(Cite as: 47 FR 39364)
NOTICES
DEPARTMENT OF COMMERCE
Final Affirmative Countervailing Duty Determination: Carbon Steel Structural
Shapes From Luxembourg
Tuesday, September 7, 1982
*39364 AGENCY: International Trade Administration, Commerce.
ACTION: Final Affirmative Countervailing Duty Determination.
SUMMARY: We have determined that certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes, as described in the "Scope of Investigation" section of this notice. The estimated net subsidy for each firm for carbon steel structural shapes is indicated under the "Suspension of Liquidation" section of this notice. The U.S. International Trade Commission (ITC) will determine within 45 days of the publication of this notice whether these imports are materially injuring, or threatening to materially injure, a United States industry.
EFFECTIVE DATE: September 7, 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:
Final Determination
Based upon our investigation, we have determined that certain benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes, as described in the "Scope of Investigation" section of this notice. The following programs are found to confer subsidies:
1/8 Capital grants
1/8 European Coal and Steel Community (ECSC) interest rebates
1/8 Anti-Crisis Division (ACD)
We determine the estimated net subsidy to be the amount indicated for each firm for carbon steel structural shapes 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 petitioners alleged that certain benefits which constitute subsidies within the meaning of section 701 of the Act are being *39365 provided, directly or indirectly, to the manufacturers, producers, or exporters of this product. 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 contained sufficient grounds upon which to initiate a countervailing duty investigation, and on February 1, 1982, we initiated a countervailing duty investigation (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 ITC of our initiation. On February 26, 1982 the ITC preliminarily determined that there is a reasonable indication that these imports are materially injuring or threatening to materially injure 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. On June 10, 1982 we issued our preliminary determination in this investigation (47 Fed. Reg. 26331-35). It stated in our preliminary determination that the government of Luxembourg was providing its manufacturers, producers, or exporters of carbon steel structural shapes with benefits which constitute subsidies. The programs preliminarily determined to bestow countervailable benefits were:
1/8 Capital grants
1/8 Preferential loans
1/8 Government equity participation
Scope of Investigation
The product covered by this investigation is carbon steel structural shapes. The product is fully described in Appendix 1, which appears with the notice of "Final Affirmative Countervailing Duty Determinations: Certain Steel products from Belgium," in this issue of the Federal Register.
Acieries Reunies de Burbach-Eich-Dudelange S.A. (ARBED) and Metallurgique et Miniere de Rodange-Athus S.A. (MMR-A) are the only known producers and exporters in Luxembourg of the subject product which was exported to the United States.
The period for which we are measuring subsidization is the calendar year 1981. ARBED and MMR-A operate on a fiscal year which runs from January 1 to December 31.
Analysis of Programs
In its response, 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. ARBED and MMR-A produced and exported carbon steel structural shapes to the United States during 1981.
At the time the countervailing duty questionnaires were sent to the respondent companies, the Department decided to treat certain related companies as defined in the questionnaire instructions. The questionnaire specified that the term "your company" included all companies in which the respondent company held 20 percent or more of the voting interest. We knew at the time that ARBED owned at least 25.09 percent of all MMR-A shares.
The General Instructions of the questionnaire stated that if the related company was the recipient of a separate countervailing duty questionnaire, the parent company was not obligated to answer for its subsidiary. However, if the related company was not a recipient of a separate questionnaire, then the Department's position was clear that the respondent parent company should answer on the behalf of its related subsidiary.
In our preliminary determination we treated ARBED as the sole respondent for Luxembourg in this investigation. Benefits to its subsidiary MMR-A were treated as benefits to ARBED and MMR-A. A common subsidy rate was applied. Based on information received after the preliminary determination, we are now treating ARBED and MMR-R as separate respondents. WE have verified that ARBED owns nearly 40 percent of MMR-A, but the financial structures of ARBED and MMR- A are separate. MMR-A receives benefits directly from the government of Luxembourg, independently of ARBED participation.
In its response ARBED chose not to answer for MMR-A since it considered common treatment of ARBED and MMR-A as not merited in the circumstances. In our preliminary determination, we decided to quantify countervailable benefits to MMR-A as benefits to all ARBED/MMR-A production based on information that MMR-A produced carbon steel structural shapes and that ARBED/MMR-A production figures were combined in the ARBED annual reports. At verification both ARBED and the GOL disputed the Department's treatment of MMR-A as part of ARBED with the following arguments:
Financial management of ARBED and MMR-A is separate.
GOL benefits to MMR-A are separate from those bestowed on ARBED and are not allowed to pass through MMR-A to ARBED in any tangible fashion, with the exception of the Anti-Crisis Division benefits.
ARBED, as part of the steel restructuring program has invested large amounts in MMR-A and provided some loans to that company. ARBED officials argue that ARBED is a financial contributor to MMR-A, which is further proof that no financial benefits have yet accrued to ARBED from MMR-A subsidies.
