NOTICES DEPARTMENT OF COMMERCE [C-517-501] Carbon Steel Wire Rod From Saudi Arabia; Final Results of Countervailing Duty Administrative Review Monday, June 10, 1991 *26552 AGENCY: International Trade Administration/Import Administration Department of Commerce. ACTION: Notice of Final Results of Countervailing Duty Administrative Review. SUMMARY: On December 3, 1990, the Department of Commerce published the preliminary results of its administrative review of the countervailing duty order on carbon steel wire rod from Saudi Arabia. We have now completed that review and determine the total bounty or grant to be 0.43 percent ad valorem for the period January 1, 1987 through December 31, 1987. In accordance with 19 CFR 355.7, any rate less than 0.50 percent ad valorem is de minimis. EFFECTIVE DATE: June 10, 1991. FOR FURTHER INFORMATION CONTACT: Philip Pia or Paul McGarr, Office of Countervailing Compliance, International Trade Administration, U.S. Department of Commerce, Washington, DC 20230; telephone: (202) 377-2786. *26553 SUPPLEMENTARY INFORMATION: Background On December 3, 1990, the Department of Commerce (the Department) published in the Federal Register (55 FR 49932) the preliminary results of its administrative review of the countervailing duty order on carbon steel wire rod from Saudi Arabia (February 3, 1986; 51 FR 4206). The Department has now completed that administrative review in accordance with section 751 of the Tariff Act of 1930, as amended (the Tariff Act). Scope of Review Imports covered by this review are shipments of Saudi carbon steel wire rod. Carbon steel wire rod is 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. During the review period, such merchandise was classifiable under item numbers 607.1400, 607.1710, 607.1720, 607.1730, 607.2200 and 607.2300 of the Tariff Schedules of the United States Annotated (TSUSA). Such merchandise is currently classifiable under item numbers 7213.20.00, 7213.31.30, 7213.31.60, 7213.39.00, 7213.41.30, 7213.41.60, 7213.49.00 and 7213.50.00 of the Harmonized Tariff Schedule (HTS). The TSUSA and HTS item numbers are provided for convenience and Customs purposes. The written description remains dispositive. The review covers the period January I, 1987 through December 31, 1987 and eight programs: (1) Public Investment Fund loan to HADEED, (2) SABIC's transfer of SULB shares to HADEED, (3) preferential provision of equipment to HADEED, (4) income tax holiday for joint venture projects in Saudi Arabia, (5) SABIC loan guarantees, (6) preferential provision of services by SABIC, (7) government procurement preferences, and (8) issuance of preferential government bonds. Analysis of Comments Received We gave interested parties an opportunity to comment on the preliminary results. We received comments from the respondent (HADEED), and the petitioners. Comment 1: The respondent argues that, contrary to the Department's preliminary results, Public Investment Fund (PIF) loans are not limited to a specific group of enterprises, and therefore, they are not countervailable. The PIF program was administered in an even-handed manner, and PIF loans went to virtually the entire universe of eligible recipients. The essence of specificity is selective treatment, as stated in the Department's proposed substantive regulations (see, Countervailing Duties; Notice of Proposed Rulemakinq and Request for Public Comments, 54 FR 23366; May 31, 1989). These proposed regulations say expressly that selective treatment is a prerequisite for countervailability. Selective treatment, or specificity, is determined in two ways, de jure specificity, and de facto specificity. The factual record verified in this administrative review supports neither a finding of de jure specificity, nor a finding of de facto specificity, in regards to the PIF program. PIF loans are not limited as a matter of law to a specific industrial sector; applications are considered purely on the basis of whether the projects for which loans are requested are commercially viable. The single eligibility criterion of the PIF program, which is that participants must be companies in which there is some government equity ownership, cannot in and of itself make this program specific. On this point the Court of International Trade has been explicit: "The mere fact that a program contains certain eligibility requirements for participation does not transform the program into one which has provided a countervailable benefit." (see, PPG Indus., Inc. v. United States, 662 F. Supp. 258 (C.I.T. 1987)). In preliminarily determining that PIF loans have been limited de facto to a specific group of enterprises, the Department advanced the rationale that "(b)ecause only firms with some direct or indirect government equity participation are eligible for PIF financing, only a few enterprises have received PIF financing." This rationale is both contrary to statute and not supported by the factual record of this review. The identity of the shareholders in the firms borrowing from the PIF is legally irrelevant to the specificity test. The language of 19 U.S.C. 1677(5)(ii) defines "domestic subsidies" to include governmental assistance to "a specific enterprise or industry, or group of enterprises or industries, whether publicly or privately owned." The mere fact of public ownership does not mean that all such companies constitute a "specific group of enterprises." The respondent asserts that government ownership and control of the companies that received PIF loans, of relevance only to the Department's anomalous rationale, is indirect and passive. The Saudi government has an equity interest in various companies that are, in turn, partial owners of companies receiving PIF loans. PIF loans have been made to l8 different companies representing a wide variety of industries and products. A total of 19 