91-625

NOTICES

DEPARTMENT OF COMMERCE

[C-517-501]

Carbon Steel Wire Rod From Saudi Arabia; Preliminary Results of Countervailing
Duty Administrative Reviews

Tuesday, June 25, 1991

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

ACTION: Notice of preliminary results of countervailing duty administrative reviews.

SUMMARY: The Department of Commerce has conducted administrative reviews of the
countervailing duty order on carbon steel wire rod from Saudi Arabia. We
preliminarily determine the total bounty or grant to be 0.13 percent ad valorem for the
period January 1, 1988 through December 31, 1988. We also preliminarily determine the
total bounty or grant to be 0.49 percent ad valorem for the period January 1, 1989
through December 31, 1989. In accordance with 19 CFR 355.7, any rate less than 0.50
percent ad valorem is de minimis. We invite interested parties to comment on these
preliminary results.

EFFECTIVE DATE: June 25, 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.

SUPPLEMENTARY INFORMATION:

Background

On February 1, 1989 and February 9, 1990, the Department of Commerce (the
Department) published in the Federal Register notices of "Opportunity to Request
Administrative Review" (54 FR 5102 and 55 FR 4646) of the countervailing duty order
on carbon steel wire rod from Saudi Arabia. During February 1989 and February 1990,
Georgetown Steel Corporation, Northstar Steel Texas, Inc., Raritan River Steel Company
and Atlantic Steel Company, petitioners in this proceeding, and the Saudi iron and Steel
Company (HADEED), the respondent, requested administrative reviews covering the
periods January 1, 1988 through December 31, 1988, and January 1, 1989 through
December 31, 1989. We initiated the reviews on April 6, 1989 (54 FR 13913) and March
22, 1990 (55 FR 10642), respectively. The Department has now conducted these
administrative reviews in accordance with section 751 of the Tariff Act of 1930, as
amended (the Tariff Act).

Scope of Review

Imports covered by these reviews 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 1988 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
Annonated (TSUSA). During the 1989 review period, such merchandise was classifiable
under item numbers 7213.20.00, 7213.31.30, 7213.31.60, 7213.39.00, 7213.41.30,
7313.41.60, 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 reviews cover the periods January 1, 1988 through December 31, 1988, and January
1, 1989 through December 31, 1989, and eight programs. During the review period, there
was only one Saudi producer and/or exporter of the subject merchandise, the Saudi Iron
and Steel Company (HADEED).

Analysis of Programs

(1) Public Investment Fund Loan to HADEED

The Public Investment Fund (PIF) was established in 1971 as one of five specialized credit
institutions set up by the Government of Saudi Arabia. The other specialized credit
institutions are the Saudi Industrial Development Fund (SIDF), the Saudi Agricultural
Bank, the Saudi Credit Bank and the Real Estate Development Fund. These specialized
credit institutions are funded completely by the Saudi government and were the

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only sources of long- term financing in Saudi Arabia during the review period.
The PIF was established in 1971 to provide financing to large-scale, commercially
productive projects that have some equity participation of the Saudi government. PIF
by-laws exclude firms or projects without Saudi government equity from applying to the
PIF for financing. From 1973 through the end of the review period, the PIF has provided
loans to 18 firms. Of these, 12 (including HADEED) are at least 50 percent-owned by the
Saudi Basic Industries Corporation (SABIC). Of the remaining six borrowers, three are 50
percent-owned by PETROMIN, and three are unrelated: Saudia Airlines, a utility company
and a real estate investment fund. Firms receiving PIF financing represent less than
one-half of all large scale firms, and only a very small portion of all industrial
enterprisess, in the Kingdom.
Because the application of the government equity participation requirement limited
benefits under this program to a small number of enterprises, we therefore preliminarily
determine that PIF loans are provided to a specific group of enterprises in Saudi Arabia,
and that the PIF loan to HADEED is countervailable to the extent that it is given on terms
inconsistent with commercial considerations.
The loan contract between the PIF and HADEED requires that HADEED pay a variable
commission, or interest, on the outstanding balance based on its profitability in a given
fiscal year. During 1988 and 1989, HADEED made repayments of loan principal and
commission on its PIF loan.
Using the two sources for medium- to long-term industrial financing available in Saudi
Arabia, private commercial banks and the SIDF, we have constructed composite interest
rate benchmarks for each review period to determine whether the PIF loan to HADEED
was on terms inconsistent with commercial considerations. Since the PIF loan covered 60
percent of HADEED's total project costs, for our benchmark we assumed that HADEED
could have financed 50 percent of its total project costs with a SIDF loan (the maximum
eligibility for a company with at least 50 percent Saudi ownership) and the remaining 10
percent of project costs with a Saudi commercial bank loan. The SIDF loan portion of the
benchmark was used because, of all the specialized credit institutions, it is the only fund
besides the PIF which lends to industrial or manufacturing projects and, thus, is most
representative of what HADEED would otherwise have to pay for long-term loans in
Saudi Arabia. We used the 1.9 percent flat rate of interest applied to SIDF loans through
1988 and 1989. The commercial bank portion of the benchmark was based on the average
Jeddah Interbank Offering Rate (JIBOR) for 1988 and 1989, plus a one percent spread.
Because the composite benchmarks for 1988 and 1989 are less than the actual
commission, or interest rates, that HADEED paid on its PIF loan in 1988 and 1989, we
preliminary determine that the PIF loan was not preferential for the periods January 1,
1988 through December 31, 1988, and January 1, 1989 through December 31, 1989.

