(Cite as: 58 FR 37374)

NOTICES

DEPARTMENT OF COMMERCE

(C-469-804)

Final Affirmative Countervailing Duty Determinations: Certain Steel Products From Spain

Friday, July 9, 1993

*37374 AGENCY: Import Administration, International Trade Administration, Department of Commerce.

EFFECTIVE DATE: July 9, 1993.

FOR FURTHER INFORMATION CONTACT: Kristal Eldredge or Stephanie Hager, Office of Countervailing Investigations, U.S. Department of Commerce, room 3099, 14th Street and Constitution Avenue, NW., Washington, DC 20230; telephone (202) 482- 0631 or 482-5055, respectively.

Final Determinations

The Department determines that benefits which constitute subsidies within the meaning of section 701 of the Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or exporters in Spain of certain steel products. For information on the estimated net subsidies, please see the Suspension of Liquidation section of this notice.

Case History

Since the publication of the preliminary determinations (Preliminary Affirmative Countervailing Duty Determinations: Certain Steel Products from Spain, 57 FR 57799 (December 7, 1992)), the following events have occurred.

Supplemental questionnaires were issued on December 31, 1992 and January 19, 1993 and responses were received on January 8, 1993 and January 28, 1993, respectively.

We verified the information used in making our preliminary determinations from February 1 through February 12, 1993.

The parties submitted case-specific briefs and rebuttal briefs on March 26 and 31, 1993, respectively. General issues briefs and rebuttal briefs were submitted on April 28, 1993 and May 3, 1993, respectively. Case-specific and general issues public hearings were held on April 2, 1993, and May 5 and 6, 1993, respectively.

On March 8, 1993, we published in the Federal Register a notice postponing the final determinations in these investigations, in accordance with the postponement of the final determinations in the companion antidumping duty investigations (58 FR 12935). On April 6, 1993, we terminated the suspension of liquidation of all entries of subject merchandise entered or withdrawn for consumption on or after that date (see, the Suspension of Liquidation section, below).



Scope of Investigations



The products covered by these investigations, certain steel products, constitute two separate "classes or kinds" of merchandise, as found in the Scope Appendix attached to the Final Affirmative Countervailing Duty Investigation: Certain Steel Products from Austria: (1) Certain cold-rolled carbon steel flat products and (2) certain cut-to-length carbon steel plate.



Injury Test



Because Spain is a "country under the Agreement" within the meaning of section 701(b) of the Act, the U.S. International Trade Commission (ITC) is required to determine whether imports of the certain steel products from Spain materially injure, or threaten material injury to, U.S. industries. On August 21, 1992, the ITC preliminarily determined that there is a reasonable indication that industries in the United States are being materially injured or threatened with material injury by reason of imports from Spain of the subject merchandise (57 FR 38064 (August 21, 1992)).



Respondents



Petitioners alleged that Altos Hornos de Vizcaya (AHV), Altos Hornos del Mediterra1neo (AHM), and ENSIDESA benefitted from subsidies during the period of investigation (POI). We verified that ENSIDESA represents over 85 percent of the exports of each class or kind of merchandise to the United States. Therefore, ENSIDESA was the only required respondent company for both classes or kinds of merchandise.

ENSIDESA is a state-owned integrated steel producer established in the 1950's. The National Industrial Institute (INI) owns 97.5 percent of ENSIDESA (as of 1983). INI is currently a state-owned holding company. We consider all benefits provided to ENSIDESA by INI prior to 1988 as being provided by the Government of Spain (GOS) (see, the Interested Party Comments section, below).

In December 1985, AHM, which is 100 percent owned by INI, spun-off its cold- rolling plant into a separate corporation, Sideru1rgica del Mediterra1neo, S.A. (SIDMED), and sold it to ENSIDESA. SIDMED is now a subsidiary of ENSIDESA. In the *37375 preliminary determinations we used the best information available (BIA) with respect to AHM because, although requested to do so, ENSIDESA did not respond to our questionnaire with respect to alleged subsidies provided to AHM. However, for purposes of these final determinations, we have concluded that because AHM itself was not a required respondent and ENSIDESA was not in the position to provide answers regarding subsidies received by AHM prior to 1985, the use of BIA is inappropriate. Therefore, we are using petition information concerning amounts of subsidy benefits received, but we have modified that information where appropriate, based on our verification of ENSIDESA and the GOS. See, the Restructuring section of the General Issues Appendix which is attached to the Final Affirmative Countervailing Duty Determination: Certain Steel Products from Austria, for information regarding the pass-through of subsidies.



General Issues

Several issues raised by interested parties in these investigations and in the other countervailing duty (CVD) investigations of certain steel products from various countries, were not case-specific but rather general in nature. These included:

- Allocation Issues;

- Denominator Issues;

- Equity Issues;

- Prepension Program Issues;

- Privatization Issues; and

- Restructuring Issues.

The comments submitted by interested parties concerning these issues, in both the general issues briefs and the country-specific briefs, and the Department's positions on each are addressed in the General Issues Appendix.



Analysis of Programs



For purposes of these determinations, the period for which we are measuring subsidies (the POI) is calendar year 1991, which corresponds to the fiscal year of ENSIDESA. In determining the benefits received under the various programs described below, we first calculated the ad valorem subsidy for each program. The subsidy rates for each program were then summed to arrive at the country- wide total subsidy rate.

Based upon our analysis of the petition, responses to our questionnaires, verification of those responses, and consideration of the arguments of the interested parties, we determine the following.



Creditworthiness: ENSIDESA



ENSIDESA received long-term loans, equity infusions, and/or grants in each year from 1979 through 1991, with the exception of 1980. In the Final Countervailing Duty Determination: Certain Steel Products from Spain, 47 FR 51438 (November 15, 1982) (Certain Steel from Spain) the Department determined that ENSIDESA was uncreditworthy in each of the years 1979 through 1982. Respondents did not contest nor ask the Department to reexamine this finding.

To determine whether ENSIDESA was creditworthy from 1983 through 1991, we examined the quick ratio, times interest earned ratio, debt ratios, and profit levels for each of these years and the three years prior to each loan, grant, or infusion in question.

Examination of the ratios listed above shows that ENSIDESA sustained substantial net losses in every year from 1983 through 1991 with the exception of 1989. Furthermore, the company's interest coverage ratios were extremely weak, even in 1989, and in several years the company had negative interest coverage ratios. Its debt-to-equity ratios show that the company's debt far outweighed its equity in every year. In fact, the financial indicators show that there has been no change in the company's performance since the 1979-1982 period in which we previously found ENSIDESA uncreditworthy. Therefore, we determine ENSIDESA to be uncreditworthy in each year from 1979 through 1991.



Equityworthiness: ENSIDESA



We verified that ENSIDESA received equity infusions in 1979, 1981, 1983, 1984, 1985, and 1986. In 1979 and 1981, ENSIDESA's shares were publicly traded. Therefore, an equityworthiness determination is not necessary for these years, see, the Equity section of the General Issues Appendix.

To determine whether ENSIDESA was equityworthy from 1983 through 1987, we examined the same ratios discussed above and, in addition, we examined the profit margin as a percentage of sales, the rate of return on assets, and the rate of return on equity for each of these years and the three years prior to each infusion. These ratios are the basis for analyzing the question of whether ENSIDESA was able to generate a reasonable rate of return within a reasonable period of time. These ratios indicate that the company was in poor economic health for the entire period with little prospect for improvement, and that a reasonable private investor would not have put capital into the company. Therefore, we determine that ENSIDESA was unequityworthy at the time of each government infusion after 1982.



