91-c26

NOTICES

DEPARTMENT OF COMMERCE

[C-517-501]

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

Thursday, December 26, 1991

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

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

SUMMARY: The Department of Commerce had conducted an administrative review of the
countervailing duty order on carbon steel wire rod from Saudi Arabia. We
preliminarily determine that total bounty or grant to be 0.01 percent ad valorem for the
period January 1, 1990 through December 31, 1990. 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: December 26, 1991.

FOR FURTHER INFORMATION CONTACT:Philip Pia or Michael Rollin, 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, 1991, the Department of Commerce (the Department) published in the
Federal Register a notice of "Opportunity to Request Administrative Review" (54 FR 5102)
of the countervailing duty order on carbon steel wire rod from Saudi Arabia. During
February 1991, Georgetown Steel Corporation, Northstar Steel Texas, Inc., Raritan River
Steel Company and Atlantic Steel Company, petitioners in this proceeding, and the Saudi
Iron Steel Company (HADEED), the respondent, requested an administrative review
covering the period January 1, 1990 through December 31, 1990. We initiated the review
on March 22, 1990 (55 FR 10642). The Department has now conducted this
administrative review in accordance with section 751 of the Tariff Act of 1930, as
amended (the Tariff Act).

Scope of Review

Imports covered by the 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. Such merchandise is 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 HTS item
numbers are provided for convenience and Customs purposes. The written description
remains dispositive.
The review covers the period January 1, 1990 through December 31, 1990, and four
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 only
sources of long-term financing in Saudi Arabia during the review period.
The respondent has contended that PIF and SIDF are "integrally linked" as defined in §
355.43(b)(6) of the Department's proposed regulations. Should the Department
determine that PIF and SIDF are integrally linked, they would be considered together in
determining whether loans provided by these two entities are limited to a specific
enterprise or industry, or group of enterprises or industries. We stated in the final results
of the previous review that documented information on the inception of the two funds
that explicitly ties PIF and SIDF as complementary parts of an overarching governmental
policy directive had not been presented. In this review, we conducted a verification of the
factual information presented in the respondent's questionnaire responses regarding the
issue of integral linkage. We examined all of the documentation presented by respondents
at verification which included various annual reports of the administering agencies of
both funds, Saudi Five-Year Development Plans, as well as verbal and written statements
of Saudi government officials. Nothing we examined contained specific references
indicating that PIF and SIDF had been conceived as complementary programs or that any
direct connection existed between the two funds at either the operational or
administrative levels. Therefore, we preliminarily determine that PIF and SIDF are not
integrally linked as defined by the Department's regulations. We will continue to consider
PIF as a single and separate program.
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. Because the application of the government equity participation
requirement has limited benefits under this program to a small number of enterprises, we
have previously determined that PIF loans are provided to a specific group of enterprises
in Saudi Arabia, and that the PIF loan to HADEED is counteravailable to the extent that
it is given on terms inconsistent with commercial considerations (see, Carbon Steel Wire
Rod from Saudi Arabia; Final Results of Countervailing Duty Administrative
Reviews, 56 FR 48158 (September 24, 1991)). The evidence reviewed by the Department
does not indicate a need to revise this conclusion.
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 the
preceding semester. During 1990, 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 a composite
interest rate benchmark for 1990 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 2 percent flat rate of interest applied to SIDF loans in 1990.
The commercial

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bank portion of the benchmark was based on the average Saudi
Interbank Offering Rate (SIBOR) for 1990, plus a one-quarter of one percent spread.
Because the composite benchmark for 1990 is less than the actual commission, or interest
rate, that HADEED paid on its PIF loan in 1990, we preliminary determine that the PIF
loan was not inconsistent with commercial considerations for the period January 1, 1990
through December 31, 1990.

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

The Saudi Arabian Basic Industries Corp. (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. Because no information was available on the 1990 national
average rate of return on equity in Saudi Arabia, we used the 1990 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 1990
average rate of return on investment was 21.61 percent. We computed the rate of return
shortfall by taking the difference between this figure and the 1990 rate of return on equity
in HADEED. Because HADEED's rate of return on equity in 1990 was greater than average
rate of return on U.S. direct investment in Saudi Arabia in 1990, the rate of return
shortfall for the review period is zero. On this basis, we preliminary determine the benefit
from this equity infusion to be zero for the period January 1, 1990 through December 31,
1990.

(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's 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 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 benefit for 1990 was divided by HADEED's total sales in 1990. 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,
1990 through December 31, 1990.

(4) Income Tax Holiday for Saudi Joint Venture Projects

Duly licensed foreign partners of joint-venture companies in Saudi Arabia are granted a
10-year income tax holiday under article 7 of the Foreign Capital Investment Law of
January 1, 1979. The exemption is granted automatically to any licensed industrial or
agricultural project provided that Saudi capital shall not be less than twenty-five percent
of the total capital of the project and that such percentage shall be maintained throughout
the period of exemption. This tax holiday applies only to income taxes that are owed by
the foreign share of the enterprise. The Saudi partners of both foreign joint- ventures or
wholly national firms are liable for zakat, an Islamic alms tax, for which there are no
exemptions.
In this review, information on the universe of firms eligible for the exemption, never
before presented in any foreign reviews, was provided in the questionnaire responses on
a timely basis. During verification, we reviewed the information provided in the
responses. This information shows that of 369 foreign joint-ventures licensed and
operating in the Kingdom during 1990, a large number of them, 322 or 87 percent, were
eligible for the income tax holiday. The actual percentage of firms which made use of the
automatic exemption in 1990 may differ from this, depending on the profit (loss)
experience of each firm. Those firms comprising the 87 percent represent virtually all
sectors of Saudi industry including food and beverage, textiles, apparel, wood products,
paper products, printing and publishing, chemicals, petroleum products, plastics, rubber
products, nonmettalic mineral products, metal industries, and other manufacturing.
Based on these facts, we preliminarily determine that the income tax holiday is not
limited to a specific enterprise or industry, or group of enterprises or industries, and
therefore, is not countervailable.

Preliminary Results of Review

As a result of the review, we preliminarily determine the total bounty

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or grant to
be 0.01 percent ad valorem for the period January 1, 1990 through December 31, 1990.
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, 1990 and exported on or before December 31, 1990.
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 Tariff 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 disclosure 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.
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: December 17, 1991.

Francis J. Sailer,

Acting Assistant Secretary for Import Administration.

[FR Doc. 91-30852 Filed 12-24-91; 8:45 am]

BILLING CODE 3510-DS-M