66 FR 50410, October 3, 2001
                                                            C-549-818
                                                        Investigation
                                                      Public Document
                                              III/VII: DM, SC, JB, SL

September 21, 2001

MEMORANDUM TO: Faryar Shirzad
               Assistant Secretary
                 for Import Administration

FROM:          Joseph A. Spetrini
               Deputy Assistant Secretary
                 for AD/CVD Enforcement III


SUBJECT: Issues and Decision Memorandum in the Final Affirmative
Countervailing Duty Determination: Certain Hot-Rolled Carbon Steel
Flat Products from Thailand

Summary

We have analyzed the comments submitted by interested parties for the
final determination of the above-mentioned countervailing duty (CVD)
investigation for the period January 1 through December 31, 2001, the
period of investigation (POI). Our review of the comments has led us to
change our preliminary determination. Below are the "Subsidies Valuation
Information," "Programs Determined to Confer Subsidies," "Programs
Determined Not to Confer Subsidies," "Programs Determined to be Not Used,"
"Programs Determined Not to Exist," "Total Ad Valorem Rate," and
"Recommendation" sections of this memorandum that describe the decisions
made in this investigation with respect to Sahaviriya Steel Industries
Public Company Limited (SSI), the producer/exporter of subject
merchandise. Also below is the "Analysis of Comments" section in which we
discuss the issues raised by petitioners and respondents. We recommend
that you approve the positions we have developed in this memorandum.


I. Subsidies Valuation Information

A. Allocation Period

Section 351.524(d)(2) of the Department's regulations states that we will
presume the allocation period for non-recurring subsidies to be the
average useful life (AUL) of renewable physical assets for the industry
concerned, as listed in the Internal Revenue Service's (IRS) 1977 Class
Life Asset Depreciation Range System, as updated by the Department of
Treasury. The presumption will apply unless a party claims and establishes
that these tables do not reasonably reflect the AUL of the renewable
physical assets for the company or industry under investigation, and the
party can establish that the difference between the company-specific or
country-wide AUL for the industry under investigation and the AUL from the
IRS tables is significant.

As explained in the preliminary determination, the Department used an
allocation period of 15 years, which is the AUL listed in the IRS tables
for the steel industry. See Notice of Preliminary Affirmative
Countervailing Duty Determination and Alignment With Final Antidumping
Duty Determinations: Certain Hot-Rolled Carbon Steel Flat Products From
Thailand, 66 FR 20251, 20253 (April 20, 2001) (Preliminary Determination).
No party provided comments. For the reasons set forth in the preliminary
determination, we are therefore using the 15-year AUL as reported in the
IRS tables to allocate any non-recurring subsidies under investigation
which were provided directly to SSI.

B. Discount Rates

Both SSI and its subsidiary, Prachuab Port Company (PPC) received
exemptions from import duties on the importation of machinery (under IPA
Section 28), which we determined to provide non-recurring benefits. See
Duty Exemptions on Imports of Machinery Under IPA Section 28 section
below. SSI received IPA Section 28 exemptions in the years 1992 through
1997 and PPC received IPA Section 28 benefits in 1994 through 1996.

Section 351.524(d)(3) of the regulations directs us regarding the
selection of a discount rate for the purposes of allocating non-recurring
benefits over time. The regulations provide several options in order of
preference. The first among these is the cost of long-term fixed-rate
loans of the firm in question, excluding any loans which have been
determined to be countervailable, for each year in which non-recurring
subsidies have been received. However, SSI and PPC did not take out any
long-term fixed-rate loans. We verified both SSI's and PPC's calculated
annual average cost of long-term loans. SSI has provided information for
the years 1994 through 1997; PPC for the years 1993 through 1997. Since we
are not investigating the countervailability of SSI's or PPC's loans
during this period, there is no reason to seek another source of
appropriate discount rate information. However, for the years 1992 and
1993, during which SSI received IPA Section 28 benefits, and during which
SSI took out no long-term loans, we calculated the interest rates in the
following manner: we first subtracted the Minimum Lending Rate (MLR) from
SSI's cost of long-term loans for each year in which SSI received Section
28 benefits and for which SSI reported long-term loan information (1994
through 1997). We averaged the resulting spreads and added this average
spread to the MLRs for 1992 and 1993.

We initiated an investigation of whether SSI was creditworthy for the
years 1997 through 1999. However, we have not found benefits granted in
those years that are allocable to the POI, under any of the non-recurring
subsidy programs under investigation. See Duty Exemptions on Imports of
Machinery Under IPA Section 28 section below. Therefore, we need not reach
the issue of SSI's creditworthiness in the years 1997 through 1999.
Furthermore, we declined to initiate an investigation of SSI's
creditworthiness for 1996. Therefore, there is no basis for adjusting the
discount rates to include an uncreditworthiness risk premium in any of the
relevant years.

Calculation of Ad Valorem Subsidy Rates 

In the preliminary determination, we found that SSI and PPC are cross-
owned; however, a finding of cross-ownership does not mean that the
subsidies provided directly to one company are attributable to the
combined sales of both companies, unless both companies produce and sell
subject merchandise (see section 351.525(b)(6)(ii) of the regulations). We
verified that SSI is the producer and exporter of subject merchandise, and
that PPC is a non-producing subsidiary of SSI. Both SSI and PPC received
benefits under some of the programs which we are finding countervailable.
As discussed in the regulations, the general rule with respect to
attribution is that a subsidy will be attributable to the products
produced by the corporation that received the subsidy (see section
351.525(b)(6)(i)). Thus, if SSI directly received a subsidy, the benefit
from that subsidy is attributable to the products produced and sold by
SSI, assuming no other tying rules are present (e.g., it is not an export
subsidy, or a subsidy tied to subject merchandise).

