98-409

63 FR 17372

NOTICES

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-819]

Certain Pasta From Italy: Preliminary Results of the First Countervailing
Duty
Administrative Review

Thursday, April 9, 1998

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AGENCY: Import Administration, International Trade Administration,
Department of Commerce.

ACTION: Notice of Preliminary Results of Countervailing Duty
Administrative Review.

SUMMARY: The Department of Commerce is conducting an administrative review of
the countervailing duty order on certain pasta from Italy for the period
October 17, 1995 through December 31, 1996. For information on the net subsidy
for each reviewed company, as well as for all non-reviewed companies, see the
Preliminary Results of Review section of this notice. If the final results remain the
same as these preliminary results, we will instruct the U.S. Customs Service to assess
countervailing duties as detailed in the Preliminary Results of Review.
Interested parties are invited to comment on these preliminary results. (See, Public
Comment section of this notice.)

EFFECTIVE DATE: April 9, 1998.

FOR FURTHER INFORMATION CONTACT: Vincent Kane or Todd Hansen, AD/CVD
Enforcement, Group I, Office 1, Import Administration, U.S. Department of
Commerce, Room 3099, 14th Street and Constitution Avenue, N.W., Washington,
D.C. 20230; telephone (202) 482-2815 or 482-1276, respectively.

Background

On July 24, 1996, the Department of Commerce (the Department) published in the
Federal Register (61 FR 38544) the countervailing duty order on pasta from
Italy.
In accordance with 19 CFR 351.213(b), this review of the order covers the
producers or exporters of the subject merchandise for which a review was
specifically requested. They are: Audisio Industrie Alimentari S.r.L ("Audisio"); the
affiliated companies Delverde S.r.L., Tamma Industrie Alimentari, S.r.L.,
Sangralimenti S.r.L., and Pietro Rotunno, S.r.L. ("Delverde/Tamma"); La Molisana
Industrie Alimentari S.p.A. ("La Molisana"); and Petrini S.p.A. ("Petrini"). Also, this
review covers 24 programs.
Since the publication of the notice of initiation of this review in the Federal Register
(62 FR 45621, August 28, 1997), the following events have occurred.
On September 29, 1997, we issued countervailing duty questionnaires to the
Government of Italy ("GOI"), the Commission of the European Union ("EU"), and
the above-named companies under review. On October 14, 1997, F.lli De Cecco di
Filippo Fara S. Martino S.p.A., a company which had requested to be included in the
review, withdrew its request. Similarly, on November 14, 1997, Industria
Alimentari Colavita, S.p.A., another company which had requested to be included in
the review, withdrew its request. We received responses to our questionnaires and
issued additional questionnaires throughout the period of November 1997 through
March 1998.

In January and February of 1998, we received comments from petitioners on the
company and GOI responses. Among the comments was a request that the
Department examine an energy savings grant received by Petrini pursuant to Law
308/82. In a supplementary questionnaire to Petrini, we requested further
information on this grant. Subsequent to issuing this questionnaire, however, it
became evident that the program in question had already been found not
countervailable by the Department. See, Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Italy, 58 FR 37327 ("Certain
Steel from Italy"). Therefore, we have not included this grant in our review.

Scope of Review

The merchandise under review consists of certain non-egg dry pasta in packages of
five pounds (or 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 scope 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 review 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. Also excluded are imports of organic
pasta from Italy that are accompanied by the appropriate certificate issued by
the Associazione Marchigiana Agricultura Biologica ("AMAB"), by Bioagricoop Scrl,
or by QC&I International Services. Furthermore, multicolored pasta imported in
kitchen display bottles of decorative glass, which are sealed with cork or paraffin
and bound with raffia, is excluded from the scope of this review.
The merchandise under review is currently classifiable under item 1902.19.20 of
the Harmonized Tariff Schedule of the United States ("HTSUS"). Although the HTSUS
subheading is provided for convenience and customs purposes, our written
description of the scope of this review is dispositive.

Applicable Statute

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 ("URAA"), effective January 1, 1995 ("the Act"). The Department is conducting
this administrative review in accordance with section 751(a) of the Act. All other
references are to the Department's regulations at 19 CFR Part 351 et. seq.
Antidumping Duties; Countervailing

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Duties; Final Rule, 62 FR 27296, May 19, 1997, unless otherwise indicated.