Creditworthiness: AHM



AHM received long-term loans, equity infusions, and/or grants in each year from 1978 through 1985, with the exception of 1979. To determine whether AHM was creditworthy from 1982 through 1985 (AHM's financial statements were only provided for these years), we examined the same creditworthiness ratios discussed above with respect to ENSIDESA.

Examination of the ratios listed above shows that AHM sustained substantial net losses in every year from 1982 through 1985 and consecutive operating losses since 1977. Furthermore, the company's interest coverage was negative in every year except 1984. The debt-to-equity ratios show that the company's debt far outweighed equity and increased in every year except 1984. Therefore, we determine AHM to be uncreditworthy in each year from 1978 through 1985.



Equityworthiness: AHM



AHM received equity infusions in 1978, 1980, 1981, 1982, 1984, and 1985. To determine whether AHM was equityworthy from 1978 through 1985, we examined, when possible, the same equityworthiness ratios discussed above with respect to ENSIDESA.

From 1978 through 1985, the company had negative profits as a percentage of sales. Moreover, AHM had significant negative rates of return on both assets and equity in these same years. See, the Creditworthy section above, for a discussion of the results of the other ratios. Therefore, we determine AHM to be unequityworthy in each year from 1978 through 1985.



A. Programs Determined To Be Countervailable



We determine that subsidies are being provided to manufacturers, producers, or exporters in Spain of certain steel products under the following programs:



ENSIDESA



1. Law 60/78

On December 23, 1978, a set of emergency measures in support of the steel industry was enacted. Law 60/78 appropriated 15 billion pesetas (pts) to the budgets of the Ministry of Industry and Energy and INI for this purpose. Because Law 60/78 is limited to the steel industry, we determine that benefits under this program are de jure specific to an enterprise or industry, or group of enterprises or industries.

*37376 a. Long-Term Loans from Bank of Industrial Credit (BCI). We verified that ENSIDESA had three loans under this program outstanding during the POI. These loans were received in 1979. (Loans under Law 60/78 were found countervailable in Certain Steel from Spain).

Since benefits under this program are specific, ENSIDESA's loans under this program are countervailable to the extent that they were provided on terms inconsistent with commercial considerations.

Because we have found ENSIDESA to be uncreditworthy in 1979, we have used as the benchmark interest rate the highest long-term fixed interest rate applicable to firms in Spain, plus an amount equal to 12 percent of that country's prime rate. See, Final Affirmative Countervailing Duty Determination: New Steel Rail, Except Light Rail, from Canada, 54 FR 31991 (August 3, 1989) and section 355.44(b)(6)(iv) of the Department's Proposed Regulations (Countervailing Duties; Notice of Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989)) (Proposed Regulations).

We then compared the benchmark financing, as constructed above, to the financing ENSIDESA received under this program and found that the BCI loans were provided on more favorable terms than the benchmark financing. Therefore, we determine that ENSIDESA's BCI loans are countervailable.

To calculate the benefit from these loans we employed our normal long- term loan methodology as described in section 355.49(c)(1) of the Department's Proposed Regulations. (See also, Final Affirmative Countervailing Duty Determination: Certain Granite Products from Spain, 53 FR 24340 (June 28, 1988).) We then divided the benefit attributable to the POI by ENSIDESA's total sales of all products.

As discussed in the Denominator section of the General Issues Appendix, certain adjustments for shipping costs and services have been made to the denominators in several of the other investigations. However, because ENSIDESA's sales were verified as being ex-factory and no other services were reported, no adjustments were made to the denominator in these investigations.

On this basis, we calculated an estimated net subsidy of 0.25 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Equity infusion. ENSIDESA received an equity infusion from INI in 1979, at which time ENSIDESA's stock was traded on the stock exchange. We verified that INI paid 1,000 pts/share and the average market price was 110.52 pts/share.

Because INI paid more than the average market price for ENSIDESA's stock, we determine the difference between the two prices to be countervailable. We have calculated the benefit as a grant in 1979 equaling the difference between what INI paid for ENSIDESA's stock and the average market price for ENSIDESA's stock.

We have treated this grant as a non-recurring benefit and have, therefore, allocated it over the average useful life of renewable physical assets in the steel industry, i.e., 15 years, in accordance with our normal grant methodology (see, the Allocation section of the General Issues Appendix). Because we have determined ENSIDESA to be uncreditworthy in the year in which the company received this grant, we used an "uncreditworthy discount rate" for the appropriate year, as described in A.1.a.

We then divided the benefit during the POI by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.52 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



2. Royal Decree 878/81

On May 8, 1981, the GOS enacted Royal Decree (R.D.) 878/81 which set forth the "Integrated Iron and Steel Reconversion Plan." The basic objective of this reconversion plan was the financial recovery of ENSIDESA, AHV, and AHM. Benefits from R.D. 878/81 were found countervailable in Certain Steel from Spain.

Outlined below are the benefits which were provided to ENSIDESA pursuant to R.D. 878/81. Because R.D. 878/81 is limited to the steel industry, we determine that each of these measures is de jure specific to an enterprise or industry, or group of enterprises or industries.

a. BCI exceptional credits. We verified that ENSIDESA had five BCI loans outstanding under this program during the POI. These loans were received in each of the years 1981 through 1985.

To determine whether the loans were made on terms inconsistent with commercial considerations, we employed the same analysis as described in A.1.a. above. Because we have found ENSIDESA to be uncreditworthy in each of the years 1981 through 1985, we have used an uncreditworthy benchmark rate. Based on a comparison of the interest rates charged on these loans and the benchmark interest rates, we determine these loans to be countervailable.

To calculate the benefit from these loans, we used the same long-term loan methodology as described in A.1.a. above. We then divided the benefit attributable to the POI by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.15 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Grants Provided to "Decrease Financial Charges" and to "Compensate for Losses". We verified that ENSIDESA received grants in 1982 and 1983 to decrease financial charges and to compensate for losses. R.D. 878/81 approved a maximum amount to compensate for losses, but the actual amounts were determined each year in light of the actual amount of losses.

We have treated these grants as non-recurring benefits and have, therefore, allocated them over the average useful life of the renewable physical assets in the steel industry, i.e., 15 years, in accordance with our normal grant methodology, (see, the Allocation section of the General Issues Appendix). Because we have determined ENSIDESA to be uncreditworthy in the years in which the company received grants under this program, we used an uncreditworthy discount rate. We then summed the benefits during the POI from each grant and divided by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.97 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

c. Equity infusion. ENSIDESA received an equity infusion from INI in 1981, at which time ENSIDESA's stock was traded on the stock exchange. We verified that INI paid 1,000 pts/share and the average market price was 61.47 pts/share.

Because INI paid more than the average market price for ENSIDESA's stock, we determine the difference between the two prices to be countervailable. We have calculated the benefit as a grant in 1981 equalling the difference between what INI paid for ENSIDESA's stock and the average market price for ENSIDESA's stock.

We have treated this grant as a non-recurring benefit and have, therefore, allocated it over the average useful life of the renewable physical assets in the steel industry, i.e., 15 years, in accordance with our normal grant *37377 methodology (see, the Allocation section of the General Issues Appendix). Because we have determined ENSIDESA to be uncreditworthy in the year in which the company received this grant, we used an uncreditworthy discount rate the same rate. We then divided the benefit during the POI by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.66 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



3. The 1984 Council of Ministers Meeting

R.D. 878/81 stipulated that the Coordinating Commission of the Integrated Steel Sector should present an industrialization plan for the integrated steel companies ten months after the effective date of the decree. In R.D. 1853/83, the GOS adopted a series of industrial measures for the reconversion and restructuring of the production installations of the integrated steel companies. The Council of Ministers, on March 14, 1984, approved the labor and financial plans included in the steel reconversion package and the measures necessary to implement these plans.