MMR-A exports of the product under investigation were considered insignificant by ARBED and GOL officials.
During our verfication in Luxembourg we acquired information which confirmed the first three arguments. Based on this information, the Department has decided that ARBED and MMR-A should be treated as separate respondents. Separate subsidy rates will be calculated for each company based on our determination that countervailable benefits from the GOL and ECSC were bestowed separately on each company and were not transferred from one company to the other once they were received. Separation of the two companies ensures that the Department's assessment of the countervailing duty rates corresponds more precisely to the actual distribution of the countervailable benefits. We received no response from MMR-A and we are basing its subsidy rate on information obtained from the government and ARBED which we consider a related company.
Throughout this notice, general principles applied by the Department of Commerce to the facts of the current investigations concerning certain steel products are described in detail in Appendices 2 through 4, which appear with the notice of "Final Affirmative Countervailing Duty Determinations, Certain Steel Products from Belgium", in this issue of the Federal Register. Unless otherwise noted, one subsidy rate is calculated for each company for product under investigation produced by that company. Where benefits were provided to the specific product, they were allocated over the value of sales of only that product in calculating the subsidy rate. Based upon our analysis of the petition, responses to our questionnaires, our verification, and oral and written comments by interested parties, we determine the following.
*39366 I. Programs Determined To Confer Subsidies
We have determined subsidies are being provided under the programs listed below to manufacturers, producers, or exporters in Luxembourg of carbon steel structual shapes.
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 (the 1981 law) pertaining to the restructuring and modernization of the steel industry set forth programs which have been used to provide specific assistance to the steel industry. The 1979 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 adoption of the plan, the government had discretion to reject applications for aid from the steel industry. The plan also increased the range and the limits of the benefits directed specifically to the steel industry. Therefore, we have determined 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 total approved capital investments made by a steel company between January 1, 1980, and December 31, 1984. The GOL may also grant an additional "extraordinary and temporary aid" equivalent to 10 percent of these investments. This 10 percent is considered reimbursable once the beneficiary earns taxable income, but under conditions to be set by the government at that time. A company becomes eligible for the grant and reimbursible aid once it has made its investment in the particular project or projects. In the event the grant or aid has been awarded in a lump sum for a number of projects, we have been able to determine which portions of the total grant or aid amount are tied to each individual project by taking 15 percent and 10 percent, respectively of the specific investment on each project on the list. In other cases, such as a grant for the blast furnances at Esch-Belval, we determined that the entire amount was tied to a single investment. Since all of these grants, except for the aid for the rolling beam storage area discussed below, were benefits to all steep production rather than to any specific product, we allocated the benefits over total steel sales value for ARBED and over a 15 year period which is our estimate of the average life of capital assets in the steel industry.
Based on the best information available at the time of the preliminary determination, we identified three separate investment grants which were awarded exclusively for buildings and equipment used exclusively for the production of products not under investigation. We have now determined that the amounts involved represent portions of a single grant received by ARBED for a list of projects. We have determined these portions of the grant were awarded expressly for buildings and equipment used exclusively for the production of products not under investigation. Consequently, we are not considering these portions of the grant as countervailable benefits to the production of the product under investigation.
Based on the best information available at the time we preliminarily determined that all of the reimbursable aid given to ARBED in 1981 was awarded exclusively for buildings and equipment for the production of a product not under investigation. We have now determined that only portions of this reimbursable aid were awarded expressly for buildings and equipment used exclusively for the production of products not under investigation. We have not considered those particular portions of the aid as countervailable benefits. We have determined that all but one of the remaining portions of the aid are subsidies to ARBED's steel production in general and thus provide a countervailable benefit to the product under investigation. We allocated the benefit over total ARBED steel sales value in 1981. A small portion of the reimbursable aid awarded in 1981 went to the expansion of the rolling beam storage area at Differdange. As this confers a specific benefit on the production and export of carbon steel structrual shapes we will allocate the benefit of this portion over ARBED sales value for carbon steel structural shapes.
MMR-A also received reimbursable aid in 1981 under the 10 percent program. Since the aid was for general restructuring investments, we will allocate the amount over the total MMR-A sales value for steel.
We have determined that another grant received by ARBED was tied to the construction of blast furnaces at Esch-Belval and was received in 1981. We find this grant to be a subsidy. We allocated the benefit over total ARBED steel sales value since it was for blast furnaces which produce pig iron, an input common to all steel production.
In addition to grants received pursuant to the Tripartite Agreement of 1979 and the supplemental agreements and laws, the GOL response provides information on several small government grants which were awarded on an "ad hoc" basis and provided to ARBED and MMR-A between 1977 and 1979 pursuant to the 1978 Tripartite Agreement for the purposes of employing surplus labor in investment projects within the steel plants. Although the GOL responded that these programs were not preferential to steel, in the 1978 Tripartite Agreement the government agreed to provide these programs to the steel industry. We have determined that these grants provide countervailable benefits. We have allocated the benefit of the grants over total ARBED and MMR-A turnover, respectively.
