(Cite as: 47 FR 26331)
NOTICES
DEPARTMENT OF COMMERCE
Preliminary Affirmative Countervailing Duty Determination; Carbon Steel
Structural Shapes From Luxembourg
Thursday, June 17, 1982
*26331 AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary Affirmative Countervailing Duty Determinations.
SUMMARY: We preliminarily determine certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes, as described in the "Scope of the Investigation" section of this notice. The estimated net subsidy is indicated in the "Suspension of Liquidation" section of this notice. Therefore, we are directing the U.S. Customs Service to suspend liquidation of all entries of the product subject to this determination which are entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or bond on this product in the amount equal to the estimated net subsidy.
If this investigation proceeds normally, we will make our final determination by August 24, 1982.
EFFECTIVE DATE: June 17, 1982.
FOR FURTHER INFORMATION CONTACT:
Michael J. Altier, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230, telephone: (202) 377- 1785.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine there is reason to believe or suspect certain benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended ("the Act"), are being provided to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes, as described in the "Scope of the Investigation" section of this notice. For purposes of this investigation, the following programs are preliminarily found to be subsidies:
Capital grants
Preferential loans
Government equity participation
We estimate the net subsidy to be the amount indicated in the "Suspension of Liquidation" section of this notice.
Case History
On January 11, 1982, we received petitions from United States Steel Corporation; counsel for Bethlehem Steel Corporation; and counsel for Republic Steel Corporation, Inland Steel Company, Jones & Laughlin Steel, Inc., National Steel Corporation, and Cyclops Corporation ("the Five"), filed on behalf of the U.S. industry producing carbon steel structural shapes. The petitions alleged that certain benefits which constitute subsidies within the meaning of section 701 of the Act are being provided, directly or indirectly, to the manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes. Counsel for Bethlehem Steel Corporation and counsel for the Five alleged that "critical circumstances" exist, as defined in section 703(e) of the Act.
We found the petitions to contain sufficient grounds upon which to initiate a countervailing duty investigation, and on February 1, 1982, we initiated a contervailing duty investigation (47 FR 5750). We stated that we expected to issue a preliminary determination by April 6, 1982. We subsequently determined that the investigation is "extraordinarily complicated", as defined in section 703(c) of the Act, and postponed our preliminary determination for 65 days until June 10, 1982 (47 FR 11738).
Since Luxembourg is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. Therefore, we notified the U.S. International Trade Commission ("ITC") of our initiation. On February 26, 1982, the ITC preliminarily determined that there is a reasonable indication that these imports are materially injuring a U.S. industry.
We presented questionnaires concerning the allegations to the Delegation of the Commission of the European Communities and to the government of Luxembourg in Washington, D.C. On April 30, 1982, we received the responses to the questionnaires.
Scope of the Investigation
The product covered by this investigation is carbon steel structural shapes and is fully described in Appendix A which appears with the notice of "Preliminary Affirmative Countervailing Duty Determinations, Certain Steel Products from Beligium", in this issue of the Federal Register.
Acieries Reunies de Burbach-Eich-Dudelange S.A. ("ARBED") is the major steel producer and exporter in Luxembourg of carbon steel structural shapes which are exported to the United States. It owns 25.09 percent of Metallurgique et Miniere de Rodange-Athus S.A. ("MMRA"). MMRA is the only other known producer of steel, including carbon steel structural shapes, in Luxembourg. In view of the relationship between these companies and since they both produce the product under investigation, we are treating ARBED as the sole respondent for Luxembourg in this investigation. Benefits to MMRA are treated as benefits to ARBED. We will apply the same subsidy rate to both companies for purposes of this preliminary determination. The period for which we are measuring subsidization is the calendar year 1981, which is ARBED's fiscal year.
Analysis of Programs
In their responses, the government of Luxembourg ("GOL") and the Delegation of the Commission of the European Communities provided data for the applicable periods. Additionally, we received information from ARBED, which produced and exported carbon steel structural shapes which were exported to the United States during 1981.
