48 FR 52111 NOTICES DEPARTMENT OF COMMERCE [C-475-008] Final Affirmative Countervailing Duty Determination; Forged Undercarriage Components from Italy Wednesday, November 16, 1983 *52111 AGENCY: International Trade Administration, Commerce. ACTION: Notice. SUMMARY: We have determined that certain benefits which constitute *52112 subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Italy of semifinished forged undercarriage components described in the "Scope of Investigation" section of this notice. The net subsidy is 1.37 percent ad valorem. The U.S. International Trade Commission will determine whether imports are materially injuring or threatening to materially injure a U.S. industry, within 45 days after publication of this notice. EFFECTIVE DATE: November 16, 1983. FOR FURTHER INFORMATION CONTACT: Roland L. MacDonald or Deborah A. Semb, Office of Investigations, Import Administration, International Trade Administration, 14th Street and Constitution Avenue NW., Washington, D.C. 20230, telephone (202) 377-3534. SUPPLEMENTARY INFORMATION: Based upon our investigation, 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 semifinished forged undercarriage components, as described in the "Scope of Investigation" section of this notice. The following programs were found to confer subsidies: Rebates of indirect taxes. Pricing on forging quality steel. We determine the net subsidy to be 1.37 percent ad valorem. Case History On April 29, 1983, we received a petition from counsel for Jernberg Forgings Co., Lindell Drop Forge Co., Portec, Inc., Presrite Corp., Presrite of Jefferson, Inc., Walco Metal Forming Group, and Walker Forge, Inc. filed on behalf of the U.S. industry producing forged undercarriage components. The petition alleged that certain benefits which constitute subsidies within the meaning of section 701 of the Act are being provided, directly or indirectly, to manufacturers, producers, or exporters in Italy of forged undercarriage components. We found the petition to contain sufficient grounds upon which to initiate a countervailing duty investigation, and on May 24, 1983, we initiated an investigation (48 FR 23288). At that time, we stated that we expected to issue a preliminary determination by July 25, 1983. We subsequently determined that the case was "extraordinarily complicated" as defined in section 703(c)(1)(B) of the Act, and postponed our preliminary determination until August 25, 1983 (48 FR 28564). Since Italy is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. Therefore, we notified the International Trade Commission (ITC) of our initiation. On June 13, 1983, the ITC determined that there is a reasonable indication that imports of semifinished forged undercarriage links and rollers are materially injuring or threatening to materially injure U.S. industries. The ITC also determined that there is no reasonable indication that semifinished forged undercarriage segments and finished forged undercarriage links, rollers and segments are materially injuring or threatening to materially injure U.S. industries. Since Industria Meccanica e Stampaggio S.p.A. (IMES) is the only known exporter to the U.S. of semifinished forged undercarriage links and rollers, our investigation of the petition's allegations regarding Italtractor ITM S.p.A. and Berco S.p.A., the manufacturers, producers and exporters of semifinished forged undercarriage segments and finished forged undercarriage links, rollers and segments, was terminated. We presented a questionnaire concerning the allegations in the petition to the Embassy of Italy in Washington, D.C. on June 14, 1983, and requested a response by July 14, 1983. In a letter dated July 11, 1983, the government of Italy requested a postponement of the due date of the response; we granted the Italian government a two-week extension. The government of Italy submitted a response to our questionnaire on July 28, 1983. Additional information was submitted on numerous dates. On August 24, 1983, we preliminarily determined that the government of Italy was providing manufacturers, producers, or exporters of semifinished forged undercarriage components with certain benefits which constitute subsidies within the meaning of the countervailing duty law (48 FR 39273). The estimated net subsidy was 1.02 percent ad valorem and the following programs were preliminarily determined to confer subsidies: Rebates of indirect taxes. Preferential financing. On September 12-23, 1983, we verified in Italy the questionnaire responses submitted by the government of Italy and IMES. Our notice of preliminary determination gave interested parties an opportunity to submit written and oral views. Following the preliminary determination, both petitioners' and respondent's counsels filed briefs pertaining to this investigation. We held a public hearing on September 27, 1983, at which counsel for the petitioners, counsel for IMES, and representatives from the Italian Embassy participated. Scope of Investigation The products covered by this investigation are semifinished forged undercarriage links and rollers