider was found to
be creditworthy to determine if a loan is at a preferential rate) in an unreasonable
manner. Respondent claimed the Department should bear in mind that the
benchmark is only an average, and should not consider loans preferential when the
difference in rates is within commercial bounds of acceptability.

DOC Position

We asked respondents for information on comparable commercial loans. The
information we received is insufficient to serve as the basis for these
determinations. Consequently, we used as our benchmark the average commerical
interest rates available in Italy for special credit institutions, pursuant to our
authority to estimate the amounts of subsidies under section 706(a)(1) of the Act.

Comment 7

Italsider claimed that the Department erred in its calculation of the subsidy
resulting from loans to Italsider from the Casmez since credit institutions, by law,
must lend at prevailing market interest rates (the "reference rate"). The Casmez
reimburses the lending institution for the differcen between the reference rate and
the subsidized rate given to Italsider.

DOC Position

The Department has not received any law or any other document giving details of
reference rates which show that these loans were indeed at prevailing market rates.
Further, the Department has learned that government agencies and special credit
institutions which are controlled, directly or indirectly, by the Italian government
can lend money at subsidized rates. We therefore consider that Casmez--a
government agency--loans can be subsidized loans.

Since the interest differential is paid directly by Casmez to the lending institution
and not to Italsider, we have considered these loans to be preferential loans instead
of loans with interest rebates. Thus, we valued the benefit of the subsidized loan as
the difference between the commercial benchmark rate and the subsidized interest
rate for years in which we consider Italsider creditworthy. We value the benefit in a
manner similar to equity infusions for years when we consider this firm
uncreditworthy (see Appendix 2).

Comment 8

Italsider claimed that the initial deferral of principal payments in its loans was a
normal commercial practice and did not constitute a benefit since it still had to
repay the entire principal and incurred additional interest expenses on the unpaid
balance; thus, this deferral should not be countervailed.

DOC Position

The Department made inquiries to determine if grace periods for long- term capital
expansion loans are normal commercial terms in Italy and found that this is a
normal condition in such loans. Therefore, for preferential
loans in creditworthy years with grace periods, we allowed a deferral of two years
(see section above on preferential loans).

Comment 9

Italsider claimed that the Department erred in considering two loans to be
countervailable, one from the U.S. Export-Import Bank and one made in

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1951 to another company which Italsider later bought.

DOC Position

The Department does not consider loans from the U.S. Export-Import Bank to
confer countervailable benefits. As for the 1951 loan, when Italsider bought these
other company's assets, it also assumed its debts. To the extent that this former
company had preferential loans, Italsider assumed this benefit and we consider the
benefit countervailable.

Comment 10

Italsider alleged that the Department erred in determining that Italsider maintained
access to lenders solely through government intervention in
uncreditworthy years and stated that Italsider received no capital infusions
between the mid-1960's and 1978. Therefore, Italsider objected to the Department's
treatment of all loans after 1974 as similar to equity infusions.

DOC Position

The Department reconsidered its preliminary determination that Italsider was
uncreditworthy from 1975 through 1981. For the reasons stated above, we
determine that it is uncreditworthy from 1976 through 1981. While there may have
been no equity infusions in the 1960's, government lending institutions and the
Cassa per il Mezzogiorno gave preferential loans and capital grants in the 1960's and
1970's to Italsider and made large equity infusions beginning in 1978. We have thus
calculated all loans in 1976 through 1981 according to the uncreditworthy company
methodology, as described in Appendix 2.

Comment 11

Italsider claimed that it received three unguaranteed medium-term loans and an
unguaranteed long-term loan in 1981, which prove that it can borrow from private
financial markets.

DOC Position

Given the enormous involvement of the Italian government in this firm and its
unhealthy financial status in 1981 (e.g., a negative 79 percent net return on equity
and other unhealthy financial ratios), the Department does not consider that three
medium-term loans in 1981 (which were tied to certain purchases and represented
less than 2 percent of Italsider's medium- and long-term loans made in 1981) are
sufficient to prove that Italsider is creditworthy in 1981. Further, although we
requested data regarding the long-term loan to determine its terms and conditions
to see if this affected our view of Italsider's creditworthiness in 1981, we did not
receive any additional information. Therefore, for these final determinations, we
have continued to consider Italsider uncreditworthy for 1981.

Comment 12

Italsider claimed that it should be considered creditworthy with regard to Casmez
loans and that lenders would have lent money without government guarantees
because the lenders were preferred creditors and held first mortgages on specific
assets in case of default.