Throughout this notice, general principles applied by the Department of Commerce to the facts of the current investigation concerning certain steel products are described in detail in Appendix B, which appears with the notice of "Preliminary Affirmative Countervailing Duty Determinations, Certain Steel Products from Belgium", in this issue of the Federal Register (hereinafter, Appendix B). Appendix C, which also appears with the above cited Beligium Federal Register notice, is a description of programs administered by organizations of the European Communities (hereinafter, Appendix C). Based upon our analysis to date of the petitions and responses to our questionnaires, we preliminarily determine the following.
*26332 I. Programs Preliminarily Determined To Be Subsidies
We preliminarily determine subsidies are being provided to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes under the programs listed below:
The Steel Industry Three-Party Conference Agreement of March 19, 1979 on the Restructuring of the Luxembourg Steel Industry (the "Tripartite Agreement"), its Codicil dated January 22, 1981, the Supplement to the Agreement of the Tripartite Conference on the Restructuring of the Luxembourg Steel Industry approved on January 15, 1981, and the Law of July 1, 1981 pertaining to the restrucurting and modernization of the steel industry set forth programs which have been used to provide specific assistance to the steel industry. The Tripartite Agreement, as supplemented, and the 1981 law constitute the basis for the plan to restructure and modernize the steel industry in Luxembourg.
The restructuring plan calls for the granting of aid under previous laws, primarily the Law of July 28, 1973 for economic expansion, which the government claims is not limited to a specific enterprise or industry, or group of enterprises or industries. The plan, however, obligated the government to provide benefits to the steel industry. Prior to the plan the government had the discretion to consider and reject applications from the steel industry. The plan also increased the range and the limits of the benefits provided under the earlier law in order to benefit specifically the steel industry. Therefore, we preliminarily determine that the programs under the plan provide countervailable benefits to the steel industry.
Under the plan, the GOL may grant an amount equivalent to 15 percent of the investment made by a steel company between January 1, 1980, and December 31, 1984. Under unspecified conditions, an additional amount equivalent to 10 percent of "extraordinary and temporary aid" may be provided.
ARBED stated that between 1978 and 1981 it received four major investment grants fro the GOL. Three of the four grants were awarded expressly for buildings and equipment used exclusively for the production of products not under investigation. Consequently, we are not considering these grants as countervailable benefits to the production of the product under investigation. The remaining grant was awarded expressly for (i.e., "tied" to) the construction of a blast furnace at Esch-Belval and, according to the GOL, was received in 1981. We find this grant to be a subsidy. We allocated the benefit over total ARBED steel production since it was for a blast furnace which produces pig iron, and input common to steel production.
In addition, the GOL response provides information on several small government grants which were awarded on an "ad hoc" basis and provided to ARBED between 1977 and 1978 for the purposes of employing surplus labor in investment projects within the steel plants. Although the GOL responded that certain labor programs were not preferential to steel, it was not clear from the response that these grants meet that description. In light of the GOL's statement that measures specific to the steel industry were taken at this time, we preliminarily determine that these grants provide countervailable benefits. We have allocated the benefit of the grants over total ARBED steel production.
The GOL response also shows several government grants to MMRA for unspecified investments between 1979 and 1980. We preliminarily determine these grants to provide countervailable benefits. We have allocated the benefit over total ARBED steel production.
The amount of each of the above grants was less than one percent of ARBED's gross revenue ("turnover"). The grant for the blast furnace was tied to a specific purchase of capital equipment. The other grants (the "ad hoc" and MMRA type) are treated as untied, since we did not receive specific information on their uses and do not know whether they were used for items expensed in one year. All of these grants are allocated over a 15-year period, which is an estimate of the average life of steel assets. We calculated the benefit of these grants according to the methodology described in Appendix B.
The subsidy rate with respect to this program is 0.231 percent ad valorem.
