(Cite as: 47 FR 38161)
NOTICES
DEPARTMENT OF COMMERCE
International Trade Administration
Preliminary Affirmative Countervailing Duty Determinations; Certain Steel Products From Spain
Monday, August 30, 1982
*38161 AGENCY: International Trade Administration, Commerce.
ACTION: Preliminary affirmative countervailing duty determinations.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the countervailing duty law are being provided to manufacturers, producers, or exporters in Spain of certain steel products, as described in the "Scope of Investigations" section of this notice. The estimated net subsidy for each firm is indicated in the "Suspension of Liquidation" section of this notice. Therefore, we are directing the U.S. Customs Service to suspend liquidation of all entries of the products subject to these determinations which are entered, or withdrawn from warehouse, for consumption, and to require a cash deposit or the posting of a bond on these products in an amount equal to the estimated net subsidy.
If these investigations proceed normally, we will make our final determinations by November 8, 1982.
EFFECTIVE DATE: August 30, 1982.
FOR FURTHER INFORMATION CONTACT:
Holly Kuga, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue, N.W., Washington, D.C. 20230, telephone: (202) 377-0171.
SUPPLEMENTARY INFORMATION:
Preliminary Determinations
Based upon our investigations, we preliminarily determine that there is reason to believe or suspect 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 certain steel products, as described in the "Scope of Investigations" section of this notice. For purposes of these investigations, the following programs are preliminarily found to confer benefits which constitute subsidies:
1/8 Medium and long-term preferential loans
1/8 Privileged circuit exporter credits--working-capital loans (short-term preferential loans)
1/8 Capital infusions
We estimate the net subsidy to be the amount indicated for each firm in the "Suspension of Liquidation" section of this notice.
Case History
On January 11, 1982, we received petitions from United States Steel Corporation; and counsel for Republic Steel Corporation, Inland Steel Company, Jones & Laughlin Steel, Inc., National Steel Corporation, and Cyclops Corporation, filed on behalf of the U.S. industry producing carbon steel structural shapes, hot-rolled carbon steel plate, cold-rolled carbon steel sheet, galvanized carbon steel sheet, hot-rolled carbon steel bars, cold-formed carbon steel bars, hot-rolled carbon steel sheet, hot-rolled alloy steel bars, and cold-formed alloy steel bars. The petitions alleged that certain benefits which constitute bounties or grants within the meaning of section 303 of the Act are being provided, directly or indirectly, to the manufacturers, producers, or exporters in Spain of the steel products listed above. Counsel for petitioners also alleged that "critical circumstances" exist, as defined in section 703(e) of the Act.
We reviewed the petitions and on February 1, 1982, determined that countervailing duty investigations should be initiated (47 FR 5753). In the notice announcing these investigations, we stated that we expected to issue preliminary determinations by April 6, 1982.
Section 303 of the Act applied to these investigations when they were 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 products at issue were dutiable. Therefore, the domestic industry was not required to allege that, and the U.S. International Trade Commission (ITC) was not required to determine whether, imports of these products caused or threatened to cause material injury to the U.S. industry in question.
On April 14, 1982, the Office of the U.S. Trade Representative announced that Spain had become a "country under the Agreement" as defined in section 701(b) of the Act. As a result, Title VII of the Act applies to all countervailing duty investigations concerning merchandise from Spain. Accordingly, on April 29, 1982, we published a notice in the Federal Register (47 FR 18402) of our termination of the investigations begun of February 1, 1982 under section 303, and our initiation of investigations under Title VII of the Act as of April 14, 1982. Unless extended, the preliminary determinations in these investigations were due no later than June 18, 1982. We subsequently determined that these investigations were "extraordinarily complicated" as defined in section 703(c) of the Act, and extended the deadline for making our preliminary determinations by 65 days to August 23, 1982 (47 FR 25393).
Since injury determinations are required for investigations involving a country under the Agreement, we advised the ITC of our initiations and made information from our files *38162 available to it, in accordance with section 355.25(b) of the Commerce Department Regulations. On June 10, 1982, the ITC preliminarily determined that there is a reasonable indication that imports of carbon steel structural shapes, hot-rolled carbon steel plate, cold- rolled carbon steel sheet, galvanized carbon steel sheet, hot-rolled carbon steel bars and cold-formed carbon steel bars are materially injuring or threatening to materially injure a U.S. industry.
We presented questionnaries concerning the allegations to the government of Spain at its embassy in Washington, D.C. on February 19, 1982. On May 17, 1982, we received the responses to the questionnaries. Supplemental responses were received on June 21, June 29, and August 4, 1982. Additional data has been submitted since the August 4 submission. Where possible this data has been considered in these preliminary determinations. Data that could not be considered in making our preliminary determinations will be considered in making our final determinations in these cases.
Scope of the Investigations
The products covered by these investigations are:
1/8 Carbon steel structural shapes
1/8 Hot-rolled carbon steel plate
1/8 Cold-rolled carbon steel sheet
1/8 Galvanized carbon steel sheet
1/8 Hot-rolled carbon steel bars
1/8 Cold-formed carbon steel bars
The products are fully described in Appendix A to this notice. (The product definition of cold-formed carbon steel bars has been amended since the initiation of these investigations (47 FR 5739-40)).
