51 FR 32931

                                 NOTICES

                         DEPARTMENT OF COMMERCE

                     International Trade Administration

     Carbon Steel Wire Rod From South Africa; Final Results of Countervailing
                         Duty Administrative Review

                        Wednesday, September 17, 1986

*32931

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

ACTION: Notice of final results of countervailing duty, administrative review.

SUMMARY: On August 14, 1984, the Department of Commerce published the preliminary
results of its administrative review of the countervailing duty 
order on carbon steel wire rod from South Africa. The review covers the period July 1,
1982 through December 31, 1982 and eleven programs.

We gave interested parties an opportunity to comment on the preliminary results. After
reviewing all of the comments received, the Department has determined the total bounty or
grant during the period of review to be 1.66 percent ad valorem.

EFFECTIVE DATE: September 17, 1986.

FOR FURTHER INFORMATION CONTACT:Sylvia Chadwick or Lorenza Olivas, Office of
Compliance, International Trade Administration, U.S. Department of Commerce,
Washington, DC 20230; telephone: (202) 377-2786.

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SUPPLEMENTARY INFORMATION:

Background

On September 27, 1982, the Department of Commerce ("the Department") published in the
Federal Register (47 FR 42396) a countervailing duty order on carbon steel wire rod
from South Africa. We began this review of the order under our 
old regulations and published the preliminary results of our review on August 14, 1984 (49 FR
32431). On October 10, 1985, after the promulgation of our new regulations, the petitioners,
Continental Steel Corporation, Georgetown Steel Corporation, North Star Steel Texas, Inc.,
Raritan River Steel Company, and Atlantic Steel Company, requested in accordance with
section 355.10 of the Commerce Regulations that we complete that administrative review. The
Department has now completed that administrative review in accordance with section 751 of
the Tariff Act of 1930 ("the Tariff Act").

Scope of the Review

Imports covered by the review are shipments of South African wire rod. Such merchandise is
currently classifiable under item 607.1700 of the Tariff Schedules of the United States
Annotated. The review covers the period July 1, 1982 through December 31, 1982 and eleven
programs: (1) Export Incentive Program--Categories A, B and D; (2) government assumption
of financing charges; (3) exemption from the payment of stamp duties; (4) a loan from the
General Levy and Import Subsidy Scheme; (5) Industrial Development Corporation loans; (6)
preferential rail rates; (7) loans to uncreditworthy companies; (8) government equity
participation; (9) government loan guarantees; (10) regional decentralization program; and
(11) beneficiation allowances for mineral processors. During the period of
 review, the South African Iron and Steel Corporation
("ISCOR") was the only known exporter of South African wire rod to the United States.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the preliminary results. At the
request of ISCOR, we held a public hearing on October 4, 1984.

Comment 1: ISCOR argues that the benefit from the South African government's assumption of
70 million rand of ISCOR's financing charges in 1978 should be expensed in that year. There
are no rational reasons for the Department to allocate this benefit over 15 years.

Department's Position: In the appendix to the final affirmative countervailing duty
determination and order on cold-rolled carbon steel flat-rolled products from Argentina (49
FR 18006, April 26, 1984) ("the Subsidies Appendix"), we stated that the cash flow does not
provide guidance in allocating the benefits from a grant since the difference in cash flow occurs
only at a single moment in time (when the grant is received). Also, we have consistently
maintained that we are not bound by accounting practices when choosing an allocation
period. Instead, as mandated by Congress, we seek an allocation period that reflects the
commercial and competitive benefit of the subsidy. The commercial 
and competitive benefit of the forgiveness of 70 million rand in financing charges obviously
has economic effects that extend beyond the year of receipt. In order to measure this benefit,
we have chosen a standard period--the average useful life of an industry's renewable physical
assets as determined by the U.S. Internal Revenue Service. For the steel industry, the period is
15 years. This standard offers predictability in the outcome of the Department's proceedings
and eliminates inconsistent results among companies or countries.

Comment 2: ISCOR argues that the Department should not have added a dividend yield to the
earnings yield when calculating the national rate of return on equity in South Africa
because the earnings yield incorporates the dividend yield.

Department's Position: We agree and have adjusted our calculations accordingly. Because of
this correction, we determine the benefit from the government's assumption of financing
charges to be 0.43 percent ad valorem. No other programs are affected by this change.

Comment 3: ISCOR argues that Act 96 of June 23, 1982 did not exempt it from the payment of
stamp duties for the period 1968 through 1982. The purpose of Act 96 was to deprive ISCOR of
a legal defense which otherwise have precluded any liability for stamp duties after 1982. ISCOR
had not been liable for any duties prior to the Act, and therefore, Act 96 could not confer a
subsidy.