The GOL, GOL-controlled financial institutions, and the European Coal and Steel Community ("ESCS") have provided a number of investment loans to ARBED and MMRA. The petitioners alleged that ARBED was uncreditworthy. ARBED has sustained losses ranging from 1.6 to 4.9 billion BF in six out of the last seven years. Further, certain financial ratios for this company indicate an uncreditworthy situation. It is not clear whether ARBED has in the past seven years obtained a loan from a private commercial source under arm's length conditions. The capital subsidies received by ARBED from the GOL are embedded in the company's financial statements and may distort the financial ratios and the extent of losses. Therefore, the financial condition of ARBED may be even more tenuous than our preliminary analysis indicates.
The petitioners alleged that MMRA was uncreditworthy. The substantial losses suffered by the firm from 1975 to the present are a major indication of uncreditworthiness. The necessity for large capital infusions by the Societe Nationale de Credit et d'Investissement ("SNCI") and other participants in the MMRA rescue plan provides additional evidence of MMRA's uncreditworthy position.
On the basis of the foregoing, we determine ARBED and MMRA to be uncreditworthy companies after 1975. We have treated loans awarded after 1975, with principal still outstanding during 1981, essentially as equity investments. The subsidy value was calculated using the equity methodology for loans to uncreditworthy companies described in Appendix B. We have used the Belgian nationwide average rate of return on equity as our average return for comparison in the equity calculation, because Luxembourg's debt and equity instruments are generally traded in Belgium. We limited the subsidy to the subsidy which would exist if the equity investments were treated as grants. Concerning preferential loan programs, we preliminarily determine the following.
1. Loans from GOL and GOL-Controlled Institutions. ARBED received several loans between 1977 and 1981 from the GOL, the SNCI and the Caisse d'Epargne de l'Etat ("CEE") to finance construction of two six-strand continuous casting installation at Each-Schifflange. Since the casters do not provide inputs for the production of carbon steel structural shapes, we are not treating these loans as countervailable benefits in our preliminary determination. We will seek additional information.
ARBED received substantial short-term credit from the CEE in 1981. Since we have not received specific information on this loan, we will assume that this short-term credit is connected with the restructuring plan and preliminarily treat it as countervailable.
The GOL response stated that MMRA received four loans from the SNCI in 1981 for investments and for the "settlement of previous charges." We preliminarily determine these loans are countervailable because they were made under specific provisions of the *26333 steel restructuring plan. Since we do not know the specific purpose of these investments, we allocated the benefits of the loans over total ARBED steel production.
2. Industrial Investment Loans from the ECSC (Article 54). According to the ARBED response, the ECSC provided ARBED with a series of loans to assist in the financing of six different investments in capital and capital equipment. We preliminarily determine five of these investments are for plant and equipment used exclusively for the production of products not under investigation. We will seek additional information on all of these loans. The remaining ECSC loans financed the blast furnace project at Esch-Belval, which provides pig iron, an input common to steel production. We preliminarily determine these loans provide a countervailable benefit since they are specific to steel production. We have allocated the benefit over total ARBED steel production. (For additional information regarding Article 54 loans from the ECSC, see Appendix C.) All of the above ECSC loans were guranteed by the GOL. We have not calculated a separate benefit for these GOL loan guarantees because the benefit of the guarantees is already included in the calculation of benefits for the ECSC loans.
3. Conclusion. We preliminarily determine the subsidy rate on the above programs to be 0.574 percent ad valorem.
The GOL and other concerned parties in Luxembourg and Belgium formulated the MMRA rescue plan, beginning in 1977, in response to MMRA's critical financial situation. In 1978, under the rescue plan, the SNCI purchased a substantial portion of MMRA shares. The SNCI acquired additional shares in 1981.
As described in Appendix B, the treatment of government equity investment in a company hinges initially on whether the government equity participation appears to be on terms consistent with commercial considerations.
ARBED and MMRA have suffered successive, substantial losses in each of the fiscal years since 1975 (see discussion in the section of Preferential Loans). Under normal business or financial criteria, deep or significant continuing losses by a company would raise doubts as to the commercial soundness of further investment in that company. Considering the magnitude of the losses and the length of time over which they occurred, the Department of Commerce regards equity investments by the government in ARBED and MMRA during the period beginning with fiscal year 1976 until the present as inconsistent with commercial considerations.
