(Cite as: 47 FR 28723)
NOTICES
DEPARTMENT OF COMMERCE
Final Affirmative Countervailing Duty Determination Prestressed Concrete Steel Wire Strand From Spain
Thursday, July 1, 1982
*28723 AGENCY: International Trade Administration, Commerce.
ACTION: Final affirmative countervailing duty determination.
SUMMARY: We have determined that the government of Spain is providing its manufacturers, producers, or exporters of prestressed concrete steel wire strand ("PC strand") with benefits that constitute subsidies within the meaning of the countervailing duty law. The estimated net amount of the subsidy is 1.77 percent of the f.o.b. value of the imported merchandise. Therefore, we are directing the U.S. Customs Service to continue the suspension of liquidation ordered in the preliminary determination of all entries of the product subject to the investigation which are entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or bond in the amount equal to the net subsidy. The U.S. International Trade Commission ("ITC") will determine within 45 days of the publication of this notice whether these imports are materially injuring, or threatening to materially injure, a U.S. industry.
EFFECTIVE DATE: July 1, 1982.
FOR FURTHER INFORMATION CONTACT:
John R. Brinkmann Jr., Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230, (202) 377-4929.
SUPPLEMENTARY INFORMATION:
Final Determination
Based upon our investigation, we determine that certain benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended ("the Act"), are being provided to manufacturers, producers, or exporters in Spain of PC strand as described in the "Scope of Investigation" section of this notice. For the purpose of this investigation, the program found to be a subsidy is the Privileged Circuit Exporter Credits Program: Working Capital Loans. We determine the estimated net subsidy to be 1.77 percent of the f.o.b. value of the imported merchandise.
Case History
On November 5, 1981, we received a petition from counsel on behalf of five domestic manufacturers of PC strand. Those manufacturers are: American Spring Wire Corporation, Armco Inc., Bethlehem Steel Corporation, Florida Wire & Cable Company, and Shinko Wire America, Inc. The petition alleged that certain benefits which constitute bounties or grants within the meaning of section 303 of the Act were being provided, directly or indirectly, to the manufacturers, producers, or exporters in Spain of PC strand.
We reviewed the petition and determined that an investigation should be initiated on November 25, 1981 (46 FR 58543). In that notice we stated that we expected to issue a preliminary determination no later than January 29, 1982. We subsequently determined that the investigation was "extraordinarily complicated," as defined in section 703(c) of the Act, and postponed our preliminary determination (47 FR 2141).
Section 303 of the Act applied to this investigation when it was initiated because at that time, Spain was not a "country under the Agreement" within the meaning of section 701(b) of the Act, and the product at issue was dutiable. Therefore the domestic industry was not required to allege, and the ITC was not required to determine whether, imports of this product caused or threatened material injury to the U.S. industry in question.
A questionnaire concerning the allegations was presented to the government of Spain on December 29, 1981. We received responses to our questionnaries from the government of Spain on February 22 and March 1, 1982.
On April 5, 1982 the Department of Commerce ("the Department") preliminarily determined that the government of Spain was providing its manufacturers, producers, or exporters of PC strand with benefits that are bounties or grants within the meaning of the countervailing duty law (47 FR 15618). We estimated the net bounty or grant to be 1.44 percent of the f.o.b. value of the imported merchandise, and directed the U.S. Customs Service to suspend liquidation of all entries or warehouse withdrawals for consumption of this merchandise and to require a cash deposit or bond in an amount equal to the estimated net bounty or grant.
On April 14 the Office of the U.S. Trade Representative announced that Spain had become a "country under the Agreement." Section 102(a)(2) of the Act governs the treatment of cases in which a country, currently the subject of an investigation, becomes a "country under the Agreement" before a final determination. It states that where a preliminary but not the final determination has been made under section 303 of the Act, the case is to be treated as if the preliminary determination were made under section 703 as of the date Title VII first applied to the case. Therefore, the date Spain became a "country under the Agreement," April 14, 1982, is the date of *28724 the preliminary determination. Notice to this effect was published in the Federal Register of April 29, 1982 (47 FR 18402). We advised the ITC of the status of the case and, in accordance with s 355.25(b) of the Commerce Regulations, made information from our files available to it.
