(Cite as: 49 FR 47060)
NOTICES
DEPARTMENT OF COMMERCE
[C-469-406]
Final Affirmative Countervailing Duty Determination; Oil Country Tubular Goods From Spain
Friday, November 30, 1984
*47060 AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We 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 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Customs Service to continue to suspend liquidation of all unliquidated entries of OCTG from Spain which are entered, or withdrawn from warehouse, for consumption on or after the date of publication of this notice in the Federal Register.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 bond on these products in the amounts equal to the net subsidies.
EFFECTIVE DATE: November 30, 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, 1784, or 1769.
SUPPLEMENTARY INFORMATION: .
Final Determination
Based upon our investigation, we determine 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 determined to confer subsidies:
Long-term loans and loan guarantees;
Certain types of short-term loans provided under the Privileged Circuit Exporter Credits Program;
Excessive rebates of indirect taxes on exports under the Desgravacion Fiscal a la Exportacion ("DFE"); and
Regional investment incentives program.
For 1983, we determine the net subsidy to be 11.29 percent ad valorem for Altos Hornos de Vizacya, S.A. ("AHV"), 18.37 percent ad valorem for Tubos Reunidos, S.A. ("TR") 19.87 percent ad valorem for Tubacex C.E. de Tubos per Extrusion, S.A. ("Tubacex"), 24.74 percent ad valorem for Babcock and Wilcox Espanola, S.A. ("B&W") and Transformaciones Metalurgicas Especiales, S.A. ("TRAMESA") and 15.00 percent ad valorem for all other manufacturers, producers, or exporters in Spain of OCTG. For cash deposit purposes, we determine the net subsidy to be 17.64 percent ad valorem for AHV, 16.17 percent ad valorem for TR, 17.67 percent ad valorem for Tubacex, 22.54 percent ad valorem for B&W and TRAMESA, and 17.21 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 U.S. OCTG 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 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 material injury to, 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). In our notice of initiation, 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 imports of Spanish OCTG are materially injuring, or threatening material injury to, 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 *47061 of Spain and TR. On August 24, 1984, we received a response from AHV. These two companies accounted for approximately 75 percent of Spanish OCTG exports to the United States during the period of investigation.
On September 6, we preliminarily determined that benefits constituting subsidies within the meaning of the countervailing duty law were being provided to manufacturers, producers, or exporters of OCTG in Spain.
On September 11, 1984, we wrote a letter to the Spanish government requesting that B&W, Tubacex, and TRAMESA, the other three known exporters of OCTG to the United States, also respond to the questionnaire.
On October 8, 1984, Tubacex sent us its response. The other two companies have not responded to our questionnaire.
We held a verification of the questionnaire responses in Madrid, Spain, on October 16-25.
In response to a request by the respondents received on September 20, a public hearing on this case was held on October 11. We received pre-hearing briefs from the parties to the proceeding on October 4 and 5. Post-hearing briefs were received on November 2.
Scope of the Investigation
The products covered by this investigation are oil country tubular goods ("OCTG"). For the purpose of this investigation, the term "oil country tubular goods" covers hollow steel products of circular cross-section 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, manufactured to either American Petroleum Institute (API) or non-API (e.g., proprietary) specifications, as currently provided for in the Tariff Schedules of the United States, Annotated (TSUSA) under the following items:
610.3216, 610.3219, 610.3233, 610.3242, 610.3243, 610.3249, 610.3252, 610.3254, 610.3256, 610.3258, 610.3262, 610.3264, 610.3721, 610.3722, 610.3751, 610.3925, 610.3935, 610.4025, 610.4035, 610.4225, 610.4325, 610.4335, 610.4942, 610.4944, 610.4946, 610.4954, 610.4955, 610.4956, 610.4957, 610.4966, 610.4967, 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 and unfinished condition.
AHV and its subsidiary Laminaciones de Lesaca, S.A., B&W, TR, TRAMESA, and Tubacex are only known producers and exporters in Spain of the subject products which were exported to the United States during the period of investigation. The period for which we are measuring subsidization is the 1983 calendar year.
Analysis of Programs.
AHV, TR, and Tubacex answered our questionnaire. For purposes of this determination, we have used the information provided by these three companies.