Department's Position: Act 96 confirmed that ISCOR was not liable during the 
period 1968 to 1982 for duties that had been levied by the Stamp Duty Act of 1968. ISCOR's
special exemption from stamp duties when other South African companies were liable for
similar duties constitutes a countervailable benefit.

Comment 4: ISCOR argues that it received no Industrial Development Corporation ("IDC")
loans during the review period and, therfore, received no countervailable benefits from such
loans. In support of its contention, ISCOR's auditors and the IDC submitted statements that
ISCOR had received no such loans.

Department's Position: At verification, we were allowed to see a worksheet listing loans, but
ISCOR did not allow us to tie this worksheet to the company's loan ledger or to actual loan
documents. Since we were not allowed to verify the completeness of the worksheet, we
determine as the best information available that ISCOR did receive IDC loans and that the
benefit is equal to the highest ad valorem benefit received by a South African company from
this program in any other South African case. The statements from ISCOR and the IDC cannot
resolve the issue in light of the failed verification.

Comment 5: ISCOR argues that the differental between export and domestic railroad rates did
not provide a benefit during the review period because this differential was offset by new
contracts that were signed by ISCOR in 1983 but backdated to April 1, 1982. To carry out the
retroactive provisions of these contracts, the South African Transport Services ("SATS") made
reconciliations 
of past consignment notes to account for differences between the actual rates charged after
April 1, 1982 and the rate in the contracts. These reconciliations were finished by March 1984,
when SATS collected from ISCOR (the only company for which reconciliations were necessary)
the difference between what the company actually paid and what it should have paid according
to the contract. Because ISCOR made this payment, there is no benefit from the railroad rate
differential.

ISCOR further argues that although it did not make this interest-free payment until 1984, the
Department should not find an interest benefit for the late payment. SATS has a general policy
of not charging interest on accounts receivable, so interest-free payments are generally
available.

Department's Position: During the investigation, the South African government agreed to
charge the same rail rate for all steel shipments that met certain full-car and full-train load
conditions regardless of destination. Previously, only export shipments had been eligible for
this lower rate. This change was to become effective on April 1, 1982, but SATS did not make
the change until July 1982. In 1983, SATS signed contracts with those South 

*32933

African steel producers whose shipments had previously been eligible for the special export
rates. These contracts confirmed the adjustments SATS made in July 1982. However, the new
contract rates were made retroactive to April 1, 1982. These retroactive changes meant that
SATS had to make reconciliations--some 
reflecting overpayments, others underpayments--for all shipments after April 1, 1982.
When we published our perliminary notice, SATS had not been able to demonstrate that it had
completed the rail rate reconciliations. Since that time, it has shown us that the reconciliations
were completed in March 1984. These reconciliations showed that ISCOR had been
undercharged. Therefore, SATS debited ISCOR's account for the underpayment but did not
charge interest.

Since SATS eliminated the rail rate differential in July 1982 and then, as a result of the
contracts, established new rates retroactive to April 1, 1982 that also eliminated the
differential, we determine that preferential rail rates did not provide a benefit during the
review period.

However, since SATS did not charge ISCOR interest on its underpayment, we treated this late
payment as a short-term, interest-free loan. We consider the nature of this underpayment to
differ from SATS' normal accounts receivable and, therefore, disregard ISCOR's contention that
SATS does not charge interest on these accounts. We determine the benefit to ISCOR from this
interest-free payment to be 0.03 percent ad valorem.

Comment 6: In its preliminary results in this case, the Department stated that before
publishing its final results, it might give further consideration to the issue of whether
investment in ISCOR was commercially reasonable. ISCOR argues that the Department has
already adequately considered this issue both in its 
original investigation and in its preliminary results of this review. In addition, the Department
has indicated that it considers more recent rather than more remote data when making
decisions on the reasonableness of investment. Therefore, there is no need for it to consider
the years prior to 1977.

Department's Position: In our preliminary results of review, we relied primarily on a trend
analysis from 1978 through 1982 to evaluate the commercial reasonableness of investment in
ISCOR.

However, under the methodology outlined in the Subsidies Appendix, we look to see whether a
benefit from an equity infusion exists in each year of a 15-year period, the average useful life of
renewable physical assets in the industry under review. Therefore, it is reasonable for the
Department to consider infusions before 1978 because they might still provide benefits to
ISCOR during the review period. Since ISCOR lost money in 1973 and 1974, there is good
reason to establish whether equity infusions during that period were commercially
reasonable.

ISCOR misunderstands the Department's policy of looking more closely at a company's recent
performance when considering whether investments are commercially reasonable. If we are
reviewing investment in 1975, we would give more weight to a company's performance in the
early 1970's than in the mid- 1960's. This policy does not mean that we only analyze equity
infusions in those years closest to the review period.
For our analysis of the reasonableness of investment in ISCOR, see Comment 8.

