47 FR 47900
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Final Affirmative Countervailing Duty Determination and Countervailing
Duty Order; Deformed Steel Bars for Concrete Reinforcement From South Africa
Thursday, October 28, 1982
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AGENCY: International Trade Administration, Commerce.
ACTION: Final Affirmative Countervailing Duty Determination and Countervailing
Duty Order.
SUMMARY: We determine that certain benefits which consitute bounties or grants within the
meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in South Africa of deformed steel bars for
concrete reinforcement, as described in the "Scope of Investigation" section of this notice. The
estimated net bounty or grant is indicated under the "Suspension of Liquidation" section of this
notice.
EFFECTIVE DATE: October 28, 1982.
FOR FURTHER INFORMATION CONTACT: Paul J. Thran, 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)
377-1766.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute bounties or
grants within the meaning of section 303 of the Tariff Act of 1930, as amended (the Act), are
being provided to manufacturers, producers, or exporters in South Africa of deformed
steel bars for concrete reinforcement (rebars), as described in the "Scope of Investigation"
section of
this notice. The following programs are found to confer bounties or grants.
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-Export incentive program--category C.
- Assumption of financing charges.
- Railroad rate differential.
- Central government rail rebate.
We determine the estimated net bounty or grant to be the amount indicated in the "Suspension
of Liquidation" section of this notice.
Case History
On May 18, 1982, we received a petition from counsel for Industrial Siderurgica, Inc., a
manufacturer producing deformed steel bars for concrete reinforcement. The petition alleged
that certain benefits which constitute bounties or grants within the meaning of section 303 of
the Act are being provided, directly or indirectly, to the manufacturers, producers, or
exporters in South Africa of rebars. The petitioner filed against deformed bars and plain
billet bars, but amended the petition on May 28, 1982, to remove plain billet bars from the
investigation. We found the petition sufficient and, on June 7, 1982, we initiated a
countervailing duty investigation (47 FR 25174).
Since South Africa is not a "country under the Agreement" within the meaning of section
701(b) the Act and the rebars at issue here are 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 material
injury to the U.S. industry in question.
We presented a questionnaire concerning the allegations to the government of South
Africa in Washington, D.C. On July 23, 1982, we received the response to the questionnaire.
On August 11, 1982, we preliminarily determined there was reason to believe or suspect that
certain benefits which constitute bounties or grants within the meaning of the
countervailing duty law, were being provided to manufacturers, producers, or
exporters in South Africa of rebars (47 FR 35806). No hearing was requested.
Scope of Investigation
For the purpose of this investigation, the term "deformed steel bars for concrete
reinforcement" covers hot-rolled steel bars, of solid cross section, having deformations of
various patterns on their surfaces, as currently provided for in items 606.79 and 606.81 of the
Tariff Schedules of the United States.
The South African Iron and Steel Industrial Corporation (ISCOR) is the only known producer in
South Africa of the subject product exported to the United States.
The period for which we are measuring subsidization is the corporate fiscal year 1981, which
runs from July 1, 1980, through June 30, 1981.
Analysis of Programs
In its response, the government of South Africa provided data for the applicable period.
Additionally, we received information from ISCOR, which produced and exported rebars to
the United States during 1980 and 1981. Throughout this notice, the general principles applied
by the Department of Commerce to the facts of this investigation are described in detail in
Appendices 2 and 4 which accompany the notice of "Final Affirmative Countervailing
Duty Determination: Carbon Steel Wire Rod from Belgium," in the September 27 issue of the
Federal Register (47 FR 42403). Based upon our analysis of the petition and response to our
questionnaire, we determine the following.
I. Programs Determined To Confer Bounties or Grants on Manufactures, Producers, or
Exporters of Rebars
We determine bounties or grants are being provided to manufacturers,
producers, or exporters in South Africa of rebars under the programs listed below. In our
preliminary determination, we did not include the rail rate differential, Category C of the
central government rebate in our calculation of the total benefit as these programs had been
terminated as of April 1, 1982. We have reexamined our position on this issue, and we have
taken into account the benefits from these programs on exports of the subject merchandise
exported prior to April 1, 1982. We believe there may be shipments of rebars from South
Africa exported prior to April 1, 1982, that may enter this country after the date of this final
determination.
Assumption of Finance Charges
In 1978 the government of South Africa assumed R70 million of ISCOR's finance charges.
Under the grants methodology described in Appendix 2, we treated this payment as a grant,
and allocated the amount over 15 years, the average life of capital assets in integrated steel
mills. This allocation was performed using a discount rate to reflect the time value of these
grant funds. We used a "risk-free", rate as indicated by the secondary market rate for long-term
government debt, as an appropriate discount rate. Using this methodology, we calculated a
benefit of 0.35 percent ad valorem.
Railroad Rate Differential
The South African Transport Services (SATS), a government-owned corporation, maintains a
rate schedule that generally provides railroad rates for shipments destined for export that are
lower than domestic rates.
ISCOR used rail transport for its exports of rebars. The export rate is approximately 50
percent of the domestic rate. We find this program to confer a bounty or grant, and we
calculate its benefit by dividing the differential per ton by the per ton value of the product.