Certain subsidies discussed in this notice were provided under 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, covering the period 1974-1982. To achieve the goals established by this program, the Spanish government authorized certain benefits for integrated and non- integrated steel firms, including 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 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 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 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 these programs are administered by the Institution Nacional de Industria ("INI"), a public holding company created in 1941 as an autonomous government agency and charged with promoting and stimulating the industrial development of Spain. INI's responsibilities cover a variety of sectors ranging from services to basic industries such as iron and steel.
Throughout this notice we refer to general principles applied to the facts in the current investigation. These principles are described in the Subsidies Appendix attached to the notice of Cold-Rolled Carbon Steel Flat-rolled Products from Argentina; Final Affirmative Countervailing Duty Determination and Countervailing Duty Order, which was published in the April 26, 1984, issue of the Federal Register (49 FR 18006).
For purposes of this determination, we have calculated company-specific ad valorem subsidy rates in accordance with 19 U.S.C. 1671(e)(a)(2), since we determine there is a significant diffferential among companies receiving benefits.
To calculate company-specific ad valorem rates, we allocated the countervailable benefits received by each company in 1983 over that company's total sales value, total export value, or total value of OCTG exported to the United States, as appropriate. For those Spanish OCTG producers and exporters which did not respond to the questionnaire, we attributed the highest ad valorem benefit found under each program for the three firms which responded. For those Spanish OCTG producers to which we did not send questionnaires, we calculated a trade-weighted ad valorem subsidy rate based on the value of the three responding companies' exports of OCTG to the United States in 1983.
Based upon our analysis of the petition, the material provided in response to our questionnaire, and our verification, we determine the following:
I. Programs Determined to Confer Subsidies
We determine that subsidies are being provided to manufacturers, producers, or exporters of OCTG in Spain under the following programs:
A. Long-Term Loans and Loan Guarantees
Petitioners alleged that producers of the subject merchandise benefit from subsidies in the form of preferential loans, loan terms and loan guarantees. We requested information from each company under investigation on all long-term loans outstanding during the period of investigation. All three companies reported long-term loans outstanding during the period for which we are measuring subsidization.
We determine that the Government of Spain authorizes or direct banks to lend funds to certain companies in certain industries at rates or on terms inconsistent with commercial considerations.
*47062 To calculate the amount of subsidy from these loans, we used the loan methodology detailed in the Subsidies Appendix. For fixed-rate long-term loans to creditworthy companies, we prefer to use a company-specific commercial loan rate whenever possible. However, in this case none of the responding companies received comparable commercial long-term credit in the years in which they received preferential long-term loans. Therefore, we used as our long- term commercial benchmark the national average interest rate for loans "of over three years" applying to the year in which the loan terms were agreed upon. This rate is published by the Bank of Spain in its Boletin Estadistico. Because we were unable to obtain the national average rate of return on equity, we used the long-term benchmark interest rate for the year in which the loan terms were agreed upon as the weighted-average cost of capital.
To calculate the benefit in 1983 from variable-rate long-term loans, we compared the short-term benchmark interest rate for 1983 (as described in section I-B below), with the interest rate payable on the long-term loan in 1983, because we could not find company-specific, variable-rate long-term benchmark loans. Nor could we find a national average variable-rate long-term benchmark.
Since the companies under investigation did not receive comparable commercial loan guarantees in those years in which they received government-guaranteed long-term loans, we calculated the benefit from government-guaranteed long-term loans by comparing them with a commercial benchmark loan using the appropriate fixed rate or variable rate methodology outlined above.
The majority of loans reported by AHV, TR and Tubacex contain provisions for deferred principal repayment. We verified in our investigation of Certain Steel Products from Spain that preferential loans made under these programs and commercial loans within Spain contain similar deferral provisions. Therefore, for purposes of this determination, we are not treating deferral of principal repayment as a countervailable benefit.
We received allegations that AHV and TR were uncreditworthy.
1. AHV: In the 1982 investigation of Certain Carbon Steel Products from Spain (47 FR 51428), we determined AHV to be uncreditworthy for the years 1979 through 1981. Based upon our Subsidies Appendix methodology and after careful review of the company's financial statements for the years 1982 and 1983, we continue to find AHV uncreditworthy for the 1979 through 1981 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 AHV's standard financial ratios. Important ratios in which AHV reflected unfavorable performance in the years 1979 through 1983 are times interest earned (defined as operating income divided by interest charges), net income as a percent of sales, the ratio of debt to equity, and return on equity.
