60 FR 53739
NOTICES
DEPARTMENT OF COMMERCE
[C-475-819]
Preliminary Affirmative Countervailing Duty Determination: Certain Pasta
("Pasta") From Italy
Tuesday, October 17, 1995
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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: October 17, 1995.
FOR FURTHER INFORMATION CONTACT: Jennifer Yeske, Vincent Kane, Todd
Hansen, or Cynthia Thirumalai, Office of Countervailing Investigations, Import
Administration, U.S. Department of Commerce, Room 3099, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-0819,
482-2815, 482-1276, or 482-4087, respectively.
PRELIMINARY DETERMINATION: The Department preliminarily determines that
countervailable subsidies are being provided to manufacturers, producers, or
exporters of pasta in Italy. For information on the estimated countervailing
duty rates, please see the Suspension of Liquidation section of this notice.
Case History
Since the publication of the notice of initiation in the Federal Register (60 FR
30280, June 8, 1995), the following events have occurred.
Because of the large number of pasta producers and exporters in Italy, we
selected the five largest exporters to the United States as mandatory respondents.
We identified those exporters using information provided to us by the Unione
Industriali Pastai Italiani, an association of pasta producers in Italy, on June 9,
1995. One of the selected companies did not produce pasta but exported on behalf
of several producers. We included those producers in the investigation and
requested that they respond to our
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questionnaire. The companies selected were Agritalia, S.r.l. ("Agritalia"),
Arrighi S.p.A. Industrie Alimentari ("Arrighi"), Pastificio Campano, S.p.A.
("Campano"), F.lli De Cecco di Filippo Fara S. Martino S.p.A. ("De Cecco"), Delverde,
S.r.l. ("Delverde"), De Matteis Agroalimentare S.p.A. ("De Matteis"), Italpast S.p.A.
("Italpast"), Labor S.r.l. ("Labor"), Pastificio Guido Ferrara ("Guido Ferrara"), and
Pastificio Riscossa F.lli Mastromauro S.r.l. ("Riscossa"). Because of their association
with two of the respondent companies, Delverde and De Matteis, we also asked
Tamma Industrie Alementari ("TIA") and Demaservice S.r.l. ("Demaservice"),
respectively, to respond to the questionnaire.
On June 22, 1995, we issued countervailing duty questionnaires to the
Government of Italy ("GOI"), the Commission of the European Union ("EU"), and
the selected companies, concerning petitioners' allegations. We received responses
to our questionnaire in July and August. Four additional companies also filed
voluntary responses and we have included these companies in our analysis. The
following companies are voluntary respondents in this investigation: Barilla G. e R.
F.lli S.p.A. ("Barilla"), Industria Alimentare Colavita, S.p.A. ("Indalco"), Gruppo
Agricoltura Sana S.r.L. ("Gruppo"), and Isola del Grano S.r.L. ("Isola"). We issued
supplementary questionnaires to parties in August and September for which
responses were received by early October.
On July 5, 1995, we postponed the preliminary determination in this
investigation until October 10, 1995 (60 FR 35899).
Scope of Investigation
The product covered by this investigation is certain non-egg dry pasta in packages
of five pounds (2.27 kilograms) or less, whether or not enriched or fortified or
containing milk or other optional ingredients such as chopped vegetables, vegetable
purees, milk, gluten, diastases, vitamins, coloring and flavorings, and up to two
percent egg white. The pasta covered by this investigation is typically sold in the
retail market in fiberboard or cardboard cartons or polyethylene or polypropylene
bags, of varying dimensions.
Excluded from the scope of this investigation are refrigerated, frozen, or canned
pastas, as well as all forms of egg pasta, with the exception of non-egg dry pasta
containing up to two percent egg white.
The merchandise under investigation is currently classifiable under subheading
1902.19.20 of the Harmonized Tariff Schedule of the United States (HTS). Although
the HTS subheading is provided for convenience and customs purposes, our written
description of the scope of this proceeding is dispositive.
On July 19, 1995, the Association of Food Industries (AFI) Pasta Group, a group of
importers, requested that we expand the scope to cover all imports of non-egg dry
pasta, irrespective of package size or channel of trade. On August
24, 1995, petitioners requested that we expand the scope to cover all imports of
non-egg dry pasta for the retail and the food service markets. We have determined
that the scope should not be expanded. According to the Department's past
practice, products which were excluded at the petition stage are not generally
added to the scope later in the investigatory process. In addition, expanding the
scope would raise numerous issues such as industry support, and the lack of a
preliminary injury determination by the U.S. International Trade Commission
("ITC") concerning the expanded scope. For a discussion of this decision, see
Memorandum to Susan G. Esserman, Assistant Secretary for Import Administration,
dated September 10, 1995, on file in this case in the Central Records Unit.
On September 27, 1995, Spruce Foods, an importer of organic pasta from Italy,
requested that organic pasta certified by the European Union under EEC Regulation
2092/91 be excluded from the scope of this investigation. Because this request was
made so late, we are unable to consider it for purposes of this preliminary
determination. However, we will address this issue in our final determination.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are references to the
provisions of the Tariff Act of 1930, as amended by the Uruguay Round Agreements
Act effective January 1, 1995 (the "Act"). References to Countervailing
Duties: Notice of Proposed Rulemaking and Request for Public Comments, 54 FR
23366 (May 31, 1989) ("Proposed Regulations"), which have been withdrawn, are
provided solely for further explanation of the Department's countervailing
duty practice.
Injury Test
Because Italy is a "Subsidies Agreement Country" within the meaning of section
701(b) of the Act, the ITC is required to determine whether imports of pasta from
Italy materially injure, or threaten material injury to, a U.S. industry. On July
10, 1995, the ITC published its preliminary determination finding that there is a
reasonable indication that an industry in the United States is being materially
injured or threatened with material injury by reason of imports from Italy of the
subject merchandise (60 FR 35563).