As stated in our preliminary notice, SATS maintains that its export rates are "cost justified,"
and that the difference between the domestic and export rates reflects the difference in the
costs of handling the two types of traffic.
SATS has demonstrated that rate differentials between domestic and export steel shipments
are generally cost justified. It has shown that the ratio of revenues to costs in export
shipments of steel is greater than the similar ratio for most domestic shipments. The exception
was certain domesic steel shipments railed under the same conditions as exports. Prior to
April 1, these were charged higher rates than exports. Necessarily, the revenue-to-cost ratio
for these shipments exceeded the normal ratio for domestic shipments.
During our verification we found that steel for export is shipped in "full- truck loads" (full cars)
and 39-car trains. The mill is charged for a fully
loaded car whether or not it is able to fill the car completely. These trains are moved to the
harbors as complete units. The only handling required is the changing of locomotives on
various parts of the lines. At the ports the harbor administration unloads the train and loads
the ships; for this service a separate fee is charged.
In contrast, domestic shipments are charged rates on a per ton basis. The railroad moves the
cars from the mill to a marshalling yard where they are transferred to other trains for hauling
to their destination. (Marshalling may occur more than once during any shipment.) At the
destination the railroad is responsible for unloading the train.
SATS has made available to domestic steel shippers, effective April 1, 1982, the same rates
export shipments enjoy if the domestic shipments meet the same loading and point-to-point
conditions imposed on export shipments.
Based on the availability of the lower rate to all domestic steel shippers meeting the conditions
imposed on
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export shipments of steel, we determine that the rate afforded by SATS to exporters of rebars
is not provided on terms more favorable than those for domestic shippers and that it does not
constitute a bounty or grant in this case for shipments exported after April 1, 1982. For
shipments prior to April 1, 1982, we find the bounty or grant to be 6.8 percent ad valoreum
based on the difference in the full truckload rate available to exporters and the per ton rate
available to domestic shippers.
Central Government Rebate
The government of South Africa offered a "Central Government Rebate" of up to 25
percent of the railroad charges on products shipped in open railway cars for export. ISCOR
benefited from this program in 1981. However, as this program was terminated on April 1,
1982, we are not including this benefit in our calculation of the bounties or grants on
shipments after that date. For shipments prior to April 1, 1982, we find the benefit under this
program is 1.70 percent ad valorem.
Export Incentive Program--Category C (Finance Charges Aid Scheme)
The South African government provided for a tax-free rebate to certain firms increasing the
value of their exports of manufactured goods. The rebate was equal to 25 percent of the
interest costs for financing exports. ISCOR benefited from this program in 1981. However, as
this program was terminated on April 1, 1982, we are not including this benefit in our
calculation of the bounties or grants on shipments after that date. For shipments prior to April
1, 1982, we calculated a benefit of 1.2 percent ad valorem.
II. Programs Determined Not To Confer Bounties or Grants on Manufacturers, Producers, or
Exporters of Rebars
Based upon our verification, we determine that bounties or grants are not being provided to
manufacturers, producers, or exporters in South Africa of rebars under the following
programs:
Government Equity Participation in ISCOR
The government of South Africa owns over 99 percent of the outstanding shares of
ISCOR. The remaining shares are not publicly traded. The petitioners alleged that the purchase
of equity by the government represents a bounty or grant.
In our preliminary determination, we made the tentative judgment, based on ISCOR's financial
statements, that the purchase of share capital in ISCOR by the government was inconsistent
with commercial considerations, and therefore potentially a bounty or grant.
We then measured the value of the bounty or grant by comparing the government's rate of
return in 1981 on its equity investment in ISCOR with the national average rate of return in
1981 on equity investments in South Africa as evidenced by the report of the South
African Reserve Bank. We then
multiplied this difference by the amount of the government equity infusions since 1974. We
preliminarily found the value of the benefit, allocated over total ISCOR sales, to be 3.7 percent
ad valorem.
ISCOR has provided additional information to suggest that the government's equity infusions
were consistent with commercial considerations, and therefore not a bounty or grant. ISCOR's
income statements in its annual reports are based on an inflation-based accounting system
which charges to production costs the increased replacement costs of fixed assets. This
expense item is in addition to normal depreciation. While approved and recommended by the
National Council of Chartered Accountants (SA), this practice is not followed by most South
African companies. However, ISCOR has been using it since 1952.
The effect of this practice on ISCOR is to understate its profit performance vis-a-vis companies
not using the inflation-based system. When the provisions for increased replacement costs are
added back to profits, ISCOR's performance changes dramatically. Instead of two profitable
years in the last eight, ISCOR shows profits in six of those years.
Moreover, we have found that ISCOR's non-payment of taxes in those years is not related to a
poor profit performance, but instead to significant write-offs for major capital expenditures
made during earlier periods. These write-offs are not preferential under South African tax law.
For these reasons we determine that the South African government's purchase of
ISCOR's share capital was not inconsistent with commercial considerations, and therefore is
not potentially a bounty or grant under the Act.