For loans received prior to 1979, during the period in which AHV was creditworthy, we used the long-term benchmark interest rates described above. For loans received during AHV's uncreditworthy period, we used as a benchmark the average maximum interest rate for the year in which the loan terms were agreed upon, as published in the Boletin Estadistico, plus the "risk premium" (calculated in accordance with the Subsidies Appendix).
2. TR: Based upon evidence of continuing operating profits as well as favorable financial ratios, we find TR to be creditworthy for the period 1979 through 1983. We reviewed TR's annual reports 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 for creditworthy companies described above.
For each company, we allocated the total countervailable benefit from the company's preferential long-term loans in 1983 over the company's total sales in 1983. We determine that the ad valorem subsidy for long-term loans is 5.75 percent for AHV, 0.88 percent for TR, and 0.92 percent for Tubacex.
B. Certain Types of Short-Term Loans Provided Under the Privileged Circuit Exporter Credits Program
Petitioners alleged that producers of the subject merchandise received benefits which constitute subsidies in the form of short-term preferential export loans. We requested information on all short-term loans outstanding during the period for which we are measuring subsidization. We verified that AHV had no short-term financing outstanding under this program during this period. We found that TR and Tubacex had short-term financing outstanding 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. We determine that OCTG producers benefited from two of the four privileged circuit programs available to exporters: 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 amount of loans for which a firm is eligible is based on a specified percentage of its previous year's exports. We verified that in 1983, the privileged circuit working capital loan interest rate ceiling mandated by the government was 10 percent.
It is Department policy to allocate benefits from preferential short-term loans based on the period in which interest payments are made. We found at verification that interest on most operating capital loans is paid quarterly. TR and Tubacex provided us with information on all working capital loans received during the period of investigation, but failed to provide information on all loans on which interest payments were made in 1983. Therefore, for our final determination, we are using best information available in accordance with s 355.39(b). To calculate the benefit, we multiplied the maximum allowable loan amount under this program for each company by the preference interest rate differential. This differential is the difference between the statutorily-mandated interest rate charged on working capital loans and the national average commercial interest rate on one-year loans.
In our preliminary determination, we based this interest differential on comparisons between nominal rates. At verification we discovered that interest was paid quarterly on most of the firms' operating-capital loans. Given our preference for effective interest rates, we are calculating the benefit from these loans by comparing the effective preferential rate to the effective national average commercial rate.
We chose as our 1983 benchmark for short-term operating capital loans, the 1983 weighted-average commercial lending rate for loans "of one to three years", as published by the Bank of Spain in the Boletin Estadistico.
*47063 Since this is a nominal rate, we calculated the effective rate by applying quarterly compounding, and then adding the legally established 0.5 percent commission. In addition, an ITE tax of 4.3 percent is charged by the government on all interest payments, both commercial and preferential. We added this tax to the benchmark rate. Based on these calculations, we determine the national average commercial interest rate to be 20.15 percent for one-year loans received in 1983.
To determine the benefit, we compared the preferential effective interest rate, including taxes, charged on operating capital loans with the effective national average commercial interest rate of 20.15 percent. This interest differential was multiplied by the total amount of each firm's loan eligibility. Eligibility is based on the firm's previous year's exports. Because we do not have information on the firms' 1982 exports, we determined loan eligibility by multiplying the 15 percent maximum eligibility rate for 1983 by the value of each firm's 1983 exports. The resulting amounts were allocated over each firm's total 1983 exports. On this basis, we determine that the ad valorem subsidy from working capital loans is 1.40 percent for TR and Tubacex.
2. Prefinancing of Exports Program. TR and Tubacex reported that they also received preferential prefinancing of exports. At verification, we found that each prefinancing loan was tied to a specific export shipment. For Tubacex, we found that none of the loans reported as outstanding on December 31, 1983, was tied to any shipment of OCTG to the United States in 1983. However, Tubacex and TR failed to provide us with information on all prefinancing loans outstanding during 1983. Consequently, we were unable to calculate the total amount of interest paid on prefinancing loans in 1983 for either TR or TUBACEX. Therefore, for our final determination, we are using best information available in accordance with Section 355.39(b). To calculate the subsidy, we allocated to each company the maximum allowable loan amount under this program.
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. Since this is a nominal rate, we found the effective six month rate by compounding this rate once, then adding the ITE tax of 4.3 percent. Based on these calculations, we determine the national average commercial interest rate to be 18.73 percent annually for loans of six months.