Empresa Nacional Siderurgica, S.A. ("ENSIDESA"); Altos Hornos Del Mediterraneo, S.A. ("AHM"); Altos Hornos De Vizcaya, S.A. ("AHV"); Jose Maria Aristrain, S.A. ("Aristrain"); Industrias Del Besos, S.A. ("IDB"); Pedro Orbegozo y Cia, S.A. ("Orbegozo"),; Tuyper, S.A. ("Tuyper"); Hierros Madrid, S.A.; Aceros De Llodio, S.A.; Forjas y Aceros De Reinosa, S.A.; Forjas Alevasas, S.A.; S.A. Echevarria; and Babcock & Wilcox Espanola, S.A. are the only known producers and exporters in Spain of the subject products which were exported to the United States. The period for which we are measuring subsidization is the 1981 calendar year.
Analysis of Programs
In its responses, the government of Spain provided data for the applicable periods. Additionally, we received information from the following firms, which produced and exported to the United States the products under investigation:
Firms and Product
ENSIDESA--carbon steel structural shapes, hot-rolled carbon steel plate, cold- rolled carbon steel sheet and galvanized carbon steel sheet
AHM--cold-roll carbon steel sheet
AHV--galvanized carbon steel sheet
Jose Maria Aristrain--carbon steel structural shapes
Pedro Orbegozo--hot-rolled carbon steel bars and cold-formed carbon steel bars
Industrias Del Besos--hot-rolled carbon steel bars
Tuyper--cold-formed carbon steel bars
Certain subsidies discussed in this notice were conveyed through a series of laws and decrees issued by the government of Spain. Those laws and decrees include the following:
Decree 669/74 of March 14, 1974 ("Concerted Action")--This decree established the National Steel Industry Program, 1974-1982. To achieve the specific goals established by this program, the government authorized certain benefits for the integrated and non-integrated steel firms which included preferential loans and loan terms, accelerated amortization of non-liquid investments, substantial reduction of certain taxes, and expropriation of land for new plant construction.
Law 60/1978 of December 23, 1978--This law authorized government aid in the form of preferential loans and loan terms and capital infusions for the three integrated steel producers, ENSIDESA, AHM and AHV.
Royal Decree 878/1981 of May 8, 1981--This decree, also known as the Integral Iron and Steel Reconversion Plan, provided aid to the integrated steel producers in the form of preferential interest rates and terms of outstanding loans, new loans with preferential interest rates and terms, loan guarantees, capital grants, and tax and social security payment deferrals.
References will be made throughout this notice to a public holding company, the Instituto Nacional de Industria ("INI"). This company was created in 1941 as an autonomous government agency to promote and stimulate the industrial development of Spain. INI's responsibilities cover a variety of sectors ranging from basic services to basic industries such as iron and steel.
Based upon our analysis to date of the petitions and responses to our questionnaires, we have preliminarily determined the following:
I. Programs Preliminarily Determined To Be Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of the products under investigation under the programs listed below.
Petitioners alleged preferential financing in the form of low interest loans, preferential loan terms and loan guarantees. The Department requested from each of the companies under investigation information on all loans outstanding during the period for which we are measuring subsidization. A number of the loans applicable to the Spanish steel producers were authorized in 1981 by the government as evidenced by Royal Decree 878/1981. This suggests that benefits to the steel industry may be continuing. Any subsidies flowing from such loans under this decree occur outside the period for which we are measuring subsidization and would be part of an annual review should countervailing duty orders be issued in these investigations. Consequently they are not part of the analysis that follows.
We discuss short-term borrowings and medium and long-term financing separately below.
1. Medium and Long-Term Preferential Loans. Medium-term financing in Spain is from two to five years. Long-term financing is less prevalent and is usually not for periods longer than ten years. Each of the companies under investigation reported medium and long-term loans outstanding during the period for which we are measuring subsidization.
We examined each loan reported to determine if the government was lending or had directed the bank to lend these funds to certain companies, sectors or regions in Spain at preferential rates or terms.
To calculate any subsidy on such loans, we compared the principal and interest payments the company would have made during a given period on a comparable loan from a normal commercial lender with the amount actually paid on the loans in question.
To determine what the company would have paid on a comparable loan, we used as our benchmark interest rate, the average maximum interest rates published by the Banco de Espana for the year in which the loan was received. Where published, the appropriate monthly or quarterly rates were used. The only published information available to us for 1962-1969 was the *38163 fixed minimum rates established for that period by the government of Spain. From 1972-1977, rates were published for commercial and industrial banks. We used the industrial banks' maximum rate since these banks lent funds to industry and were the primary source of long-term money during this period. Commercial bank rates were used during all other time periods.
Some loans and loan terms were mandated for certain companies by name in law or decrees issued by the government of Spain. In these cases, when available, we used as a benchmark the rate the firm had received on commercial loans of similar terms in the same year from Spanish commercial banks. In choosing the company-specific benchmark, we did not consider government- guaranteed loans or government-mandated loans.
We computed in each year of each loan the differential in payments between the actual loan and the comparable commercial loan. We then calculated the present value of this stream of differentials in the year the loan was made using as the discount rate for that year, the average long-term government-bond yield for Spain. (Where the bond yield was not available, we calculated it by dividing the government bond rate by the commercial bond rate in the nearest year for which these rates existed and applying the percentage that results to the commercial bond rate for the year in question.)
The lump-sum benefit (present value of stream of differentials) was then allocated in constant nominal amounts over the life of the loan. The 1981 portion of the benefit was then further allocated over the total sales value of steel production reported by the company under investigation.
The majority of loans reported by the responding Spanish firms contained provisions for deferred principal repayments. Loans to those companies and generally from commercial sources within and outside of Spain contained similar provisions. Therefore, for purposes of these preliminary determinations, we are treating deferred principal repayments as not preferential and thus not a countervailable subsidy. Exceptions to this position for unusually long deferment periods are noted below in the discussion of individual companies. For purposes of these preliminary determinations, we treated loans guaranteed or directed by INI as having been guaranteed or mandated by the government of Spain.