Scope of the Investigation
The merchandise covered by this investigation is prestressed concrete steel wire strand, a product used to compress concrete in order to provide active resistance to loads in such items as girders, beams, pilings, and other building materials. PC strand is currently classified under item number 642.1120 of the Tariff Schedules of the United States Annotated.
Analysis of Programs
In its response, the government of Spain provided data for calendar years 1980 and 1981. The government identified two programs, the "Desgravacion Fiscal a la Exportacion" ("DFE") and the Privileged Circuit Exporter Credits, as having been utilized by the Spanish PC strand producers and exporters. Three firms are known to have produced and exported PC strand to the United States during this time period. They are Elaborados Metalicos, S.A. ("EMESA"), Trenzas y Cables de Acero, S.A. ("TYCSA"), and Nueva Montana Quijano, S.A. ("NMQ"). We verified the data pertaining to EMESA and TYCSA as these firms accounted for approximately 98 percent of the exports of PC strand from Spain to the U.S. in 1981.
The following is based upon our analysis of the petition, the response, our vertification and information from interested parties:
Programs Determined To Be Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of PC strand under the following program:
Privileged Circuit Exporter Credits Program: Working Capital Loans
We determine that the government of Spain is providing subsidies to its manufacturers, producers, or exporters of PC strand through working capital loans under the Privileged Circuit Exporter Credits Program.
The government of Spain requires all Spanish commercial banks to maintain a specific percentage of their lendable funds in privileged circuit accounts. These funds are made available to exporters at preferential interest rates. While there is no direct outlay of government funds, the benefits conferred on the companies are the result of a government mandated program to promote exports. Of the four privileged circuit programs identified by petitioner, we determined that PC strand producers benefited from one by receiving working capital loans.
Under the privileged circuit program, firms may obtain working capital loans for less than one year the total of which is not to exceed a specified percentage of their previous year's exports. In 1981 this percent was 20 percent until November when it was decreased to 16 percent for firms without exporter's cards. For firms with government issued exporter's cards such as EMESA, TYCSA and NMQ, the change was from 30 to 24 percent. In 1981, the privileged circuit working capital loan interest rate ceiling mandated by the government was 10 percent, including fees and commissions.
In the preliminary determination we calculated the amount of the bounty or grant to PC strand producers, by computing the interest on the working capital loans using the 10 percent rate under the privileged circuit program, less commissions and fees, and comparing it with an average interest rate or the rate received commercially by each of the firms on loans of similar duration. A per ton subsidy was calculated by prorating the interest differential for each firm over that firm's total exports of all products in 1981. We weight- averaged the benefits of the companies to arrive at the benefit to PC strand producers. In this final determination we have made adjustments to our calculations to reflect the fact that these working capital loans are available throughout Spain to all parties meeting eligibility requirements. In such instances we calculate the subsidy by comparing the preferential interest rate with the national average commercial interest rate on loans with similar terms and conditions.
In this case TYCSA and EMESA received all their 1981 privileged circuit working capital loans, most of which were approximately one year in length, between June and December, 1981. We determined that for the period June through December 31, 1981, the average prime interest rate was 16.94 percent for loans of 1 year or more and that the average borrowers paid 2 percentage points over the prime rate for loans of this type. As the 10 percent working capital loan rate includes fees and commissions, we also made an addition of 0.5 percent to the commercial rate, which by Spanish law is the maximum allowable charge for fees and commissions.
Based on this data we determined the national average commercial interest rate to average borrowers to be 19.44 percent for one-year loans, including fees and commissions. To determine the benefit, the interest differential of 9.44 percent was applied to the total privileged circuit working capital loans of PC strand producers exporting to the United States. The total working capital loan figure for 1981 was comprised of the actual loans received by TYCSA and EMESA and the amount of loans NMQ (representing 2 percent of the exports to the U.S. in 1981) was eligible to receive under this program in 1981, as specific loan information was not made available. We used 24 percent of the NMQ's 1980 exports to represent this figure. This benefit was prorated over all exports of these companies to arrive at a subsidy per metric ton. We divided this figure by the weighted-average f.o.b. price per metric ton of all PC strand exported to the United States to arrive at the estimated countervailing duty rate of 1.77 percent.
