NOTICES
DEPARTMENT OF COMMERCE
Final Affirmative Countervailing Duty Determinations; Certain Steel Products From Spain
Monday, November 15, 1982
*51438 AGENCY: International Trade Administration, Commerce.
ACTION: Final Affirmative Countervailing Duty Determinations: Certain Steel Products from Spain.
SUMMARY: We have determined 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 and for each product is indicated in the "Suspension of Liquidation" section of this notice. 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: November 15, 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: .
Final Determinations
Based upon our investigations, we have determined 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. The following programs are found to confer subsidies:
Medium- and long-term preferential loans
Short-term preferential loans (Privileged Circuit Exporter Credits, which are working-capital loans)
Capital infusions
Cash grants
We determine the estimated net subsidy to be the amount indicated for each firm and for each product 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 petitioners 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" existed, 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(c) 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 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 *51439 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 on 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 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 initiation of investigations under Title VII and made information from our files 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 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 questionnaires 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 questionnaires. Supplemental responses were subsequently recieved. Data that could not be considered in making our preliminary determinations have been considered in making our final determinations in these cases.
We found in our preliminary determinations (47 FR 38161) that the government of Spain was providing its manufacturers, producers or exporters of certain steel products, as described in the "Scope of the Investigations" section of this notice, with benefits which constitute subsidies. The programs preliminarily determined to bestow countervailable benefits were:
1/8Medium- and long-term preferential loans
1/8Short-term preferential loans (Privileged Circuit Exporter Credits, which are working-capital loans)
1/8Capital infusions
Scope of the Investigations
The products covered by these investigations are:
1/8Carbon steel structural shapes
1/8Hot-rolled carbon steel plate
1/8Cold-rolled carbon steel sheet
1/8Galvanized carbon steel sheet
1/8Hot-rolled carbon steel bars
1/8Cold-formed carbon steel bars
The products are fully described in Appendix 1 to this notice. The product definition of cold-formed carbon steel bars has been amended since the initiation of these investigations (47 FR 28121, 34609).
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. ((Oregozo); Tuyper, S.A. (Tuyper); Hierros Madrid, S.A.; Aceros De Llodio, S.A.; Forjas y Aceros De Reinosa, S.A.; Forjas Alavesas, S.A. (FASA); S.A. Echevarria (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:
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Firms Product
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ENSIDESA ............. Carbon steel structural shapes, hot-rolled carbon steel
plate, cold-rolled carbon steel sheet and galvanized
carbon steel sheet.
AHM .................. Cold-rolled 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.
Forjas Alavesas ...... Hot-rolled carbon steel bars, cold-formed carbon steel
bars.
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FASA submitted its response subsequent to our preliminary determinations in these investigations. While Forjas y Aceros de Reinosa responded, it did not allow us to verify its response. The Department received no response from Echevarria but had information from this and other investigations that indicated that Echevarria specifically received significant countervailable benefits. We used this and subsequent information as the best information available to determine the subsidy on Echevarria's exports to the United States. In addition, we received no response from Hierros Madrid, S.A., Aceros de Llodio, S.A., and Babcock & Wilcox Espanola, S.A. Therefore, for these companies we are applying the highest subsidy rate for each product under these investigations.
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 on outstanding loans, new loans with preferential interest rates and terms, loan guarantees and capital infusions.
Reference 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.
General principles applied by the Department of Commerce to the facts of these investigations are described in detail in Appendix 2. Unless otherwise noted, one subsidy rate is calculated for each company for all products under investigation produced by that company. Based upon our analysis of the petitions, responses to our questionnaires, our verification and oral and written comments by interested parties, we determine the following:
*51440 I. Programs Determined To Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of the products under investigation under the programs listed below.
A. Preferential Loans
Petitioners alleged benefits which constitute subsidies in the form of preferential loans, 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. We note that a number of the loans applicable to the Spanish steel producers were authorized in 1981 by the government under Royal Decree 878/1981. Since loans made in 1981 would not usually have any payments due in 1981, we believe that the benefits conferred by such loans do not arise until 1982. If ITC's final injury determination is affirmative and a countervailing duty order is issued, these benefits will be examined during annual administrative reviews under section 751 of the Act.
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 currently for approximately 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 a bank to lend these funds to certain companies, sectors or regions in Spain at preferential rates or terms.
To calculate any subsidy on these loans, we used the loan methodology detailed in Appendix 2. In those cases where our methodology required a national commercial interest rate, we used as our benchmark, 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 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 as industrial bank rates were not published.
Normally we would use a national average interest rate as the benchmark rate for loans made under the Concerted Action Program for the steel industry because the program is available to all steel companies. In these investigations, however, we considered the benchmark to be the private commercial experience of the individual companies, due to the long-term nature of the program and the widely varying degrees of participation in this program. Where comparable and contemporaneous loans from private commercial sources were not available, we used as best information available the national average commercial rate discussed previously.
The majority of loans reported by the responding Spanish firms contained provisions for deferred principal repayments. We verified that loans made at preferential interest rates to these companies and loans made at commercial rates within and outside of Spain contained similar deferral provisions. Therefore, for purposes of these final determinations, we are not treating deferred principal repayments as a countervailable benefit.
In our preliminary determinations, we treated loans guaranteed or directed by INI as having been guaranteed or mandated by the government of Spain. Our preliminary determinations did not change in this respect.
A discussion of our treatment of these loans by company follows:
1. ENSIDESA. As stated in our preliminary determinations, petitioners alleged that ENSIDESA is uncreditworthy. We had treated ENSIDESA as creditworthy for our preliminary determinations because it had reported many loans from private commercial sources. We reconsidered our preliminary determination that ENSIDESA is creditworthy because at verification we learned that many of these loans are guaranteed by INI.
Prior to 1979, ENSIDESA had obtained a considerable portion of its financing from private commercial sources. From 1979-1981, ENSIDESA primarily received government or government guaranteed credit. Some commercial credit did exist during this time period but the loan amounts were insignificant when compared to ENSIDESA's borrowings in general. The loans that did exist consisted principally of short- and medium-term credits or credits that had been renewed for a number of years.
We know that ENSIDESA has lost money consistently in recent years, losing 763 million pesetas in 1975, 668 million pesetas in 1976, 10,902 million pesetas in 1977, 12,214 million pesetas in 1978, 7,661 million pesetas in 1979, 15,625 million pesetas in 1980 and 20,870 million pesetas in 1981.
We also examined several standard financial ratios. These ratios indicated an uncreditworthy situation. The key ratios in which ENSIDESA exhibited unhealthy financial behavior in the years 1977 through 1981 are times interest earned (operating income divided by interest charges), and net income as a present of sales and cash flow.
We also considered the government's intervention in ENSIDESA in 1978 and again in 1981 with Law 60/1978 and Royal Decree 878/1981 described above. Under these measures the government purchased capital in ENSIDESA and provided it funds to finance investments or working capital.
Given the government's heavy involvement in ENSIDESA by 1979, increasing losses and the continuing deterioration of the company's financial position, we determine for purposes of these investigations that ENSIDESA has been uncreditworthy since 1979. Having decided to consider ENSIDESA uncreditworthy, loans and loan guarantees issued or directed by the government of Spain during the period of uncreditworthiness are treated essentially as equity investments for the reasons described in Appendix 2. Using the equity methodology described in Appendix 2, we compared the national rate of return on equity in Spain to the rate realized by ENSIDESA. To prevent countervailing a higher subisdy amount than if the loan had been an outright grant to the company, we limited the 1981 benefit under this methodology to the result that would be found if the loans were treated as grants under the grant methodology discussed in Appendix 2.