A discussion of our treatment of these loans by company follows:
1. ENSIDESA
Petitioners alleged that ENSIDESA is uncreditworthy. We found that the firm incurred significant losses ranging from approximately seven to thirteen percent of sales and negative cash flows in each year since 1977. Certain significant financial ratios suggest an uncreditworthy situation. ENSIDESA, however, reported many loans from private commercial sources. In the absence of information indicating that these loans are guaranteed by the government of Spain, or are otherwise subsidized, we consider these loans evidence that ENSIDESA is a creditworthy institution.
ENSIDESA reported medium and long-term loans outstanding during the period for which we are measuring subsidization. A number of these were loans that the government had specifically issued or directed to the steel industry and ENSIDESA. We found a subsidy flowing from these loans when the interest rate was less than the benchmark discussed earlier. In those instances where we did not know the month in which a loan was obtained, the highest quarterly interest rate prevalent in that year was used. We did not have a benchmark interest rate for one loan in 1963. We used as best information the interest rate in 1964. Multiple disbursements from a single loan were treated as individual loans. In such cases we used as the benchmark the commercial interest rate at the time of the disbursement. Royal Decree 878/1981 extended the deferral period on some of the loans under discussion. Where this occurred, we considered the extension to be a benefit and included it in our subsidy calculations.
Two other categories of loans were not countervailed: a) Loans of ENSIDESA which reportedly carried no INI or government guarantee and were not the result of a government mandate; and b) loans from the United States Export-Import Bank that were guaranteed by INI and the government of Spain, because, under the Act, loans from U.S. government lending institutions are not countervailable.
We preliminarily determine that the ad valorem subsidy for preferential medium and long-term loans to ENSIDESA is 2.91 percent.
2. AHM
Petitioners had also alleged that AHM was uncreditworthy. We found that this firm incurred significant losses ranging from approximately twenty-five to forty-nine percent of sales in each year since 1977. In addition, cash flow has been negative and certain significant financial ratios indicate an uncreditworthy situation since 1977. AHM has not identified any loans from private commercial sources in the data submitted. It was also during this period of large financial losses that the government of Spain first purchased equity in AHM. The government of Spain acquired 33.3 percent of the company in 1978. In 1979, the government purchased the remainder of the company. While government ownership is not in itself indicative of uncreditworthiness, its growing equity participation in the absence of similar investments from private sources is an indication of the company's difficulty in acquisition of capital. On the basis of this information, we have decided for purposes of these preliminary determinations to consider AHM as uncreditworthy since 1977.
AHM did not report all loans outstanding during the period for which we are measuring subsidization. The loan data originally submitted was for new loans received in 1979 and 1980 and did not account for the long-term loan balance reflected in AHM's financial statements. We requested and received supplemental information on a portion of the loans that make up this difference. We used as best information available AHM's financial statements to estimate the loans that were outstanding and obtained prior to 1979 but were not specifically identified in any of the information we received. AHM also did not supply sufficient information on the conditions of certain loans. As best information available, we are treating all their loans carrying incomplete terms as if they were specifically directed by the government to AHM at preferential rates and terms. For purposes of these preliminary determinations we are treating the funds received prior to 1979 for which we have incomplete information as a single 1978 loan.
One loan from BCI was reported by AHM as outstanding prior to the period during which we consider AHM uncreditworthy. We use the methodology described earlier in this notice for loans to creditworthy companies to calculate any subsidy flowing from this loan to AHM. We treated loans to AHM during the period we considered it uncreditworthy as equity infusions to reflect their great risk, very junior status and low probability of repayment. The methodology we used to quantify the subsidies conferred through equity infusions in AHM is discussed later in this notice under the section entitled "Capital Infusions." According to our methodology for loans to *38164 uncreditworthy companies, we reduce the subsidy calculated using this equity methodology by the principal and/or interest paid on the subject loans. AHM states that they have made principal and interest payments on these loans but does not provide the amounts. Therefore, these loans have been treated for purposes of the preliminary determinations, as if no payments were made.
We preliminarily determine that the ad valorem subsidy for preferential medium- and long-term loans to AHM is 18.8 percent.
3. AHV
Petitioners alleged that AHV is uncreditworthy. We found that the firm incurred significant losses ranging from approximately seven to twenty-one percent of sales and negative cash flows in each year since 1977. Certain significant financial ratios suggest an uncreditworthy situation. The company, however, reported loans from private commercial sources where there was no evidence of an INI or government of Spain guarantee. These loans did not result from an INI or government of Spain mandate or appear to be otherwise subsidized. Furthermore, government ownership in this company is not significant (less than one percent). In light of these findings we are treating AHV as a creditworthy institution. Therefore, we are using the methodology discussed above for loans to creditworthy companies to determine any subsidies to AHV.
AHV reported medium- and long-term loans outstanding during the period for which we are measuring subsidization. A number were loans that the government had specifically issued or directed to the steel industry and AHV. We found a subsidy flowing from these loans when the interest rate was less than the benchmark discussed earlier. The normal deferral period on private commercial loans to AHV appeared to be approximately 3 years or less. AHV reported deferrals of greater than 3 years on some of the loans under discussion. We considered the longer deferral to be a benefit and included the difference in deferral periods in our subsidy calculations. We did not have sufficient information on three loans to determine if they were preferential because AHV did not provide the original loan amount, issuance date, loan length or interest rate. We shall seek this information during verification. We did not have benchmark interest rates for loans in the period 1957 to 1963. We used as best information the interest rate on bonds issued by AHV in the year or within one year of the date of each loan.
