(Cite as: 49 FR 35831)
NOTICES
DEPARTMENT OF COMMERCE
[C-469-406]
Oil Country Tubular Goods From Spain; Preliminary Affirmative Countervailing Duty Determination
Wednesday, September 12, 1984
*35831 AGENCY: International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitutes 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 oil country tubular goods ("OCTG"). The net subsidy rates for each company are listed in the "Suspension of Liquidation" section of this notice. We are directing the U.S. Customs Service to suspend liquidation of all unliquidated entries of OCTG from Spain which are entered, or withdrawn from warehouse, for consumption on or after September 12, 1984. The Customs Service shall require a cash deposit or bond on these products in the amounts equal to the estimated net subsidies. If this investigation proceeds normally, we will make our final determinaiton by November 20, 1984.
EFFECTIVE DATE: September 12, 1984.
FOR FURTHER INFORMATION CONTACT: Loc Nguyen, John M. Davies, or Stuart Keitz, Office of Investigations, Import Administration, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, D.C. 20230; telephone: (202) 377-0167, (202) 377- 1784, or (202) 377-1769.
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 OCTG. The following programs are preliminarily determined to confer subsidies:
Medium- and Long-term Loans and Loan Guarantees;
Certain Types of Short-term Loans Provided under the Privileged Circuit Exporter Credits Program; and
Excessive Rebates of Indirect Taxes on Exports under the Desgravacion Fiscal a la Exportacion ("DFE")
For exports made prior to July 11, 1984, we estimate the net subsidy to be 21.24 percent ad valorum for Altos Hornos de Vizcaya, S.A. ("AHV"), 1.59 percent ad valorem for Tubos Reunidos, S.A. ("TR"), and 15.49 percent ad valorem for all other manufacturers, producers, or exporters in Spain of OCTG. For exports made on or after July 11, 1984, we estimate the net subsidy to be 19.04 percent ad valorem for AHV, 1.59 percent ad valorem for TR, and 13.93 percent ad valorem for all other manufacturers, producers, or exporters in Spain of OCTG.
Case History
On June 13, 1984 we received a petition from the Lone Star Steel Company and the CF & I Steel Corporation filed on behalf of the OCTG industry. In compliance with the filing requirements of s 355.26 of the Commerce Regulations (19 CFR 355.26), petitioners alleged that manufacturers, producers, or exporters in Spain of OCTG 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.
We found that the petition contained sufficient grounds upon which to initiate a countervailing duty investigation, and on July 3, 1983, we initiated an investigation (49 fR 28425). We stated that we expected to issue a preliminary determination by September 6, 1984. On August 3, 1984, the petition was amended and LTV Steel Company of Cleveland, Ohio, became co- petitioner.
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 July 30, 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 31782).
We presented a questionnaire concerning the allegations to the government of Spain at its embassy in Washington, D.C., on July 13, 1984. On August 23, 1984, we received replies to the questionnaire from the government of Spain and Tubos Reunidos, S.A. On August 24, 1984, we received a response from Altos Hornos de Vizcaya, S.A. These two companies account for approximately 75 to 80 percent of Spanish OCTG exports to the United States during the period of investigation.
Scope of Investigation
The products covered by this investigation are oil country tubular goods. For the purpose of this investigation, the term "oil country tubular goods" covers hollow steel products of circular cross-section *35832 intended for use in the drilling of oil or gas. These include oil well casing, tubing, and drill pipe of carbon or alloy steel, whether welded or seamless, to either American Petroleum Institute (API) or non-API specifications (such as proprietary), as currently provided for in the Tariff Schedules of the United States, Annotated (TSUSA) under items 610.3216, 610.3219, 610.3233, 610.3249, 610.3252, 610.3256, 610.3258, 610.3264, 610.3721, 610.3722, 610.3751, 610.3925, 610.3935, 610.4025, 610.4035, 610.4225, 610.4235, 610.4325, 610.4335, 610.4942, 610.4944, 6104946, 610.4954, 610.4957, 610.4968, 610.4969, 610.4970, 610.5221, 610.5222, 610.5226, 610.5234, 610.5240, 610.5242, 610.5243, 610.5244. This investigation includes OCTG that are in both finished or unfinished condition.