Comment 7: The petitioners argue that the Department should consider whether the railroad
rate for steel products destined for export is a preferential rate not only in comparison with
the domestic rate for steel products but also in comparison to other products with similar
economies of transportation.

Department's Position: At verification, we examined the issue of whether railroad rates for
steel were preferential in comparison to other products with similar shipping characteristics.
SATS argued that all its rates were cost- justified and that in fact it made a profit from its steel
shipments. SATS pointed out that the lower rates for steel products in comparison with most
other products is due to the lower per ton handling costs for steel. SATS also attempted to
make some comparisons to other products, both with lower and higher rates, but none of these
was successful because it could not find products that were similar to steel in weight and
shipping characteristics.

We also discussed this issue with officials of the U.S. Department of Transportation's Federal
Railroad Administration. They indicated that it was almost impossible to make comparisons
between products because of the number of variables that play a part in establishing a railroad
rate. These variables include the weight, density, and size of the product shipped, the type of
railroad car that must be used, the total volume of the product shipped, the 
ease of handling the product, and the volume of traffic on the particular line over which the
product is shipped. The evidence presented to them indicated that the rates for steel that SATS
charged seemed reasonable based on the density of the product and the probable volume. We
note that in the overall scale of rates, steel falls roughly in the same place in the South African
rate structure as it does in the U.S. rate structure.

Comment 8: The petitioners argue that, absent market projections from ISCOR, the
Department should find that ISCOR's low rates of return show that equity investment in the
company was inconsistent with commercial considerations.

Department's Position: For the ten years prior to the review period, we reviewed ISCOR's
financial results, the statements of the company's management, and the general outlook for the
industry during that period. We evaluated the company's financial statements on an historical
cost basis.

This evaluation shows that ISCOR made a profit in every year except in fiscal years 1974 and
1975. The company had a positive net income before interest and taxes and a positive cash
flow from operations in every year. The company's liquidity ratios were generally in good
order except in fiscal years 1974 and 1975 when the quick ratio was weak. Those two years
were also years when ISCOR had negative returns on equity and on sales. These ratios
improved in 1976, fell off in 1977 and 1978, and then remained fairly strong through 1982.
The company's debt load, as shown by its debt/equity ratio, grew in the early 
1970's, reaching a peak in 1976 at a ratio of slightly greater than two to one. It then tapered off
to more manageable levels over the rest of the decade. Although its debt level was high, ISCOR
earned enough to cover its interest charges in all years except 1974 and 1975.
ISCOR's results in the mid-1970's are attributable in part to an expansion program the
company began in the early 1970's. At that time, South African demand for steel exceeded the
domestic supply, and market projections by ISCOR indicated that this situation would
continue throughout the decade. Based on those market projections, it was reasonable for
ISCOR to begin an expansion program at that time. As the chairman's report for 1975
indicates, this expansion, along with the increased interest charges to finance the expansion,
accounts for ISCOR's poor return in those years. The report also states that government price
controls added to the problem. Nevertheless, considering the costs of its expansion program
and the effects of the oil shortage, ISCOR's poor financial results in 1974 and 1975 do not
indicate that the company was an unreasonable investment. In the last half of the 1970's,
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ISCOR's financial situation improved, although its interest charges remained high. Yet,
considering the general slump in the worldwide steel industry at that time, ISCOR's results
were those of a relatively healthy company.

The Department considers a company to be a reasonable commercial investment if it can
generate a reasonable rate of return within a reasonable 
period of time. Although ISCOR's financial results were weak in the mid- 1970's, the company
did not suffer from deep or continuing losses. We therefore determine that equity investments
in ISCOR were consistent with commercial consideration for the fiscal years from 1973/74
through 1982.

Final Results of Review

After reviewing all of the comments received, we determine the total bounty or grant to be
1.66 percent ad valorem for the period of review.
The Department will instruct the Customs Service to assess countervailing duties of
1.66 percent of the f.o.b. invoice price on any shipments entered, or withdrawn from
warehouse, for consumption on or after July 14, 1982 and exported on or before December 31,
1982.
Because the Department has revoked this order effective October 1, 1984, we will instruct the
Customs Service not to collect a cash deposit of estimated countervailing duties, as
provided by section 751(a)(1) of the Tariff Act, on shipments of this merchandise entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice.
This administrative review and notice are in accordance with section 751(a)(1) of the Tariff Act
(19 U.S.C. 1675(a)(1)) and § 355.10 of the Commerce Regulations (50 FR 32556, August 13,
1985).

Dated: September 12, 1986.

Gilbert B. Kaplan,

Deputy Assistant Secretary, Import Administration.

[FR Doc. 86-21032 Filed 9-16-86; 8:45 am]

BILLING CODE 3510-DS-M