ENSIDESA also received benefits from several types of preferential loans in the years we consider it creditworthy. ENSIDESA's loans were from INI, and domestic and foreign banks. ENSIDESA is approximately 95 percent owned by INI. INI, as mentioned previously, is a public agency of the government of Spain. We consider funds from INI to represent money from the Spanish government. Loans from domestic banks included Banco Credito Industrial (BCI), a government credit institution which issues loans directed by the government to the Spanish steel industry. Among the loans from foreign and domestic banks were those carrying INI guarantees. In creditworthy years we consider *51441 payment of this guarantee fee to be part of ENSIDESA's cost of debt. We found a subsidy flowing from these loans when the interest rate was less than the benchmark interest rate. Generally we did not have comparable loans to ENSIDESA from private commercial sources. Therefore, we used as the best information available the national average commercial interest rate discussed previously. 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. For loans in 1962 and 1963 for which we did not have benchmark interest rates, we used as best information available 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.
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 non-Spanish official lending institutions (e.g. U.S. Export-Import Bank) which were guaranteed by INI. Such guarantees are commonly required by Ex-Im type institutions as a condition of this type of lending activity, and therefore the provision of a guarantee by INI does not confer a benefit in connection with these types of loans.
The countervailable benefit from each loan was allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy for preferential medium- and long-term loans to ENSIDESA is 6.26 percent.
2. Altos Hornos del Mediterraneo, S.A. (AHM). As stated in our preliminary determinations, petitioners alleged that AHM was uncreditworthy. We indicated that the firm had 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 had not identified any loans from private commercial sources in the data submitted. We also considered that during this period of large financial losses, the government of Spain purchased equity in AHM. The government of Spain acquired a significant percentage 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 decided for purposes of the preliminary determinations to consider AHM uncreditworthy since 1977.
At verification we learned that since 1977 AHM obtained supplier credits and private commercial loans without government affiliation only in 1979. Since the risk involved and the basis for giving supplier credits is qualitatively different than for long-term loans, we did not interpret the presence of supplier credits as an indication of creditworthiness. The remaining loans were solely medium-term loans, used principally to make interest payments on previously issued company bonds. Given the heavy involvement of the Spanish government in this firm and its unhealthy financial status since 1977, the Department does not consider these medium-term loans sufficent proof that AHM was creditworthy in 1979.
This determination is consistent with our final determinations in the recent countervailing duty investigations of certain steel products, which were published in August 1982 (beginning at 47 FR 39304). In the instant case, the small generation of private loans since 1977 is outweighed by other factors. Therefore, for these final determinations we continue to consider AHM uncreditworthy during the period 1977 through 1981. Because we consider AHM to have been uncreditworthy, loans and loan guarantees issued or directed by the government of Spain during the period of uncreditworthiness are treated essentially as equity investments using the methodology for loans to uncreditworthy companies in Appendix 2.
AHM reported obtaining a loan from BCI and three loans from other banks under the auspices of government programs prior to the period during which we consider it uncreditworthy. We treated as individual loans the three disbursements that were made on the BCI loan. Only one disbursement occurred during AHM's period of creditworthiness. We did not have similar and contemporaneous loans to AHM from private commercial sources. As best information available, we used the national average commercial interest rate as our benchmark interest rate. We used the methodology for creditworthy companies described in Appendix 2 to calculate the subsidy flowing from the BCI disbursement and the three loans from other banks.
The countervailable benefit from each loan was allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy for preferential medium- and long-term loans to AHM is 11.10 percent.
3. Altos Hornos de Vizcaya, S.A. (AHV). Petitioners alleged that AHV is uncreditworthy. We treated AHV as creditworthy for our preliminary determinations because it had reported loans from private commercial sources.
Certain significant financial ratios suggest an uncreditworthy situation and indicate that the health of the company has been consistently declining since 1977. We have found that since and including 1977 AHV has incurred significant losses in net income ranging from approximately seven to twenty-one percent of sales. Also AHV experienced significant negative cash flows in each year since 1977, the cumulative effect of which is twenty-three billion pesetas over the five years. Prior to 1979, AHV had obtained a significant portion of its loans from private commercial sources. These loans did not result from an INI or government of Spain mandate or appear to be otherwise subsidized. From 1979 through 1981, however, AHV received significant government credit: Over 10 billion pesetas in 1979 as a result of the 1978 reconversion law, and over 30 billion pesetas in 1981 due to Royal Decree 878/1981 described above. Some private commercial credit did exist, but none of this credit was long term and given the significant involvement of the Spanish government in this firm and its unhealthy financial status, we do not consider the commercial loans that did exist to be sufficient proof of AHV's creditworthiness. In light of these findings we consider AHV to have been uncreditworthy since 1979. We are using the methodology for loans to uncreditworthy companies described in Appendix 2 to determine any subsidies to AHV from loans during its uncreditworthy period.
AHV also reported outstanding medium-and long-term loans that were obtained prior to the years in which it is considered uncreditworthy. These included loans that the government had specifically issued to AHV or directed to the steel industry.
Two of these loans were from a government credit institution and were given at zero percent interest. AHV also reported a loan received in 1975 under the Concerted Action Program for the steel industry. In addition, there were several loans from BCI.
We found a subsidy flowing from these loans when the interest rate was less than our benchmark interest rate. We found no comparable commercial *51442 loans during this time period for AHV. Therefore, we used as best information available the national commercial loan rate.
The normal deferral period on the few private commercial loans obtained by AHV, at approximately the same time as the preferential loans, is about three years. AHV reported deferrals of one year on some of the preferential loans under discussion. We considered this deferral not to be a countervailable benefit.
For the preliminary determinations 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 obtained this information during verification and concluded they were preferential.
We did not have benchmark interest rates for the preferential loans in the period 1959 to 1963. We used as best information available the interest rate on bonds issued by AHV in the year or within one year of the date of each of these loans.
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.
The countervailable benefit from each loan were allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy for preferential medium- and long-term loans to AHV is 3.01 percent.
4. Aristrain. Aristrain had only one long-term loan outstanding during the period for which we are measuring subsidization. This loan was from BCI. We used the methodology for loans to creditworthy companies to calculate the subsidy.
The countervailable benefit from this loan was allocated over the total sales value of steel production of the company. We determine that the ad valoremT1 subsidy to Aristrain for this preferential long-term loan is 0.11 percent.
5. IDB. IDB reported long-term loans outstandin during the period for which we are measuring subsidization. These loans were from BCI. We used the methodology for loans to creditworthy companies to calculate the subsidy.
The countervailable benefit from this loan was allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy to IDB for preferential long-term loans is 0.06 percent.
6. Orbegozo. POC entered into receivership on September 29, 1980. This effectively suspended payments of principal and interest on all debt of the company. In October 1982, a receivership referee submitted to the court a plan recommending how POC should proceed. A decision is not expected on this plan until February, 1983. The pre-receivership debt consisted primarily of bank loans and loans from suppliers. The bank loans were comprised of normal short- and long-term commercial credits including privileged circuit working-capital loans and loans from BCI. Post-receivership debt consists primarily of credit from suppliers.
In limited cases such as this, where the court has specifically recognized a company's receivership, we find the benefits associted with loans incorporated in the receivership debt cease to exist. As no preferential loans were found in the post-receivership period, we have determined that POC is not receiving benefits from loans during the period for which we are measuring subsidization.
7. Tuyper. Tuyper reported outstanding loans during the period for which we are measuring subsidization. Two loans were obtained from BCI. We used the methodology for loans to creditworthy companies to calculate the subsidy.
Any countervailable benefits from these loans were allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy to Tuyper for preferential long-term loans is 0.03 percent.
8. FASA. FASA reported loans outstanding during the period for which we are measuring subsidization. They included loans from BCI, two of which were obtained under the concerted Action Program for the steel industry. We found a subsidy flowing from these loans when the interest rates were less than the benchmark rate discussed earlier. Multiple disbursements were made under both of these loans. Each disbursement was treated as a separate loan for purposes of these determinations.
