85-b20

NOTICES

DEPARTMENT OF COMMERCE

[C-517-501]

Preliminary Affirmative Countervailing Duty Determination; Carbon Steel Wire
Rod From Saudi Arabia

Wednesday, November 20, 1985

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AGENCY: Import Administration, International Trade Administration,
Commerce.

ACTION: Notice.

SUMMARY: We preliminarily determine that certain benefits which constitute bounties
or grants within the meaning of the countervailing duty law are being provided to
manufacturers, producers, or exporters in Saudi Arabia of carbon steel wire rod. The
estimated net bounty or grant is 10.52 percent ad valorem for all manufacturers,
producers, or exporters in Saudi Arabia of carbon steel wire rod.

We are directing the U.S. Customs Service to suspend liquidation of all entries of carbon
steel wire rod from Saudi Arabia that are entered, or

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withdrawn from
warehouse, for consumption on or after the date of publication of this notice in the
Federal Register and to require a cash deposit or bond on such entries in the amount of
the estimated net bounty or grant.

If this investigation proceeds normally, we will make our final determination on or before
January 27, 1986.

EFFECTIVE DATE: November 20, 1985.

FOR FURTHER INFORMATION CONTACT: Jack Davies or Barbara Tillman, Office of
Investigations, Import Administration, International Trade Administration, U.S.
Department of Commerce, 14th Street and Constitution Avenue, NW., Washington, DC
20230; telephone: (202) 377-1785 or (202) 377-2438.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

Based on our investigation, we preliminarily determine that there is reason to believe or
suspect 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 Saudi Arabia of carbon steel wire rod. For
purposes of this investigation, the following programs are found to confer bounties or
grants:
- Government Loan to Hadeed
- Government Provision of Equipment for Hadeed
We preliminarily determine the estimated net bounty or grant to be 10.52 percent ad
valorem for all manufacturers, producers, or exporters in Saudi Arabia of carbon steel
wire rod.

Case History

On June 12, 1985, we received a petition in proper form from Atlantic Steel Company,
Georgetown Steel Corporation, North Star Steel Texas, Inc., and Raritan River Steel
Company filed on behalf of the U.S. industry producing carbon steel wire rod. In
compliance with the filing requirements of § 355.26 of the Commerce Regulations (19 CFR
355.26), the petition alleges that manufacturers, producers, or exporters in Saudi
Arabia of carbon steel wire rod receive bounties or grants within the meaning of section
303 of the Act.
We found that the petition contained sufficient grounds for initiating a countervailing
duty investigation, and on July 2, 1985, we initiated the investigation (50 FR 28231). We
stated that we expected to issue our preliminary determination by September 5, 1985.
Since Saudi Arabia is not a "country under the Agreement" within the meaning of section
701(b) of the Act, sections 303(a)(1) and 383(b) apply to this investigation. Accordingly,
petitioners are not required to allege that, and the U.S. International Trade Commission is
not required to determine whether, imports of the subject merchandise from Saudi
Arabia materially injure, or threaten material injury to, a U.S. industry.
On July 12, 1985, we presented a questionnaire to the Embassy of Saudi Arabia in
Washington, D.C. and requested that the response be submitted by August 12. We
presented a supplemental questionnaire on August 19 and requested a response by
October 1.
On August 6, we determined that this case is extraordinarily complicated due to the
complexity of the alleged subsidy practices and the novelty of the issues presented; we
also determined that the government of Saudi Arabia and other parties concerned were
cooperating with this investigation. Therefore, we postponed our preliminary
countervailing duty determination until not later than November 12 (50 FR 32751).
On October 1, we received responses to our questionnaires from the government of
Saudi Arabia and the Saudi Iron and Steel Company (Hadeed).

Scope of Investigation

For purposes 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, tempered or not tempered,
treated or not treated, not manufactured or partly manufactured, and valued over or
under 4 cents per pound. Wire rod is currently classifiable under items 607.14, 607.17,
607.22, and 607.23 of the Tariff Schedules of the United States (TSUS).