To estimate the benefit, we compared the annualized effective preferential interest rate, including tax, with the effective national average commercial interest rate. We multiplied this interest differential by the amount of each firm's eligibility for privileged export credit for shipments to the United States. We determined eligibility by mulitplying the 85 percent eligibility rate by the value of each firm's exports of OCTG to the United States in 1983. We then multiplied this rate by the maximum six month loan term. The interest benefit was allocated over the total value of each firm's exports of OCTG to the United States during 1983. We determine that the ad valorem subsidy for short-term prefinancing of exports is 3.46 percent for TR and Tubacex.
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 upon 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.
Information acquired during verification indicates that all three of the firms are integrated producers. In 1983, both TR and AHV purchased final stage inputs from unrelated suppliers. At verification, the companies provided us with information on purchased inputs and taxes paid on those inputs, as well as final stage taxes paid. They also provided us with information on the percentage of billets and coils incorporated in the value of the final product, but provided no information which would allow us to determine the percentage of other purchased inputs physically incorporated in the final product.
Since we verified that TR purchased some of its billets used in making OCTG from unrelated companies during the period of investigation, we have taken this percentage into account in calculating the indirect taxes paid on OCTG by TR. Because TR refused to provide us with a cost structure for the purchased inputs in the billets it produced, we were unable to calculate the amount of indirect taxes paid by TR on OCTG made with billets produced by TR. For all OCTG produced by TR, we have included the final stage tax on freight in our calculation of indirect taxes paid. On this basis, we determine that the DFE rebate confers an ad valorem subsidy of 12.59 percent on TR's exports of OCTG for 1983.
We verified that AHV purchased some of its coil in 1983. Although AHV normally produces its own coil, it was unable to do so in 1983 due to a fire at one of its plants. During 1983, some of AHV's OCTG exports were made from purchased coil. We have taken this percentage into account in calculating the indirect taxes paid by AHV in 1983. But because AHV has resumed its coil production, we believe it would be inappropriate for cash deposit purposes to base AHV's indirect tax incidence for OCTG on purchased coil inputs. Therefore, for AHV, we determine that the amount of DFE overrebate is 5.54 percent ad valorem in 1983 and 11.89 percent ad valorem for cash deposit purposes (see below).
Because Tubacex is an integrated producer and refused to provide us with a cost structure for its purchased inputs, in calculating the amount of indirect taxes paid by Tubacex, we allowed only the rebate of the final stage tax on freight. On this basis, we determine the DFE rebate confers an ad valorem subsidy of 14.09 percent on exports of OCTG by Tubacex for 1983.
On July 11, 1984, the DFE rebate applicable to all exporters of OCTG was reduced from 14.5 percent 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, for cash deposit purposes we determine that the DFE rebate confers an ad valorem subsidy of 10.39 percent on exports from TR and 11.89 percent on exports from AHV and Tubacex.
D. Regional Investment Incentive Programs
During verification, we found that TR received a grant under the CADEM (Centre for Energy and Mining Development and Saving) program. Because this program confers benefits on companies located in a specific region, we find it to be a countervailable subsidy.
The amount of this grant was less than 0.5 percent of TR's total sales in 1983. Therefore, in accordance with the *47064 Subsidies Appendix, we allocated the entire benefit of this grant to 1983. To determine the benefit, we divided the amount of the grant by the company's total 1983 sales. We determine that the ad valorem subsidy to TR from this program is 0.04 percent.
II. Programs Determined Not To Be Used
We determine 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 determine that two programs, working capital loans and prefinancing of exports, provide subsidies to OCTG manufacturers, producers, or exporters. We verified that the remaining privileged circuit programs identified in our notice of initiation were not used by AHV, TR, or Tubacex during the period of investigation. They are:
(1) Commercial services loans, and
B. Warehouse Construction Loans
Exporters wishing to construct warehouse facilities adjacent to loading zones may borrow 70-75 percent of the total investment. We verified that AHV, TR and Tubacex had no loans outstanding under this program in 1983.
C. Accelerated Depreciation and Reduction in Taxes
Decree 669/1974 permits the steel industry to employ accelerated depreciation of non-liquid investments and to obtain a substantial reduction in certain taxes. We verified that these programs were not used by AHV, TR or Tubacex in 1983.
D. Expropriation of Land for New Construction
Decree 669/1974 provides aid to certain industries by expropriating land for new plant construction. We verified that AHV, TR and Tubacex did not use this program.
