50 FR 11224
NOTICES
DEPARTMENT OF COMMERCE
[C-401-401]
Preliminary Affirmative Countervailing Duty Determination; Certain Carbon
Steel Products From Sweden
Wednesday, March 20, 1985
*11224
AGENCY: Import Administration, International Trade Administration, Commerce.
ACTION: Notice.
SUMMARY: We preliminarily determine that certain benefits which constitute subsidies within the
meaning of the countervailing duty law are being provided
to manufacturers, producers, or exporters in Sweden of certain carbon steel products. The
estimated net subsidy is 3.38 percent ad valorem for all manufacturers, producers, or exporters in
Sweden of certain carbon steel products, except for Surahammars Bruks AB which is excluded
from these preliminary determinations.
We have notified the U.S. International Trade Commission (ITC) of our determinations. We are
directing the U.S. Customs Service to suspend liquidation of all entries of certain carbon steel
products from Sweden that are entered, or withdrawn from warehouse, for consumption on or
after the date of publication of this notice, and to require a cash deposit or bond on entries of these
products in the amount equal to the estimated net subsidy.
If these investigations proceed normally, we will make our final determinations by May 28, 1985.
EFFECTIVE DATE: March 20, 1985.
FOR FURTHER INFORMATION CONTACT:
Jack Davies, Roy Malmrose, or Vincent Kane, 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) 377-1784,
377-8320, or 377-5414.
SUPPLEMENTARY INFORMATION:
Preliminary Determination
Based upon our investigations, we preliminarily determine that there is reason to believe or
suspect that certain benefits which constitute subsidies within the meaning of section 701 of the
Tariff Act of 1930, as amended (the Act), are being provided to manufacturers, producers, or
exporters in Sweden of certain carbon steel products. For purposes of these investigations, the
following programs are found to confer subsidies:
National Government Loans and Grants; and
Regional Development Incentives.
We determine the estimated net subsidy to be 3.38 percent ad valorem for all manufacturers,
producers, or exporters in Sweden of certain carbon steel products, except for Surahammars
Bruks AB which is excluded from these preliminary determinations.
Case History
On December 19, 1984, we received a petition in proper form from the United States Steel
Corporation of Pittsburgh, Pennsylvania, filed on behalf of the U.S. industry producing certain
carbon steel products. In compliance with the filing requirements of § 355.26 of our regulations (19
CFR 355.26), the petition alleges that manufacturers, producers, or exporters in Sweden of
certain carbon steel products directly or indirectly receive benefits which constitute subsidies
within the meaning of section 701 of the Act, and that these imports materially injure, or threaten
material injury to, a U.S. industry.
We found that the petition contained sufficient grounds upon which to initiate countervailing
duty investigations, and on January 8, 1985, we initiated these investigations (50 FR 2319). We
stated that we expected to issue preliminary determinations by March 14, 1985.
Since Sweden is a "country under the Agreement" within the meaning of section 701(b) of the
Act, injury determinations are required for these investigations. Therefore, we notified the ITC of
our initiations. On February 4, 1985, the ITC determined that there is a reasonable indication that
these imports materially injure or threaten material injury to a U.S. industry.
We presented to the government of Sweden in Washington, D.C. a questionnaire
concerning the allegations on January 25 and a supplemental questionnaire on February 12, 1985.
On February 25, 1985, we received responses to our questionnaires from the government of
Sweden, Svenskt Staal AB (SSAB), and Surahammars Bruks AB (Surahammars), the two Swedish
producers and exporters of the products under investigation. We also received information
pertaining to our questionnaire from Granges AB and Luossavaara-Kiirunavaara AB (LKAB).
On March 8, petitioner filed supplemental information with the Department in which, for the first
time, petitioner alleged that Swedish steel producers may be receiving benefits from labor
subsidies, export financing, credit guarantees, and municipal subsidies. Due to the late submission
of these allegations, we are unable at this time to reach a decision as to whether or not any of these
programs are countervailable. Pursuant to section 775 of the Act, however, we will investigate
these and any other programs or practices which appear to confer subsidies on the merchandise
under investigation.
Scope of the Investigation
The products covered by these investigations are certain carbon steel products, specifically
carbon steel plate, hot-rolled carbon steel flat-rolled products, and cold-rolled carbon steel
flat-rolled products as described in the appendix to this notice.
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Analysis of Programs
Throughout this notice, we refer to certain general principles applied to the facts of the current
investigations. 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).
Consistent with our practice in preliminary determinations, where a response to an allegation
denies the existence of a program, receipt of benefits under a program, or eligibility of a company
or industry under a program, and the Department has no persuasive evidence showing that the
response is incorrect, we accept the response for purposes of the preliminary determinations. All
such responses are subject to verification. If the response cannot be supported at verification, and
the program is otherwise countervailable, the program will be considered a subsidy in the final
determinations.