Period of Review

The period of review ("POR") for which we are measuring subsidies is from October
17, 1995 through December 31, 1996. Because it is the Department's practice to
calculate subsidy rates on an annual basis, we calculated a 1995 rate and a 1996 rate
for each of the companies under review. We note, however, that the rates calculated
for 1995 will be applicable only to entries, or withdrawals from warehouse, for
consumption made on and after October 17, 1995, through the end of 1995.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: The companies under review
did not take out any long-term, fixed-rate, lira-denominated loans or other debt
obligations which could be used as benchmarks in any of the years in which grants
were received or government loans under review were given. Therefore, we used
the Bank of Italy reference rate, adjusted upward to reflect the mark- up an
Italian commercial bank would charge a corporate customer, as the benchmark
interest rate for long-term loans and as the discount rate for years prior to 1995. For
1995 and 1996, we used the average interest rate on medium-
and long-term loans as reported by the Bank of Italy based on a survey of 114
Italian banks.
Allocation Period: In British Steel plc. v. United States, 879 F.Supp. 1254, 1289 (CIT
1995) ("British Steel I"), the U.S. Court of International Trade (the Court) ruled
against the allocation methodology for non-recurring subsidies that the Department
had employed for the past decade, which was articulated in the General Issues
Appendix, appended to the Final Countervailing Duty Determination; Certain
Steel Products from Austria, 58 FR 37225 (July 9, 1993) ("GIA"). In accordance with
the Court's remand order, the Department determined that the most reasonable
method of deriving the allocation period for nonrecurring subsidies is a
company-specific average useful life ("AUL") of non-renewable physical assets. This
remand determination was affirmed by the Court on June 4, 1996. See, British Steel
plc. v. United States, 929 F.Supp 426, 439 (CIT 1996) ("British Steel II").
Accordingly, the Department has applied this method to those non-recurring
subsidies that were not countervailed in the investigation.
For non-recurring subsidies received prior to the POR and which have already been
countervailed based on an allocation period established in the investigation, it is
neither reasonable nor practicable to reallocate those subsidies over a different
period of time. Therefore, for purposes of these preliminary results, the Department
is using the original allocation period
assigned to each non-recurring subsidy received prior to the POR. This conforms
with our approach in Certain Carbon Steel Products from Sweden; Final Results of
Countervailing Duty Administrative Review, 62 FR 16549 (April 7, 1997).
For non-recurring subsidies received during the POR, each company under review
submitted an AUL calculation based on depreciation and asset values of productive
assets reported in its financial statements. Each company's AUL was derived by
dividing the sum of average gross book value of depreciable fixed assets over the
past ten years by the average depreciation charges over this period. We found this
calculation to be reasonable and consistent with our company-specific AUL
objective. We have used these calculated AULs for the allocation period for
non-recurring subsidies received during the POR and those non-recurring subsidies
received prior to the POR, which were not countervailed in the investigation.
Benefits to Mills: In cases where semolina (the input product to pasta) and the
subject merchandise were produced within a single corporate entity, the
Department has found that subsidies to the input product benefit total sales of the
corporation, including sales of the subject merchandise, without conducting an
upstream subsidy analysis. (See, e.g., Final Affirmative Countervailing Duty
Determination: Certain Softwood Lumber Products from Canada (57 FR 22570);
Final Affirmative Countervailing Duty Determination: Industrial Phosphoric
Acid from Israel (52 FR 25447); Final Affirmative Countervailing Duty
Determination: Certain Pasta ("Pasta") from Italy) 61 FR 30288, 30292) ("Pasta
from Italy")). In accordance with our past practice, where the companies under
review purchase their semolina from a separately incorporated company, whether
or not they are affiliated, we have not included subsidies to the mill in our
calculations. However, for those companies where the mill is not separately
incorporated from the producer of the subject merchandise, we have included
subsidies for the milling operations in our calculations. Where appropriate, we have
also included sales of semolina in calculating the ad valorem subsidy rate.

Changes in Ownership

One of the companies under review, Delverde, purchased an existing pasta factory
from an unrelated party. The previous owner of the purchased factory had received
non-recurring countervailable subsidies prior to the transfer of ownership, which
took place in 1991.
We have calculated the amount of the prior subsidies that passed through to
Delverde with the acquisition of the factory, following the spin-off methodology
described in the Restructuring section of the GIA, 58 FR at 37265.
Petrini, another of the companies under review, is controlled by two members of the
Petrini family, who hold a majority-ownership interest in the company.

During the period 1988 through 1994, Petrini acquired and absorbed a number of
related companies, including one which produced pasta. All but one of these
companies were wholly-owned by members of the Petrini family prior to their
acquisition by Petrini; the remaining company was majority-owned by the Petrini
family. Prior to the ownership restructurings, several of these companies, other
than the pasta company, received non-recurring countervailable subsidies.
The Department does not consider internal corporate restructurings that transfer or
shuffle assets among related parties to constitute a "sale" for purposes of evaluating
the extent to which subsidies pass from one party to another. (See, the
Restructuring section of the GIA, 58 FR at 37266.) Therefore, we did not apply the
methodology from the Restructuring section of the GIA to these subsidies. Instead,
we have attributed all of the non- recurring subsidies received prior to the
restructurings to Petrini, the only remaining corporate entity.
To determine whether the benefit of any of these subsidies extended to the subject
merchandise, we examined the extent to which these subsidies should be
considered tied or untied.
The subsidies in question were loans and grants pursuant to Law 64/86, the
Industrial Development Law, which benefits companies located in the South of
Italy (the Mezzogiorno). In past cases, as well as the present review, we have
found Law 64 grants and loans to be tied to the production of particular
products. (See, Pasta from Italy, 61 FR at 30292.) In fact, the grants and loans
are provided only after companies have committed funds for investment in