Altos Hornos de Vizcaya, S.A. and its subsidiary Laminaciones de Lesaca, S.A., Babcock and Wilcox Espanola, S.A., Tubos Reunidos, S.A., Transformaciones Metalurgicas Especiales, S.A., and Tubacex C.E. de Tubos per Extrusion, 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 1983 calendar year.
Analysis of Programs
AHV and TR answered our questionnaire. For purposes of this preliminary determination, we have used the information provided by these two companies.
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: 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 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 in Spain, including AHV.
Order of May 22, 1980: This order authorized the Banco de Credito Industrial ("BCI") to extend additional government credits to non-integrated steel companies who had made investments under Decree 669/1974. BCI is a government credit institution which issues loans under government direction to companies in the Spanish steel industry.
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 Institution 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 sectors ranging from basic services to basic industries such as iron and steel.
General principles applied to the facts in this investigation are described in the "Subsidies Appendix" contained in the Federal Register notice of our Final Affirmative Countervailing Duty Determination and Countervailing Duty Order on Cold-Rolled Carbon Steel Flat-Rolled Products from Argentina (49 FR 18006).
For purposes of this preliminary determination, we have calculated company- specific ad valorem subsidy rates in accordance with 19 CFR 355.28(a)(3), which states that "If separate enterprises have received materially different benefits, such differences shall also be estimated and stated." We have found that there are significant differences in the size and structure of the companies under investigation and in the usage of programs determined to confer subsidies.
Consistent with our practice in preliminary determinations, where a response to an allegation denies the existence of a program, receipt of benefits under a program, or eligibility of a company or industry under a program, and the Department has no persuasive evidence showing that the response is incorrect, we accept the response for purposes of the preliminary determination. All such responses, of course, are subject to rigorous verification. If the response cannot be supported at verification and the program is otherwise countervailable, the program will be considered a subsidy in the final determination.
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 OCTG under the following programs:
A. Medium- and Long-Term Loans and Loan Guarantees
Petitioners alleged benefits which constitute subsidies in the form of preferential loans terms and loan guarantees. We requested information from each company under investigation on all medium- and long-term loans outstanding during the period of investigation. Both AHV and TR reported medium- and long- term loans outstanding during the period for which we are measuring subsidization.
We determine that the government of Spain authorizes or directs banks to lend funds to certain companies in certain industries at rates or on terms inconsistent with commercial considerations.
Generally, to calculate any subsidy on these loans, we used the loan methodology detailed in the Subsidies Appendix. For fixed rate loans, we used long-term benchmark interest rates developed in previous countervailing duty investigations on Certain Steel Products from Spain (47 FR 51428) and on Carbon Steel Wire Rod from Spain (49 FR 19551). As best information on the weighted average cost of capital, we used the long-term benchmark interest rates used for fixed rate loans. For variable rate long-term loans, we applied the 1983 short-term benchmark interest rate (described in section 1-B below), with an adjustment where appropriate for foreign currency exchange commissions, to the 1983 outstanding loan balance. Since we were unable to find a commercial loan guarantee for use as a benchmark, we evaluated the long-term loans with government guarantees using the appropriate fixed rate or variable rate methodology outlined above.
The majority of loans reported by AHV and TR contained provisions for deferred principal repayment. We varified in our investigation of Certain Steel Products from Spain 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.
*35833 We did not find subsidies on loans to AHV and TR which reportedly carried no INI or government guarantee or which were not the result of government mandate.
1. AHV: In the 1982 investigation of Certain Carbon Steel Products from Spain (47 FR 51428), AHV was deemed uncreditworthy for the years 1979 through 1981. Based upon our Subsidies Appendix methodology and after careful review of the financial statements for the years 1982 and 1983, we continue to find AHV uncreditworthy for the prior period as well as for 1982 and 1983. To determine the creditworthiness of a company, we analyze its present and past financial condition, as reflected in various financial indicators calculated from its financial statements. We examined several of the company's standard financial ratios. Important ratios in which AHV reflected unfavorable performance in the years 1979 through 1983 are times interest earned (operating income divided by interest charges), net income as a precent of sales, debt to equity and return on equity.