Three of the loans in this period occurred in one year. AHV supplied the interest rate on only one of these loans. For purposes of the preliminary determinations, we assumed the rate known applied to the remaining two loans in that year. Therefore, all three loans were determined to be preferential. AHV also reported a loan received in 1975 under the Concerted Action program. We requested but have not received information on the interest rate on this loan. As best information, we calculated a rate by taking the ratio of the interest rate to the benchmark for a Concerted Action loan that was obtained at about the same time by another Spanish company in these steel investigations. We applied this ratio to the benchmark interest rate to obtain an interest rate for AHV's Concerted Action loan. Therefore, it was considered preferential and included in our subsidy calculations.
We also found a number of loans that were not countervailable. These were loans from private commercial sources reported by the company as not having resulted from a government act or bearing a government guarantee.
We preliminarily determine that the ad valorem subsidy for preferential medium and long-term loans to AHV is 1.83 percent.
4. Jose Maria Aristrain
Aristrain had only one long-term loan outstanding during the period for which we are measuring subsidization. This loan was from the Banco Credito de Industrial ("BCI"), a government credit institution which issues loans directed by the government to the Spanish steel industry. We used the methodology described earlier in this notice for loans to creditworthy companies to calculate any subsidy to the Aristrain.
We preliminarily determine that the ad valorem subsidy to Aristrain for this preferential long-term loan is 0.08 percent.
5. Industrias Del Besos
IDB reported long-term loans outstanding during the period for which we are measuring subsidization. These loans were from BCI. We used the methodology described earlier in this notice for loans to creditworthy companies to calculate any subsidy to IDB.
We preliminarily determine that the ad valorem subsidy to IDB for preferential long-term loans is 0.05 percent.
6. Pedro Orbegozo y Cia, S.A.
Orbegozo reported two loans outstanding during the period for which we are measuring subsidization. The outstanding balances on these loans do not account for the long-term loan balance is largely comprised of loans received under the Concerted Action Program. In addition, Aceriales, the consortium of specialty steel producers created by the Spanish government under Royal Decree 2206/1980 for the restructuring of the Spanish steel industry, reports disbursing funds to Orbegozo in 1980. We have requested, but not received, additional information on these matters.
Of the two loans reported by Orbegozo, we have preliminarily determined that no subsidy arises from the loan obtained from private sources. BCI provides the other funds but has not paid out in total the amount it approved for Orbegozo. We treated as individual loans the two disbursements that have been made on that loan thus far. We deducted from the long-term loan total recorded in Orbegozo's 1980 financial statements the principal outstanding on the loan from private sources, as well as two other categories of long-term debt which did not appear to be related to preferential financing. For purposes of these preliminary determinations, we treated the balance as a single loan issued the same year as the first disbursement of the BCI loan described above and subject to its terms and conditions. The company's response indicates that Orbegozo is in receivership. Best available information indicates that the loans were issued prior to this occurrence. Therefore, for purposes of these preliminary determinations, we are using the methodology for loans to creditworthy companies to calculate any subsidy to the company. We will seek additional information.
We preliminarily determine that the ad valorem subsidy to Orbegozo for preferential long-term loans is 1.38 percent.
7. Tuyper
Tuyper reported outstanding loans during the period for which we are measuring subsidization but did not supply information on all loan terms. Two loans were obtained from BCI. We have requested but not received information on the interest rate on these loans. We used as best information available the rate another Spanish company in the steel investigations obtained from BCI in approximately the same time period. We used the *38165 methodology described earlier in this notice for loans to creditworthy companies to calculate any subsidy to Tuyper.
We preliminarily determine that the ad valorem subsidy to Tuyper for its preferential medium and long-term loans is 0.48 percent.
2. Short-term Preferential Loans. In Spain short-term borrowing is for any period up to 18 months. The only short-term borrowing reported by the companies under investigation was that obtained under the Privileged Circuit Exporter Credits.
The government of Spain requires all Spanish commerical 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 through a variety of credit programs. 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 in the notice of initiation, we determine that certain steel producers benefited from one, the working-capital loans program.
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 percentage for firms without exporter's cards was 20 percent until November, when it was decreased to 16 percent. For firms with government-issued exporter's cards, the applicable rates were 30 percent before November and 24 percent thereafter. On April 14, 1982 the percentage was further reduced to 22.5 percent for firms with exporter's cards and to 15 percent for firms without such cards.
In 1981, the privileged circuit working-capital loan interest rate ceiling mandated by the government was 10 percent, including fees and commissions. Working-capital loans are available throughout Spain to all exporters 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.
The loans obtained by the manufacturers, producers, and exporters in Spain of the products under investigation were approximately one year in length. We determined that for June through December 1981, the period when most firms received their working-capital loans, the average prime interest rate was 16.94 percent for loans of approximately one year and that the average borrower paid 2 percentage points over the prime rate for loans of this type. As the percent working-capital loan rate includes fees and commissions, we also made an addition of 0.5 percent to the commerical 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 producers exporting the subject merchandise to the United States in 1981. The total working-capital loan figure for 1981 was comprised of the actual loans received by ENSIDESA, AHM, were eligible to receive under this program in June 1981. AHV Aristrian, Tuyper and IDB, and the amount of loans Orbegozo and AHV supplied no information on its participation in the program. Orbegozo indicated participation in the program, but it provided no specific loan information. For the purposes of these preliminary determinations, we used 30 percent of these two companies' 1980 exports to represent their use of working- capital loans. The total working-capital loan figure was prorated over all exports of these seven 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 steel products exported by these firms in 1981 to arrive at the estimated ad valorem countervailing duty rate of 1.91 percent.
