NOTICES
DEPARTMENT OF COMMERCE
[C-455-003]
Carbon Steel Wire Rod from Poland; Final Negative Countervailing Duty
Determination
Monday, May 7, 1984
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May 1, 1984.
AGENCY: International Trade Administration/Import Administration, Commerce.
ACTION: Notice.
SUMMARY: We determine that bounties or grants within the meaning of section 303 of
the Tariff Act of 1930, as amended (the Act), cannot be found in nonmarket economies.
Consequently, we find no bounties or grants bestowed on the manufactures, producers,
or exporters of carbon steel wire rod from Poland, a nonmarket economy, and have not
ordered the U.S. Customs Service to suspend liquidation.
EFFECTIVE DATE: May 7, 1984.
FOR FURTHER INFORMATION CONTACT: Laura Campobasso, 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) 377-3174.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that bounties or grants cannot be found in
nonmarket economies. Consequently, we find no bounties or grants bestowed on the
manufacturers, producers or exporters of carbon steel wire rod from Poland, a
nonmarket economy.
For the purpose of this investigation, the following alleged programs are found not to
confer bounties or grants:
--A multiple exchange rate system whereby different rates are applied to (1) commercial
transactions with capitalist countries, (2) commercial transactions with socialist
countries, and (3) non-commercial transactions and tourism;
--A currency retention program that allows exporting companies to keep a portion of
their hard currency export earnings;
--
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Price equalization payments to the foreign trade organizations and the
industrial enterprises involved in foreign trade, to compensate them for losses incurred
when the Foreign Trade Ministry sells goods for less than their domestic price;
--Adjustment coefficients that increase the effective exchange rate; and
--Income tax rebates and reductions in FAZ contributions based on export performance.
Case History
On November 23, 1983, we received a petition from Atlantic Steel Company, Continental
Steel Company, Georgetown Steel Corporation and Raritan Steel Company, filed on behalf
of the United States industry producing carbon steel wire rod. In compliance with the
filing requirements of § 355.26 of our regulations (19 CFR 355.26), petitioners allege that
manufacturers, producers or exporters in Poland of carbon steel wire rod receive,
directly or indirectly, benefits constituting bounties or grants within the meaning of
section 303 of the Act.
On December 13, 1983 (48 FR 56419), we initiated a countervailing duty investigation
on those allegations. We stated in our notice of initiation that our decision to initiate did
not imply any judgment whether the practices concerned were, in fact, bounties or
grants. We stated that we would issue a preliminary determination on or before February
16, 1984.
On December 16, 1983, we presented a questionnaire concerning the allegations in the
petition to the government of Poland in Washington, D.C. We received a response on
January 16, 1984.
On February 16, 1984, we preliminarily determined that benefits constituting bounties or
grants within the meaning of the countervailing duty law are not being provided to
manufacturers, producers, or exporters in Poland of carbon steel wire rod (49 FR 6768).
A hearing was requested by the petitioners and was held on March 19, 1984. We received
briefs from the parties to the proceeding on March 13 and 14 and April 4. In accordance
with section 776(a) of the Act, we verified all information in the response during the
period March 26 through April 2, 1984.
Poland is not a "country under the Agreement" within the meaning of section 701(b) of
the Act. Therefore, this investigation was conducted under section 303 of the Act. Under
this section, because the merchandise under investigation is dutiable, the domestic
industry is not required to allege that, and the U.S. International Trade Commission is not
required to determine whether, imports of this product cause or threaten to cause
material injury to a U.S. industry.
Scope of Investigation
For the purpose of this investigation, the term "carbon steel wire rod" covers a coiled,
semi-finished, hot-rolled carbon steel product of approximately round solid cross
section, not under 0.20 inch nor over 0.74 inch in diameter, not tempered, not treated,
not partly manufactured; and valued over 4 cents per pound, as currently provided for in
item 607.17 of the Tariff Schedules of the United States. There is one known producer and
one known exporter in Poland of carbon steel wire rod products to the United States. We
received information from the government of Poland regarding Huta Cedlera and
Stalexport. The period for which we are measuring alleged subsidization is January 1 to
December 31, 1983.