for crawler-mounted machinery (forged undercarriage components). The merchandise is currently classified under item numbers 664.08, 692.34 and 692.35 of the Tariff Schedules of the United States Annotated (TSUSA). Industria Meccanica e Stampaggio S.p.A. (IMES) of Sumirago (Varese), Italy is the only known exporter of the forged undercarriage components which were exported to the United States. The period for which we are measuring subsidization is January 1, 1982 through April 30, 1983. Analysis of Programs In its response, the government of Italy provided data for the applicable period. In addition, a response was provided by IMES through the government of Italy. Based upon our analyses of the petition, the responses to our questionnaries, 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 forged undercarriage components. A. Rebates of Indirect Taxes. The stated purpose of Italian Law 639 is to rebate customs duties and certain indirect taxes upon the export of products containing certain raw materials. The law sets forth the value of the rebate for iron and steel in lire per kilogram. Rebate values have remained unchanged since enactment of the law in 1964. Granting of the rebate is automatic provided all the proper information is supplied to and verified by the government of Italy. Respondents did not provide the Department with information on the criteria for establishing the rebate value and on the indirect taxes which were subject to rebate. No evidence was presented by the respondents to demonstrate the requisite linkage between the amount of the rebate and the incidence of customs duties and *52113 certain indirect taxes on various inputs of forged undercarriage components. Since the requisite linkage was not demonstrated and since this rebate is contingent upon export performance, we determined that the rebate of indirect taxes provided to IMES under Italian Law 639 conferes an export subsidy upon the manufacturers, producers, or exporters in Italy of forged undercarriage components. We calculated the benefit received under this program by allocating the value of the rebates earned between January 1, 1982 and April 30, 1983 over the value of IMES' 1982 and January-April 1983 exports of forged undercarriage components. On this basis, we calculated a net subsidy in the amount of 1.37 percent ad valorem. B. Pricing on Forging Quality Steel. The petitioners alleged that the government of Italy, through two government-owned steel mills, provides forging quality steel to IMES at prices which are preferential relative to other Italian purchasers. The government of Italy did not respond to the DOC questions on the prices of steel charged to IMES and to other Italian purchasers. In the absence of such a response, we assume that steel mills owned by the government of Italy may sell forging quality steel to IMES at rates lower than those charged to others. Assuming that such price discrimination confers a subsidy, we find a countervailable subsidy amount of zero on the facts of this case. Because the government of Italy did not provide information on steel prices, we must use the "best information available" to determine the benefit conferred upon IMES by preferential pricing of steel by the government of Italy. Information on the prices of steel was provided by IMES and by the petitioner. The steel price information provided by the petitioner was for steel bar, a finished steel product. IMES provided information on its purchases of forging quality steel from two privately owned steel mills, two government-owned steel mills and a United Kingdom steel mill. We verified these costs and used the steel prices from the two privately owned mills provided by IMES as "best information available." IMES purchased nearly twice as much steel from private suppliers in 1982 as is did from publicly owned suppliers. The weighted average price of steel purchased from private suppliers was lower than the weighted average price of steel purchased from publicly owned suppliers. Thus, the countervailable subsidy amount IMES received from preferential prices on steel purchased from government-owned steel suppliers was zero percent ad valorem. II. Programs Determined Not To Confer Subsidies We have determined that subsidies are not being provided to manufacturers, producers, or exporters in Italy of forged undercarriage components under the programs described below. A. Preferential Financing. In the preliminary determination, we found that the financing provided to IMES under Italian Law 263 conferred a domestic subsidy because we believed that these loans were limited to companies located in the Mezzagiorno or in "designated depressed areas" and that the terms of these loans were inconsistent with commercial considerations. During verification, we found that this program was generally available to all small and medium-sized companies in Italy. Italian Law 623 has not been in force since 1976. In October 1974, IMES obtained two eight-year loans from Mediocredito Regionale Lombardo at the prevailing commercial rate of interest. Mediocredito