Outlined below are the benefits which were provided to ENSIDESA pursuant to the 1984 Council of Ministers Meeting. Because these measures were limited to the steel industry, we determine that each of these measures is de jure specific to an enterprise or industry, or group of enterprises or industries.

a. Equity infusions. In the preliminary determinations, we determined that INI made equity infusions during each of the years 1984 through 1987. However, since the preliminary determinations, we have found that the 1984 equity infusion was actually received as grants in 1982, 1983, and 1984 (see, the Contributions to INI Special Finance Accounts section of this notice).

As stated above, we have determined ENSIDESA to be unequityworthy in each of these years and, therefore, that the infusions made in 1985, 1986, and 1987 were on terms inconsistent with commercial considerations.

As discussed in the Equity section of the General Issues Appendix, we have determined that such equity infusions should be treated as grants. Therefore, to calculate the benefits allocated to the POI from these infusions, we used the same methodology as discussed in the Allocation section of the General Issues Appendix. We then summed the benefits from each infusion and divided by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 8.26 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Loan guarantees. We verified that INI loan guarantees were provided for loans received in each of the years 1985 through 1987. INI charged a fee equal to .77 percent of the face value of the loan which was added to the interest paid per quarter. Respondents provided information on the guarantee fees charged by private banks on ECSC Article 54 peseta-denominated loans as a commercial benchmark for these loan guarantees. This fee was corrected based on information presented at verification.

To determine whether the fees charged by INI for these loans were inconsistent with commercial considerations, we compared the fees charged by INI to the fees charged by commercial banks, consistent with section 355.44(c) of the Proposed Regulations. We found that the INI fees were lower than the commercial fees. Therefore, we determine that the INI loan guarantees are countervailable.

At verification, we collected a representative sample of the repayment terms of the guaranteed loans and used this information to calculate the benefit from this program. To calculate the benefit from these guarantees, we used the same long-term loan methodology as described in A.1.a. above, with the difference in the guarantee fee comprising the interest differential. We then divided the benefit attributable to the POI by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.00 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

c. Share "Issue Premium". We verified that, in 1986, a premium was paid by INI on ENSIDESA's series three shares which were issued in conjunction with the 1986 equity infusion. ENSIDESA did not issue shares for this premium. Because the premium was so small, it was not worth incurring the financial charges associated with issuing new shares.

We treated the issue premium as a non-recurring grant and calculated the benefit in accordance with the grant methodology described in the Allocation section of the General Issues Appendix. On this basis, the estimated net subsidy is 1.88 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

d. Grants Provided to "Decrease Financial Charges" and to "Compensate for Losses". We verified that grants were received under this program in 1984, 1985, and 1987. However, at verification, we found that the 1984 grant for compensation of losses had also been reported by respondents partially as the 1984 equity infusion and partially as a grant to the INI Special Finance--1983 Account. Therefore, the benefits from this grant are already included in those calculations.

This is the same type of grant program as was authorized under R.D. 878/81 and is similarly limited by law to the steel industry. Therefore, we calculated benefits under this program in the same manner as discussed in A.2.b. above. On this basis, the estimated net subsidy is 4.69 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



4. The 1987 Government Delegated Commission on Economic Affairs



We verified that Protocol 10 of Spain's Treaty of Accession to the European Communities (EC) stipulated that after Spain's accession on January 1, 1986, the European Commission and the GOS would evaluate the implementation of the reconversion plans already approved by the GOS.

In the event that the viability of the companies could not be satisfactorily guaranteed within three years following the accession (i.e., by January 1, 1989), the Commission would propose a number of complementary measures to be executed by the GOS in order to assure viability after the three-year period. The actions of the Government Delegated Commission for Economic Affairs provided for the additional new measures authorized by the European Commission in March 1987.

Outlined below are the benefits which were provided to ENSIDESA pursuant to the 1987 Delegated Commission. Because the measures authorized by the 1987 Delegated Commission are limited to the steel industry, we determine that each of these measures is de jure specific to an enterprise or industry, or group of enterprises or industries.

a. Deferral of social security and other tax obligations. The 1987 Delegated Commission authorized the Ministry of Economy and Finance and the Ministry of Labor and Social Security to defer payments due as of December 1, 1986, by ENSIDESA to the Public Treasury and Social Security and to charge zero percent interest on the deferred amount. The payments were deferred until 1992.

At the preliminary determinations we treated the deferred amount as an *37378 interest-free long-term loan given in 1986 and calculated the benefit by reference to a commercial benchmark. However, we verified that deferrals are routinely permitted under the Spanish social security system. Unlike ENSIDESA's deferral though, routine deferrals incur an interest penalty.

Therefore, to determine whether the deferral conferred a benefit to ENSIDESA, we compared the interest penalty applied to other companies in similar circumstances to the interest penalty applied to ENSIDESA during the POI. Based on this comparison, we determine this deferral to be countervailable.

To calculate the benefit from this deferral, we calculated the difference between what ENSIDESA paid as an interest penalty during the POI and what ENSIDESA should have paid in interest penalties during the POI. We then divided the benefit by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 1.72 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Grants. We verified that one grant was received under this program in 1987. As discussed in the Allocation section of the General Issues Appendix, we have treated this grant as a non-recurring benefit and have, therefore, allocated it over the average useful life of renewable physical assets in the steel industry, i.e., 15 years. To calculate the benefit, we used the same grant methodology as described in the Allocation section of the General Issues Appendix. On this basis, we calculated an estimated net subsidy of 3.19 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

c. Fund For Employment Promotion and Early Retirement. R.D. 878/81 specifically provided for early retirement of excess steelworkers between the ages of 60 and 65. A subsequent measure, Law 27/84, established Funds for Employment Promotion for industries declared to be in reconversion. A Fund was set up under Law 27/84 for the iron and steel industry because Protocol 10 of Spain's accession to the EC required a reduction in steel production and, therefore, a reduction in workforce.

Excess workers can voluntarily join the Fund. Workers at or over the age of 55 who choose to join are promised economic protection until the age of 65, at which time normal retirement benefits begin. Workers under the age of 55 who choose to join the Fund are given some economic protection and retraining. If a worker joins the Fund, the worker pays the Fund the indemnification received from the company and in return receives all of the benefits from being a member of the Fund. If the worker chooses not to join, the worker keeps the indemnification received from the company.

At verification, we learned that, as a general matter, these Funds were not initially intended to cover any company obligations. However, the 1987 Delegated Commission for Economic Affairs authorized the GOS to cover ENSIDESA's obligations (i.e., costs resulting from the labor force reductions in the steel industry) for each of the years between 1987 and 1992. Because the 1987 Delegated Commission covered part of the indemnification costs of ENSIDESA, thereby relieving it of its legal obligation to pay these fees, we determine the program to be countervailable. See, the Prepension Programs section of the General Issues Appendix.

Because funds under this program were provided on an ongoing basis, year- after-year, we have determined the benefits to be recurring. See, the Allocation section of the General Issues Appendix. Therefore, we divided the amount provided in 1991 by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 1.73 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



5. Contributions Made to INI Special Finance Accounts

According to ENSIDESA's Annual Reports, INI made contributions to ENSIDESA which were put in INI Special Finance Accounts in 1982, 1983, and 1984. These special financial contributions were given by INI to compensate ENSIDESA for its previous year's losses. Because INI had no expectation of return either in the form of dividends or capital appreciation (see, the Equity section of the General Issues Appendix) on these funds, we consider them to be grants.

Two contributions were made in 1982, one in 1983, and one in 1984. In 1984, ENSIDESA offset reductions in the capital share account and the accumulated loss account by converting almost all of the INI special financing reflected on the books into new share capital. (A portion of this INI special financing remains in a capital reserve account and no shares were ever issued.) These conversions were countervailed at the preliminary determinations as 1983 and 1984 equity infusions. However, because these amounts were actually received as grants in 1982, 1983, and 1984, we are not countervailing them as equity infusions in 1983 and 1984.