The countervailable benefit from this loan was allocated over the total sales value of steel production of the company. We determine that the ad valorem subsidy to FASA for its preferential medium- and long-term loans is 0.21 percent.
9. Echevarria. Echevarria did not respond to our questionnaire but was identified by the government of Spain as a producer and exporter of the products under investigation. In our preliminary determinations, we applied to it the subsidy rates for all other manufacturers, producers or exporters of the investigated certain steel products. However, in the Department's concurrent investigations involving certain stainless steel products from Spain, we have information (which we quantified) on certain benefits directed to Echevarria by the Spanish government. We considered this information to be the best available information in these investigations as well. As these benefits were not attributed to specific products, we are using this quantification in these final determinations as the best available information on the benefits received by this firm.
Therefore, we determine that the ad valorem subsidy for these loans to Echevarria is 11.48 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 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 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. All respondents in these investigations have exporter's cards.
In 1981, the privileged circuit working-capital loan interest rate ceiling mandated by the government was 10 percent, including fees and *51443 commissions. Working-capital loans are available throughout Spain to all exporters meeting eligibility requirements. In such instances we calculated 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 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 producers exporting the subject merchandise to the United States in 1981. The total working-capital loan figure for 1981was comprised of the actual loans received by ENSIDESA, AHM, AHV, Aristrain, Tuyper, IDB, and FASA. While Orbegozo had used the program in the past, it had not obtained privileged circuit working- capital loans as recently as calendar year 1981. Forjas y Aceros de Reinosa indicated participation in the program, but did not give us enough information to calculate a rate. Therefore, we are not including it. The total working- capital loan figure was prorated over the sales values of all exports of these seven companies in 1981 to arrive at an ad valorem subsidy to certain steel products,with the exception of Orbegozo, of 1.53 percent.
As mentioned earlier, Orbegozo is in receivership. We consider any benefits associated with pre-receivership privileged circuit working-capital loans to have been lost when the loans were incorporated into Orbegozo's receivership debt. However, Orbegozo received these benefits in the past and if its financial condition improves, Orbegozo could again qualify for and obtain benefits under this program in the futuew. For that reason, Orbegozo is not being excluded from the final determinations in these investigations.
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.
We have further determined that these equity infusions in 1979 and 1981 were available to cover losses and thus we expensed, in the year it was received, the amount of the subsidy that was used to cover losses of the previous year (See Appendix 2). This subsidy is equal to the difference between the market price and the government's purchase price of the equity. Since ENSIDESA's stock is traded on the stock market, we obtained the average stock price of the company prior to the time of INI's purchases. We then compared the 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 subsidy. We used the market price for ENSIDESA's stock as our comparison because the stock was traded on the Spanish stock exchange and our countervailing duty law indicates a strong presumption for using market-based methods of value.
The equity infusions in 1979 exceeded ENSIDESA's cash-based losses. We treated the excess as a grant and allocated it over 15 years, the average useful life of capital assets in steel mills. While the 1981 entire stock issuance by ENSIDESA was subscribed by INI, we included in this determination only those shares paid for by INI in that year. This portion of the equity infusion was less than 1980 cash-based losses and was entirely expensed in 1981, the year it was received.
We allocated the 1981 portions of these equity infusions in ENSIDESA over its total sales value of steel production to arrive at an ad valorem subsidy of 2.33 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 has never been traded on the market. We review the return the government received on its 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 issued 12 billion pesetas worth of new shares of stock in 1978. INI bought 4 billion pesetas worth of stock and private stockholders bought 8 billion pesetas, increasing its ownership from zero percent in 1977 to 33.3 percent in 1978. In 1979, INI bought the existing 8 billion pesetas of stock from private shareholders, which they had just purchased in 1978, as well as all other privately held stock, which was of marginal value. Private shareholdings in the company dropped from 66.6 percent in 1978 to zero in 1979. Government shareholdings increased in 1979 to 100 percent. Any benefit from the price INI paid for the 1979 purchase of stock from private shareholders would be passed to these shareholders and not to 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 in that year were purchased entirely by INI. While INI subscribed to six billion pesetas worth of stock, it only paid 2.79 billion pesetas of this amount in 1980. The remaining 3.21 billion was paid in 1981.
Royal Decree 878/1981 authorizes INI to purchase 8.0 billion pesetas of stock from AHM in 1981. At verification we learned that INI subscribed to nine billion pesetas worth of new stock in 1981. INI paid, however, only three billion pesetas of this amount, the remainder to be due later. Therefore, the amount AHM actually received from INI in 1981 from sales of stock was 6.21 billion pesetas. For these final determinations, we are including in our *51444 analysis only the amount paid for 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 average return for the country as a whole, we treated these equity purchases as subsidies.
We have further determined that these equity infusions were used to cover AHM's cash-based losses. The equity infusion in 1980 was exceeded by AHM's cash-based losses in 1979, and was entirely expensed in the year it was received. The equity infusion in 1978 and 1981 exceeded AHM's losses in 1977 and 1980 respectively. We treated these excess infusions as grants and allocated them over 15 years using the methodology for grants in Appendix 2.
We allocated the amount of the equity investments in AHM received in 1981 and its excess capital infusions in 1978 over its total sales value of steel production to arrive at an ad valorem subsidy of 25.62 percent.
3. AHV. At verification we learned that INI purchased 0.925 percent of AHV's stock in 1981. This is the only stock of AHV held by any government agency. INI bought this stock not from AHV but from private shareholders. AHV does not own any of its own stock and has not issued any new shares since 1979. Since AHV did not receive any funds as a result of this transaction, we determine that there is no subsidy.
Therefore, we determine that AHV has not received subsidies as a result of government equity infusions.
1. Orbegozo. At verification, we learned that Orbegozo had received funds from Aceriales, the specialty steel association. Aceriales is comprised of representatives of the specialty steel industry and the government. Through the end of 1981, virtually all of Aceriales' funds came from the Spanish central or Basque regional governments. Aceriales' disbursement to Orbegozo took the form of an untied cash grant and was intended to maintain Orbegozo until a reconversion plan could be implemented. We find this grant to be a subsidy. We further determined that this grant was available to cover the losses of the previous year, and thus we expensed it in the year it was received. (See Appendix 2)
2. Echevarria. In its investigations concerning certain stainless steel products from Spain as previously mentioned, the Department has information which it quantified on certain benefits directed to Echevarria by the Spanish government. These benefits included untied cash grants from Aceriales. As these benefits were not attributed to specific products, we are using this quantification in these final determinations as the best available information on the benefits received by this firm.
Therefore, we determine that the ad valorem subsidy for these grants to Echevarria is 2.07 percent.
II. Programs Determined Not To Confer Subsidies
We determined 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 estimated 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 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 percentage each input comprised of the export price of each product, and the indirect tax incidence burdening each input. The "structure of cost" indicated that billets, the major input physically incorporated into hot-rolled carbon steel bars, accounted for approximately 79 percent of the export price of the product. For cold-formed carbon steel bars, the physically incorporated input of hot-rolled bars comprised approximately 69 percent of its export price. Blooms and slabs, the major inputs in structural shapes and hot-rolled carbon steel plate, accounted for approximately 66 percent and 80 percent respectively, of these investigated products' export prices. Reduced coils and zinc slabs represented approximately 85 percent of the export price of galvanized carbon steel sheet. The major input identified in cold-rolled carbon steel sheet was hot-rolled coils accounting for approximately 85 percent of its export price. The remaining factors in the cost of producing each of the subject products were not identified in the "structure of cost" and, therefore, were not considered in calculating of the total indirect tax incidence of items physically incorporated into the production of these products. We verified the inputs and their relationships to the export price of the finished product from each company's production records. Our verification of these figures indicated that the government of Spain's "structure of cost" inputs and percentages reasonably represented the investigated companies' actual experience.