different multinational corporations are principal shareholders in the companies that have received PIF loans. Conversely, the petitioners argue that the Department correctly determined that PIF loans are provided to a specific group of enterprises in Saudi Arabia, and that the PIF loan is countervailable to the extent that it is given on terms inconsistent with commercial considerations. Only firms with government equity participation are eligible for PIF financing. This requirement has resulted in limiting PIF lending almost exclusively to projects undertaken by a few indirectly and directly government- owned companies. In fact, PIF loans are made to projects which are sponsored by, controlled by and basically owned by, either directly or indirectly, only three companies: Petromin, Saudia Airlines and the Saudi Basic Industries Corporation (SABIC). Furthermore, in its preliminary results, the Department stated that "firms receiving PIF financing represent less than one-half of all large-scale firms, and only a very small portion of all industrial enterprises, in the Kingdom." Clearly, the PIF program limits benefits to a specific "group of enterprises" in Saudi Arabia and is, therefore, countervailable on that basis. Petitioners refute respondent's argument regarding the interpretation of the statutory language "whether publicly or privately owned" by stating that the intention was to separate the specificity analysis from the ownership issue. Congress included the phrase "whether publicly or privately owned" in the statute to ensure that the countervailing duty law had the widest possible scope. Department's Position: We disagree with the respondent. At verification, we attempted to determine the size of the universe of large firms in Saudi Arabia of which those firms eligible for PIF financing were a subpart. We obtained a listing of licensed factories in production for the period 1983 through 1987. Because this listing may have excluded firms in existence from the period 1973 (the year PIF began lending) through 1982 and nonmanufacturing firms, we can draw no definite conclusions regarding the universe of large firms in Saudi Arabia. Nevertheless, considering Saudi firms with more than SR400 million in total investment capital as large firms, we found that from 1983 through 1987 there were, within Saudi *26554 Arabia, 25 firms large enough to qualify for PIF loans, if otherwise eligible to do so. However, because PIF by-laws exclude firms or projects without Saudi government equity from eligibility for PIF financing, only 14 of the 25 firms were eligible for PIF financing. Furthermore, although the PIF has provided loans to 18 firms from 1973 through the end of the review period, a total of six firms are majority shareholders, albeit indirect, of the 18 PIF loan recipients. Regardless of whether specific on a de jure basis, we find it de facto specific. Therefore, we determine that the PIF program is limited to a specific group of enterprises. Comment 2: The respondent argues that it is artificial to analyze the specificity of PIF lending alone. The Saudi Industrial Development Fund (SIDF) and the PIF are complementary funds and should be examined by the Department as one program. Under the standards set forth in the Department's proposed regulations, specifically § 355.43(b)(6), the PIF and the SIDF loan programs are integrally linked and, therefore, should be considered together for purposes of a specificity analysis. According to the respondent, the proposed regulations set forth standards for determining when programs are integrally linked, and those standards are fulfilled in this case. Saudi Arabia has chosen to make long-term loans available through two related funds, the PIF and the SIDF, which together provide long-term loans to any company that wants them. The programs are both administered as specialized credit institutions of the Saudi government, and they have similar requirements and similar purposes. The SIDF provides loans to small- and medium-sized private industries; the PIF lends to large-scale projects with government equity participation. The Department verified that virtually all of the companies that are ineligible for PIF, either because of size or lack of government equity participation, are eligible for long-term loans through the SIDF. The Government of Saudi Arabia is not selectively conferring benefits on companies eligible for PIF loans to the exclusion of all other companies. To the contrary, the PIF loan program is simply one part of a comprehensive government program to make low-cost loans available to virtually all companies in Saudi Arabia. Petitioners claim that the respondent's argument, that the PIF and the SIDF loan programs are integrally linked and should be considered as one program for the purposes of determining specificity, is erroneous. The Department should not lump differentiated government programs together when analyzing specificity. SIDF loans are not an alternative source of financing to PIF loans. The average maturity of the loans is different, PIF loans require government equity participation, and the maximum amount one can borrow from the SIDF is SR400 million while PIF loans are limited only by the size of the project being funded, i.e., there is no nominal limit. Department's Position: We disagree with the respondent. Section 355.43(b)(6) of the Department's proposed regulations specifically states that "in determining whether programs are integrally linked, the Secretary will examine, among other factors, the administration of the programs, evidence of a government policy to treat industries equally, the purposes of the programs as stated in their enabling legislation, and the manner of funding the programs." The Government of Saudi Arabia has established five distinct specialized credit institutions, two