Where there is a non-producing subsidiary that receives subsidies, and if
those subsidies are untied, the benefits from those subsidies are
attributable to the consolidated sales of the corporate group with which
the non-producing subsidiary is consolidated (see Countervailing Duties;
Final Rule, 63 FR 65348, 65393 (November 25, 1998) (Preamble to the
regulations concerning non-producing subsidiaries)(Preamble)). As
discussed in the Preamble, the situation of a non-producing subsidiary is
analogous to the situation of a holding or parent company. Where the
government provides a subsidy to a non-producing subsidiary, and there are
no conditions on the use of that subsidy, the subsidy would be attributed
to the ". . . consolidated sales of the corporate group that includes the
non-producing subsidiary." (See Preamble, at 65402, see also, section
351.525(b)(6)(iii).) As a non-producing subsidiary, PPC's subsidies are
appropriately calculated according to the method set forth in the
regulations. 

Thus, to calculate the ad valorem subsidy rate in this final
determination, we divided the benefit from each subsidy provided directly
to SSI by the appropriate sales value (either export or total) for
products sold by SSI. For untied subsidies provided to PPC, we divided the
benefit by the consolidated sales of the SSI corporate group. Where SSI
and PPC both received subsidies under the same program, the two calculated
ad valorem rates were added together to determine the subsidy rate which
is attributable to subject merchandise from that particular program. 


II. Programs Determined to Confer Subsidies

A. Incentives Under the Investment Promotion Act

The Investment Promotion Act of 1977 (IPA) is administered by the Board
of Investment (BOI) and is designed to provide investors with tax
exemptions, duty exemptions and reductions, and other types of assistance,
such as exceptions to immigration laws when hiring foreign technicians. In
order to receive IPA benefits, a company must apply to the BOI for a
Certificate of Promotion (license), which specifies goods to be produced,
production and export expectations, and benefits requested. The licenses
are granted at the discretion of the BOI and are periodically amended or
reissued to change or extend benefits or requirements. Each IPA benefit
for which a company is eligible must be specifically stated in the
license. Companies may approach the BOI on their own initiative and apply
for IPA benefits. Such benefits are provided only after a company is
evaluated and approved by the BOI. In addition, the BOI may actively
promote projects in particular industry sectors by publishing
announcements indicating the availability of promotion privileges for
projects in those sectors. There is also a formal application process for
those responding to such a BOI announcement, and approval will only be
granted to applicants meeting the BOI's criteria (as detailed in the
announcement). It was through this type of BOI announcement that promotion
privileges were offered to the hot-rolled steel industry.

Thailand had been considering the establishment of a private domestic
steel industry since the 1960's, but the lack of natural resources and
limited domestic demand made the creation of such an industry unviable. By
the late 1980's, however, developing market factors in Thailand made a
flat-rolled steel industry feasible. Domestic demand in Thailand had
increased significantly and was, in the BOI's view, sufficient to support
a domestic flat-rolled steel industry. To promote the development of the
industry, the BOI issued, on August 2, 1988, Announcement of the Office of
the Board of Investment No. Por. 1/1988, Re: Promotion of Steel Sheet
Production. This announcement requested applications from investors
interested in developing a steel facility in Thailand. In the application,
each applicant was asked to identify the BOI privileges it wanted. Six
applications were submitted. SSI was selected from among these applicants
because they met all of the BOI requirements (e.g., domestic ownership
requirement of at least 60 percent), and because the SSI proposal was far
more developed than the other proposals. See discussion of BOI
subcommittee recommendation to the Board of Investment in RTG Verification
Report, at page 5, and BOI Exhibit 2. 

On November 8, 1989, the BOI approved a package of benefits for SSI.
After the BOI gave their approval, the Ministry of Industry (MOI) issued
SSI a factory license. The MOI then announced on November 24, 1989, in
Ministry of Industry Announcement, Re: Policy on Steel Sheet Industry,
that it would "suspend its consideration for the establishment or the
expansion of factories producing hot-rolled, cold-rolled, and surface
treatment sheet (plate mill excluded), for a period of ten years." 

When determining whether a program is countervailable, we must examine
whether it is an export subsidy or whether it provides benefits to a
specific enterprise, industry, or group thereof, either in law (de jure
specificity) or in fact (de facto specificity). See section 771(5A) of the
Act. There are no explicit export conditions in the general legislation of
the IPA, although the introduction does discuss exports as one of several
factors that may be considered. Some specific sections of the IPA do
contain explicit export requirements, however. At verification, we
reviewed in detail SSI's application as well as internal documentation on
BOI's selection and approval process. The general application contains a
section entitled "product export plan," which SSI completed. SSI also
requested privileges under specific sections of the IPA that contained
export requirements, but its application requested assistance under every
possible section of the IPA. Our review of the internal report of the BOI
subcommittee which recommended SSI for promotion did not reveal any
analysis or condition pertaining to, or contingent upon, anticipated or
actual exportation. Moreover, in the initial approval, SSI was not
approved for receipt of any assistance under those discrete sections of
the IPA that contained an export requirement or condition. Because receipt
of the initial benefits package was not contingent upon export
performance, we determine that the assistance approved in the initial
package does not constitute a de jure or de facto export subsidy.
Subsequent to the initial approval, SSI again requested assistance under
sections of the IPA which contained export requirements. The BOI approved
the request for duty exemptions under Section 36(1). Our analysis of
Section 36(1) is set forth in detail below in the section entitled Duty
Exemptions on Imports of Raw and Essential Materials Under IPA Section
36(1). 