In its response, Surahammars reported that it had exported a small quantity of the products under
investigation to the U.S. during the review period, but that the company had not received any
benefits under the programs
mentioned in our questionnaire. We accept the information in Surahammars' response and are
excluding Surahammars from these preliminary determinations. For our final determinations on
this case, however, we will verify Surahammars' response.
For purposes of these preliminary determinations, the period for which we are measuring
subsidization (the review period) is the calendar year 1984. Based upon our analysis of the petition
and the responses submitted by the government of Sweden and SSAB to our questionnaires, we
preliminarily determine the following:
I. Programs Determined to Confer Subsidies
We preliminarily determine that subsidies are being provided to manufacturers, producers, or
exporters in Sweden of certain carbon steel products under the following programs:
A. National Government Loans and Grants
Petitioner alleged that the Swedish carbon steel producers have received preferential loans and
grants from the government a part of a broad program for restructuring the Swedish steel industry.
In its response, SSAB reported that it had received reconstruction loans and structural loans from
the Swedish government. Both types of long-term loans initially were given to SSAB as part of the
Swedish government's participation in the establishment of SSAB in 1978. Additional
reconstruction and structural loans were awarded to SSAB by the government in later years.
The initial set of reconstruction loans received by SSAB were intended to cover expected operating
losses by SSAB during the 1978-1982 reconstruction period. Subsequent reconstruction loans
were granted for employment promotion purposes and for investment in plant and equipment.
These loans were interest- free for the first three years, after which they carried either a 9.5 percent
or 11.5 percent interest rate. Any interest not paid is added to the loan principal at the end of the
fiscal year. For some of these loans, up to 50 percent of the funds received may be written off at the
end of the second fiscal year after the initial disbursement, and the remainder of the unpaid
principal may be forgiven entirely at the end of the ninth calendar year after disbursement.
Furthermore, principal and interest payments on these loans are required only if SSAB decides to
distribute dividends to its shareholders. In that case, SSAB is obligated to pay back any interest
accrued and then any principal in a combined payment amounting to the size of the dividend.
The structural loans received by SSAB were intended to partially finance new investment projects.
These loans were interest-free for the first three years,
after which they carried an interest rate based on the prevailing state loan interest rate plus a 0.25
percent margin. The interest rate, which is adjusted every fifth year, initially was 5.25 percent and
currently is 12.50 percent, including the 0.25 percent margin. The term of these loans is 25 years,
with no repayments required during the first five years after disbursement. A portion of the initial
set of structural loans was converted by the government in 1981 into new equity in SSAB.
Since all of these loans were authorized under special government legislation and were given to
SSAB on preferential terms, we preliminarily determine that the reconstruction and structural
loans provide counteravailable benefits to SSAB.
Petitioner alleged that SSAB has been uncreditworthy since its formation in 1978. To determine
whether SSAB was creditworthy during the 1978-1984 period, we focused on the debt-to-equity
rates and the ability of the company through its operations to meet interest obligations and
principal payments. To make these decisions, we also reviewed cash flow, debt repayment, and
interest expense coverage ratios. Our analysis of these factors leads us to preliminarily determine
that SSAB has been and continues to be creditworthy.
We calculated the benefits conferred by these loans in accordance with our long-term loan
methodology as contained in the Subsidies Appendix. For the benchmark interest rate on
fixed-rate loans, we used the average interest rate
on SSAB's own long-term commercial loans and bonds for the year in question as presented in the
company response. For the benchmark interest rate on variable-rate loans, we used the average
interest rate on 12-month certificates of deposit in 1984. To calculate the ad valorem benefit
conferred by these loans, we divided the sum of all 1984 loan benefits by the total value of SSAB's
1984 sales.
Based on our discussion of SSAB's equityworthiness in section II.A below, we did not treat those
structural loans converted into equity as counteravailable grants. We did treat those portions of
the reconstruction loans which were written off prior to 1985 as grants. In accordance with the
grant methodology in the Subsidies Appendix, we allocated the amount of the loan principal
forgiven (the grant amount) over 15 years using the weighted-average cost of capital in the year of
the write-off as the discount rate. To calculate the ad valorem benefit conferred by these grants, we
divided the sum of all 1984 grant benefits by the total value of SSAB's 1984 sales.
The estimated subsidy rate for the loan and grant benefits derived from SSAB's reconstruction and
structural loans is 3.21 percent ad valorem.
B. Regional Development Incentives
Petitioner alleged that the Swedish carbon steel producers have received
various regional development incentives from the Swedish government.
In its response, SSAB reported that it has received regional development loans and grants from the
government including loans and grants for location of industry, employment and training,
transportation relief, and building and construction.