The petitioners allege that the integrated steel companies have received equity infusions from the government of Spain under Law 60/1978 and Decree 878/1981.
A discussion of these capital infusions on a company-by-company basis follows:
1. Ensidesa
INI purchased new stock issuances of ENSIDESA in 1979 and 1981. We do not consider such equity infusions by the government or its agencies to be subsidies per se. They are subsidies only when the investments are made on terms inconsistent with commercial considerations. As discussed earlier, ENSIDESA has recorded significant and persistent losses in each year since 1977. Where such losses exist, and other financial indicators are such as to discourage normal commercial investors, we treat equity infusions as potentially giving rise to a subsidy on the subject merchandise.
Since ENSIDESA's stock is traded on the stock market, we obtained the average stock price of the company prior to the time of the INI's purchases. We then compared this market price of the new stock issued to the government with the actual value to the company of the government's equity purchases. If the actual value was greater than the market value, we found the difference to be a grant and allocated it over 15 years, the average useful life of capital assets in the steel industry based upon studies of actual experience in integrated steel mills. To allocate this grant, we used the government-bond yield in the year the funds were received to reflect the time value of money. While the 1981 stock issuance was subscribed to in its entirety by INI, we included in our calculations only those shares actually paid for by INI in that year. We allocated the 1981 portions of these equity infusions in ENSIDESA over its total sales value of steel production to arrive at a preliminary ad valorem subsidy of 1.35 percent.
2. AHM
AHM is owned entirely by INI. As stated earlier, these shareholdings were obtained during a period when AHM was experiencing significant and persistent losses. We treated these infusions as potentially giving rise to a subsidy on the subject merchandise because these equity purchases were made on terms inconsistent with commercial considerations at the time of purchase.
AHM's stock is not traded on the market. We review the return the government received on their equity investments where, as in this case, there is no market price. To the extent that in any year the government's rate of return on its investment is less than the average rate of return on equity investments in Spain in that year, its equity infusion is a subsidy.
AHM indicates in its response that the company issued 12,000 new shares of stock in 1978. AHM also reported that INI paid 10.17 billion pesetas for stock in 1978 increasing its ownership from zero in 1977 to 33.3 percent in 1978. We assume for these preliminary determinations that INI's increase in ownership is the result of its purchase of only the new stock issuance. Therefore, we are including ths amount in our analysis of equity purchases by INI.
In 1979, INI spent 1.88 billion pesetas to purchase additional shares in AHM. *38166 Private shareholdings in the company dropped from 66.6 percent in 1978 to zero percent in 1979 as the government shareholdings increased to 100 percent. Since there were no new issuances of stock that year, we assume for these preliminary determinations that INI purchased its shares from private stockholders. Any benefit from the price INI paid would be pased to the prior shareholders and not AHM. Therefore, we did not treat this purchase as potentially giving rise to a subsidy on the subject merchandise.
In 1980, INI owned 100 percent of AHM. New issuances of stock that year were purchased in their entirety by INI for 2.79 billion pesetas. Therefore, we are including this amount in our analysis of equity purchases in AHM.
AHM did not respond to our questionnaire concerning any of the benefits granted to it by Royal Decree 878/1981. The Decree authorizes INI to purchase 8.0 billion pesetas of stock from AHM in 1981. Our review indicates that AHM has consistently and on a timely basis received the benefits authorized it in the laws and decrees issued for the integrated steel producers by the government of Spain. Therefore, for these preliminary determinations, we are including this amount in our analysis of equity purchases in AHM.
To determine if the government's investments gave rise to a subsidy on the merchandise under investigation, we compared the rate of return the government received on its investment in AHM with the average rate of return on equity investments in Spain in 1981. We used earnings yield as the nationwide benchmark for return on equity. Since the government's return from its holdings in AHM was less than the return for the country as a whole, we treated these equity purchases as subsidies.
In no case do we countervail an equity infusion (including a loan subsidy to an uncreditworthy company) more than if the government gave the funds as an outright grant. Comparing AHM's return with the average national return yielded a 1981 subsidy exceeding the subsidy we would have calculated had we treated the equity purchases as outright grants. Consequently, we limited the subsidy to the 1981 amount which would have been found if the equity investments were treated as grants.
We allocated the 1981 portion of the equity investments in AHM over its total sales value steel production to arrive at a preliminary ad valorem subsidy of 11.75 percent.
3. AHV
One of the petitioners states in its petition that Law 60/1978 authorizes the "capital conversion" of long-term loans which the government granted to AHV through the BCI. New loans of 4.5 billion pesetas granted to AHV under this law can also be converted to stock. Decree 878/1981 does not grant any capital infusions to AHV. AHV reported no instances of government loans having been converted into capital. Therefore, we preliminarily determine that AHV has not received subsidies as a result of government equity infusions.
II. PROGRAMS PRELIMINARILY DETERMINED NOT TO BE SUBSIDIES
We preliminarily determine that subsidies are not being provided to manufacturers, producers, or exporters in Spain of the products under investigation, under the following programs.
A. 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 calculating the DFE payments to be rebated to exporters, 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 each product under investigation, the government of Spain provided a "structure of cost" analysis of each product. This identified inputs incorporated into each product, the percent each input comprised of the total cost of producing each product, and the indirect tax incidence burdening each input.