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facilities to produce a particular product or products. Law 64 applications and
awards indicate clearly the level of investment required of the recipient, the portion
to be provided by the government, and a clear statement of the purpose of the
investment. Follow-up audits by the GOI serve to ensure that funds have been used
as claimed.
The Law 64 grants and loans received by certain Petrini family companies were for
the production of products other than pasta or the inputs to pasta. In fact, Petrini's
only pasta production and flour mill facilities are located in the North and did not
qualify for Law 64 benefits.
Under these circumstances, we consider the subsidies in question to be tied to the
production of products other than pasta. Accordingly, we preliminarily conclude
that these subsidies did not confer a benefit on the subject merchandise.

Affiliated Parties

In the present review, 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. 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 subject to review are required to respond.
In accordance with this practice, we have determined that Delverde and Tamma
warrant treatment as a single company with a combined rate. Although Tamma
holds less than a 20 percent direct ownership interest in the Delverde group, there
is a substantial indirect ownership relationship between Tamma and Delverde. In
addition, the same individual is the president of Tamma, Delverde, and Delverde's
parent company. Therefore, we calculated a single countervailing duty rate
for these companies by dividing their combined subsidy benefits by their combined
sales.

Analysis of Programs

I. Programs Previously Determined to Confer Subsidies

A. Local Income Tax ("ILOR") Exemptions

Companies located in the Mezzogiorno may receive a complete exemption for a
period of 10 years from the ILOR on profits deriving from new plant and equipment
or from plant expansion and improvement under Presidential Decree 218 of March
6, 1978. 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. The provision for ILOR 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.
Delverde/Tamma claimed an ILOR tax exemption on income tax returns filed
during the POR.
In Pasta from Italy, the Department determined that the ILOR exemptions were
subsidies within the meaning of section 771(5) of the Act, as the tax exemptions
represented revenue foregone by the GOI and conferred tax savings on the
companies. Also, they were regionally specific within the meaning of section
771(5A) because they were limited to companies located in the Mezzogiorno. In this
review, neither the GOI nor the responding companies provided new information
which would warrant reconsideration of this determination.

To calculate the countervailable subsidy, we divided the tax savings in each year of
the POR by the company's total sales in each year. On this basis, we determine the
countervailable subsidy from this program for Delverde/Tamma to be 0.01 percent
for Delverde/Tamma in 1995 and 0.01 percent ad valorem in 1996.

B. Industrial Development Grants Under Law 64/86

Law 64/86 provided assistance to promote industrial development in the
Mezzogiorno. 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 64/86. This decision
became effective in 1993. Projects approved prior to 1993, however, were
authorized to receive grant amounts after 1993. La Molisana and Delverde/Tamma
benefitted from industrial development grants during to the POR.
In Pasta from Italy, the Department determined that these grants provide a
countervailable subsidy within the meaning of section 771(5) of the Act. They
provided a direct transfer of funds from the GOI bestowing a benefit in the
amount of the grant. Also, these grants were found to be regionally specific within
the meaning of section 771(5A). In this review, neither the GOI nor the responding
companies provided new information which would warrant reconsideration of this
determination.
In Pasta from Italy, the Department treated these grants as "non-recurring"
based on the analysis set forth in the Allocation section of the GIA, 58 FR at 37226.
In the current review, we have found no reason to depart from this treatment.
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. (See,
GIA at 58 FR 37226.)
To calculate the countervailable subsidy, we used our standard grant methodology.
We divided the benefit attributable to each company in each year of the POR by its
sales in each year. Thus, we determine the countervailable subsidy for this program
to be 1.37 percent ad valorem in 1995 and 1.11 percent ad valorem in 1996 for La
Molisana and 2.25 percent ad valorem in 1995 and 2.25 percent ad valorem in 1996
for Delverde/Tamma.
As noted in the "Change of Ownership" section above, certain of the Petrini
family-owned companies received Law 64 grants prior to their acquisition and
absorption by Petrini, which we found to be tied to the production of products other
than pasta. After the acquisition and absorption of these companies,
Petrini itself received several Law 64 grants. Once again, we found these grants to be
tied to products other than pasta.