Petitioners allege that Spanish OCTG producers have received grants from the Spanish government. We verified that AHV, TR and Tubacex received no grants from the Government of Spain during the period of investigation.
Petitioners allege that the OCTG producers receive discounts or rebates on energy prices under law 878/1981. We verified that AHV, TR and Tubacex did not receive preferential discounts or rebates on energy prices during the period of investigation.
The petitioners alleged, and we initiated an investigation with respect to, upstream subsidization of hot-rolled coil, blooms and billets ("steel inputs"). We found no evidence that the companies under investigation received a competitive benefit in their purchases of steel inputs.
Section 613 of the Trade and Tariff Act of 1984, signed by the President on October 30, codifies the standards for determining upstream subsidies. This section generally codifies Department practice. Our investigation was consistent with both Department practice and the newly codified standards.
Petitioners' Comments
Comment 1. Petitioners contend that the entire amount of DFE rebate must be held to be a subsidy absent specific and detailed information showing how the rebate is calculated with reference to each stage of OCTG production by integrated and non-integrated producers and demonstration that the amount of DFE rebate is not excessive. They argue that the Spanish government has never demonstrated that its original calculations of the incidence of indirect tax affecting OCTG were reasonable when they were made. They further argue that the Government of Spain has not provided information concerning either OCTG producers' purchases of inputs or indirect taxes paid on those purchases. Thus, it has failed to demonstrate that DFE rebates for OCTG exports are based on the indirect taxes assessed on its production.
DOC Position. In previous countervailing duty cases on Spanish products, the Department has determined that the Spanish government applied proper techniques to make a reasonable estimate of the indirect tax incidence borne by final stage products and linked to the rebate. For purposes of this investigation, the Spanish government has supplied the Department with its calculations of the average indirect tax incidence on OCTG. Therefore, we have determined that the Spanish government has reasonably calculated the indirect tax incidence on inputs into OCTG.
Comment 2. Petitioners contend that TR is not entitled to DFE rebates because it purchases at least 97 percent of its raw materials from a related supplier.
DOC Position. During our verification, we found that TR purchased some of the billets used in the production of OCTG from unrelated companies in 1983. In determining the percent of DFE overrebate, we have allowed only those indirect taxes paid on purchases of inputs from unrelated suppliers.
Comment 3. Petitioners contend that the short-term benchmarks used in the preliminary determination do not accurately reflect the rates the AHV and TR would pay for commercial financing, since they are based on a three-year average of prime rates for loans in the commercial market.
DOC Position. We did not use a three-year average of prime rates as our short- term benchmark. Our short-term benchmarks are the 1983 weighted-average commercial lending rates for loans of up to three months and loans "of one to three years" as published by the Bank of Spain in its February 1984 Boletin Estadistico. We have determined that these rates are the most accurate reflection of short-term commercial financing in Spain.
Comment 4. Petitioners contend that the Department should use as a short-term benchmark for operating capital loans the average prime rate in 1983 for loans of one year, plus a two percent spread.
DOC position. During our countervailing duty investigation of Potassium Chloride from Spain, we found new information concerning the commercial financial market in Spain. We have determined that the rate for loans "of one to three years" published by the Bank of Spain in the Boletin Estadistico is the appropriate commercial benchmark for operating capital loans. We have found that this rate reflects the average interest rate on one-year loans which may be rolled over twice and not the average interest rate on loans with one to three year terms. Thus, these are interest rates for loans of comparable (i.e., one-year) terms. In choosing benchmark interest rates, the Department prefers a rate which reflects actual commercial borrowing experience to a theoretical construct such as the prime rate plus two percent.
Comment 5. Petitioners contend that effective rates are the most appropriate basis for a benchmark.
DOC Position. We agree and for the final determination we have compared effective preferential rates with effective *47065 commercial rates whenever adequate information was available to determine effective rates.
Comment 6. Petitioners contend that the spread used by the Department to calculate the "risk premium", i.e., the spread between Aaa and Baa bonds, does not accurately reflect the premium an uncreditworthy company must pay in the commercial market. They suggest that the Department calculate the spread between Aaa and Caa bonds, as an alternative.
DOC Position. As we stated in our Subsidies Appendix, we believe the most appropriate measure of the risk premium is the spread between Aaa and Baa bonds. Petitioners have not presented any evidence supporting their claim that the larger spread more accurately reflects what an uncreditworthy company would pay.