Analysis of Programs

Through out this notice, we refer to certain general principles applied to the facts of the
current investigation. These principles are described in the "Subsidies Appendix" attached
to the notice of "Cold-Rolled Carbon Steel Flat- Rolled Products from Argentina; Final
Affirmative Countervailing Duty Detemination and Countervailing Duty Order,"
which was published in the April 26, 1984, issue of the Federal Register (49 FR 18006).
Consistent with our practice in preliminary determinations, where a response to an
allegation denies the existence of a program, receipt of benefits under a program, or
eligibility of a company or industry under a program, and the Department has no
persuasive evidence showing that the response is incorrect, we accept the response for
purposes of the preliminary determination. All such responses, of course, are subject to
verification. If a response cannot be supported at verification, and the program is
otherwise countervailable, the program will be considered a bounty or grant in the final
determination.
For purposes of this preliminary determination, the period for which we are measuring
bounties or grants (the review period) is the 1984 company fiscal year (January
1--December 31, 1984). Based upon our analysis of the petition and the responses
submitted by the government of Saudi Arabia and Hadeed to our questionnaires, we
preliminarily determine the following:

I. Programs Preliminarily Determined To Confer Bounties or Grants

We preliminarily determine that bounties or grants are being provided to manufacturers,
producers, or exporters in Saudi Arabia of carbon steel wire rod under the following
programs.

A. Government Loan to Hadeed

Although not specifically alleged by petitioners, evidence in the petition indicated that
Hadeed might have received loans on terms inconsistent with commercial considerations
from the Saudi Industrial Development Fund (SIDF) or from other government agencies.
In its response, Hadeed reported that it had not received any loans from SIDF but had
received a loan from the Public Investment Fund (PIF). The PIF loan was part of the initial
investment package for constructing Hadeed's direct reduction plant, steel making plant,
and rolling mill at Jubail. The amount of the PIF loan comprised 60 percent of the total
capitalization of Hadeed.
Repayment of the principal on Hadeed's PIF loan will begin in 1989, 5.5 years after the
October 1983 startup of production at Hadeed. After the startup, the service charge on
the loan varies according to the rate of return on investment in a given fiscal year.
Hadeed did not make a profit during the review period and therefore did not pay any
service charge on the PIF loan in that period.
The PIF was established in 1971 to provide loans for major projects such as those
undertaken by Saudia Airlines PETROMIN, and the Saudi Basic Industries Corporation
(SABIC), an

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investment holding company jointly owned by the Saudi government
and private investors. We preliminarily determine that PIF loans are provided to a
specific enterprise or industry, or group of enterprises or industries. Therefore, the PIF
loan taken out by Hadeed is countervailable to the extent that it has been made on terms
inconsistent with commercial considerations.
The Saudi government provides long-term loans through a variety of sources. Among
them are the SIDF, the Saudi Arabian Agricultural Bank, the Real Estate Fund, and the
Credit Fund for Contractors. The SIDF, established in 1974, extends long-term loans for
the establishment and expansion of manufacturing and industrial projects in the private
sector and for electricity projects. During the first ten years of its operations, the SIDF
provided loans for 843 projects in numerous industrial sectors including consumer
products, chemical products, cement, building materials, and engineered products.
According to an article entitled "Domestic Financing: Saudi Arabia" in Financing
Foreign Operations (Business International Corporation, August 1985), the SIDF can fund
up to 50 percent of a project's total capital requirement and usually charges an annual
service fee of 2 percent.
Because SIDF loans are not limited to a specific enterprise or industry, or a group of
enterprises or industries, but rather are available to a wide variety of industries, we
believe they provide the appropriate commercial benchmark. Accordingly, we have
compared the terms of the SIDF loans to the terms of the PIF loan taken out by Hadeed.
On this basis, we preliminarily determine that the PIF loan is on terms inconsistent with
commercial considerations.
To calculate the benefit to Hadeed, we multiplied the total amount of PIF funds drawn
down as of the end of the review period by a benchmark rate reflecting the lower
eligibility level for SIDF loans (50 percent as compared to the 60 percent Hadeed
borrowed from the PIF). The benchmark was constructed by combining the commission
that would be paid on an SIDF loan with the commission that would be charged on a
commercial loan, each element weighted to reflect the amount of financing from each of
the two sources. The resulting benefit for the review period was divided by the value of
Hadeed's sales for the review period to arrive at an estimated net bounty or grant of 9.51
percent ad valorem.