Petitioners
The petition in this investigation was filed by Borden, Inc., Hershey Foods Corp.,
and Gooch Foods, Inc.
Period of Investigation
The period for which we are measuring subsidies (the "POI") is calendar year 1994.
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: With the exception of Barilla,
the companies under investigation did not take out any long-term, fixed-rate,
lira-denominated loans or other debt obligations in any of the years in which grants
were received or government loans under investigation were given. Therefore, we
used the Bank of Italy reference rate, adjusted upward to reflect the mark-up an
Italian bank would charge a corporate customer, as the benchmark interest rate for
long-term loans and as the discount rate (see Final Affirmative Countervailing
Duty Determination: Small Diameter Circular Seamless Carbon and Alloy Steel
Standard, Line and Pressure Pipe ("Seamless Pipe") From Italy (60 FR 31992,
31994-95, June 19, 1995)). We lacked the specific information needed to calculate
the mark-up for years prior to 1986, so we applied an average of the mark-up for the
years 1986 through 1994 to those earlier years.
In the case of Barilla, the company reported that it had secured fixed-rate
obligations during two years of the relevant period. Therefore, in accordance with
section 355.49(b)(2) of the Proposed Regulations, we used this company- specific
benchmark as the discount rate for Barilla in those years.
Allocation Period: Non-recurring benefits are being allocated over a 12-year period,
the average useful life of physically renewable assets in the food processing industry
(as reported in the Internal Revenue Service Asset Depreciation Range System).
Benefits to Mills: Where respondents received subsidies specifically tied to related
milling operations, we have not included those subsidies in our calculations.
Semolina, a primary input in the manufacture of pasta, is a definable good with an
established
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market, and is thus considered an input into the manufacturing process for pasta,
not an intermediate step in the manufacturing process. Petitioners have not made
an upstream subsidy allegation in accordance with section 771A, which would be
necessary for us to investigate subsidies to the production of semolina from durum
wheat. Additionally, we determine that semolina, a processed agricultural product,
fails to qualify as a raw agricultural product under section 771B.
Changes in Ownership
Based on the information provided in the responses, we have learned that one of the
companies under investigation, Delverde, purchased another company's pasta
factory. The selling company received non-recurring countervailable subsidies
prior to Delverde's purchase of the factory. Delverde has provided sufficient
information to calculate the amount of those prior subsidies that passed through to
Delverde with the acquisition of the factory pursuant to the methodology followed
by the Department in the Restructuring section of the General Issues Appendix in
Final Affirmative Countervailing Duty Determination: Certain Steel Products
from Austria (58 FR 37217, 37268-69, July 9, 1993) ("General Issues Appendix").
For purposes of the preliminary determination, we have followed the General Issues
Appendix methodology. We note that aspects of the General Issues Appendix
methodology are being reviewed by the Court of Appeals for the Federal Circuit
(CAFC). We may re-examine whether the General Issues Appendix methodology is
appropriate for Delverde's transaction in light of facts developed in the final
investigation, ongoing litigation, and section 771(5)(F) of the Act.
We are also collecting further information on acquisitions by other responding
companies and the subsidies received by the selling companies prior to the
acquisitions.
Related Parties
In the present investigation, we have examined several affiliated companies (within
the meaning of section 771(33) of the Act) whose relationship may be sufficient to
warrant treatment as a single company with a combined rate. In the
countervailing duty questionnaire, consistent with our past practice, the
Department defined companies as sufficiently related where one company owns 20
percent or more of the other company, or where companies prepare consolidated
financial statements. The Department also stated that companies may be considered
sufficiently related where there are common directors or one company performs
services for the other company. According to the questionnaire, such companies
that produce the subject merchandise or that have engaged in certain financial
transactions with the company under investigation are required to respond.
We have preliminarily determined that one respondent, Arrighi, is affiliated to
another pasta producer on the basis of common third-party ownership. Because of
the extent of common ownership, we find it appropriate to treat these two pasta
producers as a single company. As a consequence, we would calculate a single
countervailing duty rate for both companies by dividing their combined
subsidy benefits by their combined sales. However, there has not been sufficient
time to receive information regarding the subsidies received by the related
company for use in the preliminary determination.
Therefore, for purposes of the preliminary determination, we calculated a rate
based on subsidies received by Arrighi only, and using only Arrighi's sales in the
denominator.
Another respondent, De Matteis, has reported that it is related to another company,
Demaservice, through common ownership. De Matteis states that Demaservice does
not produce or sell the subject merchandise and that no financial transactions, as
defined in the questionnaire, have occurred between these companies.
Nevertheless, based on the information reported by De Matteis, Demaservice is
deeply involved in the operations of De Matteis. Therefore, for purposes of the
preliminary determination, we have determined that it is appropriate to treat these
two companies as a single company. As a consequence, we would calculate a single
countervailing duty rate for both companies by dividing their combined
subsidy benefits by their combined sales. However, there has not been sufficient
time to receive information regarding the subsidies received by the related
company for use in the preliminary determination. Therefore, for purposes of the
preliminary determination, we calculated a rate based on subsidies received by De
Matteis only, and using only De Matteis' sales in the denominator.
Agritalia has also reported that it is related through common ownership to another
company, Meridiana. Meridiana did not produce or sell the subject merchandise
during the POI. Only limited transactions have occurred between
Agritalia and Meridiana. Unlike Demaservice, which played an integral role in De
Matteis' operation, Meridiana had only an ancillary role in Agritalia's operation.
Therefore, we have preliminarily determined that these transactions are limited in
extent and are not a likely vehicle for the transmittal of subsidies. Therefore, we
have not treated these companies as a single company.