(2) SABIC's Transfer of SULB Shares to HADEED

SABIC was established in 1976 by the Government of Saudi Arabia as an industrial
development corporation. SABIC has been the majority shareholder in HADEED since the
steel company's inception in 1979. In 1982, SABIC acquired all of the remaining shares in
the Steel Rolling Company (SULB), a Saudi producer of steel reinforcing bars of which
SABIC had been the majority shareholder since 1979. In December 1982, SABIC decided
to transfer its shares in SULB to HADEED in return for new HADEED stock. Through the
stock transfer, SULB became a wholly-owned subsidiary of HADEED.
In Final Affirmative Countervailing Duty Determination and Countervailing Duty
Order; Carbon Steel Wire Rod From Saudi Arabia, (51 FR 4206; February 3, 1986), we
determined that HADEED was unequityworthy in December 1982 and that the transfer of
SABIC's shares in SULB to HADEED in exchange for additional shares in HADEED was
inconsistent with commercial considerations.
To determine the benefit to HADEED from the acquisition of SULB, we used our rate of
return shortfall methodology. We determined the amount of the equity infusion to be the
net book value of SULB's equity at the time of the transfer. As best information available
on the national average rate of return on equity in Saudi Arabia, we used the 1988 and
1989 annual average rates of return on U.S. direct investment in Saudi Arabia. Based on
the most recent data available from the U.S. Commerce Department's Bureau of Economic
Analysis, the 1988 and 1989 average rates of return on equity were 23.85 percent and
16.13 percent, respectively. We computed the rate of return shortfall by taking the
difference between this figure and the 1988 and 1989 rates of return on equity in
HADEED. Because HADEED's rates of return on equity in 1988 and 1989 were greater than
average rates of return on U.S. direct investment in Saudi Arabia in 1988 and 1989,
respectively, the rate of return shortfall for each review period is zero. On this basis, we
preliminarily determine the benefit from this equity infusion to be zero for the period
January 1, 1988 through December 31, 1988, and zero for the period January 1, 1989
through December 31, 1989.

(3) Preferential Provision of Equipment to HADEED

Under a lease/purchase arrangement, the Royal Commission for Jubail and Yanbu built
for HADEED two bulk ship unloaders at the Jubail industrial port for unloading iron ore,
and constructed a conveyor belt system for transporting iron ore from the pier to
HADEED's plant in the Jubail Industrial Estate. When construction of these facilities was
completed in 1982, the Commission transferred custody to HADEED under a
lease/purchase agreement.
As originally planned, the bulk ship unloader and conveyor system was built to serve
both HADEED and an adjacent plant in the Jubail Industrial Estate. The second plant was
not built, however, leaving HADEED as the sole user of this equipment. The terms of the
lease/purchase agreement require that HADEED must repay the equipment and
construction costs plus a two-percent fee for the cost of money in 20 annual installments.
The annual payments are stepped, with the lowest payment levels occurring at the
beginning and the highest payment levels occurring at the end of the 20-year period.
In the Saudi Wire Rod (op. cit.), we found that the two-percent cost-of- money fee is the
Commission's standard charge for recovery of costs on other facilities in the Jubail
Industrial Estate. Of the projects examined, a urea berthside handling system built for the
exclusive use of another company located in the Estate was the most comparable to
HADEED ship unloader and conveyor system. Therefore, we compared the repayment
schedule for HADEED's ship unloader and conveyor system to the repayment schedule for
a berthside handling system. Although both agreements carried the standard
cost-of-money fee, we found that HADEED's end-loaded, stepped repayment schedule was
more advantageous than the annuity-style repayment schedule on the berthside handling
system. Therefore, we determine that HADEED's ship unloader and conveyor system was
provided on preferential terms. Moreover, because