Analysis
In our preliminary determination, we stated that nonmarket economy ( NME) countries
were not exempt from the provisions of section 303 of the Act. This preliminary
determination was based on a narrow reading of section 303, which provides that a
countervailing duty shall be assessed:
(w)henever any country, dependency, colony, province, or other polticial subdivision of
government, person, partnership, association, cartel, or corporation, shall pay or
bestow, directly or indirectly, any bounty or grant upon the manufacture or production
or export of any article or merchandise manufactured or produced in such country,
dependency, colony, province, or other political subdivision of government * * * (italics
added).
In our preliminary determination, we focused on the phrase "any country," thereby
correctly addressing part of the jurisdictional question; i.e., whether any political entity
is exempted per se from the countervailing duty law. However, upon reconsideration,
our preliminary determination did not address adequately the additional jurisdictional
question; i.e., whether government activities in an NME confer a "bounty or grant" within
the meaning of section 303. Upon reconsideration, we have concluded that bounties or
grants, within the meaning of section 303, cannot be found in NME's.
In a market economy, scarce resources are channeled to their most profitable and
efficient uses by the market forces of supply and demand. We believe a subsidy (or bounty
or grant) is definitionally any action that distorts or subverts the market process and
results in a misallocation of resources, encouraging inefficient production and lessening
world wealth.
In NME's resources are not allocated by a market. With varying degrees of control,
allocation is achieved by central planning. Without a market, it is obviously meaningless
to look for a misallocation of resources caused by subsidies. There is no market process to
distort or subvert. Resources may appear to be misallocated in an NME when compared
to the standard of a market economy, but the resource misallocation results from central
planning, not subsidies.
It is this fundamental distinction--that in an NME system the government does not
interfere in the market process, but supplants it--that has led us to conclude that
subsidies have no meaning outside the context of a market economy.
In the absence of government intervention, market economies are characterized by
flexible prices determined through the interaction of supply and demand. In response to
these prices, resources flow to their most profitable and efficient uses. To identify
subsidies in this pure market economy, we would look to the treatment a firm or sector
would receive absent government action. In the absence of the bounty or grant, the firm
would experience market-determined costs for its inputs and receive a
market-determined price for its output. The subsidy received by the firm would be the
difference between the special treatment and the market treatment. Thus, the market
provides the necessary reference point for identifying and calculating the amount of the
bounty or grant.
However, few modern economies are purely market driven. Governments frequently
intervene in the market place to promote social (as opposed to economic) goals, such as
full employment or income redistribution. In addition to taxes and subsidies as policy
tools, these governments employ various regulations in factor and financial markets. The
state sometimes owns selected firms or industries.
Despite the varying degrees of regulation, state ownership and state intervention, we can
still identify a bounty or grant. This is primarily because private ownership of resources
has remained the rule, rather than the exception, and these governments have not tried
to supplant the market as the allocator of resources. A countervailable action in a market
economy is a distortion. It encourages a producer to sell abroad rather than in his home
market or, in the case of a domestic subsidy, gives preferential treatment to an industry
or sector of the economy. In
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either situation, the subsidy is identifiable as
differential treatment: Different from the market or different from other firms or sectors.
Subsidies in market economy systems are exceptional events. They can be discerned
from the background provided by the market system.
No such background exists in an NME. By market standards, the nonmarket environment
is riddled with distortions. Prices are set by central planners. "Losses" suffered by
production and foreign trade enterprises are routinely covered by government transfers.
Investment decisions are controlled by the state. Money and credit are allocated by the
central planners. The wage bill is set by the government. Access to foreign currency is
restricted. Private ownership is limited to consumer goods.
We have asked ourselves whether we can identify a subsidy against such a background.
Guided by the CCPA, we have sought to isolate a potential subsidy and evaluate its result:
Neither form nor nomenclature being decisive in determining whether a bounty or grant
has been conferred, it is the economic result of the foreign government's action which
controls (italics added).