Because we have determined that the BOI assistance to SSI does not
constitute an export subsidy, we must examine whether it constitutes a
domestic subsidy. There is no element of the law explicitly limiting
eligibility for IPA program benefits from the BOI, to an enterprise,
industry, or group thereof. Thus, this program is not de jure specific,
and we must analyze whether the program meets the de facto criteria
defined under section 771(5A)(D)(iii) of the Act. The BOI solicited
applicants for the creation of a steel-sheet industry. A package of IPA
benefits was tailored to meet the winning applicant's requirements, and
the MOI announced it would not issue a license to any other companies in
the hot-rolled steel industry for a period of ten years. We find that
these factors (a special BOI announcement to promote a steel-sheet
industry, a tailored package of benefits, and a prohibition against
domestic competition), taken together, demonstrate that SSI's IPA benefits
are de facto specific to an enterprise or industry within the meaning of
section 771(5A)(D)(iii)(I) of the Act. In addition to IPA benefits to SSI,
petitioners alleged that PPC, a subsidiary of SSI, also received a package
of benefits under IPA. PPC, which owns and operates the port facility
where SSI is located, was established in 1991, after SSI was established
and approved for its package of IPA benefits. Although the BOI did not
expressly solicit applicants to establish a port facility, the fact that
PPC was created after SSI to develop a port facility in the same location
as SSI's plant; that it is a subsidiary of SSI; and, that it services
SSI's import and export needs, leads us to conclude that the BOI's
approval of a package of incentives to PPC was part of its effort to
develop a hot-rolled steel industry, and therefore, that PPC's package of
incentives is specific in accordance with section 771(5A)(D)(iii)(I) of
the Act, because the actual recipients are limited in number. 

Because the packages of benefits were composed of different types of
incentives under different sections of the IPA, we are separately
analyzing the issues of financial contribution and benefit under each
relevant section.

1. Duty Exemptions on Imports of Machinery Under IPA Section 28

Under IPA Section 28, an approved company is exempted from import duties
and VAT on imports of machinery (VAT exemptions under IPA Section 28 are
discussed separately below in the section titled Programs Determined to be
Not Countervailable. Import duty exemptions provide a financial
contribution under section 771(5)(D)(ii) of the Act in the form of
foregone revenue that is otherwise due to the RTG. The benefit is the
amount of the revenue foregone by the RTG.

Although import duty exemptions are identified as recurring in the
illustrative list of recurring benefits in section 351.524(c)(1) of the
regulations, petitioners alleged that, since these import duty exemptions
were for the purchase of capital equipment, they should be treated as non-
recurring in accordance with section 351.524(c)(2)(iii) of the
regulations. In the Preamble to our regulations, we stated that if a
government provides an import duty exemption tied to major equipment
purchases, it may be reasonable to conclude that, because these duty
exemptions are tied to capital assets, the benefits from such duty
exemptions should be considered non-recurring. Because the benefit from
the exemption of import duties under IPA Section 28 is tied to the capital
assets of SSI and PPC, in the preliminary determination, we treated
Section 28 benefits as non-recurring. See Preliminary Determination. 

After the preliminary determination, SSI provided information indicating
that some of the imports on which Section 28 exemptions were granted were
not tied to SSI's capital structure, and urged the Department to exclude
those import duty exemptions from our calculations of the benefit. In
considering whether such an adjustment to our calculations is warranted
and whether we should treat a subsidy traditionally considered to be
recurring as non-recurring, or vice-versa, we are guided by sections
351.524(b) and (c) of our regulations. The regulations direct us to
consider (i) whether the subsidy is exceptional in the sense that the
recipient cannot expect to receive additional subsidies from the same
program on an ongoing basis from year to year, (ii) whether the subsidy
required or received the government's express authorization or approval
(i.e., receipt of benefits is not automatic); or (iii) whether the subsidy
was provided for or tied to the capital assets of the firm. 

There can be no question that machinery is a capital asset. Thus, duty
exemptions on machinery are tied to the capital assets of the firm. While
SSI's license authorizes the company to receive duty exemptions on
machinery, each import for which SSI received duty exemptions under
Section 28, required express government approval. At verification we
reviewed the procedures established for receiving these duty exemptions.
SSI had to write a letter to the BOI, in advance of the entry of the
equipment, and include the supplier invoices. The BOI examined the
supplier invoices to determine whether the listed equipment was consistent
with the conditions of SSI's promotion certificate and whether the
particular items were not domestically manufactured. Only when the BOI was
satisfied that the goods being imported met those criteria did the BOI
issue a letter to Customs authorizing duty exemptions for that particular
importation. RTG Verification Report at page 7. There were instances when
duty exemptions were not authorized.

Because duty exemptions on machinery are tied to capital assets and
because each importation required express approval from the BOI, we find
that, consistent with 351.524(c)(ii), it is appropriate to treat all
Section 28 exemptions as non-recurring benefits. 

To measure the benefit allocable to the POI, we first conducted the "0.5
percent test" for the Section 28 import duty exemptions received by SSI
and PPC. See section 351.524(b)(2) of the Department's regulations. For
each year in which there were Section 28 import duty exemptions, we summed
the exemptions provided in that year and divided that sum by the relevant
total sales for that year. For PPC, none of the exemptions exceeded the
"0.5 percent test." For SSI, Section 28 import duty exemptions for each
year, except 1997, exceeded the "0.5 percent test," and therefore should
be allocated over time. For those years, we allocated the annual total
exemptions, in accordance with section 351.524(d) of the Department's
regulations, to determine the Section 28 benefits attributable to the POI
(See Allocation Period and Discount Rates sections above). We summed the
portions of each year's benefits attributable to the POI and divided that
amount by SSI's total sales during the POI to determine a countervailable
subsidy of 0.83 percent ad valorem. 

2. Duty Exemptions on Imports of Raw and Essential Materials Under IPA
Section 30

IPA Section 30 allows companies reductions of import duties on raw and
essential materials that are consumed in production. Under Section 30, SSI
was originally approved for a reduction of duties on imported raw and
essential materials; the rate of duty reduction was later reduced, and
this rate was in effect during the POI. We verified that, during the POI,
SSI only used Section 30 for imports of steel slab. Pursuant to section
771(5)(D)(ii) of the Act, Section 30 provides a financial contribution in
the form of revenue forgone by the RTG, i.e., the duties which would
otherwise be assessed on the imported raw and essential materials. There
is a benefit to SSI in the amount of the duties they would otherwise have
to pay. According to SSI, the duty rate on steel slab was one percent.