Programs Determined Not To Be Subsidies
We determine that subsidies are not being provided to manufacturers, producers, or exporters of PC strand under the following programs:
1. Desgravacion Fiscal a la Exportacion (DFE). Spain employs a cascading tax system. A turnover tax (IGTE) is levied on each sale of a product through its various stages, of production, up to (but not including) the ultimate sale at the retail level. The DFE is the mechanism used in Spain for the rebate of these accumulated taxes (hereafter referred to as "indirect taxes") upon exportation of that product. In this case we have determined that the DFE is a non-excessive rebate of indirect to taxes paid on items physically incorporated into PC strand. These rebate payments meet the requirements of our three-prong test recently upheld by the Court of International Trade in Industrial Fasteners Group, American Importers Association v. United States, 2 CIT ----, Slip Op. 81-99, October 29, 1981. That test, consisting of three lines of inquiry, all of which must be answered affirmatively to determine that an export payment such as the DFE is not a subsidy, asks the following:
(1) Whether the (export payment) operates for the purpose of rebating indirect taxes, (2) whether there is a clear link between eligibility for (export payments) and payment of indirect taxes, and (3) whether the government has reasonably calculated and documented the actual indirect tax incidence *28725 borne by (exported products) and has demonstrated a clear link between such tax incidence and the amount of the (export payment).
The laws and regulations which establish and control the Spanish tax system, and subsequent submissions by the Spanish regarding the indirect tax incidences on PC strand, satisfy the requirements of this three-prong test. In calculating the DFE payments to be rebated to exporters of PC strand, the Spanish used an input-output table of the economy that defined indirect tax incidences on a sectoral basis. This is the basis for a schedule of border taxes (ICGI) designed to subject imported goods to a tax burden equivalent to that borne by an identical or similar item produced in Spain. The DFE is tied by law to the level of the ICGI.
To demonstrate the actual indirect tax incidence on PC strand the government of Spain provided a "structure of cost" analysis of the product. This identified inputs incorporated into the product and the indirect tax incidence burdening each input.
The "structure of cost" indicated that steel wire rod, the major input physically incorporated into PC strand, accounted for approximately 75 percent of the total cost of producing the product. Three other inputs (lead, packing and other materials) accounted for approximately 1.95 percent of the total cost. The remaining factors included in the cost of producing PC strand were not identified in this "structure of cost" and therefore these other factors were not considered in the calculation of the total indirect tax incidence of items physically incorporated into the production of PC strand. We verified the inputs and their relationship to the total cost of the finished product from company production records. Our verification of these figures at EMESA and TYCSA showed the "structure of cost" inputs and percentages to be correct.
Based on the 1980 IGTE tax rate of 2.4 percent, the total indirect tax burden (including two final stage taxes) on PC strand in 1980 was 12.55 percent. The DFE rate in 1980 did constitute an over-rebate of indirect taxes because the DFE rebate for PC strand was 15.5 percent. However, in January, 1981, the government of Spain increased the IGTE tax rate by 58 percent to 3.8 percent, making the 1981 indirect tax burden on PC strand 19.74 percent. A further increase in the IGTE tax rate in January, 1982 to 4.6 percent increased the indirect tax burden to 23.92 percent. As a result of these increases in the tax rate the over-rebate was eliminated. Therefore we determine that the current DFE rebate of 15.5 percent is less than the indirect tax burden currently borne by this product and thus, in this case, the DFE is not a benefit which constitutes a subsidy.
2. Benefits to the Steel Industry. One of the allegations raised by petitioner is that manufacturers of PC strand benefited from indirect subsidies by purchasing wire rod or billets from subsidized Spanish steelmakers. The Department has verified that both EMESA and TYCSA purchased only steel wire rod for their strand production and that these purchases were made from a variety of unrelated domestic and international suppliers at prices which were reasonably comparable. Our verification indicates that these purchases were arm's length transactions. Therefore we have determined that these manufacturers of PC strand are not receiving benefits which constitute subsidies as a result of their transactions with unrelated steel wire rod suppliers.