Based on the 1980 IGTE tax rate of 2.4 percent, the total indirect tax burden (including two final stage taxes) in 1980 on each product under investigation was 10.31 percent for carbon steel structural shapes, 12.28 percent for hot- rolled carbon steel plate, 13.47 percent for galvanized carbon steel sheet, 12.19 percent on hot-rolled carbon steel bars, 11.32 percent on cold-formed carbon steel bars and 14.07 percent on cold-rolled carbon steel sheet. The DFE rate in 1980 did constitute an overrebate of indirect taxes because the DFE rebate for each product was 15.5 percent. However, in January 1981, the government of Spain increased the IGTE rate by 58 percent to 3.8 percent; and in January, 1982, further increased the IGTE to 4.6 percent. As a result of these increases in the tax rate the indirect tax burden on each product exceeds the 15.5 percent DFE rate and the overrebate is eliminated. Therefore, we preliminarily determine that the current DFE rebate of 15.5 percent is less than the indirect tax burden currently borne by each product under investigation and thus, in these cases, the DFE is not a benefit which constitutes a subsidy.
B. Amendment of Annual Finance Investment Plans
The government of Spain allowed ENSIDESA and AHM to obtain additional loans by permitting amendments to the companies' annual finance plans. This, in itself, is not a subsidy. Benefits that result from the loans this amendment made possible are dealt with in the manner described in the loans section of this notice.
III. PROGRAMS PRELIMINARILY DETERMINED NOT TO BE UTILIZED
We have preliminarily determined that the following programs which were identified in the notice of "Initiation of Countervailing Duty Investigations" are not utilized by the manufacturers, producers, or exporters in Spain of the products under investigation.
A. Certain Privileged Circuit Exporter Credits
Privileged Circuit Exporter Credits were discussed in general earlier in this notice. One program, working-capital loans, has been preliminarily determined to provide subsidies to manufacturers, producers or exporters of the products under investigation. The three remaining privileged circuit programs identified in our notice of initiations were not utilized. They are:
(1) Commercial Services Loans. Exporters may obtain preferential loans to establish, expand or acquire commercial services in export markets or to maintain stock for export. Commercial services loans may cover 60-65 percent of the real investment while stock maintenance loans may cover 30-35 percent of the average annual value of the stock.
(2) Short-Term Export Credit. Companies with firm orders for export can qualify for preferential short-term export credit. The loan amounts are *38167 limited to 80-90 percent of the total contract price of the exported goods.
(3) Prefinancing Exports. Companies that manufacture certain capital and consumer products can qualify for preferential short-term financing with firm orders for export of these items. The loan amounts are limited to 80-85 percent of the contract price of exported products.
B. Warehouse Construction Loans
Exporters desiring to construct warehouse facilities adjacent to loading zones may borrow 70-75 percent of the total investment. Respondents state that they received no loans under this program.
IV. PROGRAMS FOR WHICH ADDITIONAL INFORMATION IS NEEDED
The programs listed below were alleged by the petitioners to be subsidies. At this time, we do not have sufficient information from petitioners or respondents to quantify or to determine whether these programs are providing manufacturers, producers, or exporters in Spain of the products under investigation benefits which constitute subsidies within the meaning of the countervailing duty law. We will seek additional information regarding these programs before reaching final determinations.
The Compania Espanola de Seguros de Credito a la Exportacion, S.A. ("CESCE"), 51 percent of which is owned by the government of Spain, provides export insurance to cover commercial, political, exchange-rate fluctuations and inflation risks. We do not have sufficient information from the responding companies to determine those that use this program. Additionally, we do not have sufficient information about CESCE to evaluate its operations. Therefore, we will seek additional information on the terms of the program and the companies that use the program before determining whether this program is providing benefits which constitute a subsidy within the countervailing duty law.
B. Research and Development (R&D) Incentives
Firms located in Spain may receive government grants covering up to 50 percent or more of the cost of R & D projects. At this time we have insufficient information from both the government of Spain and the companies upon which to determine whether this program is used by the manufacturers, producers or exporters in Spain of the products subject to these investigations and whether it provides benefits which constitute a subsidy within the meaning of the U.S. countervailing duty law. We will seek additional information regarding these programs before reaching final determinations.
C. Regional Investment Incentive Programs
The government of Spain, as well as regional and municipal authorities, provides a wide variety of investment incentive programs which vary according to the region of the country. They include reduction in taxes, reduced import duties on imported tools and equipment, cash grants, preferential access to official credit, and free or inexpensive land. At this time we have insufficient information from both the government of Spain and the companies upon which to determine whether programs of this nature are being used by manufacturers, producers or exporters in Spain of the products subject to these investigations and whether they provide benefits which constitute a subsidy within the meaning of the U.S. countervailing duty law. We will seek additional information regarding these programs before reaching final determinations.
D. Deferral of Tax and Social Security Debt
Decree 878/1981 permits the integrated steel producers to defer payment of the tax debt the companies have with the Public Treasury and Social Security. We do not have enough information on the nature of the deferral and the extent to which the companies used it to determine whether this provision of the decree conveys a benefit which constitutes a subsidy within the meaning of the U.S. countervailing duty law. We will seek additional information regarding this program before reaching final determinations in these cases.
E. Financial Assistance in Reduction of Labor Force
Certain workers who retire as a result of the reconversion of the steel industry are eligible for assistance under the general Social Security System in Spain. Decree 878/1981 indicates that fifty percent of the financing for this assistance will be borne by the affected company and fifty percent will come from the Investment Plan for Labor Protection. At this time we have insufficient information about the companies' obligation to these workers and the source of these funds to determine whether this program provides benefits which constitute a subsidy within the meaning of the U.S. countervailing duty law. We will seek additional information regarding these programs before reaching final determinations.