The GOL response also shows several government grants and reimbursable aid given to MMR-A in 1980 and 1981. These grants were awarded for investments for the general restructuring of MMR-A's steel production capacity. We have determined these grants provide countervailable benefits because they are targeted to the steel industry. We have allocated the benefit over total MMR-A steel sales values.
In the ABRED response the reimbursable aids were defined as loans. For purposes of quantifying the benefit they confer, we have treated reimbursable aids as grants since the exact terms of their repayment are not given and no interest has been to date charged.
In 1981, MMR-A received an interest free loan from the Societe Nationale de Credit et d'Investissement (SNCI) to cover debt contracted on a specific capital project. The SNCI is a state controlled financial institution which is authorized under the Law of August 21, 1977 to provide long-term investment loans at both preferential and commercial rates. The loan in question was awarded under a specific provision in the January 1981 codicil to the 1979 Tripartite Agreement. The provision stated that the terms of repayment of the principal would be set by the GOL five years after receipt of the loan and based *39367 on the government's review of MMR-A's financial condition. Since we do not have the specific repayment terms, and no interest is being charged, we treated this loan as a grant tied to the purchase of capital equipment. The benefits were allocated over the average useful life of 15 years and allocated over MMR-A's total steel sales.
Each of the above grants was less than $50 million and was less than one percent of the gross revenue (turnover) of ARBED and MMR-A, respectively, but they were not for items normally expensed in one year. Most of the the post- 1979 grants for ARBED were tied to specific purchases of capital equipment such as the blast furnace. Some of the other grants (the "ad hoc" and some MMR-A grants) are treated as untied, since they were not targeted for a specific investment. In accordance with the methodology of Appendix 2, all of these grants are allocated over a 15-year period, which is our estimate of the average life of capital assets in the steel industry.
The subsidy rate with respect to this program is 0.269 percent ad valorem for ARBED and 0.457 percent ad valorem for MMR-A.
ARBED indicates that it received interest rebates from the ECSC. For reasons described in Appendix 3, we determine that this program funded from the ECSC budget is countervailable only for that portion of the ECSC budget which is financed from Member State contributions. The value of the rebates is expensed in the year received because it is used to fund interest expenses normally expensed in one year, and because the total value of the rebates in any given year are small (i.e., less than one percent of ARBED's sales). Consequently, we are countervailing the subsidized portion of those rebates received by ARBED in 1981.
The subsidy rate for ARBED with respect to this program is 0.0007 percent ad valorem.
Because we received no response from MMR-A we assumed the company received interest rebates on its outstanding ECSC loans in 1981. ECSC interest rebates are generally given in the amount of three percent of the interest paid. A benchmark rate for ARBED's ECSC loans received in 1980 was used to estimate the interest rate on the ECSC loans to MMR-A. We have calculated the amount of rebate as the ECSC mandated three percent of the interest paid on the outstanding ECSC debt.
The subsidy rate for MMR-A with respect to this program is 0.004 percent ad valorem.
C. Anti-Crisis Division (DAC).
The DAC is an organization managed by ARBED which was established to employ redundant steel workers and white collar employees from both ARBED and MMR-A. Under the restructuring plan, the GOL agreed to pay a varying percentage of the DAC wage expense. ARBED conditionally pays the balance of the expense. Under Luxembourg law, neither ARBED nor MMR-A would otherwise be obligated to pay the DAC wage expenses now covered by the GOL.
To the extent the GOL subsidies to DAC are not for workers engaged in steel production and do not cover a cost of production that would otherwise be incurred by ARBED and MMR-A, we have determined that these funds do not confer a countervailable benefit on the production or export of carbon steel structural shapes from Luxembourg. We have found that in some instances DAC employees are used as construction workers in ARBED and MMR-A capital projects and that the wages of the DAC workers involved in the capital projects are partially subsidized by the GOL. We have determined that some of these capital projects contribute to the production or export of the product under investigation. In those cases where the capital project relates to the product under investigation, we determined the GOL subsidy to the DAC workers involved with the project to be a countervailable benefit. We have allocated the benefits over total ARBED and MMR-A sales where the capital projects relate to the companies' steel production in general. When the capital project is specifically intended to benefit carbon steel structural shapes, we have allocated the benefit over the value of the specific product's sales for the company receiving the benefit.
Since the GOL subsidy to the DAC covers a cost normally expensed in the year received, i.e., wages, we treated the DAC subsidy as a grant expensed in the year received. We have determined the subsidy rates for ARBED and MMR-A on the above program are 0.269 percent ad valorem and 1.062 percent ad valorem, respectively.
