(Cite as: 49 FR 6962)
NOTICES
DEPARTMENT OF COMMERCE
[A-469-009]
Carbon Steel Wire Rod From Spain; Preliminary Affirmative Countervailing Duty Determination
Friday, February 24, 1984
*6962 AGENCY: International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the meaning of the Tariff Act of 1930, as amended ("the Act"), are being provided to manufacturers, producers, or exporters in Spain of carbon steel wire rod. The estimated net subsidy is 12.59 percent ad valorem. We also find preliminarily that critical circumstances exist with respect to imports of wire rod. Therefore, we are directing the U.S. Customs Service to suspend liquidation of all unliquidated entries of carbon steel wire rod from Spain which are entered, or withdrawn from warehouse, for consumption on or after the date which is 90 days before the date of publication of this notice in the Federal Register. The Customs Service shall require a cash deposit or bond on these products in the amount equal to the estimated net subsidy. If this investigation proceeds normally, we will make our final determination by May 1, 1984.
EFFECTIVE DATE: February 24, 1984.
FOR FURTHER INFORMATION CONTACT:John M. Davies or John J. Kenkel, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street *6963 and Constitution Avenue, NW., Washington, D.C. 20230, telephone: (202) 377-1784, 377-3464.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigation, we preliminarily determine there is reason to believe or suspect that certain benefits which constitute subsidies within the meaning of section 701 of the Act are being provided to manufacturers, producers, or exporters in Spain of carbon steel wire rod. The following programs are preliminarily determined to confer subsidies:
Medium- and long-term preferential loans
Short-term preferential loans (provided under the Privileged Circuit Exporter Credits program as working-capital loans)
Capital infusions
We estimate the net subsidy to be 12.59 percent ad valorem.
Case History
On November 23, 1983, we received a petition from the Atlantic Steel Company, Continental Steel Company, Georgetown Steel Corporation, North Star Steel Company-Texas, and Raritan River Steel Company filed on behalf of the carbon steel wire rod industry. In compliance with the filing requirements of section 355.26 of the Commerce Regulations (19 CFR 355.26), petitioners alleged that manufacturers, producers, or exporters in Spain of carbon steel wire rod receive, directly or indirectly, benefits which constitute subsidies within the meaning of section 701 of the Act, and that these imports are materially injuring, or threatening to materially injure, a U.S. industry. Petitioners also alleged that "critical circumstances" exist, as defined in section 703(e) of the Act.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on December 13, 1983, we initiated an investigation (48 FR 56420-21). We stated that we expected to issue a preliminary determination by February 16, 1984.
Since Spain is a "country under the Agreement" within the meaning of section 701(b) of the Act, an injury determination is required for this investigation. On January 9, 1984, the U.S. International Trade Commission (ITC) determined that there is a reasonable indication that these imports are materially injuring, or threatening to materially injure, a U.S. industry (49 FR 2165).
We presented a questionnaire concerning the allegations to the government of Spain at its embassy in Washington, D.C. on January 4, 1984. On February 3, 1984, we received a reply to the questionnaire.
Scope of Investigation
The product covered by this investigation is carbon steel wire rod. For the purpose of this investigation, the term "carbon steel wire rod" covers a coiled, semi-finished, hot-rolled carbon steel product of approximately round solid cross-section, not under 0.20 inch nor over 0.74 inch in diameter, not tempered, not treated, not partly manufactured; and valued over 4 cents per pound, as currently provided for in item 607.17 of the Tariff Schedules of the United States.
There are two known firms in Spain which produce and export carbon steel wire rod to the United States. We have received information from the government of Spain regarding Empresa Nacional Siderurgica, S.A. (ENSIDESA) and Nueva Montana Quijano, S.A. (Nueva Montana), which accounted for over 95 percent of carbon steel wire rod exports to the United States during the period of investigation, calendar year 1982.
Analysis of Programs
Neither respondents nor the government of Spain answered our questionnaire. Instead, they provided copies of responses in recent U.S. countervailing duty investigations on other steel products from Spain, stating that they did not have enough time to answer the current questionnaire. For purposes of this preliminary determination we have used the information provided by ENSIDESA, as the "best information available." We apply the rate for ENSIDESA to all other manufacturers, producers, or exporters, including Nueva Montana. ENSIDESA is the only company for which we have sufficient data to quantify the subsidies attributable to wire rod.
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:
Decreee 6 69/74 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 firm 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 in Spain, inlcuding ENSIDESA.
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. Certain of the subsidy programs are administered by the Institutio Nacional de Industria (INI), a public holding company created in 1941 as an autonomous government agency to promote and stimulate the industrial development of Spain. INI's responsibilities cover a variety of sector's ranging from basic services to basic industries such as iron and steel.
General principles applied to the facts in this investigation are described in "Appendix II, Revisions of Methodology," contained in the Federal Register notice of the preliminary affirmative countervailing duty determination, certain carbon steel products from Mexico (49 FR 5142).