B. Government Provision of Equipment to Hadeed

II. Programs Preliminarily Determined Not To Confer Bounties or Grants

We preliminarily determine that bounties or grants are not being provided to
manufacturers, producers, or exporters in Saudi Arabia of carbon steel wire rod under
the following programs.

A. Government Equity Infusions in Hadeed

Petitioners alleged that the government of Saudi Arabia, through the Saudi Basic
Industries Corporation (SABIC), provided equity to Hadeed on terms inconsistent with
commercial considerations. Petitioners contended that the lack of commercial viability of
the steel mill investment is demonstrated by the fact that SABIC assumed a 90 percent
equity participation share in Hadeed, whereas SABIC's joint venture projects are usually
structured with 50 percent SABIC equity and 50 percent foreign equity. In Hadeed's case,
petitioners argued that no foreign investor was willing to assume a 50 percent equity
share because such an investment would not have been commercially sound.
We have consistently held that government provision of equity does not per se confer a
subsidy. Government equity infusions bestow countervailable benefits only when they
occur on terms inconsistent with commercial considerations. When there is no
market-determined price for equity, it is necessary to determine whether the company is
a reasonable commercial investment. Since there are no market determined prices for
equity in Hadeed, we must determine whether Hadeed is equityworthy.
In previous investigations where past experience of a company is of little utility in
assessing future performance, such as situations involving the

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construction and
startup of a newly established company or a major restructuring or expansion program,
we recognized that the factors considered and the relative weight placed on such factors
may differ from the analysis of an established enterprise. In particular, since historical
operating and financial data are not available for a newly established company, we place
greater reliance on analysis of feasibility and market studies, which are usually the only
information available to investors at the time the new company was formed.
To make our equityworthiness determination in this investigation, we have examined
feasibility studies prepared independently by the World Bank as well as feasibility studies
done by SABIC and Korf Stahl, the two principals in the Hadeed joint venture agreement.
In our assessment of these studies, we have analyzed the underlying assumptions, the
projections of financial and operating performance, and the conclusions and
recommendations of the studies. The World Bank studies describe the market conditions
for the billets, wire rod, and reinforcing bars and make projections of sales, income, and
profitability based on the market conditions. The World Bank studies, made at the time
the joint venture was established, indicate that Hadeed was a commercially reasonable
investment. Based on our analysis of the independent feasibility studies of the World
Bank, we preliminarily determine that Hadeed has been equityworthy since its inception
in 1979.