DOC Position

The Department believes that the decision regarding creditworthiness reflects the
financial state of the company rather than the particular circumstances of any one
lender.

Comment 13

Italsider alleged that the Department used incorrect methodology to calculate the
benefits of a loan to an uncreditworthy borrower by comparing the average return
on equity investments in Italy with the government's equity return in Italsider.
It claimed that lenders would focus on the return on total assets, not return on
equity and, further, that an investor's rate of return on Italsider equity could not be
negative: either they received a dividend or they did not, in which latter case the
return is zero, not negative.

DOC Position

The Department believes, as explained above and in Appendix 2, that loans to
uncreditworthy companies should be viewed as equity in these firms. Therefore, to
determine it this capital infusion is a subsidy, what the government could
have recieved as a return on its money had it invested elsewhere must be compared
with the government's investment in the steel company. We believe it is most
reasonable to look at return on equity, not total assets, since we are viewing the
return from the perspective of an equity holder. This return can be positive,
negative, or zero since it measures the earnings, of which dividends are a part, as
compared to owner's equity. A sharp decline in the company's worth could easily
yield a negative return to equity holders.

Negative Determination of Critical Circumstances

Bethlehem Steel Corporation and the Five alleged that imports of cold-rolled carbon
steel sheet and strip and hot-rolled carbon steel sheet and strip under investigation
present "critical circumstances." Under �� 355.29 and 355.33(b) of the Department's
regulations, critical circumstances exist when the alleged subsidies include an
export subsidy inconsistent with the Agreement and "there have been massive
imports of the class or kind of merchandise which is the subject of the investigation
over a relatively short period."
We have not found any export subsidy in these investigations. Therefore, critical
circumstances do not exist in these investigations for cold- and hot- rolled carbon
steel sheet and strip.

Verification

In accordance with section 776(a) of the Act, we verified the data used in making
our final determinations. During this verification, we followed normal procedures,
including inspection of documents, discussions with government officials and
on-site inspection of manufacturers' operations and records.

Administrative Procedures

The Department has afforded interested parties an opportunity to present oral views
in accordance with its regulations (19 CFR 355.35). A public hearing was held on
July 15, 1982. In accordance with the Department's regulations (19 CFR 355.34(a)),
written views have been received and considered.

Suspension of Liquidation

The suspension of liquidation ordered in our preliminary affirmative
countervailing duty determinations shall remain in effect until further notice.
The estimated net subsidy for each product is as follows:
TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE
We are directing the United States Customs Service to require a cash deposit
or bond in the amount indicated above for each entry of the subject merchandise
entered on or after the date of publication of this notice in the Federal Register.
Where the manufacturer is not the exporter, and the manufacturer is known, the
rate for that manufacturer shall be used in

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determining the amount of cash deposit or bond. If the manufacturer is unknown,
the rate for all other manufacturers/producers/exporters shall be used.

ITC Notifications

In accordance with section 705(d) of the Act, we will notify the ITC of our
determinations. In addition, we are making available to the ITC all non- privileged
and non-confidential information relating to these investigations. We will allow the
ITC access to all privileged and confidential information in our files, provided the
ITC confirms that it will not disclose such information, either publicly or under an
administrative protective order, without the written consent of the Deputy
Assistant Secretary for Import Administration.
The ITC will determine within 45 days of the publication of this notice whether these
imports are materially injuring, or threatening to materially injure, a U.S. industry.
If the ITC determines that material injury, or threat of material injury, does not
exist, this proceeding will be terminated and all
securities posted as a result of the suspension of liquidation will be refunded or
cancelled. If, however, the ITC determines that such injury does exist, within seven
days of notification by the ITC of that determination, we will issue a
countervailing duty order, directing Customs officers to assess a
countervailing duty on cold-rolled carbon steel sheet and strip and
hot-rolled carbon steel sheet and strip from Italy entered, or withdrawn from
warehouse, for consumption after the suspension of liquidation, equal to the net
subsidy determined or estimated to exist as a result of the annual review process
prescribed by section 751 of the Act. The provisions of section 707(a) of the Act
will apply to the first directive for assessment.
This notice is published pursuant to section 705(d) of the Act and � 355.33 of the
Department of Commerce Regulations (19 CFR 355.33).
Dated: August 24, 1982.

Gary N. Horlick,

Acting Assistant Secretary for Trade Administration.

[FR Doc. 82-23880 Filed 8-21-82; 8:45 am]

BILLING CODE 3510-25-M