Finally, Delverde is part of a consolidated group, consisting of a parent company
and two sister companies which produce pasta. Another company, TIA, holds less
than a 20 percent ownership interest in the Delverde group, but shares a common
director with Delverde and Delverde's parent. TIA's business is principally wheat
milling but it also manufactures non-egg dry pasta. We have preliminarily
determined that the relationship between Delverde and TIA warrants treating them
as a single company. Although the evidence in the record does not show that their
relationship provides a likely vehicle for the transmittal of subsidies, it does
demonstrate the possibility that the two companies might shift exports between
them in response to differing countervailing duty rates. Therefore, instead of
giving these companies a combined rate as above, we have calculated a separate
countervailing duty rate for each company and then weight-averaged these
rates by each company's exports to the United States to calculate a single rate
applicable to both companies.
Facts Available
Section 776(a)(2)(A) of the Act requires the Department to use the facts available if
"an interested party or any other person withholds information that has been
requested by the administering authority or the Commission under this title." Two of
the companies selected to provide responses in this investigation, Italpast and
Labor, did not respond to our countervailing duty questionnaire. Section
776(b) of the Act provides that the administering authority may use an inference
that is adverse to the interests of the non- responding party in selecting from among
the facts otherwise available. Such adverse inference may include reliance on
information derived from: (1) The petition, (2) a final determination in the
investigation under this title, (3) any previous review under section 751 or
determination under section 753 regarding the country under consideration, or (4)
any other information placed in the record. Because petitioners did not include
subsidy rates in the petition, we were unable to use the petition as a source for
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facts available. Therefore, we have used the sum of the highest rates calculated for
each program for respondent companies as the facts available for Italpast and
Labor.
Based upon our analysis of the petition and the responses to our questionnaire, we
determine the following:
Claims for "Green Light" Subsidy Treatment
Section 771(5B) of the Act describes subsidies that are noncountervailable, the
so-called "green light" subsidies. Among these are subsidies to disadvantaged
regions, as defined in section 771(5B)(C). The GOI has requested that the
Department find the following subsidies to disadvantaged regions to be
noncountervailable under section 771(5B)(C):
- ILOR and IRPEG Tax Exemptions under Decree 218 of 1978
- Industrial Development Grants under Law 64 of 1986
- Industrial Development Loans under Law 64 of 1986
- VAT Reductions on Capital Goods under Law 675 of 1977. Analysis
After World War II, the GOI recognized that the South lagged behind the rest of the
country economically and established a number of programs to encourage
industrial development in the South. Law 646 created the Fund for Southern
Italy. Grants, interest contributions, and tax and social security reduction were
provided for in this law.
In 1986, Law 64 created the Agency for the Promotion of Growth in Southern
Italy. A total of 120,000 billion lira was allocated over the next nine years for
development in the South. In 1988, after an investigation of Law 64 by the European
Community (EC), the GOI barred four regions from receiving Law 64
benefits. After certain modifications, Law 64 was found to be compatible with the
Treaty of Rome.
In 1992, the EC again investigated Law 64. As a result, Law 488 of 1992 was enacted
to replace Law 64. The new law established a regional development policy for the
entire country. As of August 21, 1992, applications under Law 64 were no longer
accepted.
The programs for which the GOI has requested green light treatment all fall, directly
or indirectly, under Law 64. The Industrial Development Grants and Loans were
granted under Law 64. The VAT reductions under Law 675 were limited in 1986, by
Law 64, to companies located in the South. Finally, the ILOR and IRPEG tax
exemptions granted pursuant to Law 218/78 were extended by Law 64 through
December 31, 1993.
We have preliminarily determined that it is appropriate to focus our green light
analysis on the law(s) and programs that were in place at the time the assistance in
question was granted. None of the companies being investigated has received
benefits under Law 488. Therefore, we have limited our analysis to the
above-named programs under Law 64.
We have preliminarily concluded that the information submitted by the GOI does
not support the claim that these programs qualify as noncountervailable subsidies.
For example, section 771(5B)(C) (i) and (iii) requires that regional subsidy
programs be part of "a generally applicable regional
development policy." Yet Law 64 provides benefits solely to the South of Italy
and there is no information regarding other laws (or provisions within Law 64) that
make regional development a generally applicable policy across Italy. Also,
section 771(5B)(C)(i)(II) and (ii) requires that economically disadvantaged regions
be designated on the basis of neutral and objective criteria, which are clearly stated
in the relevant statute, regulation or other official document and include a measure
of per capita income or unemployment. No information has been provided to
indicate that Law 64 or its implementing regulations met this standard. Therefore,
for purposes of this preliminary determination we have not treated these programs
as green light subsidies.
I. Programs Preliminarily Determined To Be Countervailable
A. Local Income Tax ("ILOR") and Corporate Income Tax ("IRPEG") Exemptions
Companies located in the Mezzogiorno may receive a complete exemption for a
period of 10 years from the ILOR and the IRPEG on profits deriving from new plant
and equipment or from plant expansion and improvement under Presidential
Decree 218 of March 6, 1978. Prior to March 29, 1986, the IRPEG exemption
applied to only 50 percent of profits deriving from new or expanded plant and
equipment. Effective March 29, 1986, Law 64/86 granted a total
exemption for the IRPEG, as well. In addition, otherwise non-qualifying profits
which are reinvested in plant or equipment may receive an exemption from the
ILOR for the year of reinvestment. Reinvested profits do not receive any exemption
from the IRPEG. The provision for ILOR and IRPEG exemptions expired on
December 31, 1993, but companies which were approved for the exemptions prior
to this date may continue to benefit from the exemption until the expiration of the
10-year benefit period approved for each company.