B. Basic Infrastructure in Jubail and Yanbu

Petitioners alleged that the government of Saudi Arabia, through the Royal Commission
for Jubail and Yanbu, provides infrastructure benefits, such as roads, ports, low-cost
utilities, training centers, and plant sites, to specific enterprises and industries located in
Jubail and Yanbu.
According to the response, the government of Saudi Arabia as part of its development
strategy has built basic infrastructure in Jubail, including an airport, roads, a railroad,
electrical power, potable and sea water services, a waste disposal system,
telecommunications, industrial parks, a hospital, a port, and various other facilities for
public use. The same basic infrastructure has been built by the government in other parts
of the country as well.
We have consistently held that government activities such as these constitute bounties or
grants only when they are limited to a specific enterprise or industry, or a group of
enterprises or industries. Moreover, we have held that where limitations on use do not
result from government activities, but instead result from the inherent characteristics of
the good or service being provided, the government action does not confer a
countervailable bounty or grant.
Basic infrastructure facilities are, by their very nature, available for use only by
companies and individuals located in the vicinity of such facilities. Roads, ports, and
training centers established in a given location obviously benefit those located in that
area more than they benefit firms and individuals located in other areas. Nevertheless,
this does not mean that those located in close proximity to the infrastructure are
receiving countervailable bounties or grants. Accordingly, the provision of basic
infrastructure does not confer a countervailable bounty or grant when the following three
conditions are met: (1) The government does not limit who can move into the area where
the infrastructure has been built, (2) the infrastructure that has been built is used by more
than a specific enterprise or industry or group thereof, and (3) those that locate there
have equal access or receive the benefits of the infrastructure on equal terms.
In its response, the government of Saudi Arabia replied that it has not limited entry to
Jubail to a specific enterprise or industry or group of enterprises or industries.
Approximately 40 industrial facilities have been or are being established in Jubail,
including a crude oil refinery, lube oil blending plant, a sulfur plant, petrochemical plants,
methanol plants, a fertilizer plant, an ammonia plant, a steel drum and tank plant, a
terephthalate plant, a polymer compounding plant, and various plants for producing
plastic products. There are also over 75 smaller manufacturing and commercial
enterprises in Jubail, including a wide variety of businesses and service companies.
Moreover, the basic infrastructure (airports, roads, and public facilities, for example) is
used by everyone located in Jubail. Finally, the infrastructure which the government of
Saudi Arabia has constructed in Jubail is available on equal terms for use by all
companies and industries located in Jubail. Because restrictions on the use of this
infrastructure stem from the inherent nature of the facilities and not from any activity or
action of the government of Saudi Arabia and because the infrastructure is used by a
wide variety of industries, we preliminarily determine that the benefits are not limited to
a specific enterprise or industry or a group of enterprises or industries within the
meaning of section 771(5)(B) of the Act.
We also preliminarily determine that the basic infrastructure built by the government in
Jubail is not countervailable as a regional bounty or grant. When a government decides to
build industrial cities or industrial estates or any other type of infrastructure, the
government activity is necessarily limited to those sites. To treat this activity as a
regional bounty or grant would not be reasonable. Under such logic, the government
would have to develop every square foot of the country equally or undertake no
development at all in order to avoid providing regional bounties or grants. We cannot
accept this interpretation. Insofar as the government does not limit which industries can
locate in these areas, and does not apply different criteria for using the infrastructure in
one area than in another, than there is no governmental limitation to companies in
specific regions. The only limitation is due again to the inherent characteristics of the
infrastructure.
In Saudi Arabia, the government has built infrastructure for a number of industrial
centers. There are two industrial cities, Jubail and Yanbu, as well as industrial estates
outside the major cities in the Kingdom. According to the response, the government does
not limit the types of industries which can locate in these industrial centers. Nor is there
any information on the record to indicate that the government has established or applied
different criteria for using the basic infrastructure in one industrial center than in
another. Therefore, we preliminarily determine that the provision of basic infrastructure
in Jubail is not limited to a enterprise or industry or a group of enterprises or industries
in a specific region.

C. Special Benefits to the Manufacturing Sector in Saudi Arabia

Petitioners alleged that the "manufacturing sector" in Saudi Arabia represents a "group
of industries" targeted for development and provided with special incentives under the
Law for the Protection and Encouragement of National Industries in the Kingdom of
Saudi Arabia. These special incentives include: duty exemptions on imports of
machinery, tools, equipment, spare parts, raw materials, and packaging; land at nominal
rent for factories and employee housing; and provision of water, electricity, and gas at
very low rates.
In its response, Hadeed states that it has applied for and received duty exemptions on
spare parts and

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consumables in 1984. Duty exemptions granted by the
government are discussed below in section IV.
Hadeed reported that the rental rate on land paid to the Royal Commisson on Jubail and
Yanbu is the standard rental rate charged by the government to all industries in industrial
partks throughout Saudi Arabia. Hadeed also reported that it has received no discounts
or rebates on water or electricity in 1984 and that the water and electrical rates charged
to Hadeed in 1984 were the standard rates available to all industrial users in Jubail. With
respect to gas, Hadeed is serviced by the Master Gas System which serves cities in the
Eastern, Central, and Western Provinces. Hadeed pays the same rate for gas as all other
companies serviced by the Master Gas System.
The provision of land, water, electricity and gas, like the building of infrastructure
facilities (see section II.B "Basic Infrastructure in Jubail and Yanbu"), cannot be
considered countervailable unless the government limits which industries can locate on
the land or use the water, electricity and gas, or unless the government establishes
criteria for using the land or using these services which are not neutral in application, but
rather based on industry or regional preferences.
According to the response, the government owns and rents land to industrial users in a
number of industrial centers. All users in these centers, including Hadeed, pay the same
standard rental rate. Furthermore, the response indicates that Hadeed pays the standard
rate charged to all industrial users of the water, electricity and gas systems. Therefore, we
preliminarily determine that the provision of land, water, electicity and gas does not
confer a bounty or grant because it is not limited to a specific enterprise or industry or
group of enterprises or industries, or to companies in specific regions.