Consequently, we must examine the government's equity infusions during this period to determine whether a subsidy is actually bestowed on ARBED/MMRA. As described in greater detail in Appendix B, we compared the rate of return the government received on its equity investment in ARBED/MMRA with the average market rate of return on equity investment in Luxembourg for a given year as estimated by the average earnings yield. Since we do not have specific figures for the MMRA of return on equity, we used ARBED's figures as best available information.
ARBED's return was measured by its net earnings (or losses) divided by owners' equity. During this period ARBED/MMRA losses were significant, resulting in large negative returns on owners' equity. Since no Luxembourg figures were available on the average market rate of return on equity, we adopted the Belgian rate because debt and equity instruments from Luxembourg are generally traded in Belgium.
The comparison of the market return with ARBED/MRA's large negative return yielded a 1981 subsidy exceeding what the subsidy would have been had we treated the SNCI equity purchases as outright grants. Consequently, we limited the subsidy to the subdsidy which would exist if the equity investments were treated as grants, as explained in Appendix B. The subsidy rate with respect to this program is 0.961 percent ad valorem.
II. Programs Preliminarily Determined not to be Subsidies
We preliminarily determine subsidies are not being provided to manufactures, producers, or exporters in Luxembourg of carbon steel structural shapes under the following programs.
The GOL has committed large sums of money for the creation of new industrial zones. The money is spent on installation of roads, water and electricity in selected areas. Dudelange-Bettembourg is one such zone. ARBED is planning to occupy approximately 50 percent of this zone with a new cold rolling mill. The plan has not yet been approved by the Commission of the European Communities.
The mere provision of public roads, water and electricity is not a subsidy. Further, since ARBED has not yet utilized the government-funded infrastructure of this zone for production purposes, there can be no countervailable benefits to ARBED at this time.
B. Coal/Coke Assistance for ARBED's Subsidiary Eschweiler Berwerks-Verein ("EBV")
Petitioners alleged that ARBED indirectly benefited from German federal and state assitance to EBV, a German coal/coke producer. ARBED indirectly owns 97 percent of EBV through a 100 percent owned ARBED subsidiary, ARBED-Finanz Deutschland GmbH. ARBED (Luxembourg) purchased 100 percent of its coke supply from EBV.
We preliminarily determine that assistance from the Federal Republic of Germany ("FRG") and the state of North Rhein-Westphalia to EBV does not confer a countervailable benefit to ARBED. For a further explanation of our treatment of such FRG assistance, see Appendix B.
C. Coal and Coke Aid From the ECSC
We preliminarily determine this program not to be countervailable, as outlined in Appendix C.
D. Interest Rebates and Research and Development (R&D) Grants from the ECSC
ARBED indicates that it received both R&D grants and interest rebates from the ECSC. We preliminarily determine that these programs funded from the ECSC budget are not countervailable. Appendix C explains our treatment of these programs.
III. Programs Preliminarily Determined not to be Utilized
We preliminarily determine that the following programs which were described in the notice of "Initiation of Countervailing Duty Investigations" are not utilized by the manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes.
The Law of July 28, 1973 for economic expansion provided that the GOL could disburse funds to reduce the interest rates of a qualitied firm's investment borrowings. This interest rebate measure was incorporated into the Tripartite Agreement. However, the GOL has to date neither granted any interest rebates to ARBED or provided funds to banks for reduced interest loans to ARBED.
*26334B. European Investment Bank ("EIB")
ARBED stated that it had no outstanding debt to the EIB. For further details regarding the EIB, see Appendix C.
Petitioners alleged that the GOL agreed to make a purchase of convertible bonds from ARBED. The GOL has stated in its response that it has not acquired bonds issued by either ARBED or MMRA. We will seek additional information.