We have determined that these tax exemptions are countervailable subsidies. They
constitute subsidies within the meaning of section 771(5) of the Act, as the tax
exemptions represent revenue foregone by the GOI and confer tax savings on the
companies. Also, they are regionally specific within the meaning of section 771(5A)
because they are limited to companies located in the Mezzogiorno. (As discussed
above, the GOI has not demonstrated that the ILOR and IRPEG exemptions are
entitled to noncountervailable status under section 771(5B)(C).)
Barilla, De Cecco, and Delverde claimed ILOR tax exemptions on tax returns filed
during the POI.
To calculate the countervailable subsidy for each company, we divided the tax
savings during the POI by the company's sales during the POI. On this basis, we
determine the countervailable subsidy from this program to be 0.20 percent ad
valorem for Barilla, 0.94 percent ad valorem for De Cecco, and 0.15 percent
ad valorem for Delverde.
B. Industrial Development Grants Under Law 64/86
Law 64/86 provided for extraordinary intervention in favor of the Mezzogiorno,
with the purpose of promoting industrial development in the region. Grants were
awarded to companies constructing new plants or expanding or modernizing
existing plants. Pasta companies were eligible for grants to expand existing plants
but not to establish new plants, because the market for pasta was deemed to be close
to saturated. Grants were made only after a private credit institution chosen by the
applicant made a positive assessment of the project.
In 1992, the Italian Parliament decided to abrogate Law 64. This decision became
effective in 1993. Projects approved prior to 1993, however, were authorized to
receive grant amounts after 1993.
Barilla, De Cecco, La Molisana, Delverde, TIA, and Riscossa received industrial
development grants.
We preliminarily determine that these grants provide a countervailable subsidy
within the meaning of section 771(5) of the Act. They are a direct transfer of funds
from the GOI providing a benefit in the amount of the grant. Also, these grants are
regionally specific, within the meaning of section 771(5A). (As discussed above, the
GOI has not
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demonstrated that these grants are
entitled to noncountervailable status under section 771(5B)(C).)
We have treated these grants as "non-recurring" grants based on the analysis set
forth in the Allocation section of the General Issues Appendix. In accordance with
our past practice, we have allocated those grants which exceeded 0.5 percent of a
company's sales in the year of receipt over time. For Barilla, no grants exceeded 0.5
percent of Barilla's sales in the year of receipt. Accordingly, all of Barilla's grants
were expenses. Barilla did not receive any grants during the POI. Therefore, Barilla
had no benefit during the POI.
To calculate the countervailable subsidy, we used our standard grant methodology.
We divided the benefit attributable to the POI for each company by that company's
sales in the POI. On this basis, we determine the countervailable subsidy for this
program to be 0.00 percent ad valorem for Barilla, 0.26 percent ad valorem for De
Cecco, 0.35 percent ad valorem for La Molisana, 2.83 percent ad valorem for
Delverde, 2.90 percent ad valorem for TIA, and 1.01 percent ad valorem for
Riscossa.
C. Industrial Development Loans Under Law 64/86
Law 64/86 also provided for interest contributions on industrial development loans
to companies located in the Mezzogiorno for constructing new plants or
expanding or modernizing existing plants. The interest rate on these loans was set at
the reference rate, with the GOI's interest contributions serving to reduce this rate.
For the reasons discussed above, pasta companies were eligible for interest
contributions to expand existing plants but not to establish new plants.
Barilla, De Cecco, Delverde, TIA and La Molisana received interest contributions on
industrial development loans.
We have preliminarily determined that these interest contributions are
countervailable subsidies within the meaning of section 771(5). They are a direct
transfer of funds from the GOI providing a benefit in the amount of the difference
between the benchmark interest rate and the interest rate paid by the companies
after accounting for the GOI's interest contributions. Also, they are regionally
specific within the meaning of sections 771(5A). (As discussed above, the GOI has
not demonstrated that industrial development loans are entitled to
noncountervailable status under section 771(5B)(C).)
Because the recipients of the interest contributions knew, prior to taking out the
loans, that they would receive the interest contributions, we have allocated the
benefit over the life of the loan for which the contribution was received. We divided
the benefit attributable to the POI for each company by that company's sales. On
this basis, we determine the countervailable subsidy for this program to be 0.08
percent ad valorem for Barilla, 0.44 percent ad
valorem for De Cecco, 2.35 percent ad valorem for Delverde, 0.86 percent ad
valorem for TIA, and 0.17 percent ad valorem for La Molisana.
D. Export Marketing Grants Under Law 304/90
To increase market share in non-EU markets, Law 304/90 provides grants to
encourage enterprises operating in the food and agricultural sectors to carry out
pilot projects aimed at developing links between Italian producers and foreign
distributors in non-EU markets and improving the quality of services in those
markets. Emphasis is placed on assisting small- and medium-sized producers.
We have determined that the export marketing grants under Law 304 provide
countervailable subsidies within the meaning of section 771(5) of the Act. The
grants are a direct transfer of funds from the GOI providing a benefit in the amount
of the grant. The grants are also specific because their receipt is contingent upon
export performance.
Delverde received a grant under this program for a market development project in
the United States.
We have determined that Law 304 grants are "non-recurring," because they are
exceptional events rather than an ongoing occurrence. Each project funded by the a
grant requires a separate application and approval, and the projects
represent one-time events in that they involve an effort to establish warehouses,
sales offices, and a selling network in new overseas markets. Therefore, we have
treated the grant received under this program as "non recurring" based on the
analysis set forth in the Allocation section of the General Issues Appendix. Further,
we have determined that the grant exceeded 0.5 percent of Delverde's exports to
the United States in the year it was received. Therefore, in accordance our past
practice, we allocated the benefits of this grant over time.
To calculate the countervailable subsidy, we used our standard grant methodology.