II. Programs Determined Not To Confer Subsidies
We have determined subsidies are not being provided under the following programs to manufacturers, producers, or exporters in Luxembourg of carbon steel structural shapes.
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-Betembourg 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 generally available, generally used public roads, water and electricity is not a subsidy. Further, since ARBED has not yet used 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 Bergwerks-Verein (EBV).
Petitioners alleged that ARBED benefited indirectly from German federal and state assistance 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.
For reasons described in Appendix 2 and in the "Notice of Final Affirmative Countervailing Duty Determinations, Certain Steel Products From the Federal Republic of Germany" in this issue of the Federal Register, we determined that coal and coking subsidies are not passed along to coal purchasers when the coal prices established in an arm's-length transaction are at or above market prices. With respect to coal and coke transactions between related companies, one test of whether the price was, in fact, established at arm's-length is whether the coal is sold at the prevailing market rate. In this investigation, we verified that EBV sells coke to ARBED at prevailing market rates. Therefore, we determined that ARBED does not receive countervailable benefits through its purchases of German subsidized coke from its subsidiary EBV.
The GOL, the government of Belgium, ARBED, the labor unions, and various Luxembourg and Belgian financial institutions formulated the MMR-A rescue plan, beginning in 1977, in response to MMR-A's critical financial situation. As part of the rescue plan, the GOL through the Caisse d'Epargne de l'Etat (CEE) and the SNCI purchased a 23.5 percent of a new MMR-A equity issue in 1978. The new equity issue increased MMR-A capital by 400 percent. ARBED purchased 25.09 percent of the same issue. The remainder was purchased by private banks and investment firms in Luxembourg and Belgium. This infusion of new equity was undertaken jointly by *39368 the GOL and the private firms. (The SNCI acquired additional shares in 1981.)
As described in Appendix 2, our treatment of government equity investment in a company hinges initially on whether the government equity participation appears to have been on terms consistent with commercial considerations at the time of the equity infusion.
MMR-A has suffered successive, substantial losses in each of the fiscal years from 1976 through 1981. Under normal business or financial criteria, deep or significant continuing losses by a company raises doubts as to the commercial soundness of further investment in that company. As discussed in section III E. below, the Department has determined that MMR-A should be considered an uncreditworthy company from 1977 through 1978 based on our analysis of its financial statements. Considering the magnitude of the losses and the length of time over which they occurred the Department would, in most cases, regard equity investments by the GOL in MMR-A during the period beginning with fiscal year 1977 through 1978 as inconsistent with commercial considerations and consequently giving rise to a potential countervailable benefit. In the case of the 1978 purchase, however, the participation of private firms prevents the Department from making the determinations that the GOL participation was inconsistent with commercial considerations. The Department found no documentary evidence that the participation of the private firms in this purchase was directed by the GOL. The circumstances of the purchase make it clear that the purchase was a coordinated cooperative effort made under the auspices of the Belgium-Luxembourg agreements for the MMR-A rescue plan. However, we have found no documents that indicate government action or direction of private parties. Further, both the private parties and the government paid the same price for the shares which also indicates the purchase was not made under terms inconsistent with commercial considerations.
The GOL made an additional purchase of MMR-A equity with concurrent private participation at the same share price in 1981. For the same reasons discussed above, the Department is unable to consider this a purchase made under terms inconsistent with commercial considerations.
D. ECSC Coal and Coke Aid and Research and Development Grants.
We have determined that these programs do not confer countervailable benefits, as outlined in Appendix 3.
We determined that steel producers in Luxembourg received reduced rail rates from the state-controlled Chemins de Fer Luxembourgeois (CFL) under a GOL program available to all industries in that country. The reduced rates are supported by GOL funds. The GOL informed us that approximately 90 percent of all commercial shippers in Luxembourg receive reduced rates which are based on specific conventions between the railroad and each company. We determined that the reduced CFL rates are set according to the rates offered by the most competitive waterway carriers, trucking companies and foreign railways available to commercial shippers in Luxembourg. The special rates may vary depending on the availability of the alternative transportation systems, and, in fact, the steel industry uses the alternative forms frequently. We determined that the central objective of the subsidized rate program is to assure that the CFL remains in business.
As the reduced rates are generally available, and are no lower than available rates for alternative transportation systems in Luxembourg, we have determined that the program does not confer a countervailable benefit on the export of carbon steel structural shapes from Luxembourg.
F. Loans for ARBED.
GOL-controlled financial institution and the European Coal and Steel Community (ECSC) have provided a number of steel specific investment loans to ARBED. We have revised our preliminary treatment as follows:
The Petitioners alleged that ARBED was uncreditworthy. We preliminarily determined this allegation to be correct based on the best available information. This included ARBED's history of substantial losses in recent years. The Department has now reversed its preliminary determination that ARBED was uncreditworthy. Information verified at the company has shown ARBED's ability to obtain private loans at commercial rates without special government intervention. Prior to verification we lacked sufficient information to establish that these loans were made: (1) at market rates, (2) under arm's-length conditions and (3) independently of government direction. Verification of ARBED's arm's-length private loans was a primary element in the revision of our preliminary determination. We also considered the following:
We verified that ARBED used the government aid it received for plant expansion and modernization and not for coverage of losses. Government aid represented only a relatively small portion of ARBED's own investment expenditures.