We calculated the benefits from these non-recurring grants in the same manner as described in the Allocation section of the General Issues Appendix. On this basis, the estimated net subsidy is 5.40 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



6. ECSC Article 54 Loans and Loan Guarantees

Article 54 industrial investment loans, which are only available to the iron and steel industry, are provided for the purpose of purchasing new equipment or financing modernization. We verified that Article 54 loans are direct loans from the Commission and that the funds are loaned at a slightly higher rate than that at which the Commission obtained them in order to cover its costs. We verified that the Commission maintains this program to facilitate the borrowing process for companies in the ECSC, some of which may not otherwise be able to obtain loans.

Because these loans are de jure limited to the iron and steel industry, they are countervailable to the extent that they are provided on terms inconsistent with commercial considerations.

We verified that ENSIDESA received four loans under this program. Two loans were received in 1988, and one each in 1990 and 1991. The loans received in 1988 were long-term variable rate loans and the loans received in 1990 and 1991 were long-term fixed rate loans.

Of the two loans received in 1988, one was denominated in Deutsche Marks (DM) and the other in European Currency Units (ECU). Both of these loans were guaranteed by INI. We calculated the amounts paid under these loans, including the guarantee fee paid to INI.

For the DM loan, we used as our benchmark the maximum-yield on industrial bonds in Germany in 1988, plus a risk premium (12 percent of the average 1988 prime rate in Germany), plus the commercial guarantee fee as discussed in the Loan Guarantee section above.

We compared what ENSIDESA did pay on this loan during the POI to what ENSIDESA would have paid using the benchmark rate described above, and found that ENSIDESA paid more *37379 interest during the POI than it would have paid using the benchmark interest rate. However, because this is a variable rate loan, a single year's comparison is not sufficient to find that the DM loan was provided on terms consistent with commercial considerations. Circumstances in later years may be such that less would be paid than the benchmark amount. For these reasons, we cannot find the loan non-countervailable, but we have calculated a zero benefit for the POI.

For the ECU loan, we converted the principal outstanding in 1991 into pts. We then applied the uncreditworthy Spanish benchmark interest rate plus the commercial guarantee fee.

We then compared the benchmark financing, as constructed above, to the financing ENSIDESA received under this program and found that the ECSC ECU variable rate loan was provided on more favorable terms than the benchmark financing. Therefore, we determine that ENSIDESA's ECSC variable rate loan is countervailable.

To calculate the benefit, we took the difference between the amount that would have been paid under the benchmark and what was actually paid.

The fixed-rate loans received in 1990 and 1991 were calculated as long-term loans provided to an uncreditworthy company, as described in A.1.a. above. We summed the benefits attributable to the loans received in 1988, 1990, and 1991 and divided the total by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 1.72 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



AHM



As mentioned above, although AHM itself was not a mandatory respondent, we have determined that subsidies received by AHM were passed through to ENSIDESA when AHM sold its cold-rolling mill to ENSIDESA. Therefore, it is necessary to calculate both the benefits received by AHM and the percentage of these benefits that were passed through to ENSIDESA. See, the Restructuring section of the General Issues Appendix.

To determine what percentage of AHM's subsidies were passed through to ENSIDESA, we divided the value of the cold-rolling mill's assets on the day prior to the "sale" by the total value of AHM's assets on the day prior to the sale (not including any remaining value from the closed hot-mill) and found that 100 percent of the benefits received by AHM were passed through to ENSIDESA. See, also, the Restructuring section of the General Issues Appendix.



1. Law 60/78



a. Equity infusions. Petitioners alleged that AHM received equity infusions in 1978 from both INI and private investors. They stated that Law 60/78 (discussed above) conditioned a government bail-out of the company on additional private sector contributions. In addition, petitioners alleged that INI made equity infusions into AHM in 1980, 1981, 1982, 1984, and 1985.

As stated in the Equityworthiness: AHM section above, we have determined AHM to be unequityworthy in each year that an equity infusion was received. Therefore, the infusions were made on terms inconsistent with commercial considerations.

As discussed in the Equity section of the General Issues Appendix, we have determined that such equity infusions should be treated as grants. We have treated this benefit as a non-recurring grant and allocated it over the average useful life of renewable physical assets in the steel industry, i.e., 15 years. We used petition information concerning the amounts of the equity infusions received, but based our discount rates on verified information. We summed the benefits allocated to the POI for each equity infusion and divided the benefit passed through to ENSIDESA by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 2.67 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Loans from BCI. Petitioners alleged that AHM received loans from BCI under this program (which is described above) in 1979.

To determine whether the loans were made on terms inconsistent with commercial considerations, we employed the same analysis as described in A.1.a. above with respect to ENSIDESA. Because we have found AHM to be uncreditworthy in 1979, we have constructed the same benchmark interest rate as described in A.1.a. above. Based on a comparison of the interest rates charged on these loans and the benchmark interest rates, we determine these loans to be countervailable.

To calculate the benefit from these loans, we used the amounts of the loans provided in the petition and the same long-term loan methodology as described in A.1.a. above. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of .18 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



2. R.D. 878/81



a. BCI Exceptional Credits. Petitioners alleged that AHM received loans under this program (which is described above) in 1981.

To determine whether the loans were made on terms inconsistent with commercial considerations, we employed the same analysis as described in A.1.a. above with respect to ENSIDESA. Because we have found AHM to be uncreditworthy in 1981, we have constructed the same benchmark interest rate in the same manner as described in A.1.a. above. Based on a comparison of the interest rates charged on these loans and the benchmark interest rates, we determine these loans to be countervailable.

To calculate the benefit from these loans, we used the amounts of the loans provided in the petition and the same long-term loan methodology as described in A.1.a. above. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.03 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Grants to Decrease Financial Charges and to Compensate for Losses. Petitioners alleged that AHM received grants under this program (which is described above) in 1982 and 1983. We calculated benefits under this program in the same manner as discussed in A.2.b. above, with respect to ENSIDESA. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, the estimated net subsidy is 1.37 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



3. 1984 Council of Ministers Meeting



a. Investment loan. Petitioners alleged that AHM received a loan pursuant to the 1984 Council of Ministers Meeting (described above) in 1984.

To determine whether the loan was made on terms inconsistent with commercial considerations, we employed the same analysis as described in A.1.a. above, with respect to ENSIDESA. Because we have found AHM to be uncreditworthy in 1984, we *37380 have constructed the benchmark interest rate in the same manner as described in A.1.a. above. Based on a comparison of the interest rate charged on these loans and the benchmark interest rate, we determine this loan to be countervailable.

To calculate the benefit from this loan, we used the amount of the loan provided in the petition and the same long-term loan methodology as described in A.1.a. above. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.11 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

b. Loan guarantees. Petitioners alleged that AHM received loan guarantees under this program in 1985. To determine whether the fees charged by INI for these loans were inconsistent with commercial considerations, we compared the fees charged by INI (as verified with respect to ENSIDESA) to the fees charged by commercial banks consistent with section 355.44(c) of the Proposed Regulations. We found that the INI fees were lower than the commercial fees. Therefore, we determine that the INI loan guarantees are countervailable.