United States v. Zenith Radio Corp., 64 CCPA 130, 138-9, 562 F.2d 1209, 1216 (1977),
aff'd, 437 U.S. 443 (1978).
Assume that the government in a market economy made a payment to a producer on
each of his sales. Theoretically, the market economy producer would respond by
increasing his output. In an NME, the payment upon sale could be effected merely by
increasing the administered price. Would the new, higher price result in increased output
by the NME enterprise
If the NME government controls the inputs the producer needs and does not make these
inputs available, then output could not be increased, despite the higher price. Moreover,
if the enterprise had to expand its plant to produce more output, and had to rely on the
government for investment funds or centrally managed enterprises for the machinery
and equipment, then output would not be increased unless the funds or equipment were
provided. Thus, the simple price increase, with no further action by the government,
would not lead to increased output. The government action would have no economic
result. Even if the government gave the producer the investment funds necessary for
plant expansion, without the needed inputs, output could not increase. Neither of the
actions, the price increase or the government "provision" of capital, would have the effect
of a bounty or grant.
In such a situation, we could not disaggregate government actions in such a way as to
identify the exceptional action that is a subsidy. Because the notion of a subsidy is, by
definition, a market phenomenon, it does not apply in a nonmarket setting. To impose
that concept where it has no meaning would force us to identify every government action
as a subsidy (or a tax). We are not prepared to do this--we will not impose the
market-based concept of a subsidy on a system where it has no meaning and cannot be
identified or fairly quantified.
We do not believe that the hypothetical proposed above differs substantially from the
situation facing enterprises in NME's. Based on our analysis, we have found that NME
systems share certain features that make it impossible to find that a bounty or grant
exists. These nonmarket features are, moreover, apparent in Poland.
Most NME systems are characterized by centrally administred prices. Descriptions of
these systems report that prices are reformed, revised or changed with varying
frequency. The planners can change thousands of prices at a time.
Prices in Poland are similarly controlled. Since the economic reforms of 1982, there are
three types of prices: Official, regulated and contractual. Official prices are set by the
state. Regulated prices are set by the enterprises in accordance with rules set out by the
government. Contractual prices are set by the enterprises and are subject to approval by
the state authorities.
Moreover, centrally administered prices do not play the same role as prices in a market
economy system. NME prices do not reflect scarcity. Nor do they equate supply and
demand. They are typically calculated by a formula that does not include demand; i.e.,
the prices that consumers are willing to pay for the good.
This has been the situation in Poland both prior to and since the reforms. Prices continue
to be set at disequilibrium levels. Official prices are in many cases set lower than
production costs. Regulated and contractual prices do not function as signals to
producers.
Where the enterprises' revenues are controlled (because output prices are administered),
and their costs are controlled (through administered input prices), then it seems evident
that profits, as they are normally defined (total revenue less total costs), are effectively
controlled as well. This is recognized in Attachment C to petitioners' February 10, 1984,
submission in the Polish investigation, in which it is stated:
Profits and losses exist, first of all, as the result of the adoption of particular prices.
Overall price revisions are introduced from time to time * * * These revisions usually
change profitability and unprofitability in various sectors of the economy.
These administered profits play a different role from profits in a market economy. Profit
guides capitalists to invest resources where they earn the highest possible return. Profit
maximization leads the capitalist to produce goods that are in demand at the least cost.
Profits drive market economic systems.
Profit for the NME enterprise manager is ony one of many possible success indicators. It
is one of the tools typically employed by NME governments to motivate enterprise
managers to fulfill targets established in the central plan. Other success indicators, for
gauging the enterprise's performance, include value-added and/or gross output.
Commentators on NME systems have observed that reliance on a single indicator will not
produce the results desired by the central planners. Attempts to maximize value-added,
for example, lead to using too much labor input. If profit maximization is pursued, the
distortion of the underlying prices will lead to a distorted picture of profits.
Because of the distortions arising from the use of success indicators, they are usually
supplemented with additional incentives: Bonuses for minimizing costs or using
domestically produced inputs or exporting. The result of more and more incentives or
bonuses being applied to guide enterprise managers is that decision-making is again
centralized in the government planning agencies. Instead of being incentives or subsidies
in a market sense, they are means of controlling the enterprise.