C. Industrial Development Loans Under Law 64/86

Law 64/86 also provided reduced rate industrial development loans with interest
contributions to companies constructing new plants or expanding or modernizing
existing plants in the Mezzogiorno. The interest rate on these loans was set at the
reference rate, with the GOI's interest contributions serving

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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.
Delverde/Tamma and La Molisana received industrial development loans with
interest contributions from the GOI. These loans were outstanding during the POR.
In Pasta from Italy, the Department determined that these loans were
countervailable subsidies within the meaning of section 771(5). They were 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 were found to be
regionally specific within the meaning of section
771(5A). In this review, neither the GOI nor the responding companies provided
new information which would warrant reconsideration of this determination.
It is the Department's practice to measure the benefit conferred by interest rebates
using our loan methodology if the company knew in advance that the government
was likely to pay or rebate interest on the loan at the time the loan was taken out.
(See, e.g., Certain Steel from Italy). Because, in this case, the recipients of the
interest contributions knew, prior to taking out the loans, that the GOI likely would
provide 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
each year of the POR for each company by its sales in each year. On this basis, we
determine the countervailable subsidy for this program to be 0.36 percent ad
valorem in 1995 and 0.24 percent ad valorem in 1996 for La Molisana and 0.71
percent ad valorem in 1995 and 0.64 percent ad valorem in 1996 for
Delverde/Tamma.

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 and improving services in those markets. Emphasis is
placed on assisting small- and medium-sized producers.
In Pasta from Italy, the Department determined that the export marketing
grants under Law 304 provided countervailable subsidies within the meaning of
section 771(5) of the Act. The grants were a direct transfer of funds from the GOI
providing a benefit in the amount of the grant. The grants were also found to be
specific because their receipt was contingent upon anticipated exportation. In this
review, neither the GOI nor the responding companies provided new information
which would warrant reconsideration of this determination.
Delverde/Tamma received a grant under this program for a market development
project in the United States prior to the POR.
Each project funded by 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,
in Pasta from Italy, the Department treated the grant received under this
program as "non-recurring" based on the analysis set forth in the Allocation section
of the GIA, 58 FR at 37226. Further, the Department found that the grant exceeded
0.5 percent of Delverde/Tamma's exports to the United States in the year it was
received. Therefore, in accordance with our past practice, we allocated the benefits
of this grant over time. In this review, neither the GOI nor the responding
companies provided new information
which would warrant reconsideration of this determination.
To calculate the countervailable subsidy, we used our standard grant methodology.
We divided the benefits attributable to each year of the POR by Delverde/Tamma's
exports to the United States in each year. On this basis, we determine the
countervailable subsidy to be 0.13 percent ad valorem in 1995 and 0.35 percent ad
valorem in 1996 for Delverde/Tamma.

E. Lump-Sum Interest Payment Under the Sabatini Law for Companies in Southern
Italy

The Sabatini Law was enacted in 1965 to encourage the purchase 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 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.
Audisio and Petrini received interest contributions under the Sabatini Law for loans
outstanding during the POR, which were related to the production of pasta and
inputs to pasta in the North. Petrini also received other interest contributions in
both northern and southern Italy, but these benefits were tied to non-subject
merchandise. In addition, La Molisana received an interest contribution at the
concessionary rate available in the Mezzogiorno for a loan still outstanding during
the first year of the POR, which was related to pasta production.
With respect to the benefits provided in northern Italy, the Department, in Pasta
from Italy, analyzed whether the program was specific "in law or in fact," within
the meaning of section 771(5A)(D)(i) and (iii). The Department concluded that these
benefits were not specific and, therefore, not countervailable. In this review, the
petitioner provided no new information which would warrant reconsideration of
this determination.
Because the concessionary rate for companies in southern Italy was lower than
the interest rate available to users of the program in northern Italy, however,
the Department in Pasta from Italy determined that the Sabatini Law interest
contributions to companies in southern Italy were countervailable subsidies
within the meaning of section 771(5). They were 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. In addition,
they were regionally specific within the meaning of section 771(5A). In this review,
neither the GOI nor the responding companies provided new information which
would warrant reconsideration of this determination.
As stated earlier (see, Industrial Development Loans section, above), when a
company knows in advance that the government is likely to pay or rebate interest
on a loan, we will measure the benefit conferred by that rebate using our loan
methodology. Because La Molisana knew, prior to taking out the loan at issue here,
that it would receive the interest contribution, we have allocated the benefit over
the life of the loan for which the contribution was received. We divided the benefit
attributable to each year of the POR by La Molisana's sales in each year. Thus, we
determine the countervailable subsidy for this program to be 0.05 percent ad
valorem in 1995 and 0.00

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percent ad valorem in 1996 for La Molisana.