For the time that it was creditworthy, prior to 1979, we used the long- term benchmark interest rates described above for AHV. 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 the Subsidies Appendix).
2. TR: Based on our Subsidies Appendix methodology and upon evidence of continuing operating profits during the period 1980 through 1983, we preliminarily find TR to be creditworthy for the 1983 period of review. We reviewed TR's annual reports (translated) and financial statements. The company's net income, return on equity, cash flow and other important financial ratios are favorable. Accordingly, we applied the long-term loan methodology described above.
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 medium- and long-term loans is 6.74 percent to AHV and 0.90 percent to TR.
B. Certain Types of Short-term Loans Provided Under the Privileged Circuit Exporter Credits Program
Petitioners alleged benefits which constitute subsidies in the form of short- term preferential loans. We requested information on all short-term loans outstanding during the period for which we are measuring subsidization. AHV reported no short-term financing under this program during this period. TR reported that it has obtained short-term financing under the Privileged Circuit Exporter Credits Program during the period of investigation.
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 OCTG producers benefited from two programs, the working-capital loans program and the pre- financing of exports program.
1. Working Capital Loans. Under the privileged circuit program, firms may obtain working-capital loans for one year, the total of which is not to exceed a specified percentage of their previous year's exports. In 1983, 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 interest rate charged on working capital loans with the national average commercial interest rate on loans.
We chose as our 1983 benchmark for short-term operating capital loans, the 1983 weighted-average commercial, lending rate of 17.64 percent for loans of one to three years.
To determine the benefit, we compared the interest rate charged on working capital loans with the national average commercial interest rate of 17.64 percent. This interest differential was multiplied by the total amount of TR's privileged circuit working capital loans. The resulting amount was allocated over the total sales value of all exports of TR in 1983. We preliminarily determine that the ad valorem subsidy for privileged circuit loans to TR is 0.58 percent.
2. Prefinancing of Exports Program. TR reported that it also received preferential prefinancing of exports. TR obtained loans with terms of two to six months to finance exports of OCTG to the United States.
We chose as our 1983 benchmark for short-term prefinancing of exports the 1983 weighted-average commercial lending rate of 17.12 percent for loans of three months.
To determine the benefit, we compared the interest rate charged on prefinancing of exports with the national average commercial interest rate of 17.12 percent. This interest differential was multiplied by the amount of TR's privileged export credit loans. The interest benefit was allocated over the total sales value of TR's exports to the United States during 1983. We preliminarily determine that the ad valorem subsidy for short-term prefinancing of exports to TR is 0.11 percent.
For this preliminary determination, we have compared nominal rates with nominal rates in our calculation of subsidies.
For the final determination, we will try to get more information concerning these loans in order to make an effective to effective rate comparison.
C. Excessive Rebates of Indirect Taxes on Exports Under the Desgravacion Fiscal a la Exportation ("DFE")
Petitioners alleged that countervailable benefits are conferred on Spanish OCTG producers under the DFE program by the excessive rebate of indirect taxes on the export of OCTG.
Spain employs a cascading tax system under which a turnover tax is levied on each intermediate sale of a product through its various stages of production up to, but not including, the final sale at the retail level. The DFE is the program designed to rebate to exporters these accumulated turnover taxes as well as final stage taxes on exportation.
To calculate the amount of subsidy potentially conferred by the DFE it is necessary to determine whether the remission of indirect taxes is excessive. According to the responses, the indirect taxes borne by billet (the only input being identified as physically incorporated in the final product) and the corresponding share of billet to the value of OCTG, lead to an allowable rebate exceeding the DFE payment of 14.5 percent (prior to July 11, 1984) and 12.3 percent (after July 11, 1984).
Information submitted by respondents indicates, however, that only one of the firms under investigation, TR, purchased billet from unrelated suppliers. The other producer, AHV, is fully integrated and has provided no information on its purchased inputs, or what taxes, if any, were paid on these purchases.