Based upon our analysis of the petition, the material provided by the government of Spain in response to our questionnaire, and other available information we determine the following:
I. Programs Preliminarily Determined to Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of carbon steel wire rod under the following programs:
Petitioners alleged benefits which constitute subsidies in the form of preferential loans, loan terms and loan guarantees. We requested from each company under investigation information on all loans outstanding during the period for which we are measuring subsidization.
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 10 years. ENSIDESA reported medium- and long-term loans outstanding during the period for which we are measuring subsidization.
We preliminarily determine that the government lends or directs a bank to lend these funds to certain companies, sectors or to companies in specific regions in Spain at rates or on terms *6964 inconsistent with commercial considerations.
Generally, to calculate any subsidy on these loans, we used the loan methodology detailed in Appendix II.
In the 1982 investigation of Certain Carbon Steel Products from Spain (47 FR 51428), ENSIDESA was deemed uncreditworthy from 1979-1981. Based upon our Appendix II methodology, we again find ENSIDESA uncreditworthy for this period, as well as for 1982. We examined several of the company's standard financial ratios and losses in making this determination. The key ratios in which ENSIDESA exhibited unhealthy financial behavior in the years 1977 through 1982 are times interest earned (operating income divided by interest charges); net income as a percent of sales; and net working capital as a percent of total assets.
For the time that it was creditworthy, prior to 1979, we used average maximum interest rates published by the Banco de Espana as the benchmark for ENSIDESA (which was the same benchmark we used in certain carbon steel products). We lacked sufficient information to use a company-specific rate. For its uncreditworthy period we used as a benchmark average maximum interest rates published by the Banco de Espana plus the "risk premium" (as described in Appendix II).
The majority of loans reported by ENSIDESA contained provisions for deferred principal repayments. We verified in our investigation of certain carbon steel products 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 this preliminary determination, we are not treating deferral principal repayments as a separate countervailable benefit.
We found other categories of loans which did not confer subsidies: (a) Loans to 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 counteravailable benefit in connection with these types of loans.
We allocated the countervailable benefit from each loan over the total sales value of steel production of the company. We preliminarily determine that the ad valorem subsidy for preferential medium- and long-term loans to ENSIDESA is 8.44 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 available to companies, we preliminarily 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 early 1982, this percentage for firms without exporter's cards was 16 percent. For firms with government- issued exporter's cards, the applicable rate was 24 percent after November 1981. On April 14, 1982, the percentage was reduced to 22.5 percent for firms with exporter's cards and to 15 percent for firms without such cards. Both ENSIDESA and Nueva Montana have exporter's cards. In 1982, the privileged circuit working-capital loan interest rate ceiling mandated by the Government was 10 percent, including fees and commissions.
To calculate the subsidy we compared the preferential interest rate with the national average commercial interest rate on loans with similar terms and conditions.
During 1982, the national average commercial interest rate was calculated as the average prime interest rate, 16.88 percent, plus two percentage points (reflecting average borrowing experience). 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 preliminarily determine the national average commercial interest rate to average borrowers to be 19.38 percent for one-year loans, including fees and commissions.
To determine the benefit, the interest differential of 9.38 percent was applied to the total privileged circuit working-capital loans of ENSIDESA. The resulting amount was allocated over the total sales value of all exports of ENSIDESA in 1982. We preliminarily determine that the ad valorem subsidy for privileged circuit loans to ENSIDESA is 1.85 percent.
Petitioners allege that ENSIDESA has received equity infusions from the government of Spain under Law 60/1978 and Decree 878/1981.
INI purchased new stock issuances of ENSIDESA in 1979 and 1981. As described in Appendix II, we do not consider equity infusions by the government or its agencies to be subsidies per se. They are subsidies only when made on terms inconsistent with commercial considerations.
We calculated the subsidy in accordance with Appendix II, by comparing the price the government paid with the market price.
The entire stock issuance by ENSIDESA in 1981 was subscribed to by INI. INI, however, only paid for one-fourth of the shares in 1981. We assume that the remainder was paid for in 1982.
We allocated the entire amount of these equity infusions in ENSIDESA over 15 years and took the portion applicable to 1982 over its total sales value of steel production in that year to arrive at an ad valorem subsidy of 2.30 percent.
II. Program Preliminarily Determined Not To Confer a Subsidy
We preliminarily determine that a subsidy is not being provided to manufacturers, producers, or exporters in Spain of wire rod, under the following program:
1/8 Amendment of Annual Finance Investment Plans
The government of Spain allowed ENSIDESA to obtain additional loans by permitting amendments to the company's annual finance plan. We preliminarily determine that this, in itself, is not a subsidy. Benefits that result from the loans this amendment made possible are dealt with in the manner described in the loans section of this notice.
III. Programs Preliminarily Determined Not To Be Used
We have preliminarily determined that wire rod manufacturers, producers, or exporters in Spain do not use the following programs that were identified in the notice of "Initiation of Countervailing Duty Investigation of Carbon Steel Wire Rod from Spain."