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the equipment is used
exclusively by HADEED, we find that it is provided to a specific enterprise and, thus,
confers a bounty or grant.
To calculate the benefit, we compare the principal and fees being paid in each year by
HADEED to the principal and fees that would be paid under the repayment schedule used
for the berthside handling system. We allocated the sum of the present values of the
differences in the two repayment schedules over 20 years, using a two-percent discount
rate. The resulting benefits for 1988 and 1989 were then divided by the value of HADEED's
sales during 1988 and 1989, respectively. On this basis, we preliminarily determine the
benefit from the preferential provision of the unloader and conveyor system to be 0.01
percent ad valorem for the period January 1, 1988 through December 31, 1988, and 0.01
percent ad valorem for the period January 1, 1989 through December 31, 1989.

(4) Income Tax Holiday for Saudi Joint Venture Projects

Under Article 7 of the Foreign Capital Investment Code of January 1, 1979, a 10-year
income tax holiday may be granted for economic development projects. The following
three conditions must be fulfilled to obtain approval by the Saudi Foreign Investment
Committee: (1) Saudi participation is not less than 25 percent of total capital; (2) the
foreign capital shall be invested in nontraditional development projects which, for the
purposes of the Foreign Capital Investment Code, do not include petroleum related
and/or mineral extraction projects; and (3) the investment shall be accompanied by
foreign technical know-how and expertise. This tax holiday applies only to income taxes
that are owed by the foreign share of the enterprise.
Because the application of these three requirements limited benefits under this program
to a small number of enterprises, we therefore determine that it is specific and
countervailable. In tax returns filed in 1988 and 1989, HADEED reported profits for fiscal
1987 and 1988, respectively. Thus, DEG, HADEED's foreign partner, would have been
liable for income tax during the review periods had it not still been eligible for the income
tax holiday.
To calculate the benefit from the tax holiday, we divided the amount of tax DEG would
have paid in 1988 and 1989 absent the tax holiday by HADEED's total sales for 1988 and
1989, respectively. On this basis, we preliminarily determine the bounty or grant from
the income tax holiday to be 0.12 percent ad valorem for the period January 1, 1988
through December 31, 1988, and 0.48 percent ad valorem for the period January 1, 1989
through December 31, 1989.

(5) Other Programs

We also examined the following programs and preliminarily determine that HADEED did
not benefit from them during the 1988 and 1989 review periods:
1. SABIC loan guarantees;
2. Preferential provision of services by SABIC;
3. Government procurement preferences; and
4. Issuance of preferential government bonds.

Preliminary Results of Review

As a result of the review, we preliminarily determine the total bounty or grant to be 0.13
percent ad valorem for the period January 1, 1988 through December 31, 1988, and 0.49
percent ad valorem for the period January 1, 1989 through December 31, 1989. In
accordance with 19 CFR 355.7, any rate less than 0.50 percent ad valorem is de minimis.
Therefore, the Department intends to instruct the Customs Service to liquidate, without
regard to countervailing duties, all shipments of this merchandise exported on or
after January 1, 1988 and exported on or before December 31, 1989.
The Department also intends to instruct the Customs Service to waive cash deposits of
estimated countervailing duties, as provided by section 751(a)(1) of the Traffic Act,
on all shipments of this merchandise entered, or withdrawn from warehouse, for
consumption, on or after the date of publication of the final results of this review.
Parties to the proceeding may request disclosure of the calculation methodology and
interested parties may request a hearing not later than 10 days after the date of
publication of this notice. Interested parties may submit written arguments in case briefs
on these preliminary results within 30 days of the date of publication. Rebuttal briefs,
limited to arguments raised in case briefs, may be submitted seven days after the time
limit for filing the case brief. Any hearing, if requested, will be held seven days after the
scheduled date for submission of rebuttal briefs. Copies of case briefs and rebuttal briefs
must be served on interested parties in accordance with 19 CFR 355.38(e).
Representatives of parties to the proceeding may request dislosure of proprietary
information under administrative protective order no later than 10 days after the
representative's client or employer becomes a party to the proceeding, but in no event
later than the date the case briefs, under 19 CFR 355.38(c), are due.
The Department will publish the final results of this administrative review, including the
results of its analysis of issues raised in any case or rebuttal brief or at a hearing.
These administrative reviews 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: June 20, 1991.

Eric I. Garfinkel

Assistant Secretary for Import Administration.

[FR Doc. 91-15075 Filed 6-24-91; 8:45 am]

BILLING CODE 3510-DS-M