We divided the benefits attributable to the POI by the total value of Delverde's
exports to the United States. On this basis, we determine the countervailable
subsidy to be 0.19 percent ad valorem for Delverde.
E. Social Security Reductions and Exemptions
Pursuant to Law 1089 of October 25, 1986, companies located in the Mezzogiorno
were granted a 10 percent reduction in social security contributions for all
employees on the payroll as of September 1, 1968, as well as those hired thereafter.
Subsequent laws authorized companies located in the Mezzogiorno to take
additional reductions in social security contributions for employees hired during
later periods, provided that the new hires represented a net increase in
the employment level of the company. The additional reductions ranged from 10 to
20 percentage points. Further, for employees hired during the period July 1, 1976
to November 30, 1991, companies located in the Mezzogiorno were granted a full
exemption from social security contributions for a period of 10 years, provided that
employment levels showed an increase over a base period.
We determine that the social security reductions and exemptions are
countervailable subsidies within the meaning of section 771(5). They represent
revenue foregone by the GOI and they confer a benefit in the amount of the savings
received by the companies. Also, they are specific within the meaning of section
771(5A) because they are limited to companies located in the Mezzogiorno.
Barilla, De Cecco, Delverde, TIA, La Molisana, Guido Ferrara, Campano, De Matteis,
Riscossa, and Indalco received social security reductions and exemptions during
the POI.
To calculate the countervailable subsidy, we have divided the total savings in social
security contributions realized by each company by that company's sales during the
same period. On this basis, we calculated the countervailable subsidy from this
program to be 0.69 percent ad valorem for Barilla, 0.70 percent ad valorem for De
Cecco, 0.45 percent ad valorem for TIA, 2.60 percent ad valorem for Delverde, 2.58
percent ad valorem for La Molisana, 0.98 percent ad valorem for Guido Ferrara,
1.77 percent ad valorem for Campano,
1.51 percent ad valorem for De Matteis, 0.78 percent ad valorem for Riscossa, and
1.17 percent ad valorem for Indalco.
Several companies reported that in addition to the social security tax relief
described above, they received Social Security tax holidays under another
program, called "Fiscalizzazione" The GOI has provided no information with
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regard to these benefits. According to respondent companies, Fiscalizzazione is
available to companies in both Northern and Southern Italy. However, the
percentage of the tax reduction that may be taken in Southern Italy is greater.
We preliminarily determine that the Fiscalizzazione reductions are countervailable
subsidies within the meaning of section 771(5) for companies with operations in
Southern Italy. They represent revenue foregone by the GOI and confer a
benefit in the amount of the greater savings accruing to the companies in Southern
Italy. In addition, they are regionally specific within the meaning of section
771(5A).
The available information suggests that all companies with operations in Southern
Italy which received the social security tax relief described above also received
these Fiscalizzazione benefits. These companies include Barilla, Campano, De Cecco,
De Matteis, Delverde, Guido Ferrara, Indalco, La Molisana, Riscossa, and TIA.
To calculate the countervailable subsidy, we have divided the additional
savings in social security contributions realized by each company by that
company's sales during the same period. We note that we do not have the
information necessary to calculate individual rates for some of these companies.
Therefore, we have calculated individual rates for those companies for which we
have the information. We have applied a weighted average of these rates to the
companies for which we do not have the necessary information. On this basis, we
calculated the countervailable subsidy from this program to be 0.46% ad valorem
for Barilla, 0.46% ad valorem for Campano, 0.34% ad valorem for De Cecco, 0.46%
ad valorem for De Matteis, 0.73% ad valorem for Delverde, 0.46% ad valorem for
Guido Ferrara, 0.06% ad valorem for Indalco, 0.46% ad valorem for La Molisana,
0.46% ad valorem for Riscossa, and 0.29% ad valorem for TIA.
F. Regional Development Grant
One respondent, Arrighi, claims to have received a grant in 1994 under the
European Regional Development Fund ("ERDF"). However, the EU has claimed that
no Italian pasta producers or exporters received money under the ERDF and that
Arrighi is located in a region that would not be eligible for ERDF assistance.
Moreover, our review of the supporting documentation supplied by Arrighi
provides no indication that the ERDF was the source of the funds.
For purposes of the preliminary determination, we are not treating this as an ERDF
grant. Consequently, we have not analyzed the information provided by the EU in
support of its claim that the ERDF is a noncountervailable subsidy under section
771(5B)(C) of the Act. However, we intend to clarify the origin of the assistance
reported by Arrighi so that we can analyze it fully for our final determination.
We are treating the assistance reported by Arrighi as a countervailable subsidy
within the meaning of section 771(5) of the Act. The grant is a direct transfer of
funds providing a benefit in the amount of the grant. Also, the available information
indicates that the grant is regionally specific within the meaning of section 771(5A)
of the Act.
We view this as a "non-recurring" grant based on the analysis set forth in the
Allocation section of the General Issues Appendix. According to the information
received, there is no indication that the grants are available on an ongoing basis,
and separate government approval is required for each grant. However, we have
determined that the grant was less than 0.5 percent of Arrighi's total pasta sales in
the POI (excluding sales of pasta produced by other producers) which was the year
of receipt of the grant. Therefore, in accordance with our past practice, we are
allocating the full amount of the grant to the POI.
To calculate the countervailable subsidy, we divided the full amount of the grant by
Arrighi's total pasta sales, excluding its sales of pasta from other
producers. On this basis, we calculated the countervailable subsidy from this
program to be 0.34 percent ad valorem for Arrighi.
G. Export Restitution Payments
Since 1962, the EU has operated a subsidy program which provides restitution
payments to EU pasta exporters based on the durum wheat content of their
exported pasta products.