The tariff schedule provided by the RTG in the questionnaire responses
shows that the "normal rate" of duties on steel slab imports is ten
percent, while one percent is the "discount rate." At verification, the
RTG explained the difference between the "normal rate" and the "discount
rate." The "normal rate" is the ceiling rate necessary to meet Thailand's
obligations under the WTO, and the "discount rate" is the rate that is
actually paid by importers. See RTG Verification Report, at page 4, and
Ministry of Finance (MOF) Exhibit 1. They further explained that in the
case where a raw material is not being domestically produced, as with
slab, the MOF usually will reduce the tariff rate for that product to one
percent. In the Thai tariff schedule in effect during the POI, we found
the rate of duty for steel slab is one percent. Because there is a
government policy to reduce the duty rates on raw and essential materials
that are not produced in Thailand and because this policy appears to be
uniformly applied, we find it appropriate to use a one percent duty rate
to calculate the benefit from the Section 30 import duty reductions. To
measure the benefit, we have calculated the difference between the duties
SSI actually paid and the duties that they should have paid absent the
Section 30 reduction. We divided that difference by the value of SSI's
total sales during the POI and we determine the countervailable subsidy to
be 0.07 percent ad valorem.

3. Duty Exemptions on Imports of Raw and Essential Materials Under IPA
Section 36(1) 

SSI was not approved for privileges under Section 36 in its initial
package of IPA benefits. SSI, however, did eventually reapply for Section
36 privileges and was approved for benefits under Sections 36(1), 36(2),
and 36(4) in 1997. Sections 36(2) and 36(4) are addressed below in the
Programs Determined To Be Not Used section of this memorandum. Under
Section 36 of the Investment Promotion Act of 1977, and of the 1991
amendment to the Investment Promotion Act, it states: "{S}ection 36: For
the purpose of promoting exports, the Board may grant the promoted person
one or more of the special rights and benefits as follows:. . . ." Since
the express purpose of Section 36 is to promote exports, we find that
Section 36, and the privileges provided under each subsection of Section
36, constitute a de jure export subsidy in accordance with section
771(5A)(B) of the Act. Furthermore, a financial contribution is provided
by Section 36(1) in the form of revenue foregone by the RTG (i.e., the
duties which would otherwise be assessed on imported raw and essential
materials) (see section 771(5)(D)(ii) of the Act.)

Section 36(1) exempts companies from duties on imports of raw and
essential materials that are incorporated into goods for export. The RTG
reported that Section 36(1) essentially operates as a duty drawback scheme
and as such, is not countervailable, because the exemptions on imported
raw and essential materials can only be received for imported goods
consumed in the production of exports. SSI reported that it only received
exemptions under Section 36(1) on its imports of raw materials that were
consumed in the production of merchandise for export. 

In our preliminary determination, we stated that we needed additional
information in order to determine whether this program meets the standards
for non-countervailability set forth in section 351.519(a)(4) of the
regulations. We indicated that we needed to confirm that the Thai Customs
Authority has in place a system for Section 36(1) to confirm which inputs
are consumed in the production of exported products, that there are
provisions related to the normal allowance for waste, that the system is
effective for the purposes intended, and it is based on generally accepted
commercial practices. Based on additional information collected since the
preliminary determination, and at verification, we have now analyzed
whether Section 36(1) meets the standards set forth in section 351.519 of
our regulations for non-countervailability of remission or drawback of
import charges upon export. 

As stated in section 351.519(a) of the regulations, "{t}he term
'remission or drawback' includes full or partial exemptions and deferrals
of import charges"; thus, the Section 36(1) duty exemptions on imports of
raw materials by SSI are appropriately analyzed under this section of the
regulations. Under section 351.519(a)(1)(ii) of the regulations, in the
case of exemptions of import charges upon export, ". . . a benefit exists
to the extent that the exemption extends to inputs that are not consumed
in the production of the exported product, making normal allowance for
waste . . .." Under section 351.519(a)(4)(i) of the regulations, the
entire amount of such exemptions will confer a benefit, unless the
Department determines that "{t}he government in question has in place and
applies a system or procedure to confirm which inputs are consumed in the
production of the exported products and in what amounts, and the system or
procedure is reasonable, effective for the purposes intended, and is based
on generally accepted commercial practices in the country of export." 

At verification, we examined whether the RTG has a system in place to
confirm which inputs are consumed in the production of the exported
products and in what amounts, and whether the system or procedure is
reasonable and effective for the purposes intended. This included an
examination of the RTG's system for determining a normal allowance for
waste, which is a key part of determining whether the exemption is
countervailable. At verification, the Department explored in detail the
system in place to monitor and track the consumption and/or re-export of
goods imported under Section 36(1). See RTG Verification Report at pages 9-
11 and SSI Verification Report at page 8. We found that the system which
the BOI uses to monitor raw material imports is set up to match exports of
finished products against imports of raw materials. However, to ". . .
confirm which inputs are consumed in the production of the exported
products and in what amounts" (19 CFR 351.519(a)(4)(i), emphasis added),
it is necessary to examine whether the BOI has in place a system for
appropriately determining the normal allowance for waste. See 19 CFR
351.519(a)(1)(ii). 