Regionale Lombardo is a regional medium-term credit institution founded and subject to government control under Law 445. Under Law 445, financing is available at commercial rates to small and medium-sized businesses for equipment or capital from regional medium-term credit institutions. Mediocredito Regionale Lombardo is owned by public and private shareholders with no direct ownership by the government of Italy. In February 1976, IMES received a reduction in the rate of interest under Law 623 on one of the loans obtained from Mediocredito Regionale Lombardo. The other 1974 loan IMES obtained from Mediocredito Regionale Lombardo did not receive a reduction in the rate of interest. We verified that IMES is not located in the Mezzagiorno or in a "designated depressed area" and that IMES received the interest rate reduction which was available to all small and medium-sized businesses. Both loans were repaid in 1982. Because the interest rate reduction received by IMES under Law 623 is not limited to a specific industry, group of industries, or to companies in specific regions, we have determined that the rate reduction IMES received under Law 623 does not confer a countervailable subsidy upon the manufacturers, producers, or exporters in Italy of forged undercarriage components. B. Convertible Debt. IMES issued convertible debt in 1977. This debt was converted to capital stock in November, 1982. We verified that the conversion was consistent with commercial considerations. Therefore, we have determined that the conversion of IMES's debt to capital stock did not confer a countervailable benefit. III. Programs Determined Not To Be Used We have determined that the programs listed below which were listed in our notice of initiation are not being used by the manufacturers, producers, or exporters in Italy of forged undercarriage components. A. Government Equity Infusions Inconsistent With Commercial Consideration. We verified that IMES is a 100 percent privately owned, family operated company which has not received any government equity infusions. B. Regional Development Incentives. The petition alleges that IMES receives development benefits provided by the government of Italy under the following laws or programs: Law 908 which provides subsidized loans at below market rates and on preferential terms to qualifying industrial projects in northern and central Italy; Law 614 which provides tax incentives, including a ten-year total exemption from local taxes, to certain industrial enterprises establishing or expanding in areas of northern and central Italy; and Law 902 which assists small and medium-sized businesses in northern and central Italy with selective investments, particularly for modernizing existing plants to save labor costs. We verified that IMES has neither received any benefits from, nor participated in, any of these regional development programs. IV. Program No Longer Used We have determined that program listed below which was included in our notice of initiation is no longer used by the manufacturers, producers, or exporters in Italy of forged undercarriage components. A. Export Credit Financing. In the preliminary determination, we stated that we would seek more complete information on the terms and conditions of the export credit financing received by IMES' American customer under Italian Law 227. Part IV of Italian Law 227 establishes medium-term credit financing to promote the exportation of gods and services. The Istituto Centrale per il Credito and Medio Termine (Mediocredito Centrale) administers the export credit financing through "special medium and long-term credit institutions." The Minister of the *52114 Treasury, after consulting the Interministerial Committee for Credit and Savings, establishes the requirements, terms and conditions of the export credit financing. The financing is denominated in Italian lire or any foreign currency acceptable to the Mediocredito Centrale and the special medium and long-term credit institutions. During the period under investigation, certain shipments of forged undercarriage components were financed through a program of export credits administered by and officially supported by the government of Italy. Under this program, an export facility was made available in 1981 between one of the "special medium and long-term credit institutions" and a French commercial bank. This facility provided an "umbrella" line of credit to the French bank at a rate consistent with the terms of the OECD arrangement on export credits. The French bank could then re-lend the funds provided under the umbrella at a rate above the OECD rate. These loans by the French bank were buyers' credits tied to exports from Italy, and were subject to approval by the Italian authorities. This particular umbrella facility expired in April 1983, after which time the French bank could not make new loans under the facility. In October, 1982, the U.S. customer entered into an agreement with the French bank, opening a line of credit for the purchase of forged undercarriage components from IMES. Shipments financed under