We verified that, despite net losses in several of its recent fiscal years, ARBED maintained a positive cash flow in 1979 and 1980.
Loans to ARBED were treated similarly to equity infusions in the preliminary determination according to the Department's methodology for loans to uncreditworthy companies as described in Appendix B to that determination. As we have now determined that the company is creditworthy, loans to ARBED may confer a countervailable benefit only to the extent they are preferential. At our verification we established company-specific benchmarks for ARBED's cost of debt after our review of ARBED's private loans. The benchmarks and an analysis of all the relevant terms were used to determine which government loans were preferential.
The subsidy rate for the preferential loans would be calculated using the methodology in Appendix 2. As discussed below, we determined that ARBED received no preferential loans which benefited the production or export of the product under investigation.
1. Loans from GOL and GOL-Controlled Institutions. received three preferential loans in 1980 and 1981 from the SNCI to finance construction of two six-strand continuous casting installations at Esch-Schifflange. We determined that these loans were preferential, because their interest rates were lower than the company-specific benchmarks for private loans and the loans were steel specific. However, we determined the casters do not provide inputs for the production of the carbon steel structural shapes under investigation and we have no information that carbon steel structural shapes benefit from these loans. Consequently, we have not treated these loans as countervailable benefits in our final determination.
ARBED received other long and short-term loans from the Caisse d'Epargne de 1'Etat (CEE), the state-controlled savings bank, for various investments. We determined that these loans were obtained under commercial terms based on the company-specific benchmarks and, thus, we do not consider these to be preferential loans conferring countervailable benefits on the product under investigation.*39369
For reasons discussed above in the section on "Capital Grants," we are treating the reimbursable aid ARBED received directly from the GOL as a grant, although ARBED has classified this aid as a loan.
2. Industrial Investment Loans from the ECSC (Article 54). The ECSC provided ARBED with a series of loans to assist in the financing of six different investments in plant and capital equipment. We verified that the ECSC loans had interest rates equal to or greater than the company-specific commercial benchmarks that we used for ARBED. We further verified that ARBED was obligated by the ECSC to obtain loan guarantees from the GOL because the company was prevented from giving its own guarantee by negative pledge clauses in its private loan agreements. However, we determined that since the GOL- guaranteed loans were obtained at a rate equal or higher to those ARBED was able to obtain from private lenders, the GOL guarantees in themselves did not confer a countervailable benefit. We have determined that the ECSC loans do not confer any countervailable benefit on the product under investigation. For additional information regarding Article 54 loans from the ECSC, see Appendix 3.
3. Loans from Affiliated Companies. In the questionnaire we requested information on all government aid to related companies. Information in the response indicated a large portion of ARBED's loans was obtained through subsidiary companies.
We found that ARBED Finanz and ARBED Finance Luxembourg are holding companies capitalized and owned by ARBED. ARBED made a number of public bond issues and private placements through ARBED Finance and ARBED Finanz Deutschland because there were tax advantages involved in making such issues through a separate corporate entity. ARBED also obtained some foreign currency loans for exchange purposes through Dutch, German, and French subsidiaries. We have determined that none of the credit obtained through the subsidiaries conferred a countervailable benefit on ARBED, because all of it was obtained through free market mechanisms without government intervention.
III. Programs Determined Not To Be Used
We have determined that the following programs which were listed in the notice of "Initiation of Countervailing Duty Investigations" are not used 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 qualified firm's investment borrowings. This interest rebate measure was incorporated into the Tripartite Agreement. However, the GOL has not to date provided any interest rebates to ARBED or MMR-A. A decision was made after the Tripartite Agreement of 1979 to substitute direct investment grants for the planned interest rebates.
B. European Investment Bank (EIB).
ARBED stated and we verified that it had no outstanding debt to the EIB. We have no evidence that MMR-A received loans from the EIB. For further details regarding the EIB, see Appendix 3.
Petitioners alleged that the GOL agreed to make a purchase of convertible bonds from ARBED. The GOL stated in its response that it had not acquired bonds issued by either ARBED or MMR-A. We confirmed this at verification.
D. Preferential Tax Programs.
A special Luxembourg tax provision permits 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. The steel sector has been undergoing a structural crisis. The steel sector has been specifically designated as one of those sectors qualified to use this tax provision. However, until such time that ARBED or MMR-A earn sufficient income from which the extra loss carried forward could be deducted, no actual benefit can be derived. Consequently, we have determined that no countervailable benefit has yet been provided by this program.