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 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 14.5 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 14.5 percent DFE rate and the overrebate is eliminated. Therefore, we determine that the current DFE rebate of 14.5 percent is less than the indirect tax burden currently borne by each product under investigation and thus, in these cases, the DFE does not confer 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.
*51445 C. Research and Development (R&D) Incentives
Firms located in Spain may receive government loans covering up to 50 percent of the cost of R & D projects. Up to 90 percent of the government's share may be forgiven. The remaining 10 percent is treated as an interest-free loan. Earlier projects received interest-free loans for a maximum of 50 percent of the cost of the project without the grant feature. We have determined that ENSIDESA, AHV, and Echevarria were part of a consortium which recived a R & D loan in 1974. ENSIDESA received additional assistance for a three-year project in 1981. We verified that this funding is not awarded on a regional or industry-specific basis. In view of the general availability of this assistance on equal terms, we do not consider participation in the program to convey a subsidy under the Act.
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 and political risks, exchange rate fluctuations and inflation risks. No other insurance company provides similar coverage in Spain. Only Aristrain used CESCE insurance on certain of its shipments to the United States. In our preliminary determinations we stated that we did not have sufficient information about CESCE to evaluate its operations.
The government owns a majority of CESCE's stock and holds six of fourteen seats on CESCE's Board of Directors. CESCE receives no funds from the government. According to CESCE's recent annual report, its insurance premiums cover the long-term costs of the insurance program. Therefore, we determine that respondent's use of CESCE export insurance is not a subsidy.
E. Deferral of Tax and Social Security Debt
In our preliminary determinations we stated that 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. At verification we learned that this is not the case. The authority for deferrals is general legislation. Such deferrals are available on equal terms to all firms in Spain. The Royal Decree discourages the integrated steel producers from using this general legislation. The Decree states that as a condition to obtaining the benefits contained in the Decree, the integrated steel companies must pay all new amounts due the Public Treasury and Social Security. We have consequently determined that the Spanish steel producers did not receive a countervailable benefit from their deferrals of these debts.
F. 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. In our preliminary determinations, we stated that 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. We learned at verification that this is not the case. This Decree gives workers between the ages of 60 and 65 the option of working or retiring. Employees electing to retire receive until age 65 compensation equivalent to the salary they would have received from the company had they continued working. The company must pay the difference between the employee's pension amount and the employee's salary. In addition, social security payments must continue to be made on the employee. The company is responsible for one-half of this amount. The second half, normally paid by the employee, is paid by the government through the Investment Plan for Labor Protection. Any benefit from this arrangement passes to the retiree and not the steel company. Therefore, we have determined that this assistance does not give rise to a subsidy on the subject merchandise.
III. Programs Determined Not To Be Used
We have determined that the following programs which were identified in the notice of "Initiation of Countervailing Duty Investigations of Certain Steel Products from Spain" are not used 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 previously in this notice. One program, working-capital loans, has been 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 initiation were not utilized. They are:
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 they received no loans under this program. Our verification of company records and loan documents corroborates this statement.
C. Regional Investment Incentive Programs
The government of Spain, as well as regional and municipal authorities, provides investment incentive programs which vary according to the region of the country. We have determined that none of the steel companies in these investigations has participated in these regional programs.
D. 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. At verification we found no evidence of these allegations.
IV. Petitioners' Comments
Comment 1
Petitioners argue that ENSIDESA's and AHV's financial conditions demonstrate that these companies are uncreditworthy.
DOC Position
We find ENSIDESA and AHV uncreditworthy for the reasons described under the section for these companies in the part of this notice entitled "Preferential Loans."
Comment 2
The petitioners state that we should include cold-rolled sheet in our determination of critical circumstances, since imports of this product were very high from the third quarter of 1981 through the second quarter of 1982.
DOC Position
Recent import tonnage levels are only one of the factors we consider in determining whether there is a reasonable basis to believe or suspect that there have been massive imports over a relatively short period. We also consider the following: recent import penetration levels; changes in import penetration levels; whether recent imports are significantly above the average calculated over the last 3 1/2 -year*51446 (January 1979-August 1982); and whether the pattern of imports over that 3 1/2 years period may be explained by seasonal swings. Based upon our consideration, we have determined that in the context of the steel industry, imports of cold-rolled carbon steel sheet from Spain do not appear massive over a relatively short period (March through August).
Comment 5
The petitioners note in their posthearing brief that the government of Spain may have provided new subsidies to the integrated steel industry during 1981- 1983.
DOC Position
If countervailing duty orders are eventually issued, these benefits will be examined during annual administrative reviews under section 751 of the Act.
Comment 6
The petitioners state that we should change our methodology so that we may countervail loans received in 1981. If countervailing duty orders are issued, petitioners state that the benefit from these 1981 loans will not be ascertained until sometime in the future. Petitioners argue that this is an unjustifiably long delay.
DOC Position
Most of the loans made in 1981 do not have any payments made in 1981. Consequently, we believe that the benefits conferred by such loans do not arise until 1982. If countervailing duties orders are issued in these investigations, these benefits will be examined during annual administrative reviews under section 751 of the Act. In that case, additional duties would be collected on subsequent shipments to the extent that the net subsidies determined during the annual review are greater than the countervailing duties under the order.
Comment 7
The petitioners allege that when companies become delinquent on their social security and tax bills, this delay in payment acts as a subsidy.
DOC Position
The government of Spain penalizes companies which are delinquent in their payments of taxes. There is no moratorium or forgiveness of the debt. This is standard policy applicable to all Spanish industries, steel included. Therefore no subsidy exists.
Comment 8
The petitioners state that the Spanish steel companies receive reductions in certain taxes and can accelerate depreciation.
DOC Position
We found no evidence that the Spanish steel producers took advantage of these benefits.
Comment 9
The petitioners state that the government of Spain, in order to decrease the number of workers, gives incentives to the steel companies so that they will allow workers to take early retirement.
DOC Position
Any benefits from early retirement are passed on to the employee, not the steel company. (For a more detailed discussion of this program, see the section entitled "Financial Assistance in Reduction of Labor Force" under "Programs Determined Not To Confer Subsidies.")
Comment 10
Counsel for petitioners argues that the DFE is a subsidy under section 771(5) and item (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 addressed this issue in detail in the Final Affirmative Countervailing Duty Determination--Prestressed Concrete Steel Wire Strand from Spain (47 FR 28723). 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 Industrial Fasteners Group American Importers Association v. United States, 2 CIT ------, slip. Op. 81-99, October 29, 1981. Therefore, the use of offsets is not an issue here. The Department notes further that the non-excessive remission of cascading taxes is specifically provided for in Item h of the Illustrative List of Export Subsidies and that this list, which is an annex to the Agreement on Interpretation and Application of Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade, is incorporated by reference in our countervailing duty laws.
Comment 11
Counsel argues that the amount of IGTE tax burden borne by a product does not depend on the number of components physically incorporated in the product, but rather on the number of stages of turnover that the inputs went through before being assembled into a product. The data obtained from input-output tables does not reflect the definitive turnovers that require the payment of tax; therefore, the tables produce only imprecise estimates of the actual tax burden on products.
DOC Position
The methodology has been reviewed by the Chief Economist in Import Administration who has concluded that proper techniques were applied to make a reasonable estimate of the indirect tax incidence borne by the products and linked to the rebate. We believe that the input-output study reasonably estimates the average number of turnovers in the Spanish economy, including the steel industry.
Comment 12
Counsel for petitioners argues that the input-output tables are outdated.