this line of credit are identifiable by invoice, and all invoices against which this line was used were issued by IMES from October 7 to November 9, 1982. All shipments financed under this program were entered for consumption before the suspension of liquidation. After that time, but prior to the initiation of this investigation, the U.S. customer informed the French bank that there would be no further purchases using this line of credit and, therefore, the French bank was released from its commitment for the remainder of the line. Accordingly, the French bank terminated the agreement with respect to the unused portion of the line of credit, and no further purchases by the U.S. customer from IMES were financed through this program. Because this line of credit is no longer available to support sales by IMES to the U.S. customer and no shipments of the forged undercarriage components subject to the suspension of liquidation were financed under this program, we conclude that loans under this program are no longer available in support of IMES and that subsidies, if any, which may have been conferred on prior entries are beyond the reach of this proceeding. However, because of the possibility that a new facility may be opened, and official lending in support of exports by IMES could be resumed, we intend to reexamine these oficial export credits in the course of the annual review conducted pursuant to section 751 of the Act should a countervailing duty order be issued in this proceeding. Petitioner's Comments Comment 1 In calculating the amount of the benefit conferred by the rebate of indirect taxes, Commerce should use either the statutory lire per kilogram value of the rebate as it has done in the past or, in the alternative, the amount of such rebate earned by IMES during the review period. DOC Position We verified that although the statutory lire per kilogram rebate value was 30 lire per kilogram, the rebate value fluctuated based upon yearly appropriations for the program by the Italian Goverment. Therefore, we calculated the amount of benefit conferred upon IMES by Law 639 on an ad valorem basis. We agree that the calculations to determine the benefits conferred on IMES by Law 639 should be based on the amount of such rebate earned by IMES during the review period. Accordingly, we recalculated the benefit conferred by the rebate of indirect taxes on the basis of the amount of the rebate earned by IMES during the review period. Comment 2 Commerce must determine whether IMES benefits from preferential prices and terms from its steel suppliers vis-a-vis their other customers. DOC Position We requested information from the government of Italy on its steel prices to customers other than IMES. This information was not provided; therefore, we determined that the government of Italy provided steel to IMES at preferential prices relative to their other customers. See the section of this notice titled "Programs Determined to Confer Subsidies". Comment 3 In its preliminary determination, Commerce did not address the petitioners' central allegation of preferential steel pricing. Commerce mistakenly applied its upstream subsidization methodology. DOC Position Since the Government of Italy (GOI) did not respond to our questions on the prices of steel charged to IMES and to other Italian purchasers, we must assume that the government is selling to IMES at preferential rates. However, as described in section I.B, using "best information available" (information provided by IMES), we determined that there was no countervailable subsidy amount. Comment 4 At the inducement of the GOI, privately owned steel mills also sell to IMES at preferential prices. This inducement is as much a subsidy as implementing the policy through government-owned steel mills. The Act equally enjoins IMES's privately owned steel suppliers, as well as government owned steel suppliers, from subsidizing IMES's manufacture and exportation of forged undercarriage components. DOC Position We found no evidence of preferential pricing. Comment 5 Because the GOI refused to supply data requested in the questionnaire, Commerce must use the European community official prices (Davignon prices) or the information on steel prices provided by the petitioners as "best information otherwise available". DOC Position Italian steel is generally sold at discounts from the Davignon prices. The information on steel prices provided by the petitioners is for hot-rolled steel bar, a finished steel product. We verified that the steel product that IMES uses to manufacture forged undercarriage components is steel billet, a semifinished steel product. We also verified the prices that IMES paid for steel billet. Because hot-rolled steel bar and steel billet are two distinct steel products, the finished product generally costlier than the semifinished product, we used the "best information available in making our final determination, pursuant to section 776(a) of the Act. The best information available is the verified information furnished by IMES rather than the information provided by the petitioners. *52115 Comment 6 Failure by Commerce to countervail preferential steel prices and terms received by IMES would lead to wholesale circumvention of the U.S.