F. Social Security Reductions and Exemptions

1. Sgravi Benefits. Pursuant to Law 1089 of October 25, 1968, 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.
In Pasta from Italy, the Department determined that the social security
reductions and exemptions were countervailable subsidies within the meaning of
section 771(5). They represented revenue foregone by the GOI and they conferred a
benefit in the amount of the savings received by the companies. Also, they were
found to be specific within the meaning of section 771(5A) because they are limited
to companies located in the Mezzogiorno. In this review, neither the GOI nor the
responding companies provided new information which would warrant
reconsideration of this determination.
Delverde/Tamma and La Molisana received social security reductions and
exemptions during the POR.
To calculate the countervailable subsidy, we divided the savings in social security
contributions by each company during each year of the POR by that company's sales
in each year. On this basis, we calculated the countervailable
subsidy from this program to be 1.23 percent ad valorem in 1995 and 0.91 percent
ad valorem in 1996 for Delverde/Tamma and 0.90 percent ad valorem in 1995 and
0.70 percent ad valorem in 1996 for La Molisana.
One respondent, Petrini, produces animal feed, chickens and eggs in southern
Italy. All of Petrini's facilities related to pasta production and inputs thereto are
located in the North. Petrini did not receive countervailable social security benefits
with regard to any of its operations in the North. However, Petrini did receive social
security benefits available to companies operating in the Mezzogiorno for its
operations there.
We determine that the social security benefits received by Petrini's operations in
southern Italy were tied to the production and sale of animal feed and other
animal products. Therefore, for purposes of these preliminary results, we have not
included these social security benefits in our calculation of the ad valorem subsidy
rate applicable to Petrini.
2. Fiscalizzazione Benefits. In addition to the sgravi deductions described above, the
GOI provides Social Security benefits of another type, called "fiscalizzazione."
Fiscalizzazione is a nationwide measure which provides a reduction of certain social
security payments related to health care or insurance. The program provides an
equivalent level of deductions throughout Italy for contributions related to
tuberculosis, orphans, and pensions. However, the program provides a higher
deduction from contributions to the National Health Insurance system for manufacturing enterprises located in
southern Italy compared to those located in northern Italy. During the POR,
the differential was 6.16 percent of base salary until July 31, 1995, when it was
reduced to five percent. On January 1, 1996, it was further reduced to four percent.
In Pasta from Italy, the Department determined that the fiscalizzazione
reductions were countervailable subsidies within the meaning of section 771(5) for
companies with operations in southern Italy. They represented revenue
foregone by the GOI and conferred a benefit in the amount of the greater savings
accruing to the companies in southern Italy. In addition, they were found to be
regionally specific within the meaning of section 771(5A). In this review, neither the
GOI nor the responding companies provided new information which would warrant
reconsideration of this determination.
Delverde/Tamma and La Molisana received the higher levels of fiscalizzazione
deductions available to companies located in the Mezzogiorno during the POR.
To calculate the countervailable subsidy, we divided the excess fiscalizzazione
deductions realized by each company in each year of the POR by its sales in each
year. On this basis, we calculated the countervailable subsidy from this program to
be 0.44 percent ad valorem in 1995 and 0.20 percent ad valorem in 1996 for
Delverde/Tamma and 0.64 percent ad valorem in 1995 and 0.38 percent ad
valorem in 1996 for La Molisana.

3. Law 407/90 Benefits. Law 407/90 grants a two-year exemption from social
security taxes when a company hires a worker who has been previously
unemployed for a period of two years or more. A 100 percent exemption was
allowed for companies in southern Italy. However, companies located in
northern Italy received only a 50 percent exemption.
In Pasta from Italy, the Department determined that the 100 percent
exemptions provided to companies with operations in southern Italy under Law
407 were countervailable subsidies within the meaning of section 771(5). They
represented revenue foregone by the GOI and conferred a benefit in the amount of
the greater savings accruing to the companies in southern Italy. In addition,
they were found to be regionally specific within the meaning of section 771(5A). In
this review, neither the GOI nor the responding companies provided new
information which would warrant reconsideration of this determination.
Delverde/Tamma received the higher level of Law 407 deductions available to
companies located in the Mezzogiorno during the POR.
To calculate the countervailable subsidy rate, we divided the amount of the Law
407 exemption which exceeds the amount available in northern Italy realized
by Delverde/Tamma in each year of the POR by that company's sales during the
same period. On this basis, we calculated the countervailable subsidy from this
program to be 0.00 percent ad valorem in 1995 and 0.00 percent ad valorem
in 1996 for Delverde/Tamma.

4. Law 863 Benefits. Law 863 provides for a reduction of social security payments of
25 percent for companies in northern Italy for employees who are participating
in a training program. Companies in southern Italy receive a 100 percent
reduction in social security payments for such employees.
In Pasta from Italy, the Department determined that Law 863 reductions were
countervailable subsidies within the meaning of section 771(5) for companies with
operations in southern Italy. They represented 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 were found to be regionally specific within
the meaning of section 771(5A). In this review, neither the GOI nor the responding
companies provided new information which would warrant reconsideration of this
determination.

*17377

Delverde/Tamma and La Molisana received the higher level of Law 863 deductions
available to companies located in the Mezzogiorno during the POR.
To calculate the countervailable subsidy, we divided the amount of the Law 863
reductions which exceeds the amount available in northern Italy realized by
each company in each year of the POR by it sales in that year. On this basis, we
calculated the countervailable subsidy from this program to be 0.05 percent ad
valorem in 1995 and 0.11 percent ad valorem in 1996 for Delverde/Tamma and
0.03 percent for La Molisana.