Comment 7. Petitioners contend that Spanish OCTG manufacturers may receive subsidies either through preferential prices for purchased material inputs or through upstream subsidies on inputs which they produce.
DOC Position. We verified that the companies under investigation do not receive a competitive benefit from purchases of subsidized steel inputs. At verification, we also found that discounts received by TR and Tubacex on electricity rates are provided by a privately-owned utility company as part of a commercial transaction. Finally, we believe that government-set price floors on coal do not confer a benefit on OCTG producers, because they do not result in a cost savings on OCTG production.
Comment 8. Petitioners contend that the Department erred by not investigating whether the Deferral of Tax and Social Security Debt which the Department has termed "generally available" bestows countervailable benefits on particular segments of Spanish industry such as OCTG producers. They argue that the Department must look at the pattern of disbursements under the programs to determine if OCTG producers or exporters as a group receive a disproportionate benefit.
DOC Position. In Carbon Steel Wire Rod from Spain (49 FR 19555), we found that the deferral of company tax and social security debt owed to the Government of Spain is authorized by general legislation and is available on equal terms to all Spanish companies. Petitioners have presented no new evidence to indicate that OCTG producers benefit disproportionately from these programs.
Comment 9. Petitioners contend that since AHV and TR account for only 75 to 80 percent of Spanish OCTG exported to the United States, the Department should insist on receiving information from other Spanish OCTG producers.
DOC Position. The Department does not need to receive information from all exporters. In this case, we requested that three other known exporters of Spanish OCTG respond to the questionnaire because we did not believe that AHV and TR accounted for a representative portion of Spanish exports of OCTG to the United States. Nonetheless, having sent the questionnaire as we did, for the two companies which did not respond of our questionnaire, we estimated benefits on the basis of the "best information available", because we believe it is inappropriate to calculate countervailing duty rates based on selective responses to our questionnaires.
Comment 10. Petitioners contend that Spanish OCTG producers may have received equity infusions under Law 60/1978 and Royal Decree 878/1981 and request that the Department investigate this matter during verification.
DOC Position. In our final affirmative countervailing duty determination on Certain Carbon Steel Products from Spain (47 FR 51438), we found that AHV did not receive a subsidy from a 1981 government stock purchase. Since petitioners did not present any new evidence of government equity infusions in AHV or in any of the other Spanish OCTG companies in their petition, we decided not to initiate on government equity infusions. In their prehearing brief, counsel for petitioners alleged a possible government equity infusion into TR. We verified that there have been no government equity infusions into TR.
Comment 11. Petitioners contend that AHV may benefit from CADEM (Center for Mining Development and Saving), a program administered by the Basque government to save energy.
DOC Position. We found that only TR received a grant under this program and have determined that this program does confer a benefit.
Respondents' Comments
Comment 1. Respondents contend that the Department's preliminary determination to countervail against the entire amount of the DFE rebate received by AHV on the grounds that no information was supplied with respect to purchased inputs is unjustified and contrary to the methodology applied by the Department in numerous prior determinations, including its determination with respect to the DFE received by AHV in its countervailing duty determination with respect to Certain Carbon Steel Products.
DOC Position. In calculating the amount of overrebate conferred by the DFE on each of the Spanish companies, the Department estimates the amount of indirect taxes paid by each company on its physically incorporated inputs. Because integrated producers do not pay turnover taxes on their final stage inputs (in this case, billets), we do not believe it is appropriate to include an estimate of indirect taxes paid on these inputs in our calculation of the total indirect tax incidence. Therefore, for each of the companies under investigation, we requested information on the amount of indirect taxes actually paid on purchased inputs, and on the portion of those purchased inputs physically incorporated in the final product. Where this information was not provided, we have used best information available and countervailed the entire DFE rebate.
Comment 2. Respondents contend that the long-term benchmark rate used by the Department to calculate subsidies for long-term preferential loans should not be the average maximum long-term commercial interest rate, but rather the weighted-average interest rate actually paid on the companies' long- term commercial loans during the period of investigation.
DOC Position. In our final determination, we have used the national average interest rate for loans "of over three years" published in the Boletin Estadistico as the benchmark for loans to creditworthy companies. For lack of company-specific rates, we have determined that this rate is the appropriate long-term benchmark, because it reflects the national average long-term commercial borrowing experience. For uncreditworthy companies, it is Department policy to measure loan benefits by finding the highest long-term commercial interest rate commonly available and adding a "risk premium". In Spain, this rate is the maximum rate on long-term loans published in the Boletin Estadistico.