Based on our analysis, we preliminarily determine that loans and grants for location of industry,
loans and grants for various regional investment projects, and grants for regional freight
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relief confer counteravailable subsidies. We also preliminarily determine that grants for
employment promotion schemes, staff training projects, and health-care centers do not appear to
be limited to an industry or group of industries and therefore are not counteravailable.
Using the loan and grant methodologies in the Subsidies Appendix, we estimate the subsidy rate for
these regional development incentives to be 0.17 percent ad valorem.
II. Programs for Which Additional Information is Needed
A. Government Equity Infusions
Petitioner alleged that since its formation in 1978 SSAB has received masive
government equity infusions on terms inconsistent with commercial considerations.
We have consistently held that government provision of equity does not per se confer a subsidy.
Government equity infusions bestow countervailable benefits only when they occur on terms
inconsistent with commercial considerations. When there is no market-determined price for
equity, it is necessary to determine whether the company is a resonable commercial investment.
Since SSAB's shares are not publicly traded, and there is no market-determined price for its shares,
we must determine whether SSAB is equityworthy.
To make this determination, we reviewed and assessed SSAB's financial statement from 1978 to
1983. In analyzing these financial statements, we consider the information from the viewpoint of a
reasonable investor. The Department, when considering the accounting principles and practices,
analyzes the impact of the accounting practices used by the company on its overall financial
results. Included in this review, we analyzed the results of the following data: Rate of return on
sales, rate of return from operations, rate of return on equity, debt-to-equity ratio, and current
ratio.
We have reviewed the annual reports and audited financial statements of SSAB for the 1978-1983
period. Prior to the formation of SSAB in 1978, a five-year corporate earnings forecast was
developed and published in SSAB's 1978 annual report, which projected profitability by 1982. The
losses experienced by SSAB
during 1978-1981 appeared to have resulted from the reorganizing and restructuring of the steel
manufacturing facilities acquired by SSAB. The company's cash flow was positive in all years except
1981, and that SSAB reached profitability in 1982 and 1983.
Our preliminary review of the data, however, raised issues concerning certain accounting
principles and circumstances of SSAB's operations. Additional data will be required to do a more
precise analysis, to clarify the impact of certain accounting principles, and to obtain a further
explanation of the results of the operations. Support for the forecasted earnings during the
1978-1983 restructuring period, additional background on the SSAB Formation Agreement, and
final results on the 1984 accounting period are also needed before making our final determinations.
B. Government Loan Guarantees
Petitioner alleged that SSAB and one of its shareholders, Granges AB, have benefited from loan
guarantees by the Swedish government.
The only loan guarantee program we have found is set forth in an October 1981 agreement between
Granges AB and the government of Sweden. Under this agreement, Granges has the right to
request that the government assume all or portions of a loan which Granges made to SSAB at the
nominal loan amount plus
any accrued interest. The government's agreement to assume the loan is subject to various
conditions, among which is a provision that Granges must first exercise its right to have its shares
in SSAB redeemed by the government.
Loan guarantees are countervailable only if they are on terms inconsistent with commercial
considerations. Since the government's agreement to assume Granges' loan is an integral part of the
equity infusion and restructuring arrangement which led to the formation of SSAB initially, we are
unable to determine whether this agreement was consistent with commercial considerations in
isolation, without further information on SSAB's operations. (See discussion regarding government
equity infusions in section II.A above).
C. Research and Development Subsidies
Petitioner alleged that the Swedish government helps support steel-oriented research and
development organizations in Sweden.
The Swedish Ironmasters' Association, or Jernkontoret, is located in Stockholm. The Association
participates in joint research activities with practically all iron and steel companies in Sweden,
Finland, Norway, and Denmark. Research activities are financed in three ways: Special research
levies from enterprises, government grants from the Swedish Board for Technical Development,
and contributions in kind from the industrial companies.
The Swedish Institute for Metals Research, located in Stockholm, is sponsored by nearly all the
Scandinavian steel industries, The basis for the activities at the Institute is a triennial agreement
between private industry and the Swedish Board for Technical Development. This agreement sets
out the details of a general research program. Under the current agreement, the industry
contributed 53 percent and the government 47 percent of the cost.
The Foundation for Metallurgical Research (MEFOS) is located in Luleaa, Sweden. The
Foundation owns and operates two experimental plants called the Metallurgical and the Metal
Working Research Plant. Approximately 60 percent of the Foundation's budget is provided by
Foundation members and 40 percent is contributed by the government through the Swedish Board
for Technical Development.
To determine if and to what extent government grants to these research and development
organizations benefit the Swedish carbon steel industry, we need additional information in three
areas: (1) The availability of research and development funds provided by the Swedish Board for
Technical Development to other Swedish industries outside the steel sector; (2) the exact scope of
research and development done by the three research institutes; and (3) the degree of availability
to the public of all research and development project results obtained with the aid of government
financing.