G. Remission of Taxes on Export Credit Insurance Under Article 33 of Law 227/77

The Special Section for Export Credit Insurance ("SACE") was created under Article 2
of Law 227/77 as the branch of the GOI responsible for the administration of
government export credit insurance and guarantee programs. Pursuant to Article 3
of Law 227/77, SACE insures and reinsures political, catastrophic, economic,
commercial and exchange-rate risks which Italian operators are exposed to in their
foreign activities.
During the POR, only one private insurance company, Societa Italiana Crediti S.p.A.
("SIAC"), had a reinsurance agreement with SACE. Under the reinsurance agreement,
SIAC passed along a fixed percentage (i.e., 45 percent) of its export credit insurance
premia to SACE. In return, SACE assumed that same percentage of risk on export
credit insurance policies sold by SIAC (i.e., SACE would pay 45 percent of any claim
for which SIAC would become liable).
Article 33 of Law 227/77 provides for the remission of insurance taxes on policies
directly insured or reinsured with SACE. For reinsurance policies, this remission of
insurance taxes applied not only to the portion of the risk covered by SACE, but also
the remaining portion covered by the private insurance company. As a result,
export credit insurance policies sold by SIAC during the POR were totally exempt
from the insurance tax by virtue of its
reinsurance agreement with SACE. Export credit insurance policies sold by other
private insurance companies, however, were not exempt from the insurance tax.
The insurance tax rate was 12.5 percent of premia paid.
In Pasta from Italy, we determined that the exemption from the insurance tax
for policies directly insured or reinsured with SACE was a countervailable subsidy
within the meaning of section 771(5) of the Act. The exemption represents revenue
foregone by the GOI and confers tax savings on the companies. Also, because export
credit insurance was available only to exporters and was by its nature contingent
upon export performance, we found the remission of taxes on export credit
insurance to be specific within the meaning of section 771(5A) of the Act. In this
review, neither the GOI nor the responding companies provided new information
which would warrant reconsideration of this determination.
La Molisana obtained export credit insurance from SIAC for its exports to the
United States and, therefore, was exempted from the insurance tax. To calculate the
benefit, we multiplied the premia paid during each year of the POR for exports to the
United States by the insurance tax rate and divided the amount by total exports to
the United States in each year. We calculated a countervailable subsidy rate of 0.04
percent ad valorem in 1995 and 0.04 percent ad valorem in 1996 for La Molisana.

H. European Social Fund

The ESF is one of the Structural Funds operated by the EU. The ESF was created
under Article 123 of the Treaty of Rome in order to improve employment
opportunities for workers and to help raise their living standards. The ESF provides
principally vocational training and employment aids. ESF aid is generally provided
directly to public institutions or non-commercial enterprises. However, it can also
be provided directly to a company, as long as it is located in an Objective 1,
Objective 2, or Objective 5(b) region. Objective 1 regions are those regions whose
development and structural adjustment has been identified by the EU as lagging
behind. Objective 2 regions are frontier regions seriously affected by industrial
decline. Objective 5(b) regions are rural regions in need of development. The ESF
provides grants to companies located in such regions in order to train current
employees for new jobs or to hire new employees.
Delverde/Tamma received ESF grants.
In Pasta from Italy, the Department determined that ESF grants were
countervailable subsidies within the meaning of section 771(5) of the Act. The
Department considers worker assistance programs to be countervailable when a
company is relieved of an obligation it would otherwise have incurred. (See, GIA 58
FR at 37255.) In addition to providing funds for training programs which
may or may not relieve companies of an obligation, ESF funds were available to aid
companies in hiring new employees. Because a company is normally obligated to
meet its hiring needs without assistance from the government, ESF funds clearly
relieved companies of an obligation. Thus, the grants were a direct transfer of funds
providing a benefit in the amount of the grant. Also, because ESF assistance to
individual companies is limited to companies located in Objective 1, Objective 2,
and Objective 5(b) regions, they were found to be regionally specific within the
meaning of section 771(5A) of the Act. In this review, neither the GOI nor the
responding companies provided new information which would warrant
reconsideration of this determination.
Because a separate application is required for each grant and because grants are
awarded for specific projects, we have found the grants to be non- recurring. We
determined that the grants received by Delverde/Tamma were less than 0.5 percent
of the companies' sales in 1995, the year of receipt. Therefore, in accordance with
past practice, we expensed these non-recurring grants to the year of receipt. On this
basis, we calculated a countervailable subsidy rate of 0.04 percent ad valorem for
Delverde/Tamma in 1995.