Comment 3. Respondents contend that the weighted-average cost of capital used by the Department is excessive since the erroneously high long-term benchmark interest rates were also used as an estimate of the weighted cost of capital. They contend that this results in a further overstatement of the subsidy from long-term preferential financing.
DOC Position. It is the Department's policy to use the company-specific weighted-average cost of capital as the discount rate for valuing benefits that are allocated over time. One element of the weighted-average cost of capital is the firm's marginal cost of long-term debt. When we have no company- *47066 specific cost of debt we use the long-term benchmark interest rate. The choice of this rate to represent the firm's marginal cost of debt is not erroneous. Nor does it overstate the value of the subsidy.
Comment 4. Respondents contend that the Department's determination with regard to the uncreditworthiness of AHV is erroneous because it is based solely upon various financial indicators calculated from its financial statements. Respondents argue that the Department can and must take into consideration the ability of the company to obtain commercial loans, and that if the company is able to obtain commercial loans without a government guarantee, then the Deparment should ignore financial ratios and determine the company to be creditworthy.
DOC Position. We disagree. We believe a determination of creditworthiness should be based on several factors including, but not limited to, the availability of credit from commercial sources. It is often possible, for instance, for uncreditworthy companies to obtain short-term commercial credit because of the low level of risk associated with short-term debt and the frequent existence of security.
Comment 5. Respondent contend that in its preliminary determination, the Department calculated a subsidy for a number of loans made to AHV by private banks which did not benefit from an INI guarantee. Inasmuch as these private bank loans were not mandated by the Spanish government and do not benefit from INI guarantees, the Department has no basis on which to determine these loans countervailable.
DOC Position. At verification, we found evidence of government involvement, as a result of which the banks' decision to grant these loans was linked by verbal agreement to a government loan under Law 60/1978; therefore, to determine whether AHV received a countervailable benefit, we compared the interest rates on these loans with our long-term commercial benchmark.
Comment 6. Respondents contend that during verification, the companies provided the Department with information on the cost of commercial loan guarantees. Respondents suggest that this cost be used as a benchmark against which the cost of INI guarantees can be compared for purposes of calculating the subsidy.
DOC Position. We did not receive adequate information during verification to determine the cost of comparable commercial guarantees; therefore, in calculating subsidies on government-guaranteed loans, we compared the interest rates on these loans with our benchmark interest rates in accordance with the method specified in our Subsidies Appendix (49 FR 18019).
Comment 7. Respondents contend that in the absence of evidence establishing that the benefit of any subsidy accorded a supplier of steel inputs was in fact passed on in the input price paid by the companies under investigation, there can be no basis for determining that OCTG products received the benefit of any subsidy on suppliers of such steel inputs.
DOC Position. We agree. During verification we found no evidence that the companies under investigation received a competitive benefit from purchases of subsidized steel inputs.
Verification
In accordance with section 776(a) of the Act, we verified data used in making our final determination. During this verification we followed normal procedures, including inspection of documents and inspection of the manufacturer's production methods and records.
Suspension of Liquidation
The suspension of liquidation ordered in our preliminary affirmative countervailing duty determination shall remain in effect until further notice. The net subsidy for each firm is as follows:
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Company Final determination rate Cash deposit rate (percent)
(percent)
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AHV ........................................ 11.29 17.64
TR ......................................... 18.37 16.17
Tubacex .................................... 19.87 17.67
B&W ........................................ 24.74 22.54
TRAMESA .................................... 24.74 22.54
All Others ................................. 15.00 17.21
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ITC Notification
In accordance with section 705(d) 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.
If the ITC determines that material injury or the threat of material injury does not exist, this proceeding will be terminated and all estimated duties deposited or securities posted as a result of the suspension of liquidation will be refunded or cancelled. If, however, the ITC determines that such injury does exist, we will issue a countervailing duty order, directing the Customs Service to assess countervailing duties on all entries of OCTG from Spain entered, or withdrawn from warehouse, for consumption on or after the date of suspension of liquidation, and to require a cash deposit for an amount equal to the net subsidy amount indicated in the "Suspension of Liquidation" section of this notice.
This notice is published pursuant to section 705(d) of the Act (19 U.S.C. 1671(d)).
Dated: November 20, 1984.
William T. Archey,
Acting Assistant Secretary for Trade Administration.
BILLING CODE 3510-DS-M