ISCOR Loan Guarantees
The petitioners alleged that the South African government's ownership of ISCOR allows the
company to receive loans at interest rates lower than if the company were privately held. In
our preliminary determination, we estimated the benefit from loan guarantees based on the
best information available. ISCOR has since presented information on all its loans outstanding
during the period for which subsidization is being measured.
Government ownership of a firm does not implicitly guarantee the debt of the firm, and thus
does not confer per se a bounty or grant. An explicit loan guarantee by the state, on the other
hand, bestows a benefit to the extent that the recipient of the guaranteed loan pays less for the
debt than would have been commercially available absent the guarantee. In ISCOR's case we
found that only certain of the company's loans obtained in foreign countries were guaranteed
by the government. Those loans of ISCOR's which were guaranteed carried rates generally
higher than the rates for long-term corporate bonds in the countries in which they were
received. The long-term corporate bond rate is the rate we selected as our measure of debt
incurred solely on the basis of
commercial considerations. This rate was used as the best information available for
comparison as there was only one similar ISCOR loan that was not guaranteed. (That loan
carried the same interest rate as a government guaranteed loan given on the same day.)
Therefore, we determine that the guarantee of ISCOR's loans by the government did not
provide a benefit which is a bounty or grant in this case.
Employee Training Programs
The South African Department of Manpower certifies training programs to the taxing authority
which allows businesses to deduct 200 percent of qualified training expenses. The Department
of Manpower has demonstrated that all qualified training programs are available to all
companies and industries and that they are neither restricted to certain sectors of the
economy nor preferential to exporters. Therefore, we find the tax benefits from the training
programs not to be bounties or grants.
Reduced Ocean Freight Rates
The petitions alleged that South African shippers benefited from reduced ocean freight rates.
We could find no evidence of such a program. We did find
evidence of rate negotiation between shippers and carriers; however, this does not constitute
a bounty or grant under the Act.
III. Programs Determined Not To Be Used by Manufacturers, Producers, or Exporters of
Rebars
We determine that the following programs, which were alleged by the petitioners to confer
bounties or grants,
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are not used by the manufacturers, producers, or exporters in South Africa of rebars.
- Export credit insurance,
- Pre- and post-shipment financing,
- Export incentive program--category A, B and D,
- Beneficiation allowances for base mineral processing,
- Homeland development, and
- Iron/steel export promotion scheme.
Comment 1
The petitioner argues that adjustments to ISCOR's financial statements to reflect its use of a
replacement cost inflation factor is improper. They also state that investments in steel in
general, and in ISCOR in particular, were not prudent in the period 1974 to 1980.
DOC Position
ISCOR's use of the replacement cost inflation factor in its accounts is a conservative
accounting procedure. It understates the firm's profits relative to other firms not using the
system. Therefore, in order to place ISCOR's performance in its proper perspective, an
adjustment must be made. When that adjustment is made, ISCOR's profits, while not high, are
in a range that could be expected to attract certain investors. Therefore, we found that equity
infusions into ISCOR were not inconsistent with commercial considerations.
Comment 2
The petitioner cites the eight years in which ISCOR did not pay taxes as proof of its
unprofitable condition.
DOC Position
We have found that ISCOR's non-payment of taxes in those years was not related to poor profit
performance, but instead to significant write-offs for major
capital expenditures made during the early and mid-seventies. These write-offs can be carried
forward until exhausted. They are not preferential under South African tax law.
Comment 3
The petitioner argues that the government's waiver of dividend payments is a demonstration
that its participation in ISCOR is for objectives other than commercial considerations.
DOC Position
Our principal consideration in judging whether a government's participation in a firm is
consistent with commercial consideration is the firm's profitability during the period for which
subsidization is being measured.
After restating ISCOR's performance in historical cost terms, we find the firm's profitability to
be sufficient to warrant making that judgment affirmatively. The fact that the government
chose not to take capital out of the firm in the form of dividends is not enough, in and of itself,
to make us change our position.
Verification
In accordance with section 776(a) of the Act, we verified the data relied upon in our final
determination. During this verification, we followed standard procedures, including inspection
of documents, discussions with government officials and on-site inspection of manufacturers'
operations and records.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary determination shall remain in effect
until further notice. The total net bounty or grant for rebars exported before April 1, 1982, and
entered, or withdrawn from warehouse, for consumption on or after the date of publication of
this notice is 10.05 percent ad valorem. For shipments exported on or after April 1, 1982, and
entered, or withdrawn from warehouse, for consumption on or after the date of publication of
this notice, the total bounty or grant is 0.35 percent, a rate which is de minimis. Therefore, the
duty deposit is 0.0 percent.
As required by section 706(a)(3) of the Act, cash deposits of estimated countervailing
duties in the amounts specified above of the f.o.b. invoice prices shall be required on
shipments of the subject products entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice.
The Department intends to complete an administrative review of this determination and order
under section 751 of the Act.
This determination and order are published in accordance with sections 705(d) and 706(a) of
the Act.
Lawrence Brady,
Assistant Secretary for Trade Administration.
October 25, 1982.
(FR Doc. 82-29706 Filed 10-27-82; 8:45 am)
BILLING CODE 3510-25-M