DOC Position
The data base for the calculation of the rebates is the current-dollar, value- based coefficients of industry input relative to total industry input in 1958. These coefficients are subject to change as the technical structure of production and prices of unit inputs shift over time. We have accepted the data base and methodology used by the Spanish in estimating the tax rebate associated with the DFE. In addition, we believe that since price changes, productivity increases, technical changes in the production function and industry substitutions of inputs and outputs have a long-term tendency to compensate for each other, on the average, any additional precision that would be obtained from using more recent values and coefficients would have only a de minimis effect on that calculation.
Comment 13
Counsel argues that the ICGI rates are not meant to subject imported goods to a tax burden equivalent to that borne by an identical or similar item produced in Spain but rather serve to act as a Customs tariff. They cite examples in which, for similar products, the ICGI more closely corresponds to the Customs tariff than the DFE.
DOC Position
We believe that the examples given by counsel are exceptions in a system which by and large operates as described earlier in this notice. *51447 Governments often decide for policy reasons to impose a border tax which is not necessarily in the full amount of the internal tax burden of a particular product.
Comment 14
Counsel questions why the Spanish have not increased the ICGI and DFE to correspond to increases in the IGTE taxes in 1981 and again in 1982.
DOC Position
We accept the explanation of Spanish officials that the IGTE increases are part of their plan to convert to a value-added tax system. Adjustments to the existing system are not part of this plan and would be a burden administratively. While the indirect taxes have increased, neither Commerce nor Treasury before it has ever taken the position that a tax rebate must be at least as much as the tax incidence.
Comment 15
Counsel for petitioners alleges that the physically incorporated inputs presented by the Spanish in the "structure of cost" for each product under investigation do not reflect the level of inputs appropriate to determine the indirect taxes borne by the final product. Counsel argues that a lower level of physically incorporated inputs than those presented in the structure of cost by the Spanish should be used to calculate the indirect tax incidence for the integrated steel producers.
DOC Position
In considering which factors of production failed to satisfy the directly related test, only those final stage inputs which were not physically incorporated in the exported products are disallowed. This is consistent with past practice in this area when it was determined that to apply the test to any previous stage would create insurmountable administrative difficulties. We did not use a lower level of physically incorporated inputs than those presented by the Spanish in the "structure of costs" because we consider those inputs to be final stage inputs physically incorporated into the investigated products.
Comment 16
Counsel for petitioners states that subsidies from preferential loans are understated because we have inconsistently considered the time value of money in our calculations. Counsel suggests that in our methodology we ignored the time value of money when we allocated the present value of the subsidy back over time.
DOC Position
While it may not be clear from our notice of preliminary determinations in these cases, we did consider the time value of money when we reallocated the present value of loan benefits back over the life of the loan in question. Our methodology in the preliminary determinations has not changed in this respect.
V. Respondents' Comments
Comment 1
Counsel for the respondents states that AHM should be considered creditworthy since 1978 because it sold stock to private shareholders in 1978. Counsel also argues that several of the companies whose creditworthiness is in question have obtained private loans in this recent period of losses, which shows that they are worthy of credit.
DOC Position
We find AHM, ENSIDESA and AHV uncreditworthy for the years and reasons described under the section for these companies in the part of this notice entitled "Preferential loans."
Comment 2
Counsel for respondents states that capital received by them from the government does not constitute a countervailable benefit. He reasons that the Spanish government in the mid 1970's suppressed prices and the steel companies consequently lost money. Now, it argued, the government is making up for the losses that it caused the industry earlier.
DOC Position
Domestic subsidies are countervailable where they are "provided or required by government action to a specific enterprise or industry or group of enterprises or industries." The statute does not permit us to offset a subsidy even though the government claims it was given to compensate for some regional or other disadvantage.
Comment 3
Counsel for respondents argues that the benchmark interest rates used in the preliminary determinations are extraordinarily high so that banks may recover operating losses incurred when they participate in statutorily mandated, public interest investment programs which involve low interest loans, such as the privileged circuit program. The steel industry borrows significant amounts commercially as well as participates in the priviledged circuit programs. Counsel contends that the steel industry in fact receives no subsidy since it ends up paying for the lower privileged circuit rates through the higher commercial rates and charges. If the program is determined to convey a countervailable benefit, counsel argues that the benchmark rates should be adjusted downward.
DOC Position
The banks may have increased their commercial interest rates to pay for the cost of the privileged circuit program. The fact that everyone, including the steel companies, pays these higher commercial rates does not eliminate the benefits conveyed to exporters participating in the program. We do no agree that for this reason the benchmark interest rates should be adjusted downward. We are, in fact, proscribed by law from making the kind of offset that counsel suggests. The benchmark interest rates used in these final determinations represent the commercially available rates on comparable loans.
Comment 4
Counsel argues that in the preliminary determinations the Department overstated the weighted-average subsidy in connection with the working-capital loans by not using short-term commercial interest rates published by the Bank of Spain reflecting rates actually charged for short-term loans and by not taking into account the prepayment of interest on working-capital loans.
DOC Position
The Bank of Spain interest rates referred to by counsel were first published for the period June through December 1982. They are described in a Bank of Spain publication as the weighted-average medium rates for loans with personal guarantees. During verification we found short-term loans with and without guarantees. We are not using the rates proposed by counsel because these rates do not take into consideration loans made with other forms of guarantees or loans without benefit of gurantees.
Concerning prepayment of interest, the payment terms on these loans are not mandated by the government. They are negotiated with the bank and vary with the company. It is not our policy on broad, national lending programs such as this one to make adjustments on a loan-by-loan basis. Furthermore we do not believe that our calculations would be significantly affected since commercial loans carry the same terms and would similarly be adjusted.
*51448 Comment 5
Counsel contends that privileged circuit working-capital loans of one year or less are taken out in approximately June of each year and, therefore, any calculation of interest differential for loans obtained in 1980 and paid in the first 6 months of 1981 should reflect the difference between the applicable June 1980 working-capital rate and short-term commercial interest rates.
DOC Position
Our calculations include the privileged circuit working-capital loans obtained in 1981. Therefore, we used the interest differential in effect in 1981 when these loans were received to calculate any benefit.
Comment 6
Respondent's counsel argue that a company-specific benchmark should be used to determine the benefit conferred to a company from the privileged circuit working-capital loan program. One counsel argues that it is inherently unfair to use the same benchmark for both a company in poor financial condition and one in good financial condition.
DOC Position
If the preferential loan is part of a broad, national lending program such as this one, we use a national average commercial interest rate as our benchmark. However, in general, we did not find the commercial rates on comparable short- term loans to vary significantly according to the financial health of the company.
Comment 7
Counsel for the respondent argues that Commerce is in error in determining that imports of structurals and plate were "massive . . . over a relatively short period of time". Counsel further disagrees that the operating capital loan program is inconsistent with the Code because such financing is in accord with the OECD arrangement on export credits and is, therefore, consistent with Item k of the Illustrative List of Export Subsidies (the List) which is an annex to the Code.
DOC Position
For the reasons described in the section of this notice entitled "Critical Circumstances" and in our preliminary determinations, we continue to believe that there have been massive imports of carbon steel structural shapes over a relatively short period. However, in view of decreased import penetration and tonnage levels, we no longer find that there have been massive imports of carbon steel plate over a relatively short period.
With regard to the issue of Code consistency, the Department believes that short-term credits are not covered by the OECD arrangement, which applies to loans of not less than two years duration. Therefore, the provisions of paragraph 2 of Item k of the Illustrative List are not relevant. Since the loans are made available at less than the cost of money to the Spanish Government, the Department has concluded that the program is inconsistent with the terms of paragraph 1 of Item k and, therefore, with the Code.