We have examined in detail the allowance for waste which the BOI uses in
administering this program. As discussed in the verification report,
companies using Sections 30 and 36(1) are required to submit for the BOI's
approval a calculated yield factor. This yield factor is analyzed annually
by the BOI; BOI officials conduct site visits to monitor a company's
compliance with the conditions of their promotion certificate, and to
analyze any proposed yield factors. At verification, we reviewed documents
relating to the proposal and approval of SSI's yield factor. See RTG
Verification Report at pages 9-10 and BOI Exhibit 5. Companies receiving
benefits under Section 30 of the IPA are required to receive approval for
a yield factor which is then used to ensure that, in any year, a company
does not import raw materials in excess of its annual production capacity.
However, the yield factor approved for the purposes of Section 36(1) must
fulfill two purposes: to determine the maximum volume of raw material the
company is allowed to import for re-export; and to calculate the volume of
raw material, including a normal allowance for waste, incorporated into
each reported export. The yield factor which the BOI used for
administering SSI's import duty reductions under Section 30 is the same
yield factor applied to Section 36(1) imports. SSI reported that the yield
factor approved by BOI reflects a normal allowance for waste. See SSI's
May 31, 2001 Response, page 7. In examining this issue at verification, we
identified two other sources of information that addressed SSI's yield
factors. The first was from an independent financial review, which showed
a yield factor significantly lower than that approved by the BOI. The
second source, which was provided at the Department's request, was the
yield and waste information reported in the companion antidumping
investigation. That information too showed a yield factor below the yield
factor approved by the BOI. 

SSI stated that its exported products undergo additional processes and,
consequently, exported products generate more waste. See SSI Verification
Report, page 10. As such, according to SSI officials, the yield factors
reported in the financial review and in the AD investigation were not
reflective of the yield on exported products since those figures were
based on total production, not just production for export. Even if that
were the case (which the record does not clearly support), then the BOI
should not have relied on the yield formula it developed for SSI's total
production under Section 30 to determine the yield factor (which should
reflect the normal allowance for waste) on exported products under Section
36(1). 

Moreover, the yield factor approved by the BOI as representative of the
normal allowance for waste, does not include any provision for recoverable
and saleable scrap. Waste is defined as ". . . shrinkage, evaporation, and
so on." See Seigal, Joel G., Jae K. Shim, Dictionary of Accounting Terms,
Second Edition. New York, Barron's Educational Series, Inc., 1995. By the
very definition of the term "waste," a company is unable to recover and
use any waste incurred during the production process. Thus, recoverable
and saleable scrap cannot be considered waste, as it does have value and
can be sold. In fact, SSI does sell its scrap. In its yield factor
formula, which, according to the questionnaire responses, is supposed to
reflect the normal allowance for waste, the BOI did not take recoverable
and saleable scrap into account when determining which inputs are consumed
in the production of the exported products and in what amounts. When
recoverable scrap is factored in, the gap between the BOI approved yield
factor and SSI's actual experience widens even further. 

While there is no requirement or expectation, in administering this type
of program, that a yield factor used to determine the normal allowance for
waste precisely reflect a company's actual experience during a given
period, there must be a reasonable correlation. In this case, the BOI uses
the company's actual experience to determine the yield factor which it
claims represents the normal allowance for waste. Therefore, the
Department must analyze how that yield factor was calculated. The evidence
on the record indicates that the BOI did not isolate and examine what was
consumed in the production of the exported products and that it did not
consider in its analysis whether any of the scrap was recoverable and
saleable. We consider both of these elements to be essential in
determining a normal allowance for waste. We therefore determine that the
allowance for waste which the BOI uses in administering SSI's Section
36(1) duty exemptions is not "normal." Consequently, the RTG's system for
determining which inputs are consumed in the exported product, and in what
amounts, is not reasonable or effective for the purposes intended, and the
entire amount of SSI's import duty exemptions under Section 36(1) provides
a countervailable benefit, consistent with section 351.519(a)(4)(i) of the
Department's regulations.

To calculate the benefit, we summed the duties otherwise due on SSI's
imports of slab under Section 36(1) during the POI using the one percent
duty rate discussed above in Duty Exemptions on Imports of Raw and
Essential Materials Under IPA Section 30. We divided this sum by the value
of SSI's exports, to determine a countervailable subsidy of 0.58 percent
ad valorem. 

4. Additional Tax Deductions Under IPA Section 35(3)

IPA Section 35 provides various income tax deductions and exemptions for
promoted firms. SSI, through Section 35(3), claimed benefits under this
program on the tax return filed during the POI. IPA Section 35(3) allows
promoted companies to deduct double the cost of transportation,
electricity, and water for ten years after the promoted company first
derives income. Income tax deductions provide a financial contribution
under section 771(5)(D)(ii) of the Act in the form of foregone revenue
that is otherwise due to the RTG. The benefit is the amount of the revenue
foregone by the RTG. Under the provisions of section 351.509(a)(1) of the
Department's regulations, we determine that SSI received a benefit under
IPA Section 35(3) during the POI.

To measure the benefit, we assumed, consistent with Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order; Extruded
Rubber Thread from Malaysia, 57 FR 38475 (August 25, 1992), that SSI first
used its pool of countervailable tax deductions under IPA Section 35(3) ,
earned in 1998, to reduce its tax liability on its income tax return for
1998, filed during the POI. See Id., Department's Position at Comment 13;
also Extruded Rubber Thread From Malaysia; Final Results of Countervailing
Duty Administrative Review, 60 FR 17516 (April 6, 1995), Department's
Position at Comment 7. We then determined the extent to which that
countervailable tax deduction reduced SSI's taxable income. We calculated
the benefit by multiplying the amount of taxable income which SSI was able
to offset with its Section 35(3) tax deduction by the income tax rate. We
then divided this benefit by SSI's total sales during the POI. We
determine the countervailable subsidy to be 0.13 percent ad valorem. 