Generally, under this program, a restitution payment is available to any EU pasta
producer exporting pasta products, regardless of whether the EU pasta producer
has purchased the durum wheat used in its pasta exports from within the EU or has
imported it. The amount of the restitution payment is calculated by multiplying the
prevailing restitution payment rate per 100 kilograms of durum wheat by the weight
of the wheat, in kilograms, used to produce the exported pasta. The restitution
payment rate itself is based on a levy that the EU imposes on imported durum wheat
in order to bring the price of imported durum wheat up to the (typically higher)
price level within the EU. Consequently, the amount of the restitution payment, in
theory, should equal the difference between the EU's internal price for durum wheat
and the world market price for durum wheat, as determined by the EU, exclusive of
the levy. The restitution payment rate, like the levy on which it is based, is adjusted
by the EU monthly.
The EU uses the restitution payment rate prevailing on the date of exportation of the
pasta products to calculate the amount of the restitution payment.
Additionally, under this program, the EU permits a pasta exporter to purchase a
certificate that locks in a restitution payment rate if the pasta exporter promises to
export a certain amount of pasta by a certain date. The promised export date can be
as much as 6 months later. Moreover, the pasta exporter is free to sell this
certificate to another pasta exporter. The selling price is determined through
negotiations between the seller and the purchaser and typically will be dependent
on such factors as the amount of time left until the certificate expires, the
purchaser's projected volume of exports, the restitution payment rate under the
certificate, and the current and expected future restitution payment rates set by the
EU. A pasta exporter that fails to use a certificate by the date set forth in the
certificate must pay a penalty.
In 1987, the nature of this program changed with regard to exports to the United
States as a result of a settlement reached by the United States and the EC. This
settlement arose out of a GATT panel proceeding, brought by the United States, in
which the panel ruled (in 1983) that the program violated the EC's GATT obligations
and did not fall within the exception under Item (d) of the Illustrative List of Export
Subsidies.
Under the settlement, the EC agreed to allow the importation of durum wheat from
any non-EC country free of any levy under a system described in the settlement as
"Inward Processing Relief," or "IPR." Under this system, the EC pasta producer would
not receive a restitution payment when exporting to the United States pasta
products containing durum wheat imported with IPR. Essentially, a restitution
payment no longer was necessary because no levy had been paid upon importation
in the first place.
As to pasta products containing EC durum wheat or durum wheat that had been
imported without IPR, a restitution payment remained available for exports to the
United States, except that the
*53745
restitution rate was reduced, originally by 27.5 percent and later by approximately
35 percent, from the normal level available for exports to all other countries.
As a further condition of the settlement, the EC agreed to attempt to balance its
exports to the United States equally between pasta products containing durum
wheat imported with IPR, on the one hand, and pasta products containing EC durum
wheat or durum wheat imported without IPR, on the other hand. The goal was for 50
percent of the EC's pasta exports to the United States to contain durum wheat
imported with IPR (for which the exporter had paid world market price, free of any
levy, and had received no restitution payments), while the remaining 50 percent of
the EC's pasta exports to the United States would contain EC durum wheat or durum
wheat imported without IPR (for which the
exporter could receive reduced restitution payments).
In all other respects, the program remained unchanged.
For purposes of this preliminary determination, we have concluded that the
restitution payments made are countervailable subsidies within the meaning of
section 771(5) of the Act. Each payment represents a direct transfer of funds from
the EU providing a benefit in the amount of the payment. The restitution payments
are specific because their receipt is contingent upon export performance.
Respondent firms in this investigation have argued that this program escapes
countervailability because it falls within the exception under Item (d) of the
Illustrative List of Export Subsidies, although the EU itself has not made this claim.
Item (d) explains that one type of export subsidy is
The provision by governments or their agencies either directly or indirectly
through government-mandated schemes, of imported or domestic products or
services for the use in the production of exported goods, on terms or conditions
more favorable than for provision of like or directly competitive products or
services for use in the production of goods for domestic consumption, if (in case of
products) such terms or conditions are more favorable than those commercially
available on world markets to their exporters.
Subsidies Agreement, Annex 1 (footnote omitted) (emphasis added). In a
footnote, Item (d) defines the term "commercially available" as meaning "the choice
between domestic and imported products is unrestricted and depends only on
commercial considerations." Id., n.57.
We do not find that this program fits within the Item (d) exception because two
features of the program render any comparison to the terms and conditions
commercially available on world markets to EU exporters inapposite. The first
feature is the ability to buy and sell certificates representing the right to a locked-in
restitution payment rate. Here, it is possible for an EU exporter to realize a windfall
by selling the certificate to another exporter rather than using it to export.
The other differentiating feature of the program that makes Item (d) inapplicable is
that the actual restitution payment is based on the prevailing rate at the time of
exportation rather than at the time of the purchase of the input, durum wheat,
which was used to produce the exported pasta. It is possible that months or even a
year or more may transpire between the time of the purchase of the input and the
time when the restitution payment is set. As a result, with any fluctuation in the
world market price commercially available to the EU exporter over this time
period, the restitution payment will not equal (even in theory) the difference
between the EU price for the input and the world market price commercially
available to the EU exporter. In any given instance, therefore, depending on the
direction of the price fluctuation, the
restitution payment will either undercompensate or, more significantly,
overcompensate the EU exporter within the meaning of Item (d).
We also note that, in any event, we could not find that this program fits within the
Item (d) exception because neither the EU nor the respondent firms have produced
the pricing and related information necessary for the Department to determine
whether the program satisfies this exception.
As the United States Court of Appeals for the Federal Circuit explained in Creswell
Trading Co. v. United States, 15 F.3d 1054, 1060 (Fed. Cir. 1994):
[I]n the context of an Item (d) investigation, Commerce necessarily requires
information that is within the knowledge and control of the government of the
exporting country, its exporters, or both, which information Commerce cannot
obtain independently * * *. Thus, it is only logical that some burden be placed on the
government or exporter to come forward with such information * * *.