Programs Not Utilized Or Not Applicable
We determine that the following programs, which were described in the notice of "Initiation of Countervailing Duty Investigation", are not used or are not applicable to manufacturers, producers, or exporters in Spain of PC strand.
1. Certain Privileged Circuit Exporter Credits.
Those privileged circuit programs alleged by the petitioner but not utilized by PC strand producers are:
2. Warehouse Construction Loans;
4. Other benefit programs included in this investigation from prior Spanish countervailing duty cases.
Petitioner's Issues
Issue--Counsel for petitioner argues that the DFE is a subsidy under section 771(5) and example (g) of Annex A to the Subsidies Code and may not be offset by the indirect taxes paid. They further argue that the legislative history of the Act did not intend for tax systems such as the Spanish cascade system to be brought under the administrative practice of finding that the non-excessive remission of indirect taxes is not a subsidy.
DOC Position--The Department does not consider the non-excessive rebate of indirect taxes to be a subsidy. The Court of International Trade upheld the Department's position on this matter in the Industrial Fasteners case cited above. Therefore the use of offsets is not an issue here.
Issue--Counsel for petitioner contends that even if they accept the position that the non-excessive remission of turnover taxes is not a subsidy, the methodology employed by the Spanish for deriving the indirect tax amount is an approximation and does not satisfy the "reasonably calculated" part of the three-prong test. Counsel describes the steps in the production of PC strand, and treating each step in the process as a turnover, estimates the incidence of indirect taxes on PC strand. Counsel contends that under this model, and assuming the maximum number of turnovers in the production of PC strand, the DFE rebate is excessive and results in an ad valorem subsidy of 11.8 percent.
DOC Position--When analyzing a turnover tax system, we cannot simply count, as counsel suggests, the various turnovers that take place in manufacturing a product to determine the actual incidence of tax paid. Each of the principal inputs entering into the final product has its own pyramid of turnover taxes. The aggregate tax burden is the basis for the DFE rebate. Futhermore the tax is levied on the full value of the product at each turnover resulting in a tax- on-tax effect. The difficulties in a step-by-step analysis of the turnover tax on each input in a product requires countries which utilize such systems to rely on a macroeconomic approach like that of the input-output tables to measure indirect tax incidences.
The methodology used by the Spanish government has been evaluated by the Treasury and Commerce Departments. It is clear from records on previous Spanish countervailing duty cases that Treasury was satisfied that the methodology was based on sound economic principles and established the total turnover tax attributed to various elements in the manufacture of a product. In addition, we have analyzed the Spanish government's methodology with respect to one product and determined that it results in a reasonable calculation of indirect tax incidence. The Spanish government has informed us that the same methodology was applied in calculating indirect tax incidence on all other Spanish products currently subject to U.S. countervailing duty orders or investigations. Since these studies are used by the Spanish government to establish import tax levels as well as export rebates, there is no reason to believe that they are manipulated in order to minimize U.S. *28726 countervailing duties. Therefore we have determined that the Spanish government's input-output system may appropriately be used in our countervailing duty cases.
Issue--Counsel for petitioner states that the Spanish government response to our questionnaire should not have been verified because it was incomplete, conclusory and non-specific. Additionally, where a government or a company fails to disclose information requested during verification, petitioner contends that the Department should use the information provided in the petition.
DOC Position--The Department determined that the response was verifiable. While certain documents requested at verification were not submitted, the Department is satisfied that the documents submitted in place of those requested were adequate to allow a complete verification of the information used in arriving at this determination.
Issue--Counsel challenges the position taken by the Department on indirect subsidies in the preliminary determination on the grounds that it is not consistent with the statutory purpose of the countervailing duty law and is unsupported by economic analysis. Counsel argues that: (1) The distinction between related party suppliers and unrelated party suppliers should not be used as a basis for determining when a benefit "flows through" from the supplier to a purchaser; and (2) the language "directly or indirectly" in sections 701 (a)(1) and 771(5)(B) of the Act allows the Department to find that payments to steel wire rod suppliers constitute subsidies to PC strand producers.