To calculate the benefit from these guarantees, we used the same long- term loan methodology as described in A.1.a. above, with the difference in the guarantee fee comprising the interest differential. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.00 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.

c. Grants to "Decrease Financial Charges" and to "Compensate for Losses". Petitioners alleged that AHM received grants under this program in 1984 and 1985. We calculated benefits under this program in the same manner as discussed in A.2.b. above, with respect to ENSIDESA. We then divided the benefit passed through to ENSIDESA, attributable to the POI, by ENSIDESA's total sales of all products. On this basis, the estimated net subsidy is 1.23 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



4. Deferral of Social Security and Other Tax Obligations

Petitioners alleged that AHM did not pay its social security and treasury taxes during the 1979 through 1981 period (the same period during which ENSIDESA did not pay its taxes) and was not charged interest on the deferred amount. For a full explanation of this program, see, section 4.a. above.

To determine whether the deferral conferred a benefit to AHM, we compared the interest penalty applied to other companies in similar circumstances to the interest penalty applied to AHM during the POI. Based on this comparison, we determine this deferral to be countervailable.

To calculate the benefit from this deferral, we calculated the difference between what AHM paid as an interest penalty during the POI and what AHM should have paid in interest penalties during the POI. We then divided the benefit passed through to ENSIDESA by ENSIDESA's total sales of all products. On this basis, we calculated an estimated net subsidy of 0.13 percent ad valorem for all manufacturers, producers, and exporters in Spain. This rate applies to both classes or kinds of merchandise.



B. Programs Determined Not To Be Countervailable



We determine that the following programs do not provide subsidies to manufacturers, producers, or exporters in Spain of certain steel products:



1. Partial Extinguishment of AHM Equity in 1982

Petitioners alleged that AHM extinguished equity in the amount of 7,800 million pesetas in 1982. For the reasons discussed in the Equity section of the General Issues Appendix, we do not consider the write-off of equity to constitute a separate subsidy event. Instead, any benefit arises at the time of the equity investment. Therefore, we determine this program to be not countervailable.

In this instance, we are countervailing equity investments made in 1978, 1980, and 1981. Therefore, to the extent that the equity being written off in 1982 was received in 1978, 1980, and 1981, we are already capturing the benefit to AHM.



2. Electricity Discounts

At the preliminary determinations, we countervailed this program based on a market research report supplied by petitioners. The market research report indicated that ENSIDESA pays, on average, almost half the price paid by other large users of electricity (the G-4 rate). Prior to the preliminary determinations, neither the GOS nor ENSIDESA responded to any of our questions regarding the G-4 electricity rate. Therefore, we relied on BIA in making our determinations.

After the preliminary determinations, we again asked the GOS and ENSIDESA to provide information regarding electricity rates. In response, the GOS and ENSIDESA provided information which was further clarified during verification.

Electricity "discount programs" or the "preferential provision of electricity" have been examined in several previous investigations. In the Final Affirmative Countervailing Duty Determination: Pure Magnesium and Alloy Magnesium from Canada, 57 FR 30946 (July 13, 1992) (Magnesium), we stated that "* * * the first step the Department takes in analyzing the potential preferential provision of electricity * * * is to compare the price charged with the applicable rate on the power company's non-specific rate schedule."

In two prior cases, we did not countervail programs which were alleged to provide preferential electricity rates. In the Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from France, 52 FR 1218 (January 12, 1987), we stated that Trefimetaux did not receive electricity under any agreement providing preferential electricity rates. Instead, Trefimetaux purchased electricity from the French electricity company "* * * at rates established in the published tariffs, based on the level of consumption." Furthermore, in the Final Negative Countervailing Duty Determination: Silicon Metal from Brazil, 56 FR 26988 (June 12, 1991), we stated that "* * * the silicon metal producers under investigation paid normal published rates for all electricity consumed and we found no evidence of the existence of any schedule of preferential electricity rates."

In Spain, we verified that all electricity rates are based on the volume of electricity consumed and are published in an "Official Bulletin." Companies are simply charged the rate which is applicable to them, based on their level of consumption. The G-4 rate is listed along with other rates in the Official Bulletin. We found no evidence that the GOS provides special tariff rates through a particular program or through private contracts.

Furthermore, we verified that ENSIDESA is charged the G-4 rate, as published, for only those facilities that meet the requirements, whereas it is charged a higher rate, as published, for *37381 those facilities that do not meet the requirements for G-4.

Therefore, consistent with our approach in previous cases, we find this program not to be countervailable because the rate charged ENSIDESA was from a non-specific rate schedule according to the company's level of consumption.



3. Negative Corporate Taxes

At the preliminary determinations, we stated that we required further information to decide whether this program is countervailable. After the preliminary determinations, we asked the GOS and ENSIDESA to provide additional information regarding the Spanish corporate tax system. We received further information in response to this questionnaire. That information was further clarified during verification.

We verified that, for corporate income tax purposes, the Spanish Consolidated Tax Structure allows a corporate group to be treated as a single company. This income tax is based upon the consolidated results of the group as a whole, with the parent company making the required payments. Thus, the losses of one subsidiary are offset by the profits of the parent company or other subsidiaries, or vice versa. The parent company later allocates the tax liability among the members of the group, negatively or positively, as a function of each member's contribution to the total amount paid by the group.

We verified that this is the manner in which INI pays its taxes, and that hundreds of companies in Spain file as groups and allocate tax liability among their subsidiaries in a similar manner.

In addition, at verification, officials explained that there is a difference between a company's accounting results and its tax results (i.e., there is a difference between whether and when an item can be considered an expense for accounting purposes and whether and when an item can be considered an expense for tax purposes). With respect to the difference between ENSIDESA's accounting results and tax results, officials explained that this resulted from timing differences. (Certain revenue and expense items may be deferred or accelerated for tax purposes, resulting in a different net profit or loss on the tax return than that reflected on the financial statement.) Such timing differences meant that, in 1990, ENSIDESA's tax losses were 59 million pts while its reported accounting losses amounted to 5,300 million pts.

Based on our analysis, we find this "program" not countervailable because it is not specific to an enterprise or industry or group of enterprises or industries. Furthermore, there is no evidence to indicate that ENSIDESA received any amounts in excess of what it was due; or that it otherwise benefitted from special treatment by the government.



C. Programs Determined Not To Be Used



We determine that the following programs were not used by manufacturers, producers, or exporters in Spain of certain steel products:

1. Long-Term Loans Provided Under Decree 669/74

2. BCI Exceptional Credits (Two Loans Prior to POI)

3. Long-Term Loans From INI Under R.D. 878/81 (Repaid Prior to POI)

4. Loan Guarantees Provided Between 1979-1982

5. Payment for Capacity Closures

6. Tax Exemptions Under Royal Decree 612/82

7. Regional Aid Programs

8. EC Programs

a. ECSC Article 54 Interest Rebates

b. Interest Rebates on ECSC Conversion Loans Under Article 56

c. ECSC Redeployment Aid

d. European Investment Bank Loans and Loan Guarantees

e. New Community Instrument Loans

f. ERDF Aid

9. Export Grants From the Basque Government

10. Deferral of Social Security and Other Tax Obligations Owed to the Basque Government

11. Deferral of Social Security and Other Tax Obligations Owed to the Navarre Government



Interested Party Comments



The following are country-specific comments only and do not address those issues identified as general issues, above. In addition, see, the Final Affirmative Countervailing Duty Determination: Certain Steel Products from Belgium for comments relating to European Community programs only.

Comment 1: At the preliminary determinations, we found each of the reconversion measures for the steel industry de jure specific to that industry. At verification, officials pointed out that law 27/84 (the general reconversion law) applied to all industries in reconversion, not just steel. Under this law, labor and management would have to come to an agreement and present a plan to the GOS before reconversion status could be obtained. The law itself does not specify which industries were declared to be in reconversion. Petitioners argue that each of the reconversion measures are de jure and de facto specific (see, below). Respondent argue that these measures are not de jure or de facto specific as discussed below.