D. Inputs at Preferential Prices
Petitioner alleges that SSAB has an arrangement with LKAB, a state-owned mining company in
Sweden, under which SSAB obtains iron ore at preferential prices.
We found that SSAB receives all of its external supplies of iron ore from LKAB. In 1983 and 1984,
SSAB reported that it received rebates and price discounts from LKAB to promote the utilization of
iron ore pellets and trial grades of iron ore. Although LKAB has supplied general price list
information, and SSA has submitted aggregate quantity and price data on its iron ore purchases
from LKAB, we need additional pricing information to ascertain the availability of such discounts
and rebates to other LKAB customers of similar iron ore grades.
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Suspension of Liquidation
In accordance with section 703(d) of the Act, we are directing the U.S. Customs Service to suspend
liquidation of all entries of certain carbon steel products from Sweden which are entered, or
withdrawn from warehouse, for consumption on or after the date of publication of this notice in the
Federal Register and to require a cash deposit or bond for each entry of this
merchandise in the amount of the estimated ad valorem subsidy rate. The estimated net subsidy is
3.38 percent ad valorem for all manufacturers, producers, or exporters in Sweden of certain
carbon steel products, except for Surahammars Bruks AB which is excluded from these preliminary
determinations. This suspension will remain in effect until further notice.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the ITC of our determinations. In
addition, we are making available to the ITC all non- privileged and non-confidential information
relating to these investigations. We will allow the ITC access to all privileged and confidential
information in our files, provided in ITC confirms that it will not disclose such information, either
publicly or under an administrative protective order, without the written consent to the Deputy
Assistant Secretary for Import Administration.
The ITC will determine whether these imports materially injure or threaten material injury to a U.S.
industry 120 days after the Department makes its preliminary affirmative ditirminations or 45 days
after its final affermative determinations, whichever is latest.
Public Comment
In accordance with § 355.35 of our regulations, we will hold a public hearing, if requested, to afford
interested parties an opportunity to comment on these preliminary determinations at 2:00 p.m. on
April 16, 1985, at the U.S. Department of Commerce, room 1414, 14th Street and Constitution
Avenue, NW., Washington, D.C. 20230. Individuals who wish to participate in the hearing must
submit a request to the Deputy Assistant Secretary for Import Administration, Room B-099, at the
above address within 10 days of the publication of this notice.
Requests should contain: (1) The party's name, address, and telephone number; (2) the number of
participants; (3) the reason for attending; and (4) a list of the issues to be discussed. In addition, at
least 10 copies of pre-hearing briefs must be submitted to the Deputy Assistant Secretary by April
11, 1985. Oral presentaions will be limited to issues raised in the briefs.
All written views should be filed in accordance with 19 CFR 355.34, within 30 days of the
publication of this notice, at the above address in at least 10 copies.
This notice is published pursuant to section 703(f) of the Act (19 U.S.C. 1671b(f)).
C. Christopher Parlin,
Acting Deputy Assistant Secretary for Import Administration.
March 14, 1985.
Appendix.--Description of Products
Sweden
1. The term "carbon steel plate" covers hot-rolled carbon steel products, whether or not
corrugated, or crimped; not pickled; not cold-rolled; not in coils, not cut, not pressed, and not
stamped to non-rectangular shape; not coated or plated with metal and not clad; 0.1875 inch or
more in thickness and over 8 inches in width; as currenty provided for in item 607.6620, and
607.6625 of the TSUSA. Semi-finished products of solid rectangular cross- section with a width at
least four times the thickness and processed only through primary mill hot-rolling are not
included.
2. The term "hot-rolled carbon steel flat-rolled products" covers hot- rolled carbon steel products,
whether or not corrugated, or crimped; not cold- rolled; not cut, not pressed, and not stamped to
non-rectangular shape; not coated or plated with metal and not clad; 0.1875 inch or more in
thickness and
over 8 inches in width; pickled, as currently provided for in term 607.8320 of the TSUSA; and not
pickled and in coils; as currently provided in item 607.6610, or under 0.1875 inch in thickness and
over 12 inches in width, whether or not pickled, whether or not in coils, as currently provided for
in items 607.6710, 607.6720, 607.6730, 607.6740, or 607.8342 of the TSUSA.
3. The term "cold-rolled carbon steel flat-rolled products" covers cold-rolled carbon steel
products, whether or not corrugated or crimped; whether or not painted or varnished and whether
or not pickled; not cut, not pressed, and not stamped to non-rectangular shape; not coated or
plated with metal and not clad; over 12 inches in width, and 0.1875 inch or more in thickness, as
currently provided for in item 607.8320 of the TSUSA; or over 12 inches in width and under
0.1875 inch in thickness, whether or not in coils; as currently provided for in items 607.8350,
607.8355, or 607.8360 of the TSUSA.
[FR Doc. 85-6664 Filed 3-19-85; 8:45 am]
BILLING CODE 3510-05-M