Critical Circumstances
In our preliminary determinations, we preliminarily found critical circumstances to exist with respect to carbon steel structural shapes and carbon steel plate, but not to exist with respect to the other products subject to these investigations. However, we noted that Spain had recently acceded to the Subsidies Code with a time-limited reservation concerning its current export subsidy programs. We indicated that prior to our final determinations, we would consult with the Office of the U.S. Trade Representative as to what, if any, legal effect this reservation has upon our critical circumstances determinations.
Upon further consideration of data available to us at the time of our preliminary determinations and, more importantly, of newly available data concerning imports in July and August, we reaffirm our earlier view that there have been massive imports of carbon steel structural shapes from Spain over a relatively short period. However, in view of significantly decreased import penetrations and tonnage levels in July and August, we determine that imports of carbon steel plate from Spain were not massive over a relatively short period. Therefore, we determine that critical circumstances do not exist for carbon steel plate.
We have further finally determined that carbon steel structural shapes benefited from Privileged Circuit Exporter Credits, which are an export subsidy. The only remaining issue is whether that export subsidy "is inconsistent with the Agreement" (Subsidies Code) despite Spain's reservation to its accession to the Code.
We have carefully considered the precise test of Spain's reservation, and have consulted with the Office of the U.S. Trade Representative. We have concluded that Spain's reservation does not preclude us from finding, for purposes of a critical circumstances determination, that Privileged Circuit Exporter Credits are inconsistent with the Subsidies Code.
Therefore, we determine that critical circumstances exist with respect to imports of carbon steel structural shapes from Spain, and do not exist for any other product subject to these investigations.
Verification
In accordance with section 776(a) of the Act, we have verified data used in making our final determination. During this verification, we followed normal procedures, including discussions with government officials, inspection of documents, and inspection of manufacturers records. In certain cases where no information was provided, we used best information available as discussed in the notice.
Administrative Procedures
The Department has afforded interested parties an opportunity to present oral views in accordance with its regulations (19 CFR 355.35). A public hearing was held on October 1, 1982. In accordance with the Department's regulations (19 CFR 355.34(a)), written views have been received and considered.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative countervailing duty determinations shall remain in effect until further notice. In the case of carbon steel plate, we are directing the U.S. Customs Service to terminate the retroactive suspension of liquidation ordered on this product at the time of the preliminary determinations and to release any bond and refund any cash deposit required with respect to entries of this merchandise the liquidation of which was suspended retroactively under section 703 of the Act. The retroactive suspension of liquidation ordered on carbon steel structural shapes at the time of the preliminary determinations shall continue.
The estimated net subsidy for each firm and for each product is changed as follows:
-------------------------------------------------------------------------------
Manufacterers /producers/ exporters Ad valorem
rate
(percent)
-------------------------------------------------------------------------------
Empresa Nacional Siderurgica, S.A.:
Carbon steel structural shapes .......................................... 10.12
Hot-rolled carbon steel plate ........................................... 10.12
Cold-rolled carbon steel sheet .......................................... 10.12
Galvanized carbon steel sheet ........................................... 10.12
Altos Hornos Del Mediterraneo, S.A.: Cold-rolled carbon steel
sheet ................................................................. 38.25
Altos Hornos De Vizcaya, S.A.: Galvanized carbon steel sheet ............. 4.54
Jose Maria Aristrain, S.A.: Carbon steel structural shapes ............... 1.64
Industrias Del Besos, S.A.: Hot-rolled carbon steel bars ................. 1.59
Pedro Orbegozo y Cia, S.A.:
Hot-rolled carbon steel bars ..................................... ------------
Cold-formed carbon steel bars .................................... ------------
Tuyper, S.A.: Cold-formed carbon steel bars .............................. 1.56
Forjas Alavesas:
Hot-rolled carbon steel bars ............................................. 1.74
Cold-formed carbon steel bars ............................................ 1.74
S.A. Echevarria:
Hot-rolled carbon steel bars ............................................ 15.08
Cold-formed carbon steel bars ........................................... 15.08
All other manufacturers, producers, and exporters of the product
under investigation, as follows:
Carbon steel structural shapes .......................................... 10.12
Hot-rolled carbon steel plate ........................................... 10.12
Cold-rolled carbon steel sheet .......................................... 38.25
Galvanized carbon steel sheet ........................................... 10.12
Hot-rolled carbon steel bars ............................................ 15.08
Cold-formed carbon steel bars ........................................... 15.08
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*51449 As explained above, we have determined that no subsidy is currently being provided to Pedro Orbegozo y Cia, S.A. Therefore, all estimated countervailing duties deposited subsequent to the preliminary determinations on entries of merchandise manufactured by Orbegozo shall be refunded and the appropriate bonds released. However, because of its financial condition and its past participaton in certain programs known to convey countervailable benefits, Orbegozo is not being excluded from these final affirmative countervailing duty determinations.
We are directing the United States Customs Service to require a cash deposit or bond in the amount indicated above for ecah entry of the subject merchandise entered on or after the date of publication of this notice in the Federal Register. Where the manufacturer is not the exporter, and the manufacturer is known, the rate for the manufacturer shall be used in determining the amount of cash deposit or bond. If the manufacturer is unknown, the rate for all other manufacturers/producers/exporters shall be used.
Where a compnay 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 shall be based on the highest rate for the investigated products that were exported by that company.
This suspension will remain in effect until further notice.
ITC Notifications
In accordance with section 705(d) 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. The 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. If the ITC determines that material injury, or threat of material injury, does not exist, this proceeding will be terminated and any bonds posted, or cash deposited as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, within 7 days of notification by the ITC of that determination, we will issue a countervailing duty order, directing Customs officers to assess countervailing duties on certain steel products from Spain entered, or withdrawn from warehouse, for consumption after the suspension of liquidation, equal to the net subsidy determined or estimated to exist as a result of the annual review process prescribed by section 751 of the Act. The provision of section 707(a) of the Act will apply to the first directive for assessment.
This notice is published pursuant to section 705(d) of the Act and s 355.33 of the Department of Commerce Regulations (19 CFR 355.33).
Lawrence J. Brady.
Assistant Secretary for Trade Administration.
Appendix 1--Description of Products
For purpose 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 and 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.
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.
3. the term "cold-rolled carbon steel sheet" 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 of 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 (TEM 607.8320).
4.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 608.070, 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 *51450 which has been coated or plated with metal other than zinc is not included.
5. 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 606.8310, 606.8330, or 606.8350 of the Tariff Schedules of the United States Annotated.
6. 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, [FN1] as currently provided for in terms 606.8805 or 606.8815 of the Tariff Schedules of the United States Annotated.
FN1 Initiation notice amended by deleting after octagons "and not coated or plated with metal."
Appendix 2--Methodology
Several basic issues are common to the countervailing duty investigations of certain steel products initiated by the Department of Commerce ("the Department") on February 1, 1982; e.g., government assistance through loans, equity infusions, loss coverage, research and development projects and labor programs. This appendix describes in some detail the general principles applied by the Department when dealing with these issues as they arise within the factual context of these cases, including the investigations concerning Spain. This appendix, although reflecting substantially the same principles applied in the preliminary determinations (see "Preliminary Affirmative Countervailing Duty Determinations, Certain Steel Products from Spain (47 FR 38161), does describe some changes in methodology. These changes are principally in the area of funds for loss coverage.
Grants
Petitioner alleged that numerous grants have been provided to the respondent steel compaines for various purposes. Under section 771(5)(B) of the Tariff Act of 1930, as amended (the Act) (19 U.S.C. 1677(5)(B)), domestic subsidies are countervailable where they are "provided or required by government action to a specific enterprise or industry, or group of enterprises or industries" (emphasis added).