De Jure: Respondents argue that benefits under the reconversion program established under Law 60/78, R.D. 878/81, the 1984 Council of Ministers Meeting, and the 1987 Delegated Commission are not specific because the assistance provided to steel companies under these programs was available under Law 27/84 to a broad spectrum of Spanish industries suffering from economic crisis. Therefore, respondents effectively argue that the various assistance measures are "integrally linked" as provided for in section 355.43(b)(6) of the Proposed Regulations.

Petitioners argue that Law 27/84 is not the appropriate level at which the Department should conduct a specificity analysis. Petitioners assert that Law 27/84 merely sets forth the basic procedures by which industries may be declared to be in reconversion and the parameters for the provision of assistance. Furthermore, petitioners assert that there is no information on the record linking Law 27/84 to the individual assistance packages for steel. Petitioners point out that for the programs to be integrally linked they must be linked at inception and reflective of a government policy to treat industries equally. See, Final Results of Countervailing Duty Administrative Review: Carbon Steel Wire Rod from Saudi Arabia, 56 FR 48158 (September 24, 1991) (Saudi Wire Rod). According to petitioners, neither of these conditions are present in the instant case.

Petitioners further assert that the measures adopted by the 1984 Council of Ministers Meeting and the 1987 Delegated Commission were explicitly designed to further the reconversion process of the integrated steel companies. While petitioners acknowledge that the Deferral of Social Security and Other Treasury Taxes and the Fund for Employment Promotion programs were established under Law 27/84, they argue that these programs, as they apply to the steel industry, were later significantly modified by the 1987 Delegated Commission.

De Facto: Number of Users: Respondents assert that Law 27/84 extended to 11 additional industrial sectors the same assistance extended to the steel sector, and that these 12 sectors together included 792 firms and over ten percent of the industrial sector work force.

Dominant Use or Disproportionality: Petitioners argue that: (1) The steel industry is the dominant user of assistance (only 12 industrial sectors are *37382 in reconversion and the steel industry received approximately 34 percent of GOS investment in the 12 sectors), and (2) the steel industry received a disproportionate share of the reconversion benefits (steel made up approximately 0.50 percent of Spain's GNP but received 34 percent of the benefits).

Respondents argue that the figure used by petitioners (i.e., that 34 percent of GOS investment went to the steel sector) is incorrect because the figure does not "represent GOS investment in the sectors, but investments made by the industrial sectors." Respondents further argue that the contribution of any industrial sector to GNP is irrelevant for determining whether benefits are disproportionate because the reconversion programs allocate available resources based upon the needs of the qualifying sectors. They assert that any comparison of benefits received under the reconversion programs should be broader, looking at such factors as financial restructuring, work force reductions, and new investments required in order to carry out the restructuring plans. In this regard, the steel industry accounted for 38 percent of the total work force reduction and 37 percent of the total investments made by sectors in reconversion. Therefore, it is appropriate that the steel industry received the level of assistance that it did.

DOC Position: We continue to find each of the reconversion measures for the steel industry de jure specific to that industry. Of the reconversion measures included in this investigation, three measures (Law 60/78, R.D. 878/81, and the 1984 Council of Ministers decisions) were enacted prior to Law 27/84. Only two of the measures (the Fund for Employment Promotion and the Deferral of Social Security and Other Tax Obligations) were explicitly discussed in Law 27/84. Moreover, these two measures were significantly modified specifically for the steel industry by the 1987 Delegated Commission. Therefore, each of the reconversion measures being investigated was enacted with direct reference to the integrated steel industry.

With respect to the question of integral linkage, section 355.43(b)(6) of the Proposed Regulations states that "in determining whether programs are integrally linked, the Secretary will examine, among other factors, the administration of the programs, evidence of a government policy to treat industries equally, the purposes of the programs as stated in their enabling legislation, and the manner of funding the programs."

We note first of all, that Law 60/78, R.D. 878/81, and the 1984 Council of Ministers programs were enacted prior to the promulgation of Law 27/84 (see, Saudi Wire Rod). As regards the Fund for Employment Promotion and the Deferral of Social Security and Other Tax Obligations, there is little information on the record that would allow us to analyze integral linkage. Indeed, at no time prior to the filing of case briefs did respondents even argue or submit information supporting their contention that the programs are integrally linked. In fact, respondents stated in their questionnaire responses that the reconversion programs were, by law, designed specifically for the steel industry.

While there is information identifying other industries in reconversion, there is no information regarding the types and manner of assistance, if any, that such industries received. Therefore, we were unable to analyze the reconversion programs in terms of the aforementioned factors. Moreover, as noted above, the benefits available under Law 27/84 were significantly modified by the 1987 Delegated Commission.

For these reasons we continue to find the reconversion measures de jure specific to the steel industry. Because we have determined that specificity exist on de jure grounds, arguments concerning de facto specificity are rendered moot. Therefore, we have not addressed them.

Comment 2: Petitioners argue that the G-4 electricity tariff is both de jure and de facto specific to a group of industries. They assert that de jure specificity exists as a result of the specific eligibility requirements set forth in the Ministry of Energy's Order. In petitioners' view, these requirements are neither neutral nor objective.

Petitioners also contend that de facto specificity exists because only three industries use the G-4 electricity rate and these industries represent a discrete group of industries. Moreover, the GOS exercises considerable discretion in determining the actual recipients of G-4 status. For example, they argue that even though ENSIDESA did not satisfy the requirements for receipt of the G-4 rate, the GOS waived these requirements for ENSIDESA.

Respondents argue that the G-4 electricity rate is available to all consumers of electricity that meet the established power input, tension, and usage requirements. Therefore, the rate is not specific and not countervailable. Respondents point out that Spanish electric rates are published in the Official State Bulletin each year and consumers of electricity are charged the rate which is applicable to them, based on their level of consumption. Respondents also point out that ENSIDESA does not receive this rate for the entire company. Only the two plants which meet the consumption requirements are billed the G-4 rate, while the rest of the company is billed separately at a higher rate. Also, respondents contend that ENSIDESA's failure to meet the intensity requirement is through no fault of ENSIDESA's, but rather solely due to the fact that the local power company is not able to supply the required level of tension.

DOC Position: As discussed in detail in the Programs Determined Not to be Countervailable section above, we determine that the electricity rate in Spain does not provide a countervailable subsidy because the rate charged ENSIDESA is from a published, non-specific rate schedule and is set solely as a result of the company's level of consumption. Given this, we do not believe that the limited number of customers using the G-4 rate renders it specific.

Comment 3: Petitioners assert that the G-4 rate allegation was properly included in the investigation because the Department has the authority to examine any practice it discovers during the course of an investigation, provided sufficient time remains prior to the scheduled date for the final determination.

Respondents claim that the allegations with respect to G-4 rates were not included in the petition and, therefore, should not properly be subject to investigation. They contend that petitioners did not amend their petition to include the G-4 rate within the deadline specified by 19 CFR 355.31, and the Department did not take the necessary steps to properly initiate an investigation with respect to the alleged program. Further, respondents argue that the information regarding G-4 rates in petitioners' October 9, 1992 submission was not sufficient to warrant investigation of this program.

DOC Position: We note that an allegation of electricity discounts to ENSIDESA was in the original petition, and was included as a program under investigation in our notice of initiation. Furthermore, information regarding the G-4 rate was submitted by petitioners more than 40 days prior to the preliminary determination, in conformity with 19 CFR 355.31 (c)(1)(i).