Accordingly, we find that for TR and DFE does not constitute an excessive remission of indirect taxes and hence confers no subsidy.
For AHV the integrated producer that provided no information on purchased inputs we find the entire DFE rebate of 14.5 percent to be a subsidy for the period previous to July 11, 1984. On July 11, 1984, the DFE rebate applicable to all *35834 exporters of OCTG was reduced to 12.3 percent as part of Spain's transition to the value-added tax. Therefore, any exports of the merchandise under investigation on or after this date are subject to the lower DFE rate. Accordingly, we preliminarily determine that the DFE rebate confers an ad valorem subsidy of 12.3 percent on exports from AHV on or after July 11, 1984.
II. Programs Preliminarily Determined Not To Be Used
We have preliminarily determined that manufacturers, producers, or exporters in Spain of OCTG do not use the following programs that were identified in the notice of "Initiation of Countervailing Duty Investigation of OCTG from Spain".
A. Certain Privileged Circuit Credits
We discussed Privileged Circuit Credits in general, supra. We preliminarily determine that two programs, working-capital loans and prefinancing of exports provide subsidies to OCTG manufacturers, producers, or exporters. We preliminarily determine that the two remaining privileged circuit programs identified in our notice of initiation were not used by AHV or TR during the period of investigation. They are:
(1) Commercial services loans, and
B. Warehouse Construction Loans
Exporters desiring to construct warehouse facilities adjacent to loading zones may borrow 70-75 percent of the total investment. We preliminarily determine that AHV and TR have received no loans under this program.
C. Regional Investment Incentives Programs
The government of Spain and regional and municipal authorities provide various investment incentive programs. We preliminarily determine that AHV and TR have not participated in these regional programs.
D. Accelerated Depreciation and Reduction in Taxes
Decree 669/1974 permits the steel indutry 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 AHV and TR.
E. Expropriation of Land for New Construction
Decree 669/1974 provided aid to certain industries by expropriating land for new plant construction. We preliminarily determine that AHV and TR have not used this program.
Petitioners allege that the Spanish OCTG producers have received grants from the government. We preliminarily determined that neither AHV nor TR have received grants from the government of Spain.
Petitioners allege that the OCTG producers receive discounts or rebates on energy prices under Law 878/1981. We preliminarily determine that AHV and TR have not received discounts or rebates on energy prices.
III. Programs for Which Additional Information Is Needed
Petitioners allege that the producers of OCTG purchase their steel inputs from Spanish producers which may themselves be subsidized. At this time, we do not have sufficient information from petitioners or respondents to determine whether countervailable benefits are being provided or to quantify the ad valorem amount of the possible subsidies regarding steel inputs. TR responded that it purchases steel inputs from unrelated companies; however, AHV did not respond directly to our questionnaire. Therefore, we intend to seek additional information on this issue during verification.
Verification
In accordance with section 776(a) of the Act, we will verify all 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 OCTG from Spain which are entered, or withdrawn from warehouse, for consumption, on or after 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 amounts of 21.24 percent for AHV, 1.59 percent for TR, and 15.49 percent for all other manufacturers, producers, or exporters in Spain of OCTG for all exports made prior to July 11, 1984. For exports made on or after July 11, 1984, the amounts are 19.04 percent for AHV, 1.59 percent for TR, and 13.93 percent for all other manufacturers, producers, or exporters in Spain of OCTG. 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 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 materially injure, or threaten to materially injure, a U.S. industry 45 days after the Department makes its final affirmative determination.
Public Comment
In accordance with s 355.35 of the Commerce Department Regulations, if requested, we will hold a public hearing to afford interested parties an opportunity to comment on this preliminary determination on October 8, 1984, at 10:00 a.m. at the U.S. Department of Commerce, Room 3092, 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 B-099, 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 addition, prehearing briefs in at least 10 copies must be submitted to the Deputy Assistant Secretary by September 30, 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.
Dated: September 6, 1984.
Alan F. Holmer,
Deputy Assistant Secretary for Import Administration.
BILLING CODE 3510-DS-M