*6965 A. Certain Privileged Circuit Credits
We discussed Privileged Circuit Credits in general, supra. One program, working-capital loans, we preliminarily determine provides subsidies to wire rod manufacturers, producers, or exporters. We preliminarily determine that the three remaining privileged circuit programs identified in our notice of initiation are not used. They are:
(1) Commercial services loans;
B. Warehouse Construction Loans
Exporters desiring to construct warehouse facilities adjacent to loading zones may borrow 70-75 percent of the total investment. ENSIDESA stated in the carbon steel investigations that they received no loans under this program.
C. Regional Investment Incentive Programs
The government of Spain and regional and municipal authorities provide various investment incentive programs. We preliminarily determine that ENSIDESA has not participated in these regional programs.
D. Accelerated Depreciation and Reduction in Taxes
Decree 6 69/74 permits the steel industry to employ accelerated depreciation of non-liquid investments and to obtain a substantial reduction in certain taxes. We preliminarily determine that these programs were not used by the companies under investigation.
IV. Programs for Which Additional Information Is Needed
As stated above, the respondents did not respond directly to our questionnaire on wire rod. Thus, we will inquire further into the programs already discussed for which ENSIDESA may receive subsidies. In addition, the programs listed below concerning Nueva Montana were alleged by the petitioners to be subsidies. At this time, we do not have sufficient information from petitioner or respondents to determine whether countervailable benefits are being provided or to quantify the ad valorem amount of the following possible subsidies:
1/8 National Steel Industry Program, 1974-1982
1/8 Concerted Action Plan
1/8 Regional Development Program
1/8 Order of May 22, 1980
1/8 Warehouse Construction Loans
1/8 Additional Privileged Circuit Credits
Affirmative Determination of Critical Circumstances
Petitioners alleged that imports of carbon steel wire rod give rise to "critical circumstances." Under section 703(e)(1) of the Act, critical circumstances exist when there is a reasonable basis to believe or suspect that: "(A) the alleged subsidy is inconsistent with the Subsidies Code and (B) there have been massive imports of the class or kind of merchandise which is the subject of the investigation over a relatively short period." Section 355.29(a) of the Commerce Regulations on critical circumstances provides, inter alia, that we will determine "whether the alleged subsidy is an export subsidy inconsistent with the Subsidies Code."
In determining whether there is a reasonable basis to believe or suspect that there have been massive imports over a relatively short period, we considered the following factors: whether import levels in 1983 were significantly above the average import level calculated for the 1980-1982 period; whether import pentration ratios in 1983 were significantly above the average import penetration ratio for the 1980-1982 period; and whether import levels and import penetration ratios were increasing in recent periods.
Based upon these factors, we preliminarily determine that imports of carbon steel wire rod from spain appear to have been massive over a relatively short period.
In 1982, Spain acceded to the Subsidies Code with a time-limited reservation concerning its current export subsidy programs. On November 15, 1982, in our final affirmative countervailing duty determinations on certain steel products from Spain (47 FR 51438), we 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 Subsides Code." As discussed above, we preliminarily determine that manufacturers, producers, or exporters in Spain of carbon steel wire rod have benefited from Privileged Circuit Exporter Credits, which constitute an export subsidy inconsistent with the Subsidies Code.
Therefore, we preliminarily determine that critical circumstances exist for imports of carbon steel wire rod.
Verification
In accordance with section 776(a) of the Act, we will verify data used in making our final determination.
Suspension of Liquidation
In accordance with section 703 of the Act, we are directing the U.S. Customs Service to suspend liquidation of all unliquidated entries of carbon steel wire rod from Spain which are entered, or withdrawn from warehouse, for consumption, on or after the date which is 90 days before the date of publication of this notice in the Federal Register. The Customs Service shall require a cash deposit or the posting of a bond for each such entry of this merchandise in the amount of 12.59 percent ad valorem. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determination. In addition, we are making available to the ITC all nonprivileged and nonconfidential information relating to this investigation. We will allow the ITC access to all privileged and confidential information in our files, provided the ITC confirms that it will not disclose such information, either publicly or under an administrative protective order, without the written consent of the Deputy Assistant Secretary for Import Administration.
The ITC will make its determination of whether these imports are materially injuring, or threatening to materially injure, a U.S. industry before the latter of 120 days after the Department makes its preliminary affirmative determination or 45 days after the Department makes it final affirmative determination.
Public Comment
In accordance with section 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on this preliminary determination at 10 a.m. on March 22, 1984, at the U.S. Department of Commerce, Conference Room D, 14th Street and Constitution Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must submit a request to the Deputy Assistant Secretary for Import Administration, Room 3099B, at the above address within 10 days of this notice's publication.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In *6966 addition, prehearing briefs in at least 10 copies must be submitted to the Deputy Assistant Secretary by March 15, 1984. Oral presentations will be limited to issues raised in the briefs.
All written views should be filed in accordance with 19 CFR 355.34, within 30 days of this notice's publication, at the above address and in at least 10 copies.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
February 16, 1984.
BILLING CODE 3510-DS-M