-E.C. steel agreement. Italian steel mills can easily circumvent the Agreement by selling steel at preferential prices and terms to IMES (and other steel fabricators) who would then forge the steel into products for subsequent sale in the U.S. at low prices. The Italian steel industry, therefore, would be exporting, through IMES, its overcapacity and high unemployment to the United States. DOC Position As noted in our response to petitioner's comment 5 above, we verified that the steel that IMES uses to manufacture forged undercarriage components is steel billet, a semifinished steel product. Steel billet is not a licensed product under the United States-European Community steel arrangement. Sales in the U.S. of forged undercarriage components manufactured from a steel product not licensed under by the U.S.-E.C. steel agreement would not circumvent that Arrangement. Comment 7 Commerce should find that the preferential export credit financing provided to IMES's American customer confers a countervailable benefit. If the exportation of products benefits from preferential financing, then the products are being subsidized. It is irrelevant whether the product is being subsidized directly or indirectly. DOC Position We determined that the export credit financing provided to IMES American customer is no longer being used. See the section of this notice titled "Program No Longer Used." Comment 8 The countervailing duty law does not exempt from its provisions preferential export credit financing that complies with the requirements of the OECD Arrangement. DOC Position See DOC position on Petitioners' Comment 7 above. We did not reach this issue because we found that the financing concerned is no longer being used. Comment 9 Commerce should calculate the ad valorem amount of the subsidy conferred by IMES's preferential export credit financing by using as its commercial benchmark a comparable dollar-denominated loan that IMES could have secured in the Italian commercial market, without regard to the credit experience of IMES's American customer or the availability of dollar financing outside of Italy. DOC Position See the section of this notice titled "Program No Longer Used." Respondent's Comments Comment 1 The rebates of indirect taxes that IMES receives under Law 639 should not be found countervailable. DOC Position We have determined that the rebates of indirect taxes IMES receives under Law 639 are an export subsidy conferred upon IMES by the government of Italy. See the section of this notice "Programs Determined to Confer Subsidies" for an explanation of the DOC position. Comment 2 If the DOC continues to treat the Law 639 program as countervailable in the final determination, the DOC should continue to use the amount of rebate actually received to calculate the benefit to IMES. The amount received during the period of investigation, rather than the amount theoretically earned, more accurately reflects the real value of the program to IMES. Further, any benefit calculation should be on an ad valorem basis. DOC Comment We calculated the ad valorem subsidy conferred upon IMES by Law 639 using the amount of rebate earned by IMES during the period of investigation, rather than the amount received by IMES. We verified that the earned, but unreceived, rebates are reported on IMES financial statements as assets, enabling IMES to use the rebates as collateral for borrowing purposes. Thus, IMES is able to use or draw against earned but unreceived rebates. In addition, the delay in receipt of the rebate is due to administrative delay rather than government mandate. Comment 3 IMES received no countervailable benefits from its steel purchases. IMES has never received any discounts contingent on export performance from any steel mill, whether government or private, domestic or foreign. DOC Position We found no evidence that IMES received any discounts based upon export performance. IMES does have some domestic sales and we verified that the steel prices charged IMES do not vary depending on the final destination of the products. See DOC response to Petitioners' Comment 2 above. Comment 4 "Petitioners' allegation with regard to preferential steel prices was limited only to government-owned steel mills in their petition. On the last day of verification, they attempted to insert a new and unsubstantiated 'private subsidy' theory into this case. . . . There is absolutely no evidence in the record to indicate that the pricing practices of the private mills are dictated or controlled by the government. Under the countervailing duty statutes and ITA precedent, so-called 'private subsidies' are not countervailable unless required by a government. Therefore, petitioners' untimely and unsubstantiated allegation must be rejected." DOC Position The petitioners first raised their allegation of private subsidization in a letter prior to verification. We do not consider the allegation to have been "untimely." Comment 5 The alleged "circumvention" of the U.S.