E. Loans for MMR-A.
GOL-controlled financial institutions and the ECSC made a number of loans to MMR-A which were outstanding in 1981. The loans from GOL- controlled financial institutions were awarded pursuant to the 1979 Tripartite Agreements and the related law. The petitioners alleged that MMR-A was uncreditworthy during the period these loans were received. We preliminarily determined that MMR-A was uncreditworthy from 1976 through 1981 based on the substantial losses in net income suffered by the firm in that period. Based on the receipt of additional information we have determined that MMR-A should be treated as uncreditworthy only in 1977 and 1978. In those years, MMR-A suffered a large negative cash flow. Various financial ratios also indicated that the company should be considered uncreditworthy in those two years. Starting in 1977, under a rescue plan organized by the GOL, the GOB, ARBED, and several private investment firms, MMR-A divested itself of the antiquated plant at Athus and its primary production facilities at Rodange and began to modernize its rolling mill. Both the GOL and private investors provided new equity. The government also provided grants, interest-free loans, and preferential loans, all of which we are treating as countervailable. Following this restructuring, MMR-A's financial position improved substantially.
From 1979 through 1981 we have determined MMR-A to be creditworthy based on the marked improvement of various financial ratios, increased sales, improved cash flow, and the effects of the radical restructuring program.
The GOL response stated that MMR-A received two loans in 1981 for investments from the SNCI. We have determined these loans are preferential because they were made under specific provisions of the steel restructuring plan at preferential rates. However, since they were awarded in 1981, no benefit is assessed in the period we are measuring subsidization. The benefit of a preferential loan first accrues to the recipient in the year following receipt of the loan.
We found that MMR-A had outstanding debt to the ECSC from 1977 though 1981. MMR-A's outstanding debt to the ECSC did not increase from 1977 to 1978 and from 1978 to 1979. Thus, we determined it received no ECSC loans in the uncreditworthy period. For the creditworthy period, we used the rates ARBED received on its ECSC loans as the best information to construct what MMR-A would receive on its ECSC loans. Since these rates match the Luxembourg benchmark, the ECSC loans do not confer a countervailable benefit in the creditworthy period.
Petitioners' Comments
Comment 1
Counsel for petitioners argues that ARBED should be considered uncreditworthy. They argue that ARBED's losses and the apparent level of aid it is receiving from the GOL under the Tripartite Agreements are clear manifestations of "ARBED's financial incapacity."
DOC Position
In our preliminary determination we found that ARBED was uncreditworthy *39370 on the basis of the best information available at the time. This information included ARBED's history of substantial losses in recent years. Prior to verification we lacked sufficient information to establish that these loans were made: (1) at market rates, (2) under commercial conditions, and (3) independently of government direction. Based on additional information received, the Department has determined that ARBED should not be treated as an uncreditworthy company. Information verified at the company has shown ARBED's ability to obtain private loans at commercial rates without government intervention. The Department also verified that only a portion of the massive government assistance promised in the Tripartite Agreements has actually been received by ARBED to date. ARBED still obtains a major part of its financing from private sources.
Comment 2
Counsel for petitioners argued that common treatment of ARBED and MMR-A is proper. Counsel cited ARBED's roles as an MMR-A shareholder and a participant in the management of MMR-A as sufficient justification for the common treatment of the companies in the quantification of subsidy rates.
DOC Position
As discussed above in the "Analysis of Programs" section, the Department decided that a more precise determination of subsidy rates for aid received would result if the companies were treated separately, given the two companies' separate financial structures.
Comment 3
Counsel for petitioners argued that the GOL purchase of MMR-A stock should be considered a subsidy to both ARBED and MMR-A because ARBED is a major MMR-A shareholder.
DOC Position
For reasons already discussed, the Department has decided to treat MMR-A and ARBED as separate respondents. Therefore, the Department will not consider the GOL's equity infusion into MMR-A as a countervailable benefit to ARBED.
Comment 4
Counsel for petitioners argued that GOL grants and preferential loans awarded expressly for buildings and equipment used exclusively for the production of products not under investigation should also be considered counteravilable benefits for the product under investigation. They further argued that, insofar as the Act specifies that a subsidy may include government aid bestowed indirectly on the production or exportation of a product, it intends that subsides to products not under investigation be considered for the benefit they bestow on the respondent's total production.
DOC Position
This comment is addressed in Appendix 2.
Comment 5
Counsel for petitioners argued that German coking coal subsidies confer a benefit on EC steel production in general, and on ARBED in particular through ARBED's subsidiary coke supplier in the FRG, EBV. They further argue that a special pricing arrangement exists between ARBED and EBV.