The legislative history of Title VII of the Act states that where a grant is "tied" to--that is, bestowed specifically to purchase--costly pieces of capital equipment, the benefit flowing from the grant should be allocated in relation to the useful life of that equipment. A subsidy for capital equipment should also be "front loaded" in these circumstances; that is, it should be allocated more heavily to the earlier years of the equipment's useful life, reflecting its greater commercial impact and benefit in those years.
Prior to these cases on certain steel products, the Department allocated the face value of the grant, in equal increments, over the appropriate time period. For large capital equipment, we used a period of half the useful life of the equipment purchased with the grant. In each year we countervailed only that year's allocated portion of the total grant. For example, a hypothetical grant of $100 million used to purchase a machine with a 20-year life would have been countervailed at a rate of $10 million per year (allocated over the appropriate product group) for 10 years, beginning in the year of receipt.
This allocation technique has been criticized for not capturing the entire subsidy because it ignores the fact that money has a changing value as it moves through time. It has been argued that $100 million today is much more valuable to a grant recipient than $10 million per year for the next 10 years, since the present value (the value in the initial year of receipt) of the series of payments is considerably less than the amount if initially given as a lump sum. We agree with this position. As long as the present value (in the year of grant receipt) of the amounts allocated over time does not exceed the face value of the grants, we are consistent with both our domestic law and international obligations in that the amount countervailed will not exceed the total net subsidy.
The present value of any series of payments is calculated using a discount rate. We have determined that the most appropriate discount rate for our purposes is the "risk-free" rate as indicated by the secondary market rate for long-term government debt (in the home country of the company investigation). The basic function of the "present value" exercise is to allocate money received in one year to other years. Domestic interest rates perform this function within the context of an economy. The foundation of a country's interest rate structure is usually its government debt interest rate (the risk- free rate). All other borrowings incorporate this risk-free rate and add interest overlays reflecting the riskiness of the funded investment.
When we allocate a subsidy over a number of years it is not the intention of the Department to comment on or judge the riskiness of the project undertaken with the subsidized funds, nor to evaluate the riskiness of the company as a whole. We do not intend either to speculate how a project would have been financed absent government involvement in the provision of funds. Rather, we simply need a financial mechanism to move money through time so as to accurately reflect the benefit the company receives. We believe that the best discount rate for our purposes is one which is risk free and applicable to all commercial actors in the country. Therefore we have used in this final determination long-term government debt rates (as reflected in the secondary market) as our discount rates.
For costly pieces of capital equipment, we believe that the appropriate time period over which to allocate the subsidy is its entire useful life. In the past, we allocated the subsidy over only half the useful life in order to "front load" the countervailing duties, thereby complying with the legislative intent of the Act. However, so long as we allocate the subsidy in equal nominal increments over the entire useful life, it will be effectively front loaded in real terms (as long as a positive discount rate is used) since money tomorrow is less valuable than money today.
For this steel investigation we have allocated a grant over the useful life of equipment purchased with it when the value of that grant was large (in these investigations, greater than $50 million) and specifically tied to pieces of capital equipment. Where the grant was small (generally less than one percent of the company's gross revenues and tied to items generally expensed in the year purchased, such as wages or purchases of materials), we have allocated the subsidy solely to the year of the grant receipt. We construe that a grant is "tied" when the intended use is known to the subsidy giver and so acknowledged prior to or concurrent with the bestowal of the subsidy. All other grants are allocated over 15 years, a period of time reflecting the average useful life of capital assets in steel mills. The 15-year period is based on Internal Revenue Service studies of actual experience in integrated mills in the U.S. We are using this time period because we sought a uniform period of time for these allocations and this was the best available estimate of the average steel assets life worldwide. We could not calculate the average life of capital assets on a company-by-company basis, since different accounting principles, extraordinary write-offs, and corporate *51451 reorganizations yielded extremely inconsistent results.
Funds to Cover Losses
In the preliminary determinations we did not distinguish funds (either in the form of untied grants or equity infusions) which were available for loss coverage from other grants or equity infusions. We stated that since grants used for loss coverage often have the effect of helping keep the firm in business, we allocated the benefit over 15 years when the funds were in the form of a grant or used the appropriate equity methodology when the loss coverage funds were in the form of equity.
Between the preliminary and final determinations we received the comments and suggestions of various interested parties principally contained in the pre- and post-hearing briefs. In addition, we sought the advice of the Department's accountants and outside consultants on the issue of the appropriate treatment of funds for loss coverage. Based on the above, we have decided not to allocate the subsidy benefit of these funds over time but rather to allocate them to the year of receipt.
We have done so on the advice of these accounting experts in order to reflect the nature of the liabilities giving rise to the loss. These liabilities are generally the basic costs of operations (e.g., wages, materials, certain overhead expenses)--items generally expensed in the year incurred.
We calculated the magnitude of the loss from a company's financial statements beginning with net earnings and working back to a cash-based measure of loss. We allocated to loss coverage only those grants and equity infusions which were truly cash inflows into the company and were actually available to cover losses.
In any instances in which infusions were specifically tied to loss coverage, we allocated such infusions accordingly. If infusions were not so tied, we concluded that general, untied grants were a more logical source of loss coverage assistance than general infusions of equity. Accordingly, in making these allocations we treated funds available from grants as the primary source of monies available for loss coverage. We allocated funds available from equity infusions to loss coverage only in the absence of grants or after available grant funds had been exhausted.
We generally treated such cash inflows as covering the losses incurred in the previous fiscal year and allocated the subsidy benefit flowing from such funds to the year of their receipt. An exception was made where losses were continually covered by a special arrangement with the government (as through the use of a special reserve account). In these cases, since the funds for loss coverage were accessible as the losses arose, we allocated the benefit flowing from these funds to the period in which the losses occurred.
Loans and Loan Guarantees for Companies Considered Creditworthy
In these investigations, various loan activities give rise to subsidies. The most common practices are the extension of a loan at a preferential interest rate where the government is either the actual lender or directs a private lender to make funds available at a preferential rate, or where the government guarantees the repayment of the loan made by a private lender. The subsidy is computed by comparing what a company would pay a normal commercial lender in principal and interest in any given year with what the company actually pays on the preferential loan in that year. We determine what a company would pay a normal commercial lender by constructing a comparable commercial loan at the appropriate market rate (the benchmark) reflecting standard commercial terms. If the preferential loan is part of a broad, national lending program, we used a national average commercial interest rate as our benchmark. If the loan program is not generally available--like most large loans to respondent steel companies--the benchmark used instead, where available, is the company's actual commercial credit experience (e.g., a contemporaneous loan to the company from a private commercial lender). If there were no similar loans, the national commercial loan rate is used as a substitute rate. Finally, where a national loan-based interest rate was not available, an average industrial bond rate was used as best evidence.
For loans denominated in a currency other than the currency of the country concerned in an investigation, the benchmark is selected from interest rates (either national or company-specific, as appropriate) applicable to loans denominated in the same currency as the loan under consideration (where possible, rates on loans in that currency in the country where the loan was obtained; otherwise, loans in that currency in other countries, as best evidence). The appropriate discount rate remains the risk-free rate as indicated by the secondary market rate for long-term debt obligations of the company's home country government. The subsidy for each year is calculated in the foreign currency and converted at an exchange rate applicable for each year.
After calculating the payment differential in each year of the loan, we then calculated the present value of this stream of benefits in the year the loan was made, using the risk-free rate (as indicated by the secondary market for long-term government debt in Spain) as the discount rate. In other words, we determined the subsidy value of a preferential loan as if the benefits had been bestowed as a lump-sum grant in the year the loan was given. This amount was then allocated evenly over the life of the loan to yield the annual subsidy amounts. We did so with one exception: Where the loan was given expressly for the purchase of a costly piece of capital equipment, the present value of the payment differential was allocated over the useful life of the capital equipment concerned.