This is apparently the situation in Poland. The Polish State Law on Socio-Economic
Planning directs that, "central plans define the socio-economic policy of the state, i.e., the
goals, pattern and means of economic development, basic social and economic targets
and ways of their implementation." The plans and targets of the enterprises are consistent
with the national socio-economic plan.
A multitude of incentives are used to encourage enterprises to boost output, increase
labor productivity, make better use of machinery and equipment, conserve materials,
improve the quality of products and introduce technical innovations. Moreover, the large
number of "economic mechanisms" has
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apparently led to the predictable result:
overregulation. Overregulation, in turn, leads to profits being determined by the central
authorities.
We believe that the "incentives" alleged by petitioners function like the other incentives,
as more elements of central control. Even those incentives tied to export, some of which
might be considered export subsidies in a market economy, do not, in our opinion,
operate as export subsidies in an NME.
As described above, enterprises in these countries operate under different conditions
than do firms in market economy systems. In Poland, for example, the amounts an
enterprise has to sell in its home market and to other CMEA countries are determined by
central authorities or are decided by the enterpise in conformity with the centrally
administered guidelines. Thus, the output levels for two of the three markets facing the
enterprise are controlled.
On its face, this could lead to the conclusion that the enterprise is not restricted or
constrained in determining the level of output for export to hard currency countries.
However, as we discussed above, when the inputs necessary to produce that output are
controlled or centrally managed, the enterprise's ability to determine how much it will
produce is effectively controlled. If total output is controlled and the disposition of a
portion of that output is controlled, then the amount available for export to hard
currency countries is also effectively controlled.
That the Polish government has introduced "economic mechanisms"--for rewarding
overfulfillment of targets, for rationalizing the use of imports, for promoting
exports--does not mean that Polish enterprises can respond to those incentives like a
competitive firm in a market economy. These mechanisms are imposed upon a system
that is not economically rational. Nor are the reforms designed to lead to a rational,
market system. Central planning remains the basis for defining the goals and operating
conditions for the enterprises.
In this situation, "incentives" have a different meaning than in a market economy system.
They are not distortion of market generated signals to competitive firms. They are
imposed on a system to generate results: results that the nonmarket economy inherently
cannot produce.
Thus, we have found generally for NME's and specifically for Poland that prices are
administered and that these prices do not have the same meaning as prices in a market
economy. Not only are the NME enterprise's output prices controlled, but its costs, which
are the prices paid for inputs, also are centrally determined. With administered costs and
prices, profits effectively are administrered as well. Finally, economic activity is centrally
directed through the use of administered prices, plans and targets.
These are the essential characteristics of nonmarket economic systems. It is these
features that make NME's irrational by market standards. This is the background that does
not allow us to identify specific NME government actions as bounties or grants.
In arriving at this conclusion, we first have sought congressional guidance. Based upon
our review, inter alia, of the countervailing duty law, its legislative history, and the
legislative history of other international trade laws, we have concluded that Congress
never has confronted directly the question of whether the countervailing duty law
applies to NME countries. In such a situation, the function of an administrative agency, as
well as a court, is "to discern dispositive legislative intent by 'projecting as well as it could
how the legislature would have dealt with the concrete situation if it had but spoken.' "
Asahi Chemical Industry Co. Ltd. v. United States, 4 CIT 120, 124 (1982) (quoting from
District of Columbia v. Orleans, 406 F.2d 957, 958 (D.C. Cir. 1968)). Therefore, we have
tried to determine as best we can what Congress would have said if it had dealt with the
question of the application of the countervailing duty law to NME's.