IV. Programs for Which Additional Information is Needed
The following programs were alleged by the petitioners to be subsidies: labor aid supplied to the Anti-Crisis Division, rail transportation rates, preferential tax programs, and loans from affiliated companies. At this time, we do not have sufficient information upon which to determine whether these programs are providing to manufacturers, producers, or exporters of carbon steel structural shapes in Luxembourg benefits which constitute subsidies within the meaning of the countervailing duty law. We will seek additional information regarding these programs before reaching a final determination.
A. Anti-Crisis Division ("DAC")
The DAC is an organization managed by ARBED which employs surplus steel employees. Under the restructuring plan, the GOL agreed to pay a varying percentage of the DAC expenses. It is unclear from the GOL and ARBED responses what sort of tasks are performed by the DAC. We will seek additional information regarding the DAC to determine if a countervailable benefit is conferred on ARBED's production or export of carbon steel structural shapes by government assistance to this organization.
ARBED responded that rail rates are set according to the rates offered by the most competitive waterway carriers, but did not clarify whether the rates available to ARBED applied to other users. The GOL stated that ARBED's rail rates take into account the firm's proximity to the French border, but did not explain how this affected the rates. Neither the GOL nor ARBED provided a table of comparable rates or clarified whether the waterway and French border rates are generally available to all shippers. We have been unable to determine from information received to date whether rail rates are preferential to the steel industry. We will seek additional information.
Luxembourg tax provisions permit certain firms to carry forward indefinitely losses equal to 50 percent of annual depreciation. This option is available to any company belonging to a sector of the economy determined by the GOL to be undergoing a structural crisis. We will seek additional information on these tax provisions and what use, if any, has been made of them by ARBED or MMRA.
D. Loans from Affiliated Companies
A large portion of ARBED's finances was covered by loans from subsidiary companies. In the questionnaire we requested information on all government aid to related companies. We have obtained limited information on EBV and ARBED Finanz Deutschland GmbH, but insufficient information on ARBED's receipt of loans from these companies or other related companies. The petitioners were unable to supply much information on ARBED Finanz and on ARBED Finance Luxembourg. We will seek additional information on these loans from related companies.
Negative Determination of Critical Circumstances
Counsel for Bethlehem Steel Corporation and counsel for the Five alleged that imports of carbon steel structural shapes present "critical circumstances." Under section 703(e)(1) of the Act, critical circumstances exist when the alleged subsidy is inconsistent with the Subsidies Code of the General Agreement on Tariffs and Trade and "there have been massive imports of the class or kind of merchandise which is the subject of the investigation over a relatively short period."
Since these investigations were initiated, U.S. imports of carbon steel structural shapes from Belgium/Luxembourg were 24,053 net tons in February, 13,418 net tons in March, and 12,701 net tons in April, the most recent month for which import statistics are available. (Import statistics available to the Department of Commerce are combined for Belgium/Luxembourg.) In the context of this industry, these products have not recently been massively imported from Belgium/Luxembourg over a relatively short period. Therefore, critical circumstances do not exist for carbon steel structural shapes.
Verification
In accordance with section 776(a) of the Act, we will verify data used in making our final determination.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to suspend the liquidation of all entries of carbon steel structural shapes which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register, and to require a cash deposit or bond for each such entry of the merchandise in the amounts indicated below:
---------------------------------------------------------------
Manufacturer/producer/exporter Ad valorem rate (percent)
---------------------------------------------------------------
ARBED (including MMRA) .................................. 1.766
All others .............................................. 1.766
---------------------------------------------------------------
This suspension will remain in effect until further notice.
ITC Notifications
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 nonprivileged and nonconfidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.
Public Comment
In accordance with s 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on this preliminary determination at 10:00 a.m. on July 13, 1982, at the U.S. Department of Commerce, Room 6802, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, Room 3099B, at the above address on or before June 28, 1982. Requests 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, prehearing briefs must be submitted to the Deputy Assistant Secretary by July 6, 1982. Oral presentations will be limited to issues raised in the briefs.
*26335 All written views should be filed in accordance with 19 CFR 355.34, on or before July 19, 1982, at the above address and in at least ten copies.
Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.
June 10, 1982.