DOC Position
The Department verified that ARBED's purchases of coke from EBV were at arm's- length and at prices no lower than the prevailing market price for coke from other sources. Consequently, we determined that ARBED receives no subsidy through coke purchases from EBV. The issue of German coal and coking coal subsidies is discussed in Appendix 2 and in the "Notice of Final Affirmative Countervailing Duty Determinations, Certain Steel Products from the Federal Republic of Germany" in this issue of the Federal Register.
Comment 6
Counsel for petitioner argued that risk premiums should be added to the Department's "cost of capital" benchmarks for quantification of ARBED's benefits from GOL subsidies. Petitioner's counsel based the argument for adding risk premiums to the discount rates used in our calculation on a general analysis of ARBED's financial condition which takes into consideration equity expansion, debt financing, and government aid received.
DOC Position
Verification did not corroborate any of the petitioner's allegations on which this argument is based. Our investigation did not reveal that ARBED was dependent on GOL aid to the extent which was alleged by the petitioner. ARBED's ability to obtain long-term loans from private sources at favorable rates under commercial conditions also indicated that the risk premiums proposed by the petitoner would be inappropriate in these circumstances.
Comment 7
Counsel for petitioners argue that GOL grants to the Anti-Crisis Division (DAC) of ARBED and MMR-A should be considered countervailable benefits in their entirety.
DOC Position
As discussed above, the Department has determined that only part of the benefit from these grants are countervailable benefits to the product under investigation. The portion of the grants that go to the support of DAC employees engaged in non-steel-related projects does not confer a benefit on the production of the product under investigation.
Comment 8
Counsel for petitioners argued that ARBED received a countervailable benefit when it carried over part of its loss in 1981 under a provision of the special tax law.
DOC Position
ARBED did not earn sufficient income in 1981 from which the loss carry-over could be deducted. The loss carry-over, consequently, represents a possible future benefit and not a present one.
Comment 9
Counsel for petitioners argues that ARBED may have derived contervailable benefits through the extension of supplier credits.
DOC Position
During verification the Department examined ARBED's accounts payable and found that supplier credits were obtained from private parties without government intervention under terms consistent with commercial considerations. See additional discussion in Appendix 2.
Comment 10
Counsel for petitioners argues that GOL aid for infrastructure costs should be considered a countervailable benefit.
DOC Position
Infrastructure aid was promised to ARBED, but the company has not begun to build its plant at the site where the aid is to be given. Even if the aid had been used, the Department would question counsel's assertion that aid should be countervailed since GOL funding of infrastructure costs has been found to be available to and used by all industries on a non-preferential basis.
*39371 Comment 11
Counsel for petitioner disputed the Department's use of a national average cost of debt as the discount rate when calculating the "grant caps" on the quantification of countervailable benefits from equity infusions. Counsel contended that use of an average national rate for a company determined to be uncreditworthy is inappropriate.
DOC Position
As discussed in Appendix 2, the Department has determined that a national risk free rate for long-term debt is the appropriate discount rate for use in the calculations described above.
Comment 12
Counsel for petitioners noted the absence of adequate information on the Anti- Crisis Division, rail transportation rates, preferential tax programs and loans fom affiliated companies and social institutions in the GOL and ARBED responses.
DOC Position
At verification the Department was able to obtain adequate information on the above programs for the final determination.
Comment 13
Counsel for petitioners questioned the Department's determination that the interest rebate program was not used by ARBED and MMR-A. Counsel fr petitioners notes that the program was made specifically available in the Tripartite Agreement of 1979.
DOC Position
The Department verified that the GOL interest rebate program was not used by either company. The GOL decided to substitute direct investment grants in lieu of the rebate program. To the extent that direct investment grants bestowed a benefit on the product under investigation those benefits have been countervailed.
Respondents' Issues
Comment 1
Counsel for respondent asserted that the Department of Commerce erred in lumping ARBED and MMR-A together for the purpose of quantifying countervailable benefits.
DOC Position
As discussed above, the Department accepts the respondent's position
Comment 2
Counsel for respondent asserted that grants given to the steel industry under the Tripartite Agreements should not be considered countervailable since they are made pursuant to the Law of July 28, 1973 for economic expansion. Counsel argued that programs under this law are available to all industries.
DOC Position
The Department found that grants given to the steel industry under the 1973 law were made pursuant to the Tripartite Agreements. Government aid under the Tripartite Agreements was mandated specifically for the steel industry. While the 1973 law was, on its face, generally available, the effect of the Tripartite Agreements was to remove the GOL's discretion to reject the steel industry's applications for aid under the 1973 law and to direct benefits available under the 1973 law to the steel industry in particular. The range of the benefits outlined in the original law was increased as a result of the agreements.
Comment 3
Counsel for respondent argued that DOC erred in its determination that ARBED has been an uncreditworthy company since 1975. Counsel cited ARBED's receipt of commercial loans at market rates through 1981 as proof of its creditworthiness.