F. Accelerated Depreciation and Reduction in Taxes
Decree 669/74 permits the steel industry to employ accelerated depreciation of non-liquid investments and to obtain a substantial reduction in certain taxes. We do not have sufficient information about the provision and the companies that used it to determine whether it confers a benefit that constitutes a subsidy within the countervailing duty law. We will seek additional information regarding this program before reaching a final determination.
Partial Affirmative Determination of Critical Circumstances
Counsel for petitioners alleged that imports of all steel products under investigation present "critical circumstances." Under section 703(e)(1) of the Act, critical circumstances exist when there is a reasonable basis to believe or suspect that: "(A) the alleged subsidy is inconsistent with the Agreement, and (B) there have been massive imports of the class or kind of merchandise which is the subject of the investigation over a relatively short period." Section 355.29(a) of the Commerce Regulations on critical circumstances provides, inter alia, that we will determine "whether the alleged subsidy is an export subsidy inconsistent with the Agreement." In determining whether there is a reasonable basis to believe or suspect that there have been massive imports over a relatively short period, we considered the following factors: recent import penetration levels; changes in import penetration since the date of the ITC's preliminary affirmative determinations of injury; whether imports have surged recently; whether recent imports are significantly above the average calculated over the last 3 1/2 years (January 1979-June 1982); and whether the pattern of imports over that 3 1/2 year period may be explained by seasonal swings. Based upon our consideration, we have determined that in the context of the steel industry, imports of hot-rolled carbon steel plate and carbon steel structural shapes from Spain appear massive over a relatively short period (March through June 1982). Imports of the remaining products subject to these investigations do not appear massive over that period.
*38168 With respect to carbon steel structural shapes and carbon steel plate, we proceed to consider whether the subsidies include any export subsidies. As discussed supra, we have preliminarily determined that these products benefited from Privileged Circuit Exporter Credits, which constitute an export subsidy.
Therefore, we preliminarily determine that critical circumstances exist for imports of carbon steel structural shapes and carbon steel plate from Spain, but do not otherwise exist in these investigations.
We note that Spain acceded to the Subsidies Code with a time-limited reservation concerning its current export subsidy programs. Prior to our final determinations in these investigations, we will consult with the Office of the U.S. Trade Representative as to what, if any, legal effect this reservation has upon our critical circumstances determination.
Verification
In accordance with section 776(a) of the Act, we will verify data used in making our final determinations.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to suspend liquidation of all entries of cold-rolled carbon steel sheet, galvanized carbon steel sheet, hot-rolled carbon steel bars and cold- formed carbon steel bars which are entered, or withdrawn from warehouse, for consumption, on or after the date of publication of this notice in the Federal Register. In the case of carbon steel structural shapes and hot-rolled carbon steel plate, this suspension of liquidation applies to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption, on or after the date which is 90 days before the date of publication of this notice. The Customs Service shall require a cash deposit or the posting of a bond for each such entry of the merchandise in the amounts indicated below:
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Manufacturers/producers/exporters Ad valorem
rate
(percent)
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Empresa Nacional Siderurgica, S.A ........................................ 6.17
Altos Hornos Del Mediterraneo, S.A ...................................... 32.46
Altos Hornos De Vizcaya, S.A ............................................. 3.74
Jose Maria Aristrain, S.A ................................................ 1.99
Industrias Del Besos, S.A ................................................ 1.96
Pedro Orbegozo y Cia, S.A ................................................ 3.29
Tuyper, S.A .............................................................. 2.39
All other manufacturers, producers, and exporters of the
products under investigation, as follows:
Carbon steel structural shapes ........................................... 6.17
Hot-rolled carbon steel plate ............................................ 6.17
Cold-rolled carbon steel sheet .......................................... 32.46
Galvanized carbon steel sheet ............................................ 6.17
Hot-rolled carbon steel bars ............................................. 3.29
Cold-formed carbon steel bars ............................................ 3.29
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Where a company specifically listed above has not exported one of the products under investigation during the period for which we are measuring subsidization, the cash deposit or bond amount for these products should be based on the rate for the investigated products that were exported by that company. If the manufacturer is unknown, the rate for all other manufacturers/producers/exporters shall be used.
This suspension will remain in effect until further notice.
ITC Notifications
In accordance with section 703(f) of the Act, we will notify the ITC of our determinations. In addition, we are making available to the ITC all nonprivileged and nonconfidential information relating to these investigations. 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.
Public Comment
In accordance with s 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on these preliminary determinations at 10:00 a.m. on October 1, 1982, at the U.S. Department of Commerce, Room 5611, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, Room 3099B, at the above address within ten days of this notice's publication. Requests 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, prehearing briefs in at least ten copies must be submitted to the Deputy Assistant Secretary by September 27, 1982. Oral presentations will be limited to issues raised in the briefs. All written views should be filed in accordance with 19 CFR 355.34, within thirty days of this notice's publication, at the above address and in at least ten copies.
August 24, 1982.
Gary N. Horlick,
Deputy Assistant Secretary for Import Administration.