III. Program Preliminarily Determined Not To Be Used

In accordance with our practice of accepting for our preliminary determination a
response to an allegation which denies the receipt of benefits under a program where we
have no persuasive evidence showing the response to be incorrect, we preliminarily
determine, subject to verification, that manufacturers, producers, or exporters in Saudi
Arabia of carbon steel wire rod did not use the following programs which were listed in
our notice of initiation.

A. Special Benefits to Joint Ventures in Saudi Arabia

Petitioners alleged that Hadeed, a 90 percent Saudi-owned joint venture, enjoys benefits
under the Foreign Capital Investment Code and the Saudi Arabian Tenders Regulations
which are not available to other joint venture enterprises with lower percentages of Saudi
ownership. Petitioners submit that various equity "participation" levels define "groups of
industries." The alleged benefits consist of income tax holidays, government procurement
preferences, exemptions from posting of tender and performance bonds, and exemptions
from payment retentions.
According to the response, the income tax holidays are only available to the foreign
partner in a joint venture having at least 25 percent Saudi equity participation. Hadeed
reported that during its startup period, the company had no profits on which the foreign
partner, Korf Stahl, could claim the tax holiday. Hadeed also stated in its response that it
does not sell to the government and thus has not received any government procurement
contracts. Finally, the government of Saudi Arabia stated in its response that there is no
exemption from tender or performance bonds available to any company or group of
companies in Saudi Arabia.

IV. Program for Which Additional Information Is Needed

A. Duty Exemptions Under the Law for the Protection and Encouragement of National
Industry

In its response, the government of Saudi Arabia reported that Articles 4 and 5 of the
Law for the Protection and Encouragement of National Industry provide for duty
exemptions on imports of machines, tools, equipment, spare parts, packing products, raw
materials, and semi-processed raw materials. Any manufacturing or industrial firm may
apply to the Minority of Industry and Electricity for approval of duty exemptions, and
exemptions are freely granted according to the government response.
Hadeed reported that it had applied for duty exemptions on its 1984 imports of spare
parts and consumables under these provisions. According to Hadeed, since 1973 imports
of all raw materials and all essential consumer goods have been duty free under Saudi
tariff schedules.
Based on the informaton provided in the responses, duty exemptions for the products
described in Articles 4 and 5 of the Law for the Protection and Encouragement of National
Industry appear to be obtainable by all manufacturing and industrial concerns with
Saudi Arabia merely by filing an application. During verification, we intend to seek
further information on the review and approval processes for such requests.

Suspension of Liquidation

In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service
to suspend liquidation of all entries of carbon steel wire rod from Saudi Arabia which
are entered, or withdrawn from warehouse, for consumption on or after the date of
publication of this notice in the Federal Register and to require a cash deposit or bond for
each entry of this merchandise in the amount of the estimated ad valorem rate. The
estimated net bounty or grant is 10.52 percent a valorem for all manufacturers,
producers, or exporters in Saudi Arabia of carbon steel wire rod. This suspension will
remain in effect until further notice.

Public Comment

In accordance with § 355.35 of our regulations, we will hold a public hearing, if requested,
to afford interested parties an opportunity to comment on this preliminary determination
at 10:00 a.m. on December 20, 1985, at the U.S. Department of Commerce, Room 1414,
14th Street and Constitution Avenue, NW., Washington, DC 20230. Individuals who wish
to participate in the hearing must submit a request to the Deputy Assistant Secretary for
Import Administration, Room B-099, at the above address within 10 days of the
publication of this notice.
Request for a hearing should contain: (1) The party's name, address, and telephone
number; (2) the number of participants; (3) the reason for attending; and (4) a list of the
issues to be discussed. In addition, pre- hearing briefs in at least 10 copies must be
submitted to the Deputy Assistant Secretary by December 17, 1985. Oral presentations
will be limited to issues raised in the briefs.
In accordance with 19 CFR 355.33(d) and 19 CFR 355.34, written views will be considered
if received not less than 30 days before the final determination or, if a hearing is held,
within 10 days after the hearing transcript is available.
This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).

Gilbert B. Kaplan,

Acting Deputy Assistant Secretary for Import Administration.

November 12, 1985.

[FR Doc. 85-27707 Filed 11-19-85; 8:45 am]

BILLING CODE 3510-DS-M