I. 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 exporter of pasta products, regardless of whether the pasta was
made with imported wheat or wheat grown within the EU. The amount of the
restitution payment is calculated by multiplying the prevailing restitution payment
rate on the date of exportation by the weight of the unmilled durum wheat used to
produce the exported pasta. The weight of the unmilled durum wheat is calculated
by applying a conversion factor to the weight of the pasta. The EU calculates the
restitution payment rate, on a monthly basis, by first computing the difference
between the world market price of durum wheat and an internal EU price and then
adding a monthly increment (in all months except June and July, which are harvest
months). The EU will not normally allow the restitution payment rate to be higher
than the levy that the EU imposes on imported durum wheat, as such a situation
would lead to circular trade.
In 1987, the nature of this program changed with regard to exports to the

*17378

United States as a result of a settlement reached by the United States and the EU.
This settlement arose out of a GATT panel proceeding, brought by the United States,
in which the panel ruled (in 1983) that the restitution program violated the EU's
GATT obligations and did not fall within the exception under Item (d) of the
Illustrative List of Export Subsidies.

Under the settlement, the EU agreed to allow the importation of durum wheat from
any non-EU country free of any levy under a system described in the settlement as
"Inward Processing Relief" ("IPR"). Under this system, the EU pasta exporter 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
of durum wheat in the first place.
As to pasta products containing EU 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 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 EU 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 EU durum
wheat or durum wheat imported without IPR, on the other hand. The goal was for 50
percent of the EU'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 EU's pasta exports to the United States would contain EU 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.
In Pasta from Italy, the Department determined that export restitution
payments were countervailable subsidies within the meaning of section 771(5) of
the Act. Each payment represented a direct transfer of funds from the EU providing
a benefit in the amount of the payment. The restitution payments were found to be
specific because their receipt is contingent upon export performance. In this
review, neither the GOI, the EU nor the responding companies provided new
information which would warrant reconsideration of this determination.
Delverde/Tamma, La Molisana, Audisio and Petrini received export restitution
payments during the POR on shipments to the United States.
In accordance with our normal practice of recognizing subsidy benefits when there
is a cash-flow effect, we have calculated the subsidy rate for export restitution
benefits based on the amount actually received during the POR. Export restitution
benefits are not "automatic" in that their receipt is not certain until an application
has been filed. The amounts received, while generally quite close to the amounts
requested, do not always equal the amount indicated by the company on its request
form. Thus, we have calculated the subsidy rate for export restitution benefits based
on the amount actually received during the POR.

To calculate the subsidy, we divided the export restitution payments received in
each year of the POR on shipments to the United States by the company's sales of
pasta for export to the United States in each year. We calculated a countervailable
subsidy under this program of 0.23 percent ad valorem in 1995 and 0.19 percent ad
valorem in 1996 for Delverde/Tamma, 0.08 percent ad valorem in 1995 and 0.07
percent ad valorem in 1996 for La Molisana, 2.27 percent ad valorem in 1995 and
0.00 percent ad valorem in 1996 for Petrini, and 7.78 percent ad valorem in 1995
and 0.00 percent ad valorem in 1996 for Audisio.

II. Program Preliminarily Determined to Confer a Subsidy: Grant Received Pursuant
to the Community Initiative Concerning the Preparation of Enterprises for the Single
Market (PRISMA)

PRISMA, a program funded by the European Structural Fund, seeks to contribute to
the creation of a single EU market by improving standardization and quality control
procedures, and seeks to assist small- and medium-sized enterprises in Objective 1
regions to adapt to a single EU market and increased competition.
La Molisana received a PRISMA grant in 1996.
We preliminarily find that PRISMA grants constitute countervailable subsidies
within the meaning of section 771(5) of the Act. The grants represent a transfer of
funds from the administering government and provide a benefit in
the amount of the grant. Further, we preliminarily find that they are specific within
the meaning of section 771(5A) because they are limited to firms located in
designated geographic regions.
Because the grant received by La Molisana was less than 0.5 percent of the
company's sales in 1996, the year of receipt, we have allocated the entire grant to
that year. To calculate the countervailable subsidy, we divided the benefit received
by La Molisana's sales in 1996, the year of receipt. On this basis, we determine the
countervailable subsidy for this program to be 0.00 percent ad valorem in 1995 and
0.10 percent ad valorem in 1996 for La Molisana.