To this end, we hold that the existence of a program wherein a government, or an
agency thereof, delivers to an exporter products or services for use in the
production of exported goods on terms and conditions more favorable than for
delivery of like or directly competitive products or services for use in the
production of goods for domestic consumption is, standing alone, presumptive
evidence that the program also provides the products or services under
investigation to that exporter on terms or conditions more favorable than the
terms and conditions available on world markets. Commerce's initial burden of
production is thus satisfied by way of this presumption. The burden of production
accordingly shifts to the exporter to come forward with evidence that the services
or products were not provided on terms or conditions more favorable than
available on world markets.
We do not hold that the ultimate burden of proof is shifted by this presumption.
Rather, we merely hold that this presumption creates a prima facie case that shifts
the burden of production to the exporter to come forward with sufficient evidence
to rebut this presumption * * *. [If the exporter is able to rebut this presumption,]
[t]he totality of evidence must then be weighed to determine whether a
countervailable subsidy exists.
In this investigation, the Department has carried its initial burden of production
because it can point to record evidence demonstrating the existence of the EU's
export restitution program, which provides terms more favorable than those for
domestic goods. This evidence, therefore, gives rise to a rebuttable presumption
that the program is countervailable and places on the EU and the respondent firms
the burden of producing sufficient evidence to rebut this presumption, which must
be accomplished through the submission of the pricing and related information
necessary for the Department to determine whether the program satisfies the
exception under Item (d). Because neither the EU nor the respondent firms have
produced this information, they have not
rebutted the presumption that the EU's program is countervailable.
Arrighi, Delverde, TIA, La Molisana, Riscossa and Indalco realized benefits from this
program during the POI.
Since pasta exporters are able to calculate the precise benefit from the restitution
payments at the time of exportation, we have calculated the countervailable
subsidy on an earned, rather than received, basis. (See Final Affirmative
Countervailing Duty Determination: Certain Steel Wire Nails from New
Zealand, 52 FR 37196, 37197, October 5, 1987). Hence, the export restitution
payments earned during the POI are allocated solely to the POI.
To calculate the countervailable subsidy, we divided the export restitution
payments earned during the POI on shipments to the United States by the
company's total export sales to the United States during the POI. On this basis, we
calculated a countervailable subsidy under this program of 0.62 percent ad valorem
for Arrighi, 0.62 percent ad valorem for Del Verde, 0.05 percent ad valorem for
TIA, 0.08 percent ad valorem for La
*53746
Molisana, 0.25 percent ad valorem for Riscossa and 0.21 percent ad valorem for
Indalco.
II. Program Found To Be Not Countervailable Lump-Sum Interest Payment Under
Law 1329/65 for Companies in Northern Italy
Law 1329 (the Sabatini Law) was enacted in 1965 to encourage the sale of
machine tools and production machinery. It provides for a deferral of up to five
years of payments due on installment contracts for the purchase of such equipment
and for a one-time, lump-sum interest contribution from Mediocredito Centrale
("MCC") toward the interest owed on these contracts. The amount of the interest
contribution is equal to the present value of the difference between the payment
stream over the life of the contract based on the reference rate and the payment
stream over the life of the contract based on a concessionary rate. The
concessionary rate for companies located in the Mezzogiorno is the reference rate
less eight percentage points. The concessionary rate for companies located outside
the Mezzogiorno is the reference rate less five percentage points.
No companies located in the Mezzogiorno had Law 1329 loans outstanding during
the POI, which related to the subject merchandise.
Arrighi, which is located outside the Mezzogiorno, had Law 1329 loans outstanding
during the POI. Isola, also a company in the north, had Law 1329 loans outstanding
but we are awaiting more information on these loans.
For Arrighi's loans, we have analyzed whether the program is specific "in law or in
fact," within the meaning of section 771(5A)(D) (i) and (iii). Section 771(5A)(D)(iii)
of the Act provides the following four factor to be examined with respect to de facto
specificity: (1) The number of enterprises, industries or groups thereof which
usually use a subsidy; (2) predominant use of a subsidy
by an enterprise, industry, or group; (3) the receipt of disproportionately large
amounts of a subsidy by an enterprise, industry, or group; and (4) the manner in
which the authority providing a subsidy has exercised discretion in its decision to
grant the subsidy.
Law 1329, which created the program, contains no limitations on the types of
industries that can apply for assistance. Further, during the POI, assistance under
the program was distributed over 19 sectors, representing a wide cross- section of
the economy. On this basis, we concluded that the subsidy recipients were not
limited to a specific industry or group of industries. We also examined evidence
regarding the usage of this program and found no predominant use by the pasta
industry. We next examined whether a disproportionately large share of benefits
was granted to the pasta industry. We found that during the POI, benefits to the food
processing industry, which includes the pasta industry, amounted to 7.1 percent of
all benefits granted in that period. The shares of the 19 reported sectors ranged from
0.5 percent for sundry manufacturing to 18.2 percent for metal products, machines,
and mechanical products. Considering the number and variety of sectors receiving
benefits and the range of benefits over the various sectors, we do not consider the
benefits received by the food processing sector to constitute a disproportionate
share of the benefits distributed under this program. Given our findings that the
number of users is large and that there is no dominant or
disproportionate use of the program by the pasta producers, we do not reach the
issue of whether administrators of the program exercised discretion in awarding
benefits. Thus, for companies located outside the Mezzogiorno, we preliminarily
determine that interest contributions under the Sabatini Law are not specific.