Comment 4: Petitioners argue that for purposes of the "Negative Corporate Tax" program and INI/ENSIDESA *37383 parent-subsidiary financing, the Department should continue to treat all funds from INI as funds from the GOS. Despite the fact that INI was converted into a state holding company in 1988, the GOS ultimately decides the amount of GOS funding and INI merely serves as the vehicle for disbursing the funds. Finally, petitioners contend that even when a government holding company has actually operated without government direction, the Department has treated the funds flowing from the holding company as funds from the government, see, Final Affirmative Countervailing Duty Determination: Brass Sheet and Strip from France, 52 FR 1218, 1222 (January 12, 1987) (Brass Sheet).

DOC Position: In 1941, INI was created as a government agency for the purposes of developing an industrial infrastructure in Spain. In 1988, legislation was passed which officially changed INI from a government agency to an autonomous holding company wholly-owned by the GOS. INI is currently devoted to managing different companies in a variety of different sectors. Income from these different companies gives INI its own source of funds. As discussed above, it pays corporate income tax. Also, INI employees are no longer considered civil servants. Given these changes in INI's status, we do not agree that any monies flowing from INI to ENSIDESA should automatically be viewed as transfers from the GOS.

In the Brass Sheet investigation, the holding company directly received monies from the Government of France and at the same time was providing equity infusions into its brass sheet-producing subsidiary. In this case, there is no evidence indicating that the GOS used INI as a means of channeling funds to ENSIDESA after 1988.

Comment 5: Petitioners argue that ENSIDESA appears to receive an unexplainably higher "negative tax" compensation from INI than the amount to which it is entitled. They contend that the information on the record only reveals what ENSIDESA should have received, based on its accounting results, and the GOS's explanation for the differences between ENSIDESA's accounting and tax recording systems is unsupported. Petitioners assert that because ENSIDESA did not report its 1990 pre-tax loss as recorded in ENSIDESA's tax books (and, therefore, the amount was not verified), it is impossible to detect with any certainty whether or not ENSIDESA received an excessive negative tax amount. Therefore, they contend that this possible excess provides a countervailable benefit to ENSIDESA.

DOC Position: As discussed in the Programs Determined Not to be Countervailable section above, we find that any differences between ENSIDESA's accounting results and its tax results can be explained by standard tax and accounting principles that are employed by most, if not all, large companies and throughout the world. There is no evidence to indicate that ENSIDESA received any amounts in excess of what it was due.

Comment 6: Petitioners contend that the entire amount of the 1984 equity infusion (as listed in ENSIDESA's audited 1984 financial statement) should be treated as an equity infusion in 1984. According to petitioners, the funds provided under INI Special Finance Facility in 1981 and 1982 were not recorded as capital contributions in ENSIDESA's 1981 or 1982 audited financial statements.

Respondents argue that the 1981 and 1982 contributions to INI Special Financing (which became in part the 1984 equity infusion) should be treated as equity provided in 1981 and 1982. They assert that these earlier dates represent when the benefits were conveyed to ENSIDESA and when this money became a part of shareholders' equity.

DOC Position: As discussed in the Contributions to INI Special Finance section above, we are treating these contributions as grants in the years they were originally received because at the time the funds were received by ENSIDESA, INI did not expect any return in the form of dividends or capital appreciation. With respect to petitioners' statement that these contributions are not found in ENSIDESA's annual reports, we note that these contributions, and the times they were received, are found on page 25 of ENSIDESA's 1983 audited annual report and pages 33 and 35 of its 1984 audited annual report.

Comment 7: Petitioners contend that the INI one-year financing discovered during verification and INI short-term credit accounts should be countervailed by the Department. Petitioners state that money from INI is effectively money from the GOS, and ENSIDESA was considered uncreditworthy at the time of this financing. Thus, the Department must find the financing discovered at verification to be countervailable. Petitioners argue further that since respondents did not provide the Department with adequate information with which to evaluate this program, the Department should assume as BIA that this financing was interest-free.

Respondents argue that the information concerning interest rates charged for what they refer to as "short-term financing" from INI was supplied in respondents' January 28, 1993 submission. Respondents also point out that petitioners did not make a subsidy allegation and, therefore, no investigation was initiated with respect to this financing.

DOC Position: We determine that this financing is not countervailable because there is no indication that the funds are provided through any steel-directed program, but are rather self-generated funds used for normal parent-subsidiary financing. Moreover, for the reasons discussed in response to Comment 4, we are not automatically treating funds from INI to ENSIDESA as government funds.

Comment 8: Petitioners argue that one of the private loans reported in the questionnaire responses for possible use as a company-specific benchmark (2,500 million pesetas issued in 1991 from Banco Exterior de Espana) should be countervailed by the Department because the bank was effectively controlled by the GOS and ENSIDESA was clearly uncreditworthy at this time. According to petitioners, since respondents did not provide information regarding any other forms of assistance provided by the GOS to ENSIDESA, the Department should use BIA in calculating the benefits to ENSIDESA.

Respondents argue that the 2,500 million peseta loan from Banco Exterior de Espana in 1991 had terms identical to eight other commercial loans issued by private banks. As a result the Department should not find that the loan conveyed a countervailable benefit.

DOC Position: Because there is no allegation from petitioners nor evidence on the record that this loan was provided at the direction of the government or with funds provided by the government as required in section 355.44(b)(9) of the Proposed Regulations, we are not countervailing this loan. In addition, we declined to investigate these types of loans prior to the preliminary determinations for the same reason.

Comment 9: With respect to the July 13, 1979 BCI loan for 3,250 million pesetas provided under Law 60/78, petitioners argue that the apparent grace period on the payment of interest should be factored into the calculation of the countervailable benefit.

DOC Position: As stated in the GOS, ENSIDESA, and commercial bank verification reports, there were no grace periods for repayment of interest on any loans provided to ENSIDESA; i.e., *37384 interest accrued consistently on the outstanding balance of all loans. The "apparent grace period" referred to by petitioners is a typographical error in that portion of the response.

Comment 10: With regard to the BCI Exceptional Credits given to ENSIDESA under R.D. 878/81, petitioners assert that, despite the fact that this loan was discovered at verification to have had variable rates after 1986, the same benchmark should be used throughout the life of the loan to determine ENSIDESA's benefit. Since the Department's preferred benchmark for a government variable rate loan is not on the record, the Department should use the highest long-term fixed interest rate available.

DOC Position: We agree with petitioners. According to section 355.44(b)(5) of the Proposed Regulations, the preferred alternative, if a maximum long-term variable rate is not available, is a maximum long-term fixed rate.

Comment 11: Petitioners argue that, because the Department was not able to verify the amounts of grants provided to decrease financial charges for 1982 and 1983, the Department should not accept the amounts reported by ENSIDESA in its questionnaire response. Petitioners argue that the Department should countervail the amounts indicated by petitioners in their petition for these years.

DOC Position: We disagree with petitioners. We verified that respondents accurately reported the amounts they received in grants to decrease financial charges and to compensate for losses. We are not required to verify every fact or number submitted in the questionnaire responses. Merely because we chose not to examine backup documentation for these years, there is no reason to believe that these amounts were not provided in the same manner as those figures where backup documentation was checked. To the contrary, the purpose of verification is not to examine source documentation for each piece of information provided, but rather to confirm the completeness and reliability of the response by testing the accuracy of a sampling if information.

Comment 12: With respect to the deferral of social security and other tax obligations, petitioners argue that ENSIDESA enjoys the general benefits of having received a deferral without having to pay. Petitioners also argue that since the Department treated this deferral as interest-free long-term loans in its preliminary determinations, the Department should continue to rely upon the interest rate benchmark used in the preliminary determinations to calculate the countervailable benefit. Petitioners assert that there is no verified information on the record supporting the use of 10 percent as the benchmark for a loan agreed upon in 1988. Petitioners state that Treasury Debt should be treated in the same manner.