of which are the PIF and the SIDF. The Department has previously found that the five institutions are not linked to an overall government lending policy (see, Final Affirmative Countervailing Duty Determination and Countervailing Duty Order; Carbon Steel Wire Rod From Saudi Arabia, 51 FR 4206; February 3, 1986). The factors established in proposed § 355.43(b)(6) are necessarily general in nature. Any evaluation of these factors to determine whether the PIF and SIDF are integrally linked would include, among other methods, a comparison of each programs's by-laws, stated purposes, sources of funding, accounting systems, administrative personnel, and treatment and classification by third parties and other institutions. Although the respondent has argued that these programs complement each other, sufficient relevant information pertaining to the factors established in proposed § 355.43(b)(6) has not been demonstrated to exist. Of particular importance is whether PIF loans and SIDF loans are linked in any way to an overall government lending policy to provide loans on comparable terms to various groups serviced by these two institutions. Therefore, we have considered each government lending program separately. Comment 3: Petitioners argue that the Department erroneously counted HADEED's interest payment or commission fee made in 1990 when determining the benefit from the PIF program for the 1987 review period. The Department's practice focuses on the cash flow effect of subsidies when measuring the countervailability of a benefit. The payment should be allocated to the year in which it affected HADEED's cash flow--1990. Proposed Rules § 355.48(a) states: Ordinarily, the Secretary will deem a countervailable benefit to be received at the time that there is a cash flow effect on the firm receiving the benefit. The cash flow and economic effect of a benefit normally occurs when a firm experiences a difference in cash flows, either in the payments it receives or the outlays it makes, as a result of its receipt of the benefit. Thus, the Department should not retroactively allocate payments to nominally- related time periods. The 1990 PIF loan payment must be ignored for purposes of calculating the benefit for this administrative review. The respondent argues that the Department adhered to the plain language of § 355.48 and properly deemed the cash flow effect of HADEED's late payment to occur in 1987. Section 355.48(b) expressly provides: "(f)or purposes of (355.48(a))" the Secretary will "deem the cash flow effect to occur * * * at the time a firm is due to make a payment on the loan." The Department necessarily and correctly applied this policy in determining a methodology to valuate the benefits and then allocate those benefits to the 1987 review period. Department's Position: We disagree with the petitioner. As the respondent has correctly argued, § 355.48(b)(3) of the Department's Proposed Rules states that, in the case of a loan, the cash flow effect on the firm receiving the benefit occurs at the time a firm is due to make a payment on the loan. We use the due date to determine both the amount payable at the preferential rate and the amount that would be due at the benchmark rate. Otherwise, without reference to a due date, we would have no basis for determining when a preferential loan confers a countervailable benefit. Furthermore, since each administrative review deals with a finite time period, a delay in payment, whether deliberate or inadvertent, could result in distorting the results of that review. In this case, HADEED was required by contract to make a payment on its PIF loan only if it recorded a profit in the fiscal period preceding August 1987. The PIF and HADEED disagreed on the appropriateness of a tax deduction claimed by HADEED that reduced HADEED's profitability to zero. The dispute was duly referred to the Saudi *26655 General Auditing Bureau and resolved in 1990. We verified the nature and settlement of the dispute between the PIF and HADEED. We find no reason to conclude that the payment in question would not have been made when due in 1987, save for the dispute. Therefore, we have calculated the benefit from this payment during the 1987 review period. Comment 4: Petitioners argue that the Department's discounting methodology used in allocating the 1990 PIF loan payment to 1987 is flawed in that it fails to include a penalty for late payment. It is common commercial practice to require such a penalty in the form of a higher interest rate or related fee for the period of late payment. The respondent argues that, by discounting the value of the payment HADEED made in 1990, the Department has already imposed a penalty for late payment. This discounting reflected the Department's usual practice, which is designed to account for the time value of money. Inherent in the concept of "time value of money" is an assumption of interest. As a result, the Department has already imposed an adjustment that effectively penalizes HADEED for having made its 1987 commission payment late. Department's Position: We agree with respondent. In order to determine the value in 1987 of the service charge on HADEED's PIF loan, we discounted the nominal amount of the service charge that HADEED paid by three percent per annum for the period between August 1987 and January 1990. We then compared the amount of the discounted service charge with the amount of service charge that would have been due in August 1987 based on our benchmark interest rate. Comment 5: Petitioners argue that the Department erroneously included the SIDF interest rate as part of the commercial benchmark. The benchmark should have been calculated solely from HADEED's long-term commercial borrowings. SIDF loans are not consistent with loans made on commercial terms, which are usually freely available