APPENDIX A--DESCRIPTION OF PRODUCTS
For purposes of these investigations:
1. The term "carbon steel structural shapes" covers hot-rolled forged, extruded, or drawn, or cold-formed or cold-finished carbon steel angles, shapes, or sections, not drilled, not punched, and not otherwise advanced, and not conforming completely to the specifications given in the headnotes to Schedule 6, Part 2 of the Tariff Schedules of the United States Annotated ("TSUSA"), for blooms, billets, slabs, sheet bars, bars, wire rods, plates, sheets, strip, wire, rails, joint bars, tie plates, or any tubular products set forth in the TSUSA, having a maximum cross-sectional dimension of 3 inches or more, as currently provided for in items 609.8005, 609.8015, 609.8035, 609.8041, or 609.8045 of the TSUSA. Such products are generally referred to as structural shapes.
2. The term "hot-rolled carbon steel plate" covers hot-rolled carbon steel products, whether or not corrugated or crimped; not pickled; not cold- rolled; not in coils; not cut, not pressed, and not stamped to non- rectangular shape; 0.1875 inch or more in thickness and over 8 inches in width; as currently provided for in items 607.6615, or 607.94, of the Tariff Schedules of the United States Annotated ("TSUSA"); and hot- or cold-rolled carbon steel plate which has been coated or plated with zinc including any material which has been painted or otherwise covered after having been coated or plated with zinc, as currently provided for in items 608.0710 or 608.11 of the TSUSA. Semifinished products of solid rectangular cross section with a width at least four times the thickness in the as cast condition or processed only through primary mill hot rolling are not included.
3. The term "hot-rolled carbon steel sheet and strip" covers the following hot-rolled carbon steel products. Hot-rolled carbon steel sheet is a hot- rolled carbon steel product, whether or not corrugated or crimped and whether or not pickled; not cold-rolled; not cut, not pressed, and not stamped to non-rectangular shape; not coated or plated with metal; over 8 inches [FN1] in width and in coils or if not in coils under 0.1875 inch in thickness and over 12 inches in width; [FN2] as currently provided for in items 607.6610, 607.6700, 607.8320, 607.8342, or 607.9400 of the Tariff Schedules of the United States Annotated ("TSUSA"). Please note that the definition of hot-rolled carbon steel sheet includes some products classified as "plate" in the TSUSA.
FN1 Amended from 12 inches in the initiation notice.
FN2 Initiation notice amended by adding after thickness "and over 12 inches in width."
(Items 607.6610 and 607.8320). Hot-rolled carbon steel strip is a flat-rolled steel product, whether or not corrugated or *38169 crimped and whether or not pickled; not cold-rolled, not cut, not pressed, and not stamped to non- rectangular shape; under 0.1875 inch in thickness and not over 12 inches in width; as currently provided for in items 608.1920, 608.2120, or 608,2320 of the TSUSA. Hot-rolled carbon steel strip originally rolled less than 12 inches in width and containing over 0.25 percent carbon is not included.
4. The term "cold-rolled carbon steel sheet and strip" covers the following cold-rolled carbon steel products. Cold-rolled carbon steel sheet is a cold- rolled carbon steel product, whether or not corrugated or crimped and whether or not pickled; not cut, not pressed, and not stamped to non-rectangular shape; not coated or plated with metal; over 12 inches in width and in coils or if not in coils under 0.1875 inch in thickness; as currently provided for in items 607.8320 or 607.8344 of the Tariff Schedules of the United States Annotated ("TSUSA"). Please note that the definition of cold-rolled carbon steel sheet includes some products classified as "plate" in the TSUSA (Item 607.8320).
Cold-rolled carbon steel strip is a flat-rolled carbon steel product; cold-rolled, whether or not corrugated or crimped and whether or not pickled; not cut, not pressed, and not stamped to non-rectangular shape; under 0.1875 inch in thickness and over 0.50 inch in width but not over 12 inches in width; as currently provided for in items 608.1940, 608.2140, or 608.2340 of the TSUSA. Cold-rolled carbon steel strip originally rolled less than 12 inches in width and containing over 0.25 percent carbon is not included.
5. The term "galvanized carbon steel sheet" covers hot- or cold-rolled carbon steel sheet which has been coated or plated with zinc including any material which has been painted or otherwise covered after having been coated or plated with zinc, as currently provided for in items 608.0710, 608.0730, 608.11 or 608.13 of the Tariff Schedules of the United States Annotated ("TSUSA"). Note that the definition of galvanized carbon steel sheet includes some products classified as "plate" in the TSUSA (Items 608.0710 and 608.11). Hot- or cold- rolled carbon steel sheet which has been coated or plated with metal other than zinc is not included.
6. The term "hot-rolled carbon steel bars" covers hot-rolled carbon steel products of solid section which have cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles, hexagons, or octagons, not cold-formed, and not coated or plated with metal, as currently provided for in items 608.8310, 606.8330, or 606.8350 of the Tariff Schedules of the United States Annotated.
7. The term "hot-rolled alloy steel bars" covers hot-rolled alloy steel products, other than those of stainless or tool steel, of solid section which have cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles, hexagons, or octagons, not cold-formed, * * * as currently provided for in item 606.97 of the Tariff Schedules of the United States.
8. The term "cold-formed carbon steel bars" covers cold-formed carbon steel products of solid section which have cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles, hexagons, or octagons, [FN3] as currently provided for in items 606.8805 or 606.8815 of the Tariff Schedules of the United States Annotated.
FN3 Initiation notice amended by deleting after octagons "and not coated or plated with metal."
9. The term "cold-formed alloy steel bars" covers cold-formed alloy steel products, other than those of stainless or tool steel, of solid section which have cross sections in the shape of circles, segments of circles, ovals, triangles, rectangles, hexagons, or octagons, [FN3] as currently provided for in item 606.99 of the Tariff Schedules of the United States.
BILLING CODE 3510-25-M