We note, however, that our practice in determining specificity is to examine the
distribution of benefits in the year they were approved for the company under
investigation and in each of the three previous years. Because this information was
not available for the preliminary determination, we based our de facto analysis on
information relating to the POI. For the final determination, we intend to gather
information for the period 1988 through 1991.
III. Program for Which More Information Is Needed
A. Export Credit Insurance Under Law 227/77
The GOI reported that one company, La Molisana, obtained export credit insurance
from a private insurer for a shipment to the United States and that the private
insurer had, in turn, reinsured the export transaction with the GOI's Export
Insurance Agency. The GOI further reported that its Export
Insurance Agency had suffered substantial losses over the past five years.
For purposes of the final determination, we will be seeking more information and
giving further consideration to whether a subsidy is being provided to La Molisana
through its purchase of export insurance.
IV. Programs Preliminarily Determined To Be Not Used
The responses indicated that certain companies received assistance under the
European Social Fund ("ESF") and Italian Law 675/77. Specifically, worker training
grants were reported under the ESF and VAT reductions under Law 675/77. We
have determined that any payments received under these programs are "recurring,"
as they are among the types of benefits the Department has identified as normally
being expensed in the year of receipt. (See Allocation section of the General Issues
Appendix.) Since no payments were received by any investigated companies under
these programs during the POI, we are treating the programs as "not used" and,
consequently, have not analyzed whether they confer countervailable subsidies.
Similarly, as discussed above, no companies located in the Mezzogiorno had loans
under law 1329/65 outstanding during the POI. Therefore, we have not analyzed
whether lump-sum interest payments on such loans confer countervailable
subsidies on companies located in the Mezzogiorno.
Other programs that were not used were:
A. Export Credits under Law 227/77
B. Capital Grants under Law 675/77
C. Retraining Grants under Law 675/77
D. Interest Contributions on Bank Loans under Law 675/77
E. Interest Grants Financed by IRI Bonds
F. Preferential Financing for Export Promotion under Law 394/81
Verification
In accordance with section 782(i) of the Act, we will verify the information
submitted by respondents prior to making our final determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we have calculated an
individual subsidy rate for each company investigated. For companies not
investigated, we have determined an "all others" rate by weighting individual
company subsidy rates by each company's exports of the subject merchandise to
the United States, if available, or pasta exports to the United States. The all others
rate does not include zero and de minimis rates or any rates based
solely on the facts available.
In accordance with section 703(d) of the Act, we are directing the U.S. Customs
Service to suspend liquidation of all entries of pasta from Italy which
*53747
are entered or withdrawn from warehouse, for consumption, on or after the date of
the publication of this notice in the Federal Register, and to require a cash deposit
or bond for such entries of the merchandise in the amounts indicated below. This
suspension will remain in effect until further notice.
-------------------------------------------------------------------------------
Company Ad valorem rate
-------------------------------------------------------------------------------
Arrighi ................................... 0.96 (de minimis)
Agritalia ............................................................... 2.41
Barilla ................................................................. 1.43
Campano ................................................................. 2.23
De Cecco ................................................................ 2.68
De Matteis .............................................................. 1.97
Demaservice [FN*] ....................................................... 1.97
Delverde [FN*] .......................................................... ]9.20
Gruppo .................................................................. 0.00
Guido Ferrara ........................................................... 1.44
Indalco ................................................................. 1.44
Isola del Grano ......................................................... 0.00
Italpast ................................................................ 10.67
Labor ................................................................... 10.67
La Molisana ............................................................. 3.64
Riscossa ................................................................ 2.50
TIA [FN*] ............................................................... 9.20
All Others .............................................................. 4.08
-------------------------------------------------------------------------------
FN* See Related Parties section for explanation of why the rates for Delverde
and TIA and the rates for De Matteis and Demaservice are the same.
Since the estimated preliminary net countervailable subsidy rate for Arrighi,
Gruppo, and Isola del Grano is either zero or de minimis, these companies will be
excluded from the suspension of liquidation.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our
determination. In addition, we are making available to the ITC all non-
privileged and nonproprietary information relating to this investigation. We will
allow the ITC access to all privileged and business proprietary 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 Investigations, Import Administration.
If our final determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
In accordance with 19 CFR 355.38, we will hold a public hearing, if requested, to
afford interested parties an opportunity to comment on this preliminary
determination. The hearing will be held on December 8, 1995, at the U.S.
Department of Commerce, Room 3708, 14th Street and Constitution Avenue NW.,
Washington, DC 20230. Individuals who wish to request a hearing must submit a
written request within 10 days of the publication of this notice in the Federal
Register to the Assistant Secretary for Import Administration, U.S. Department of
Commerce, Room B099, 14th Street and Constitution Avenue NW., Washington, DC
20230. Parties should confirm by telephone the time, date, and place of the
hearing 48 hours before the scheduled time.
Requests for a public hearing should contain: (1) The party's name, address, and
telephone number; (2) the number of participants; (3) the reason for attending; and
(4) a list of the issues to be discussed. In addition, 10 copies of the business
proprietary version and five copies of the nonproprietary version of the case briefs
must be submitted to the Assistant Secretary no later than December 1, 1995. Ten
copies of the business proprietary version and five copies of the nonproprietary
version of the rebuttal briefs must be submitted to the Assistant Secretary no later
than December 6, 1995. An interested party may make an affirmative presentation
only on arguments included in that party's case or rebuttal briefs. Written
arguments should be submitted in accordance with 19 CFR 355.38 and will be
considered if received within the time limits specified above.
This determination is published pursuant to section 703(f) of the Act.
Dated: October 10, 1995.
Susan G. Esserman,
Assistant Secretary for Import Administration.
[FR Doc. 95-25752 Filed 10-16-95; 8:45 am]
BILLING CODE 3510-DS-P