B. Provision of Electricity for Less than Adequate Remuneration 

The RTG owns and controls most of the generation, transmission and
distribution of electricity in Thailand. Rate-setting policy is developed
by the National Energy Policy Council (NEPC) and is implemented by the
National Energy Policy Office (NEPO) through the three RTG authorities
responsible for generation, transmission and distribution. The authority
responsible for generation and transmission is the Electricity Generating
Authority of Thailand (EGAT) and the two entities responsible for the
distribution are the Metropolitan Electricity Authority (MEA), which
serves Bangkok and the surrounding areas, and the Provincial Electricity
Authority (PEA), which serves the remainder of the country. The RTG
maintains a "uniform national tariff policy" which provides that consumers
in the same customer category will pay the same rate regardless of whether
they are in MEA's distribution area or PEA's distribution area. 

Other than EGAT, which supplies approximately 73 percent of the
electricity used in Thailand, there are Independent Power Providers (IPP)
and Small Power Providers (SPP). IPPs generate approximately 15.4 percent
of Thailand's electricity, and SPPs generate approximately 9 percent.
Thailand also imports approximately 2.4 percent of its electricity from
Laos and Malaysia. IPPs sell electricity only to EGAT. SPPs sell
electricity to EGAT, as well as to end users in industrial estates. IPPs
and SPPs are privately owned. The SPPs that sell to end users are
prohibited from selling electricity at rates higher than those charged by
the agencies owned by the RTG (see, Concession of Electricity Business,
which was issued by the Ministry of Interior and states that the rates
charged by SPPs shall not exceed those charged by PEA). 

We verified that PEA's costs of delivery are higher than MEA's; however,
the RTG requires that there can be no difference in tariffs charged by PEA
and MEA regardless of cost differences. Therefore, in order to implement
the uniform tariff policy, EGAT provided a discount to PEA and charged MEA
a surcharge on the bulk supply tariff rate that EGAT charges them for
their electricity purchases.

According to the RTG National Energy Policy Office Recommendations to
Cabinet Report (the NEPO Report), dated September 26, 2000, the original
objectives of the RTG's uniform tariff policy, which has been in place
since 1991, were to establish a tariff that reflects the economic costs
and secures the financial status of the three power utilities, and to
promote efficiency of electricity usage and equity for all power consumer
categories. The RTG's tariff policy consists of the base tariff, plus an
automatic adjustment mechanism which ensures that the electricity charges
cover fluctuations in marginal costs. There are four criteria the RTG uses
in determining the electricity tariff structure: 1) marginal costs; 2)
load pattern; 3) revenue requirements of the power utilities and financial
criteria; and, 4) social criteria for the electricity tariff
determination. The social criteria require that uniform tariffs be applied
across the country for each customer category. Also, the social criteria
call for subsidization of small, residential customers with low usage.
Finally, the social criteria maintain that the structure of the
electricity tariffs for customer groups other than small residential
customers should reflect marginal costs as closely as possible. 

According to the NEPO Report, prior to 1997, the electricity tariff was
established on a flat-rate basis. Under this system, EGAT sold electricity
at a lower rate to PEA than it did to MEA. This bulk supply tariff
afforded an internal subsidy to PEA via the higher rates charged to MEA
because the distribution cost for PEA was higher than for MEA. In November
1996, the NEPC approved a modification of the bulk supply tariff to go
into effect in January 1997. This modification altered the bulk supply
tariff from the initial flat rate to a time-of-use rate. The time-of-use
rates were based on usage during peak and off-peak hours. The modification
also created an internal subsidization of PEA in the form of a surcharge
added to the bulk supply tariff EGAT charged to MEA and a deduction from
the bulk supply tariff that EGAT charged PEA. The NEPC has altered the
surcharge and deductions charged to PEA and MEA on three separate
occasions thus far. On May 22, 1997, an adjustment was made so the
surcharge and deduction would correspond with the former average bulk
supply tariff. This change was retroactive to January 1997. On October 8,
1997, the surcharge and deduction were altered again as a result of the
economic crisis in Thailand, and the changes were retroactive to July
1997. On March 30, 2000, the third alteration of the surcharge and
deduction was authorized, retroactive to October 1998, in order to keep
the power utilities in line with the financial criteria established when
the electricity tariff structure was created. The retroactive application
of the alteration authorization on March 30, 2000 was accomplished through
a lump sum adjustment paid by MEA to PEA in 2001.

The uniform national tariff charged by MEA and PEA varies only based on
the category of consumer. The following are the categories of consumers:
Residential; Small General Services; Medium and Large General Services,
and Specific Business Services; Government Institutions and Non-Profit
Organizations; and Agricultural Pumping Service. SSI is considered to be a
Large General Services customer, and PPC is considered to be a Medium
General Services customer. SSI and PPC purchased electricity during the
POI only from PEA. 

In order to find a countervailable subsidy under the Act, the Department
must determine that a financial contribution is provided (section
771(5)(D) of the Act), that there is a benefit to the recipient (section
771(5)(E) of the Act), and that the program is specific (section 771(5A)
of the Act ). The government's provision of electricity constitutes a
financial contribution because it is the provision of a good as defined in
771(5)(D)(iii). To determine whether there is a benefit from the provision
of a good, the Act specifies that the Department must examine whether the
good was provided for less than adequate remuneration. According to
section 771(5)(E) of the Act, the adequacy of remuneration with respect to
a government's provision of a good or service, " . . . shall be determined
in relation to prevailing market conditions for the good or service being
provided or the goods being purchased in the country which is subject to
the investigation or review. Prevailing market conditions include price,
quality, availability, marketability, transportation, and other conditions
of purchase or sale." The regulations set forth, in order of preference,
the benchmarks that we will examine in determining the adequacy of
remuneration (see section 351.511). Under the regulations, the first
preference is to compare the government price to a market-determined price
stemming from actual transactions within the country. However, in the
Preamble, we made clear that if the government provider constitutes a
majority of the market, we would have to resort to other alternatives,
including a comparison to world market prices, and if no such market-
determined prices were available, we would examine whether the government
applied market principles in setting its price. See 19 CFR §
351.511(a)(2)(iii) and Preamble, 63 FR 65378.