Congress enacted the first U.S. countervailing duty law in 1890, but this law applied
only to imports of sugar. Soon thereafter, Congress enacted the first generally applicable
countervailing duty law in section 5 of the Tariff Act of 1897. The statutory language
of "bounty or grant" contained in section 5 has remained substantively unaltered through
several subsequent revisions up to the present day. These early enactments did not
address the problem of imports from NME countries because, of course, NME's, as we
know them today, did not yet exist. Subsequently, NME's developed, but Congress did
nothing to adapt the concept of "bounty or grant" to the unique problems posed by
imports from such countries. Indeed, during the last decade, when trade with NME
countries developed in importance, Congress took no action indicating that the
countervailing duty law could or should be used to combat alleged unfair competition
from that trade.
In 1974, and again in 1979, Congress addressed the problem of unfair trade remedies with
respect to imports from NME countries. However, even though on both occasions
Congress also considered the strengths and weaknesses of the countervailing duty law,
and in fact amended the countevailing duty law each time, it never even debated the
possibility of applying the countervailing duty law to NME country imports. Instead,
Congress chose two other vehicles for dealing with this problem.
Specifically, in the Trade Act of 1974, Congress amended section 205 of the Antidumping
Act, 1921, to set forth rules for dealing with unfair competition from NME countries.
(These rules are set forth currently in section 773(c) of the Act.) This amendment
adopted the standard for price comparison then used by the Department of the Treasury
to imports from NME or state- controlled economy countries. In explaining this
amendment, the Senate Finance Committee recognized the unique characteristics of
state-controlled economies warranting a special legislative response:
The committee is concerned that the technical rules contained in the Act are insufficient
to counteract dumping from State-controlled-economy countries where the supply and
demand forces do not operate to produce prices, either in the home market or in third
countries, which can be relied upon for comparison.
S. Rep. No. 93-1298, 93rd Cong., 2d Sess. 174 (1974).
In the Trade Act of 1974, Congress also enacted section 406 to protect U.S. industries
from trade disruption caused by imports from Communist countries. In enacting this
special market disruption rule (which is somewhat similar to section 201 of the Trade Act
of 1974), Congress recognized that traditional unfair trade remedies simply did not work
in the case of imports from NME countries. As stated in the Senate Report:
In the face of such imports, traditional unfair trade remedies, such as the Antidumping
Act, have proven inappropriate or ineffective because of the difficulty of their application
to products from State-controlled economies.
Id., p. 210. [FN1] N
FN1 Significantly, the Report stated that such "remedies" are "inappropriate or
ineffective." However, Congress amended the Antidumping Act to ratify specifically its
applicability to NME's. Therefore, the reference to "inappropriate" remedies must have
been to the countervailing duty law, which Congress did not amend to apply to NME
countries.
Likewise, in the Trade Agreements Act of 1979 ("TAA"), in which Congress thoroughly
restructured the countervailing duty law, Congress did not enact any
countervailing duty
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provision even referring to NME's. Here, too, there is
nothing in the legislative history of TAA even suggesting that the countervailing duty
law should apply to NME's, nor is there any advice on how the administering authority
should apply the market-oriented concept of "bounty or grant" to an NME. Instead,
Congress reenacted the special provision of the antidumping law dealing with imports
from controlled economy countries.
This congressional silence is revealing when viewed in conjunction with Article 15 of the
Subsidies Code, which Congress expressly approved in section 2(a) of the TAA. Paragraph
2 of Article 15 of the Code permits signatories to regulate unfairly priced imports from
NME countries under either antidumping or countervailing duty legislation.
Significantly, the Code anticipated that if a signatory chose to use the countervailing
duty option, the mode of analysis would be the same as under the principles of the U.S.
antidumping law. Faced with these opitons set forth in Article 15, Congress reaffirmed its
determination to regulate unfair competition from NME countries under the antidumping
law, by enacting section 773(c) of the Act, which continued the approach previously
authorized under section 205(c) of the Antidumping Act, 1921. Congress made no effort
to do the same under the countervailing duty law. (Indeed, had the Congress done so,
it would have destroyed the statutory scheme established under section 773(c), because
petitioners would have bypassed the antidumping law in favor of the countervailing
duty law in order to avoid the injury test of the antidumping law, thereby rendering
section 773(c) a dead letter.) Essentially, this is the same approach as has been taken by
the European Communities. See INTERFACE ONE (D. Wallace, G. Spina, & R. Rawson, eds.