and at market-determined rates. Should the Department persist in using SIDF interest rates for its benchmark, it should recognize the SR400 million loan cap on SIDF loans. The appropriate benchmark should be calculated by restricting the SIDF portion to reflect the SR400 million limit. The remaining portion of the benchmark should be comprised of the 1987 interest rate assessed HADEED by Saudi commercial banks. Conversely, the respondent argues that the Department's use of an SIDF loan rate as the predominant element of the benchmark is consistent with Department precedent. The only loan reasonably comparable to a PIF loan and the closest alternative to a PIF loan would have been an SIDF loan. As previously stated, PIF and SIDF loans share a number of key characteristics, none of which are found in private bank loans. Furthermore, the Department adopted an SIDF-based composite in the original investigation, and its decision to do so was upheld by the Court of International Trade. (See, Saudi Iron & Steel Co. (HADEED) v. United States, 675 F. Supp. 1362, (C.I.T. 1987)). Department's Position: We disagree with the petitioner. We constructed a composite benchmark consisting of the flat two percent rate of interest applied to SIDF loans through 1987 and HADEED's average commercial borrowing rate in 1987. In countries where government institutions are the predominant source of long-term lending, it has been the Department's practice to use interest rates on nonspecific direct government loans as benchmarks. Such benchmarks are the best measure of the benefit to the recipient of the subsidized loan because they reflect what the recipient would otherwise have paid for a comparable loan. Saudi commercial banks do very little long-term lending, primarily because there is no long-term source of capital available to the banks themselves and, given that the payment of interest is unenforceable in a Saudi court of Islamic law, they tend to restrict their lending to small amounts to a few borrowers. Thus, such lending cannot be considered an alternative to a PIF loan. As for the SR400 million cap on SIDF loans, we verified that the SIDF, in fact, often lent combined amounts greater than the cap to a single company. For these reasons, we believe that the interest rate of nonspecific SIDF loans is appropriate for use in our composite benchmark. Comment 6: The respondent argues that the Department incorrectly determined that the income tax holiday is limited to a specific group of enterprises, and is therefore countervailable. The statutory standard that the Department must apply in determining whether Saudi Arabia's income tax holiday constitutes a countervailable subsidy is whether its benefits are limited to a "specific enterprise or industry, or group of enterprises or industries." (See, 19 U.S.C. 1677(5)(A)(ii) (1988)). The income tax holiday is not directed toward any specific sector, industry, or group of enterprises. Rather, it is open to any licensed foreign investment in which Saudis have a 25 percent or greater equity share. Furthermore, the size and diversity of the universe of companies that qualify for the tax holiday are themselves dramatic evidence that it is not restricted or targeted to specific industries or companies. Petitioners argue that the Department correctly determined that the benefits from the income tax holiday are specifically provided and, therefore, constitute a countervailable benefit. The program's eligibility requirements are restrictive and the most dominant industry (petroleum) is excluded. The only critical issue for the Department is whether an advantage in international commerce has been bestowed on a discrete class of grantees. Such an advantage was conferred on HADEED by virtue of the income tax holiday in this review period. Department's Position: We disagree with the respondent. We have little evidence of the size and diversity of the universe of companies that qualify for the tax holiday. The information in the record of this review, with respect to the size of the eligible universe, is limited to two publications of the Statistics Department of the Saudi Arabian Monetary Agency (SAMA). According to SAMA, companies with foreign capital comprised less than one- fourth of all companies operating in the Kingdom during the review period, of which those companies in nonpetroleum-related industries are a subgroup. Within this subgroup, the application of the remaining criterion, that foreign technical know-how and expertise must accompany the original investment, further limits benefits under this program. Therefore, we determine that it is specific and countervailable. Final Results of Review After reviewing all of the comments received, we determine the total bounty or grant to be 0.43 percent ad valorem for the period January 1, 1987 through December 31, 1987. In accordance with 19 CFR 355.7, any rate less than 0.50 percent ad valorem is de minimis. Therefore, the Department will instruct the Customs Service to liquidate, without regard to countervailing duties, all shipments of this merchandise exported on or after January 1, 1987 and exported on or before December 31, 1987. The Department will also instruct the Customs Service to waive cash deposits of estimated countervailing duties on all shipments of this merchandise entered, or withdrawn from warehouse, for consumption, on or after the date of publication of these final results of *26656 administrative review. The waiving of cash deposits of estimated countervailing duties shall remain in effect until publication of the final results of the next administrative review. 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 19 CFR 355.22. Dated May 31, 1991. Eric I. Garfinkel, Assistant Secretary for Import Administration. [FR Doc. 91-13709 Filed 6-7-91; 8:45 am] BILLING CODE 3510-05-M