In this case, the RTG provides electricity through EGAT, as the major
generator of electricity, and then through MEA and PEA which are the major
distributors of electricity. Of the two types of private electricity
producers, IPPs sell their product to EGAT and not to end users, and SPPs
are prohibited by the RTG from charging prices higher than PEA's.
Regarding import prices or other types of market reference prices,
although Thailand does import a small percentage of electricity (2.4
percent), this electricity is purchased by EGAT and sold through the same
tariff structure that is described above. Additionally, any exports of
electricity are sold through the government agencies. The private
providers are prohibited from charging rates higher than PEA, which
renders their prices inappropriate for purposes of our analysis. The other
private purchases are imports made by EGAT and not end users, and those
purchases are then distributed under the same tariff structure as the
electricity generated by EGAT itself. Because the RTG essentially controls
the entire domestic electricity market, there are no in-country, market-
determined prices to end users that we can use for comparison to the price
paid by SSI. In the Preamble to section 351.511, we discuss the fact that
the nature of the provision of electricity would normally prevent us from
examining a "world market price" (see Preamble, 63 FR at 65377-65378), and
no evidence or argument has been placed on the record of this
investigation concerning the application of a world market price. 

Therefore, based on the situation in Thailand, it becomes necessary to
examine whether the price charged for electricity is consistent with
market principles, in accordance with section 351.511(a)(2)(iii) of the
regulations. As discussed in the Preamble, in assessing whether the
government price was set in accordance with market principles, we will
analyze such factors as the government's price-setting philosophy, costs
(including rates of return sufficient to ensure future operations), or
possible price discrimination. The Preamble further explains that these
factors are not listed in any hierarchy, and that we may rely on one or
more of these factors in any particular case. See Preamble, 63 FR at
65378. 

Under NEPO guidelines that were in effect during the POI, the tariff rate
must be sufficient to cover each authority's marginal costs and specified
financial criteria. The specified financial criteria are included as
conditions of the World Bank loans to each of the three electricity
authorities. The RTG has adopted these World Bank loan conditions as part
of its own internal requirements in order to determine whether the tariff
rate is sufficient (See RTG Verification Report at 15 and NEPO Report at
7). The three financial criteria are: (1) a minimum self-financing ratio;
(2) a maximum debt to equity ratio; and (3) a minimum debt-service
coverage ratio (the exact ratios are proprietary). 

On its face, a system that requires the tariff rate for electricity to be
sufficient to cover both marginal costs and to meet specific financial
criteria should meet the standard set forth in the Preamble to the
regulations that the government's price be set in accordance with market
principles (i.e., sufficient to cover costs and to ensure future
operations). Under the RTG's own guidelines, the tariff rate is supposed
to be sufficient for each of the three authorities to cover marginal costs
and to meet these financial criteria. According to RTG officials at
verification, the last time each of the authorities conducted an analysis
of whether the tariff rate was sufficient to cover marginal costs and to
meet the financial criteria was in October 2000, but when we requested to
review the analyses that had been prepared by MEA and PEA, we were
informed that copies had not been retained. See  RTG Verification Report
at 15. Therefore, at verification, we asked the RTG to prepare these
analyses in order to demonstrate that PEA could meet the RTG's own
requirements without the internal subsidy (i.e., the difference between
the surcharge to MEA and the deduction to PEA). Although we gave officials
several opportunities to demonstrate that the required financial criteria
could be met by the tariff rate even without the internal subsidy, they
were unable to demonstrate this. 

The Department requested these analyses at verification in order to
verify the RTG's questionnaire response that the provision of electricity
by PEA was provided for adequate remuneration. The record shows that the
analyses that were requested at verification are the type of analyses that
the electricity authorities are required to do under their own guidelines.
The RTG's decision on the level of the internal subsidy that must be
provided to PEA is rooted in an analysis of whether the tariff rate is
sufficient to meet PEA's marginal costs and the specified financial
criteria. See NEPO Report at 7. Because the RTG could not demonstrate that
the required financial criteria was being met without the internal
subsidy, and that the tariff rate charged by PEA was sufficient to cover
marginal costs, we could not verify the RTG's questionnaire response that
electricity is provided for adequate remuneration. Accordingly, pursuant
to section 776(a)(2)(D) of the Act, we have determined that we must apply
facts available in determining whether electricity has been provided by
PEA for adequate remuneration.

In applying the facts available, if the Department finds that the
interested party has failed to cooperate to the best of its ability to
comply with a request for information, the Department may use an inference
that is adverse to the party in selecting from the facts otherwise
available (see section 776(b) of the Act). While we recognize that the
request for these analyses was made at verification, it was made in order
to verify the RTG's questionnaire response that electricity is provided to
PEA's users for adequate remuneration. Furthermore, the Department's
verifiers requested that the RTG electricity officials prepare the very
same types of analyses which they themselves must undertake to analyze
whether the tariff rate is sufficient to meet marginal costs and the
required financial criteria. Thus, we find that the RTG did not act to the
best of its ability in complying with a request for information by the
Department, and, accordingly, are applying adverse inferences, and
determine that electricity was provided for less than adequate
remuneration. 

In selecting from the facts available in determining the benefit, we
consider that the amount of the internal subsidy (which is calculated on a
per kilowatt-hour basis) most closely approximates what the increase in
the tariff rate (also calculated on a per kilowatt-hour basis) would need
to be in order for PEA to cover marginal costs and to meet the required
financial criteria. This is the most appropriate basis for determining the
benefit because a tariff rate which covers marginal costs and meets
required financial criteria could be considered to be determined in
accordance with market principles, which, in turn, is reflective of
adequate remuneration. Since the amount of the internal subsidy is on the
record and has been verified, we determine that the benefit, on a per
kilowatt hour basis, is equal to the internal subsidy. 