Respondents argue that the Department's verification established that the Spanish Social Security Administration cannot charge interest on unpaid debt until a deferral is requested. Therefore, according to respondents, the 1987 Delegated Commission did not give ENSIDESA preferential treatment because interest payments on unpaid obligations do not have to be paid by companies that have not requested a deferral.

In addition, respondents argue that if a subsidy is determined to exist, the Department should use a benchmark interest rate of 10 percent to calculate the benefit under this program since a 10 percent penalty is applied when a deferral is requested. Respondents assert that the deferral system is not the same as providing a loan to a company. These are taxes due from ENSIDESA; they are not loans provided to ENSIDESA.

DOC Position: We agree with petitioners insofar as we determine that ENSIDESA benefitted from not having to pay interest on its deferred taxes. While it may be true that other companies, which did not request a deferral, are not charged interest, such companies would eventually be subject to liquidation in order to collect the unpaid debts (see, pages 20 and 22 of the Government Verification Report). On the other hand, ENSIDESA requested a deferral (so as to avoid possible liquidation) and was then relieved of the interest penalty applied to all other companies in similar situations.

However, we agree with respondents regarding the benchmark interest penalty that should be used to calculate the benefit received by ENSIDESA. Instead of calculating the benefit using our standard long-term loan methodology, as we did in the preliminary determinations, we now determine that it is appropriate to apply the 10 percent penalty as this measures what ENSIDESA would otherwise have to pay in conjunction with a tax deferral. As we are only concerned with 1991 and are uncertain as to when ENSIDESA will pay off its debt, we have applied the 10 percent penalty in 1991 to derive the countervailable benefit for the POI. This is the manner in which the social security authority calculates interest for all companies in similar circumstances.

Comment 13: Petitioners argue that the Department should continue to use the uncreditworthy discount rate for allocating grants and equity infusions over time. They argue that the Department has utilized and recognized risk measurement in its analysis of a firm's weighted average cost of capital, whether equity- or debt-based, since 1984. Petitioners assert that the underlying premise regarding opportunity costs remain valid, see, Final Affirmative Countervailing Duty Determination: Cold-Rolled Carbon Steel Flat Products from Argentina, 49 FR 18006, 18017 (April 26, 1984).

Respondents argue that the Department was incorrect in using the uncreditworthy discount rate to allocate the benefits from grants and equity infusions over time. They argue that under section 355.48(b)(2) of the Proposed Regulations, the preferred discount rate in the calculation of grants and appropriate equity infusions when the company's cost of debt is unavailable, is the "average cost of long-term debt in the country in question." Respondents contend that there is no provision in this section for a risk premium. The risk premium, according to respondents, is provided for in section 355.44(b)(6)(iv) of the Proposed Regulations, but only applies to constructing a benchmark rate for determining the benefits from a long-term government loan. Respondents argue that in its final determinations, the Department should use the average cost of long-term fixed rate debt as the discount rate in allocating the benefits conveyed by grants and equity infusions over time as provided for in section 355.49(b)(2)(ii) of the Proposed Regulations.

DOC Position: We have continued to use an "uncreditworthy" discount rate to allocate benefits received in years when the company was found uncreditworthy. Although respondents are correct that our Proposed Regulations do not provide for uncreditworthy discount rates, we believe that their use is consistent with our methodology.

In allocating benefits over time, we attempt to create a stream of benefits in such a way that the company in question would be indifferent between: (1) Receiving the benefit in a lump sum, and (2) receiving a series of payments over the allocation period. The use of a company-specific discount rate is what guarantees that we will achieve indifference. This is because a company- specific rate reflects the *37385 company's own time preference for money.

Because company-specific rates should be used to allocate benefits over time, it would be incorrect to rely on a creditworthy discount rate (as the Proposed Regulations would have us do) for a company which has been found to be uncreditworthy. If we did so, we would be understating the benefit stream that would make the recipient indifferent between current and future values.

Comment 14: Respondents argue that since 20,095,952,000 pesetas of the 1984 23,450,000,000 peseta grant for compensating losses was converted into share capital in 1984 and the rest remained as 1983 INI Special Finance, the Department can calculate the benefit as either (1) the total amount given for compensating losses or (2) separately as 1983 INI Special Finance and as a portion of the 1984 equity infusion. To do otherwise would be to double-count the subsidy in question.

In addition, respondents argue that ENSIDESA's total sales figure should be increased by 4,062 million pesetas to account for residuals (i.e., scrap metal).

DOC Position: We agree with respondents on both points. Therefore, we have included the 23,450,000,000 peseta grant in our calculation of benefits with respect to INI Special Finance and not as a grant to decrease financial charges or to compensate for losses. In addition, we increased ENSIDESA's denominator to account for residuals.

Comment 15: Petitioners argue that the Department should reject ENSIDESA's request that the ECSC Article 54 loans be tied to specific projects. Instead, the Department should countervail the full benefit of the loan in accordance with the approach it took in the preliminary determinations.

DOC Position: We agree with petitioners. None of the information supplied in the response with respect to whether Article 54 loans could be tied to specific projects could be verified by the Department. Furthermore, respondents have not offered any additional explanation as to why we should tie these loans to particular projects.



Verification



In accordance with section 776(b) of the Act, we verified the information used in making our final determinations. We followed standard verification procedures, including meeting with government and company officials, examining relevant accounting records, and examining original source documents. Our verification results are outlined in detail in the public versions of the verification reports, which are on file in the Central Records Unit (Room B-099 of the Main Commerce Building)."



Suspension of Liquidation



In accordance with our affirmative preliminary determinations, we instructed the U.S. Customs Service to suspend liquidation of all entries of certain steel products from Spain which were entered, or withdrawn from warehouse, for consumption on or after December 7, 1992, the date of publication of our preliminary determinations in the Federal Register. These final countervailing duty determinations were aligned with the final antidumping duty determinations on certain steel products from various countries, pursuant to section 606 of the Trade and Tariff Act of 1984 (section 705(a)(1) of the Act).

Under article 5, paragraph 3 of the GATT Subsidies Code, provisional measures cannot be imposed for more than 120 days without final affirmative determinations of subsidization and injury. Therefore, we instructed the U.S. Customs Service to discontinue the suspension of liquidation on the subject merchandise entered on or after April 6, 1993, but to continue the suspension of liquidation for all entries, or withdrawals from warehouse, for consumption of the subject merchandise entered between December 7, 1992, and April 6, 1993. We will reinstate suspension of liquidation under section 703(d) of the Act, if the International Trade Commission (ITC) issues a final affirmative injury determination, and will require a cash deposit of estimated countervailing duties for such entries of merchandise in the amounts indicated below.

Certain cold-rolled carbon steel flat products

Country-wide Ad Valorem Rate--36.86 Percent

Certain cut-to-length carbon steel plate

Country-wide Ad Valorem Rate--36.86 Percent



ITC Notification



In accordance with section 705(d) of the Act, we will notify the ITC of our determinations. In addition, we are making available to the ITC all nonprivileged and nonproprietary information relating to this investigation. We will allow the ITC access to all privileged and business proprietary 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 Investigations, Import Administration.

If the ITC determines that material injury, or threat of material injury, does not exist, these proceedings 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 Customs officers to assess countervailing duties on entries of certain steel products from Spain.



Return or Destruction of Proprietary Information



This notice serves as the only reminder to parties subject to Administrative Protective Order (APO) of their responsibility concerning the return or destruction of proprietary information disclosed under APO in accordance with 19 CFR 355.34(d). Failure to comply is a violation of the APO.

These determinations are published pursuant to Section 705(d) of the Act (19 U.S.C. 1671d(d) and 19 CFR 355.20(a)(4)).

Dated: June 21, 1993.



Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

BILLING CODE 3510-DS-P