III. Programs Preliminarily Determined to Be Not Used

We examined the following programs and preliminarily determine that the
producers and/or exporters of the subject merchandise did not apply for nor
receive benefits under these programs during the POR:
A. VAT Reductions
B. Export Credits Under Law 227/77
C. Capital Grants Under Law 675/77
D. Retraining Grants Under Law 675/77
E. Interest Contributions on Bank Loans Under Law 675/77
F. Interest Grants Financed by IRI Bonds
G. Preferential Financing for Export Promotion Under Law 394/81
H. Corporate Income Tax ("IRPEG") Exemptions
I. European Agricultural Guidance and Guarantee Fund
J. Urban Redevelopment Under Law 181

Preliminary Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we calculated an individual subsidy
rate for each producer/exporter subject to this administrative review. For the
periods October 17, 1995, through December 31, 1995, January 1, 1996, through
February 13, 1996, and July 24, 1996, through December 31, 1996, we preliminarily
determine the net subsidy rates for producers/exporters under review to be those
specified in the chart shown below. (In accordance with section 703(d) of the Act,
countervailing duties will not be assessed on entries made during the period
February 14, 1996, through July 23, 1996.) If the final results of this review remain
the same as these preliminary results, the Department intends to instruct customs
to assess countervailing duties at these net subsidy rates.
The Department also intends to instruct Customs to collect cash deposits of
estimated countervailing duties at these rates on the f.o.b. value

*17379

of all shipments of the subject merchandise from the producers/exporters under
review entered, or withdrawn from warehouse, for consumption on or after the date
of publication of the final results of this administrative review.
Because the URAA replaced the general rule in favor of a country-wide rate with a
general rule in favor of individual rates for investigated and reviewed companies,
the procedures for establishing countervailing duty rates, including those for
non-reviewed companies, are now essentially the same as those in antidumping
cases, except as provided for in section 777A(e)(2)(B) of the Act. The requested
reviews will normally cover only those companies specifically named. See 19 CFR
351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which a review was
not requested, duties must be assessed at the cash deposit rate, and cash deposits
must continue to be collected, at the rate previously ordered. As such, the
countervailing duty cash deposit rate applicable to a company can no longer
change, except pursuant to a request for a review of that company. See,
Federal-Mogul Corporation and The Torrington Company v. United States, 822
F.Supp. 782 (CIT 1993) and Floral Trade Council v. United States, 822 F.Supp. 766
(CIT 1993) (interpreting 19 CFR 353.22(e), the antidumping regulation on automatic
assessment, which is identical to 19 CFR 355.22(g), the predecessor to 19 CFR
351.212(c)). Therefore, the cash deposit rates for all companies except those
covered by this review will be unchanged by the results of these reviews.
We will instruct Customs to continue to collect cash deposits for non-
reviewed companies, except Barilla G. e R. F.lli S.p.A. ("Barilla") and Gruppo
Agricoltura Sana S.r.L. ("Gruppo") (which were excluded from the order during the
investigation), at the most recent company-specific or country-wide rate applicable
to the company. Accordingly, the cash deposit rates that will be applied to
non-reviewed companies covered by this order are those established in the Notice
of Countervailing Duty Order and Amended Final Affirmative
Countervailing Duty Determination: Certain Pasta ("Pasta") from Italy (61
FR 38544, July 24, 1996), the most recently published countervailing duty
rates for companies not reviewed in this administrative review. These rates shall
apply to all non-reviewed companies until a review of a company assigned these
rates is requested. In addition, for the periods from October 17, 1995, through
February 13, 1996, and from July 24, 1996, through December 31, 1996, the
assessment rates applicable to all non-reviewed companies covered by these orders
are the cash deposit rates in effect at the time of entry, except for Barilla and Gruppo
(which were excluded from the order during the original investigation).

-------------------------------------------------------------------------------
Company Ad valorem rate
-------------------------------------------
10/17/95 to 01/01/96 to 02/13/96 and
12/31/95 07/24/96 to 12/31/96
-------------------------------------------------------------------------------
Delverde, S.r.l ......................... 5.09 4.66
La Molisana Alimentari S.p.A ............ 3.44 2.67
Tamma Industrie Alimentari di
Capitanata ............................ 5.09 4.66
Petrini ................................. 2.27 0.00
Audisio ................................. 7.78 0.00
-------------------------------------------------------------------------------

Public Comment

Parties to this proceeding may request disclosure of the calculation methodology
and interested parties may request a hearing not later than 30 days after the date of
publication of this notice. Interested parties may submit written arguments in case
briefs on these preliminary results within 30 days of the date of publication.
Rebuttal briefs, limited to arguments raised in case briefs, may be submitted five
days after the time limit for filing the case brief. Parties who submit an argument in
this proceeding are requested to submit with the argument (1) a statement of the
issue, and (2) a brief summary
of the argument. Any hearing, if requested, will be held two days after the scheduled
date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs must
be served on interested parties in accordance with 19 CFR 351.303(f).
Representatives of parties to the proceeding may request disclosure of proprietary
information under administrative protective order no later than 10 days after the
representative's client or employer becomes a party to the proceeding, but in no
event later than the date the case briefs, under 19 CFR 351.309(c)(ii), are due.
The Department will publish the final results of this administrative review, including
the results of its analysis of issues raised in any case or rebuttal briefs or at a
hearing.
This administrative review and notice are in accordance with section 751(a)(1) of
the Act (19 U.S.C. 1675(a)(1)).
Dated: April 2, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-9434 Filed 4-8-98; 8:45 am]

BILLING CODE 3510-DS-P