For loans not tied to capital equipment with mortgage-type repayment schedules, this methodology results in annual subsidies equivalent to those calculated under the methodology previously employed by the Department whereby we considered the difference in total repayments in each year of a loan's lifetime to be the subsidy in that year. For loans with constant principal repayments (i.e., declining total repayments), loans with deferral of repayments, and loans for costly capital equipment, the value method results in even allocations of the subsidy over the relevant period. This effectively front loads countervailing duties on these loan benefits in the same manner as grants are front loaded.
A loan guarantee by the government constitutes a subsidy to the extent the guarantee assures more favorable loan terms than for an unguaranteed loan. The subsidy amount is quantified in the same manner as for a preferential loan.
If a borrowing company preferentially received a payment holiday from a government lending institution or from a private lender at government direction, an additional subsidy arises that is separate from and in addition to the preferential interest rate benefit. The subsidy value of the payment holiday is measured in the same manner as for preferential loans, by comparing what the company pays versus what it would pay on a normal commercial loan in any given year. A payment holiday early in the life of a loan can result in such large loan payments near the end of its term that, during the final years, the loan recipient's annual payments on the subsidized loan may be greater than they would have been on an *51452 unsubsidized loan. By reallocating the benefit over the entire life of the loan through the present value methodology described above, we avoid imposing countervailing duties in excess of the net subsidy. Where we have sufficient evidence that deferment of principal is a normal and/or customary lending practice in the country under consideration, then such deferral has not been considered as conferring an additional subsidy.
Loans and Loan Guarantees for Companies Considered Uncreditworthy
In a number of cases petitioners have alleged that certain respondent steel companies were uncreditworthy for purposes of these investigations at the time they received preferential loans for guarantees, and that they could not have obtained any commercial loan without government intervention.
Where the company under investigation has a history of deep or significant continuing losses, and diminishing (if any) access to private lenders, we generally agree with petitioners. This does not mean that such a company is totally uncreditworthy for all purposes. Virtually all companies can obtain limited credit, such as short-term supplier credits, no matter how precarious their financial situation. Our use of the term uncreditworthy means simply that the company in question would not, in our view, have been able to obtain comparable loans in the absence of government intervention. Accordingly, in these situations neither national nor company-specific market interest rates provide an appropriate benchmark since, by definition, an uncreditworthy company could not receive loans on these or any terms without government intervention. Nor have we been able to find any reasonable and practical basis for selecting a risk premium to be added to a national interest rate in order to establish an appropriate interest benchmark for companies considered uncreditworthy. Therefore, we continue to treat loans to an uncreditworthy company as an equity infusion by or at the direction of the government. We believe this treatment is justified by the great risk, very junior status, and low probability of repayment of these loans absent government intervention or direction. To the extent that principal and/or interest is actually paid on these loans, we have adjusted our subsidy calculation (which is performed using our equity methodology, infra) to reflect this. We have applied the rate of return shortfall (the amount by which the corporate rate of return on equity was lower than the national average rate of return on equity) only to the outstanding principal in the year which we are measuring subsidization. From this amount, we additionally subtract any interest and fees paid in that year. Moreover, in no case do we countervail a loan subsidy to a creditworthy or uncreditworthy company more than if the government gave the principal as an outright grant.
Short-Term Credits
In all our cases, even the most financially troubled companies regularly receive short-term supplier credits. We find this type of debt different and easily distinguishable from the loans previously discussed. Where a company receives private-sourced supplier credits we have found this countervailable only where they were at preferential rates because of explicit government direction.
Where supplier credits were not given at a preferential rate directed by the government, we found no subsidy. Furthermore, since the risk involved a basis for giving supplier credits is qualitatively different than for long-term loans, we did not interpret the presence of supplier credits as an indication of creditworthiness.
Equity
Petitioners allege that government purchases of equity in respondent steel companies confer a subsidy equal to the entire amount of the equity purchased. Many respondents claim that such equity purchases are investments on commercial terms, and thus do not confer subsidies on these companies.
It is well settled that neither government equity ownership per se, nor any secondary benefit to the company reflecting the private market's reaction to government ownership, confers a subsidy. Government ownership confers a subsidy only when it is on terms inconsistent with commercial considerations. An equity subsidy potentially arises when the government makes equity infusions into a company which is sustaining deep or significant continuing losses and for which there does not appear to be any reasonable indication of a rapid recovery. If such losses have been incurred, then we consider from whom the equity was purchased and at what price, or, absent a market value for the equity, we examine the rate of return on the company's equity and compare it to the national average rate of return on equity.
If the government buys previously isued shares on a market or directly from shareholders rather than from the company, there is no subsidy to the company. This is true no matter what price the government pays, since any overpayment benefits only the prior shareholders and not the company.
If the government buys shares directly from the company (either a new issue or corporate treasury stock) and similar shares are traded in a market, a subsidy arises if the government pays more than the prevailing market price. The Department has a strong preference for measuring the subsidy by reference to a market price. This price, we believe, rightly incorporates private investors' perceptions of the company's future earning potential and worth. To avoid any effect on the market price resulting from the government's purchase or speculation in anticipation of such purchase, we used for comparison a market price on a date sufficiently preceding the government's action. Any amount of overpayment is treated as a grant to the company.
It is more difficult to judge the possible subsidy effects of direct government infusions of equity where there is no market price for the shares (as where, for example, the government is already sole owner of the company). Government equity participation can be a legitimate commercial venture. Often, however, as in many of these steel cases, equity infusions follow massive or continuing losses and are part of national government programs to sustain or rationalize an industry which otherwise would not be competitive. We respect the government's characterization of its infusion as equity in a commercial venture. However, to the extent in any year that the government realizes a rate of return on its equity investment in a particular company which is less than the average rate of return on equity investment for the country as a whole (thus including returns on both successful and unsuccessful investments), its equity infusion is considered to confer a subsidy. This "rate of return shortfall" (the difference between the company's rate of return on equity and the national average rate of return on equity) is multiplied by the original equity infusion (less any loss coverage to which the equity funds were applied) to yield the annual subsidy amount. Under no circumstances do we countervail in any year an amount greater than that which is calculated treating the government's equity infusion as an outright grant.
Research and Development Grants and Loans
Grants and preferential loans awarded by a government to finance *51453 research that has broad application and yields results which are made publicly available do not confer subsidies. Programs of organizations or institutions established to finance research on problems affecting only a particular industry or group of industries (e.g., metallurgical testing to find ways to make cold-rolled sheet easier to galvanize) and which yield results that are available only to producers in that country (or in a limited number of countries) confer a subsidy on the products which benefits from the results of the research and development (R&D). On the other hand, programs which provide funds for R&D in a wide range of industries are not countervailable even when a portion of the funds is provided to the steel sector.
Once we determine that a particular program is countervailable, we calculate the value of the subsidy by reference to the form in which the R&D was funded. An R&D grant is treated as an "untied" grant; a loan for R&D is treated as any other preferential loan.
Labor Subsidies
To be countervailable, a benefit program for workers must give preferential benefits to workers in a particular industry or in a particular targeted region. Whether the program preferentially benefits some workers as opposed to others is determined by looking at both program eligibility and participation. Even where provided to workers in specific industries, social welfare programs are countervailable only to the extent that they relieve the firm of costs it would ordinarily incur for example, a government's assumption of a firm's normal obligation partially to fund worker pensions.
Labor-related subsidies are generally conferred in the form of grants and are treated as untied grants for purposes of subsidy calculation. Where they are small and expensed by the company in the year received, we likewise allocated them only to the year of receipt. However, where they were more than one percent of gross revenues we allocated them over a longer period of time generally reflecting the program duration.
BILLING CODE 3510-25-M