1980), p. 39 (Statement of Dr. Hans-Friedrich Beseler).
In seeking guidance on this issue, we also have considered developments since the
enactment of the TAA. In 1981, the Comptroller General published a study on the
problem of regulating imports from NME countries. Report to the Congress of the United
States: U.S. Laws and Regulations Applicable to Imports from Nonmarket Economies
Could Be Improved (1981). In discussing the Problems of applying the countervailing
duty law to NME's, the Comprtoller General concluded that it is only "remotely possible"
to identify and quantify subsidies in NME's. Id., p. 32.
We also have sought guidance from academic literature on the question of whether the
concept of "bounty or grant" has any rational meaning in the context of NME countries.
Here, too, the consensus of opinion appears to be that the countervailing duty law
simply cannot be applied to such countries. For example, Professor John H. Barcelo, III,
has stated:
If a nonmarket economy exporting country is involved, most of the analysis used thus far
for both export and domestic subsidies, is entirely inapplicable. One cannot speak of
market imperfections and nondistortive actions or even the distinction between export
and domestic subsidies if an economy as a whole is not governed by the market principle.
Theoretically, any given sale may be subsidized or not, but since there is no market
reference point, it is idle to speak in such terms.
Subsidies and Countervailing Duties--Analysis and A Proposal, 9 Law & Policy in
International Business 779, 850 (1977).
Likewise, Professor Robert E. Hudec has written:
In both the 1974 and 1979 trade legislation, "state-controlled-economy" trade is treated
as a problem under the dumping laws, and nothing at all is said about this subject in the
law pertaining to subsidies.
To the author's knowledge, the original reasons for this classification have never been
explained publicly. The explanation is probably technical. The countervailing duty
law (for subsidies) appears to require identification and measurement of a resource
transfer from the state to the producer. This is simply not a measurable event in the
typical nonmarket economy.
INTERFACE TWO (D. Wallace, Jr. and D.A. Flores, eds. 1982), p. 23.
Similarly, Professor Harold B. Malmgren, former Deputy Special Representative for Trade
Negotiations, clearly states the difficulty of applying traditional countervailing duty
concepts to NME's:
The extent to which a nonmarket system, however, can be said to be subsidising will
always be unclear. The methods of assessing whether a problem exists will have to be
somewhat different than they would be in the case of trade between industrialised market
economies. So far, this problem has not been dealt with directly. Instead, governments
have utilised bilateral trade arrangements, with special safeguard or escape clauses, or
they have employed a concept of hypothetical cost-price construction (frequently
utilising costs in a third country as a basis). New rules will have to take into account this
special set of complex problems. It would appear inevitable that there would be some
difference in the treatment of the nonmarket economies in any new system of rules.
International Order for Public Subsidies (Trade Policy Research Centre), 1977, p. 48.
It has been recognized that the administering authority has broad discretion in
determining the existence or non-existence of the term "bounty or grant." United States v.
Zenith Radio Corp., 562 F. 2d 1209, 1316 (C.C. P.A. 1977), aff'd, 437 U.S. 443 (1978). In
accordance with the discussion above, we have exercised this discretion by concluding
that a "bounty or grant," within the meaning of the countervailing duty law, cannot be
found in an NME.
Thus the sole remaining question is whether or not Poland is an NME. In our opinion, the
economy of a country is an NME whenever it operates on principles of nonmarket cost or
pricing structures so that sales or offers for sale of merchandise in that country or to
countries other than the United States do not reflect the market value of the mechandise.
Based upon the discussion above, and the record in this investigation, we determine that
Poland satisfies this test and that it is an NME. Accordingly, we determine that
manufactuers, producers, or exporters in Poland of carbon steel wire rod do not receive
bounties or grants.
Verification
In accordance with section 776(a) of the Act, we verified all data used in making this final
determination.
Alan F. Holmer,
Acting Assistant Secretary for Trade Administration.
[FR Doc. 84-12225 Filed 5-4-84; 8:45 am]
BILLING CODE 3510-DS-M