-E.C. steel agreement by exportation to the U.S. of forged undercarriage components manufactured by IMES is a non- issue. The U.S.-E.C. Arrangement covered Italian hot-rolled sheet and strip and cold-rolled sheet and strip; the type of steel used by IMES to make forged undercarriage components (steel billet) is not covered by the Arrangement. Since the type of steel used by IMES was not at issue in the Italian steel cases, it is difficult to see why Italian steel producers would be "motivated" to circumvent the agreement that settled those cases. DOC Position We verified that the type of steel IMES uses to manufacture forged undercarriage components is steel billet which is not a product licensed under the U.S.-E.C. steel arrangement. Therefore, this investigation does not involve the circumvention of the U.S.-E.C. steel arrangement. Comment 6 The pricing practices of the private steel mills would not be countervailable *52116 even if preferential prices were provided. Any private domestic subsidy or export subsidy must be required by a government to be countervailable. There is no evidence in the record to indicate that the prices charged by the private steel companies are required, controlled, directed or influenced by the Italian government. DOC Position We found no evidence in the record or during verification, to indicate that the prices charged by the private steel companies are required, controlled, directed or influenced by the government of Italy. Comment 7 IMES vigorously disputes the preliminary determination that the interest rate reduction it received under Law 623 is countervailable. The Law 623 interest rate reduction was generally available and, therefore, is not countervailable. DOC Position We verified that the interest rate reduction IMES received under Law 623 was generally available to all small and medium-sized companies. Accordingly, we determined that Law 623 did not confer a countervailable benefit on IMES. Comment 8 The export credit financing recieved by IMES' American customer under Italian Law 227 is not countervailable because IMES was not the recipient of the loan. The financing arrangement benefitted the American customer, not IMES. DOC Position We did not reach this issue since we found that the financing concerned is no longer being used. See the section of the notice titled "Program No Longer Used." Comment 9 Financing arrangements permitted by the OECD Arrangement are not countervailable. The U.S. participates in both the OECD Arrangement and GATT, which provide for the granting of export financing by its participants subject to certain restraints. The financing arrangement at issue in the present case was in conformity with the provisions of the OECD Arrangement, which thus brings the export credit practice outside the statutory definition of subsidy. DOC Position See our position on Comment 8 above. Comment 10 If the DOC finds the export credit financing provided to IMES' American customer to be countervailable in spite of its accordance with the OECD Arrangement, the applicable benchmark should not be IMES' borrowing rate. The loan was granted to IMES' American customer, not IMES. Therefore, the more appropriate benchmark would be the U.S. prime rate or the London Interbank Offered Rate (LIBOR). DOC Position See our position on Comment 8 above. Final Determination Based on our investigation and in accordance with section 705(a)(1) of the Act, we reached a final determination that manufacturers, producers, or exporters in Italy of semifinished forged undercarriage components are being provided certain benefits which constitute subsidies within the meaning of the countervailing duty law. Continuation of Suspension of Liquidation We are directing U.S. Customs to continue to suspend liquidation of all entries of semifinished forged undercarriage components from Italy subject to this investigation which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register. The Customs Service shall continue to require a cash deposit, the posting of a bond or other security equal to 1.37 ad valorem for each entry of the subject merchandise. The bond or cash deposit requirements established in our preliminary determinations of August 30, 1983, are no longer in effect. ITC Notification In accordance with section 705(c)(1)(A) of the Act, we will notify the ITC of our determination. 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. 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 the ITC determines that such injury does exist, we will issue a countervailing duty order directing Customs officials to assess a countervailing duty on semifinished forged undercarriage components from Italy entered, or withdrawn from warehouse, for consumption after the suspension of liquidation equal to 1.37 percent ad valorem. This determination is published pursuant to section 705(d) of the Act. William T. Archey, Acting Assistant Secretary for Trade Administration. November 7, 1983. [FR Doc. 83-30878 Filed 11-15-83; 8:45 am] BILLING CODE 3510-DS-M