DOC Position
The Department has reversed its preliminary determination that ARBED was uncreditworthy. Information verified at the company has shown ARBED's ability to obtain similar long-term private loans at commercial rates without special government intervention. Prior to verification we lacked sufficient informtion to establish that these loans were made: (1) At market rates, (2) under arm's- length conditions, and (3) independently of government direction. We reached our preliminary determination of ARBED's uncreditworthiness based on information available at the time. This included ARBED's history of substantial losses in recent years. Verification of ARBED's arm's-length private loans was a primary element in the revision of our preliminary determination. We also considered the following:
1/8 We verified that ARBED used the government aid it received for plant expansion and modernization and not for coverage of losses. Government aid represented only a relatively small portion of ARBED's own investment expenditures.
1/8 We verified that, despite net losses in several of its recent fiscal years, ARBED maintained a positive cash flow in 1979 and 1980.
Comment 4
Counsel questioned the Department's preliminary determination that equity participation in MMR-A by the GOL constituted a subsidy to MMR-A. Counsel argued that since several private companies joined the government in purchasing new issues of MMR-A equity at similar prices, the GOL's investment cannot be considered inconsistent with commercial considerations.
DOC Position
As discussed above in the section of this notice titled "Equity Participation," the Department would, in most cases, consider a government purchase of new equity from a company in the financial condition of MMR-A as a purchase inconsistent with commercial considerations and consequently a subsidy to the entire company. However, as counsel has noted, private companies participated jointly in the MMR-A equity purchase with no evidence of GOL direction. The GOL and the private firms paid the same price for the MMR-A shares. In view of the private firms' purchase of shares participation, at the same price as that paid by the GOL, the Department is unable to regard the GOL equity purchase as inconsistent with commercial considerations.
Comment 5
Counsel for respondent maintained that GOL assistance to ARBED's Anti-Crisis Division (DAC) is not a subsidy to steel production because DAC workers are barred from steel production and ARBED would not legally be bound to pay DAC expenses borne by the government. Counsel also argued that the program increases costs to ARBED by requiring the company to forego cheaper alternatives such as dismissal with severance pay or reduction of working hours.
DOC Position
Based on information obtained at verification, the Department agrees in part with counsel's arguments. Benefits under this program to workers engaged in non-steel-related projects are not countervailable. However, assistance to workers engaged in steel-related projects does confer countervailable benefits.
For additional discussion of the DAC program, see the section of this notice titled "Anti-Crisis Division" under "Programs Determined To be Subsidies."
*39372 Negative Determination of Critical Circumstances
Bethlehem Steel Corporation and the Five alleged that imports of carbon steel structural shapes under investigation present "critical circumstances." Under ss 355.29 and 355.33(b) of the Department's regulations critical circumstances exist when the alleged subsidies include an export subsidy inconsistent with the Agreement and there have been massive imports of the class or kind of merchandise which is the subject of the investigation over a relatively short period.
We have not found any export subsidy in this investigation. Therefore "critical circumstances" do not exist in this investigation for carbon steel structural shapes.
Verification
In accordance with section 776(a) of the Act, we verified the data used in making our final determination. During this verification, we followed normal procedures, including inspection of documents, discussions with government officials and on-site inspection of manufacturers' operations and records.
Administrative Procedures
The Department has afforded interested parties an opportunity to present oral views in accordance with its regulations (19 CFR 355.35). A public hearing was held on July 13, 1982. In accordance with the Department's regulations (19 CFR 355.34 (a)), written views were considered.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative countervailing duty determination shall remain in effect until further notice. The estimated net subsidy for each firm for carbon steel structural shapes is as follows:
TABULAR OR GRAPHIC MATERIAL SET FORTH AT THIS POINT IS NOT DISPLAYABLE
Where the manufacturer is not the exporter, and the manufacturer is known, the rate for that manufacturer shall be used in determining the amount of cash deposit or bond. If the manufacturer is unknown, the rate for all other manufacturers/producers/exporters shall be used.
ITC notification
In accordance with section 705(d) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all non- privileged and non-confidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our file, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration. The ITC will determine within 45 days of the publication of this notice whether these imports are materially injuring, or threatening to materially injure, a U.S. industry. If the ITC determines that material injury, or threat of material injury, does not exist, this proceeding will be terminated and all securities posted as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, within 7 days of notification by the ITC of that determination, we will issue a countervailing duty order, directing Customs officers to assess a countervailing duty on carbon steel structural shapes from Luxembourg entered or withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the net subsidy determined or estimated to exist as a result of the annual review process prescribed by section 751 of the Act. The provisions of section 707(a) of the Act will apply to the first directive for assessment.
This notice is published pursuant to section 705(d) of the Act and s 355.33 of the Department of Commerce Regulations (19 CFR 355.33).
Dated: August 24, 1982.
Gary N. Horlick,
Acting Assistant Secretary for Trade Administration.