DOC Position--The benefits allegedly conferred by the Spanish government on the primary carbon steel industry would have to be determined to benefit the PC strand industry specifically in order to constitute a countervailable benefit to PC strand producers. We cannot assume that benefits conferred by the government to one party are passed through to an another party without looking at the economic environment surrounding those industries. Petitioner's claim that benefits to wire rod producers are automatically passed through to PC strand producers does not conform with the economic realities of steel consuming industries. This is particularly true when one gives consideration to the concept of "own" price elasticity of demand. It is generally in the commercial interest of a firm receiving a subsidy not to share the benefits with its customers. Hence, when Spanish wire rod producers sold to many different industries and where Spanish PC strand producers bought from several sources, there is no reason to believe that any possible subsidy to the wire rod industry was passed on specifically to the PC strand industry.
Issue--Counsel for petitioner contends that since the PC strand producers currently receive non-privileged circuit working capital loans from banks which own a percentage of their stock, the rates and conditions on all such loans do not comport with commercial considerations, and therefore constitute a countervailable benefit within the meaning of section 701 of the Act.
DOC Position--Because the banks own large percentages of the companies, we consider the rates and conditions of non-privileged circuit working capital loans to be those of intracorporate transactions and not subsidies.
Respondent's Issues
Counsel for TYCSA and EMESA argues that in the preliminary determination the Department overstated the weighted-average subsidy in connection with the Privileged Circuit Exporter Credits Program and cites four areas of contention.
Issue--Commerce should calculate the interest differential for loans obtained on the exports under analysis.
DOC Position--Our calculations include the privileged circuit working capital loans obtained in 1981. Therefore it is appropriate to use the interest differential in effect in 1981 when these loans were received and to spread the benefit from these working capital loans over 1981 export figures.
Issued--Commerce should adjust its calculations to account for prepayment of interest on working capital loans.
DOC Position--The payment terms on these loans are not mandated by the government. They are negotiated with the bank and vary with the company. The difference between the preferential and national average commercial interest rate reflects these varying terms. We did not adjust working capital loans for prepayment of interest because the figure that results from the use of this interest differential in our calculations represents the amount of the subsidy conveyed by the working capital loans program.
Issue--Commerce should ensure comparable treatment of expenses and fees in connection with the making of loans.
DOC Position--As fees and commissions are contained in the preferential working capital loans, we have included a charge for commissions and fees in the average commercial rate.
Issue--Commerce should ensure that a consistent exchange rate is utilized in its calculations.
DOC Position--We used only one exchange rate for currency conversions in our calculations. It was the average exchange rate certified by the Federal Reserve Bank in New York for 1981 of 88.8 pesetas to the dollar.
Verification--In accordance with section 776(a) of the Act, we verified the information submitted in the original response and relied upon in this determination. We used normal verification procedures to verify the government response. This included inspection of government documents, discussions with government and trade association officials, and on-site inspection of the manufacturers' production methods and records.
Administrative Procedures--The Department has afforded interested parties an opportunity to present oral views in accordance with s 355.35 of Commerce Regulations (19 CFR 355.35). A request for a public hearing was made by counsel for petitioners and a hearing was held on April 29, 1982. Counsels for the petitioners and respondents have provided written views in accordance with s 355.34(a) Commerce Regulations (19 CFR 355.34(a)).
Suspension of Liquidation--Customs officers are directed to continue the suspension of liquidation ordered in the preliminary determination of all entries of the product subject to the investigation which are entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or bond in the amount equal to 1.77 percent of the f.o.b. value of the imported merchandise. The security amount established in our April 12, 1982 preliminary determination is no longer in effect.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition we are making available to the ITC all nonprivileged and nonconfidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration. The ITC will determine on or before August 16, 1982 whether these imports are materially injuring, or *28727 threatening to materially injure, a U.S. industry. If the ITC determines that material injury, or threat of material injury, does not exist, this proceeding will be terminated and all securities posted as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, within seven days of notification by the ITC of that determination, we will issue a countervailing duty order, directing Customs officers to assess a countervailing duty on PC strand from Spain entered or withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the estimated net subsidy.
This notice is published pursuant to section 705 of the Act and s 355.33 of the Department of Commerce Regulations (19 CFR 355.33).
Lawrence Brady,
Assistant Secretary for Trade Administration.
June 25, 1982.