We also find this provision of electricity to be specific in accordance
with section 771(5A)(D)(iv) of the Act (see also The Statement of
Administrative Action Accompanying the Uruguay Round Agreements Act (SAA),
H.Doc. 103-316, Vol. 1 (1994) at 262) because it is limited to users who
are located in a designated geographical region within Thailand (i.e.,
those customers outside the Bangkok metropolitan area).

To calculate the subsidy, we first determined the difference, on a per
kilowatt hour basis, between MEA's rate during the POI (bulk supply tariff
plus surcharge) and PEA's rate during the POI (bulk supply tariff minus
deduction) which comprises the total amount of the internal subsidy. We
then multiplied that difference by the kilowatt hours purchased by SSI and
PPC during the POI to determine the benefit. In the Preliminary
Determination, we took into account the lump-sum adjustment to the
surcharge and deduction that was made after the POI but retroactively
applied. However, we now determine that making that adjustment was
inappropriate because it was agreed to, and provided, well after the end
of the POI. As such, it did not affect the actual rates paid during the
POI. We then divided SSI's benefit by its sales during the POI, and
divided PPC's benefit by the consolidated sales of the SSI corporate group
(see Calculation of Ad Valorem Subsidy Rates section above), to determine
an ad valorem subsidy of 0.77 percent. 



III. Programs Determined Not to Confer Subsidies

A. SSI and PPC Debt Restructuring

SSI and PPC each underwent comprehensive financial debt restructurings,
beginning in 1998 and concluding during the POI, which resulted in all of
their debts being restructured, and which included the conversion to
equity of previously issued convertible debentures. We have investigated
petitioners' allegations that SSI's and PPC's debt restructurings gave
rise to countervailable benefits in light of SSI's and PPC's financial
condition, and as a result of direct and/or indirect actions of the RTG.
We have examined and analyzed information provided by the RTG and SSI with
respect to the operation of the Thai financial sector and the RTG's role
therein, including actions of the RTG in response to the financial crisis
caused by the collapse of the baht, the RTG's role in corporate debt
restructurings in general, and the corporate debt restructurings of SSI
and PPC in particular, to determine whether the RTG played a role which
would give rise to countervailable subsidies. 

1. Collapse of the Baht and the Thai Economic Crisis

In July 1997, the RTG floated the baht against other currencies, causing
the baht to depreciate by as much as 56 percent against the U.S. dollar by
the end of the year and resulting in the general contraction of the Thai
economy. The Thai economy subsequently experienced massive failures both
of companies and their creditors. The RTG implemented programs to prevent
further bank failures and to get the economy back on its feet. These
included implementing the August 14, 1998 Announcement for Comprehensive
Financial Restructuring, the RTG's intervention in financial institutions
unable to achieve sufficient recapitalization because of their large non-
performing loan portfolios, and the injection of new capital into several
banks. 

2. Corporate Debt Restructuring Following the Baht's Collapse

After the collapse of the baht, and as part of its broad effort at
financial reforms, the RTG implemented plans to facilitate corporate debt
restructurings. To do so, the RTG established the Corporate Debt
Restructuring Advisory Committee (CDRAC) in 1998 to improve the financial
standing and operation of Thailand's financial institutions by formulating
policies that promote effective debt restructuring negotiations between
the private sector and these financial institutions. See Exhibit 5 of the
RTG's May 30, 2001 submission. The CDRAC is chaired by the Bank of
Thailand (BOT) Governor, and its members are the Board of Trade of
Thailand, the Federation of Thai Industries, the Thai Bankers'
Association, the Association of Finance Companies, and the Foreign
Bankers' Association. The CDRAC framework (the so-called "Bangkok
Approach") is set forth in the August 25, 1998 agreement among CDRAC
members. The record indicates that many, but not all, major corporate debt
restructurings were undertaken within the context of the framework
established through the CDRAC.

According to the RTG, CDRAC initially focused its attention on the
largest and most complicated debts in the economy, without respect to
specific industries or regions, and regardless of whether the debtors or
creditors were public or private sector entities. In late 1998, CDRAC
created a list of the first 351 firms, in 200 groups, as priority cases
that were targeted for debt restructuring and selected to participate in
the CDRAC process. According to the questionnaire response, the selection
criteria used in developing the list of 351 companies were: 1) debtors
with sizable credit outstanding; 2) debtors proposed by the Thai Bankers'
Association, the Foreign Bankers' Association, the Association of Finance
Companies, the Federation of Thai Industries and the Board of Trade of
Thailand; 3) debtors who expressed their intention to participate in the
restructuring process; and, 4) debt restructurings involving multiple
creditors. The Department examined this list at verification to determine
which companies and industries were included on the list; to verify the
amount of debt subject to restructuring for each company and within
industries; and, the extent of each company's participation in the CDRAC
process. We also discussed the application of the selection criteria in
the development of this list. This list was developed in late 1998 and was
finalized by CDRAC in March 1999. In April 1999, the CDRAC identified and
approved a second list of 316 companies. 

At the same time that the first list of 351 companies was being
developed, CDRAC also recognized that little debt restructuring was being
pursued or achieved under the Bangkok Approach guidelines for debt
restructuring. In an effort to establish a process by which parties would
be bound, the CDRAC developed the Debtor-Creditor Agreement (DCA) and the
Inter-Creditor Agreement (ICA). These agreements were to be signed by
creditors and debtors on a purely voluntary basis. Parties signing these
agreements would be bound to follow procedures that were negotiated and
agreed to by both parties. Independent experts consulted at verification
explained that the important features of the procedures were: 1) the
requirement that a debtor negotiate with all creditors at once; 2) the
designation of an independent financial advisor to report on a debtor's
financial condition; 3) the establishment of a time-bound process with
consequences for any party who does not adhere to the procedures; 4) and,
the requirement that creditors reach a consensus on the debt
restructuring. See Memoranda on Department's Verification and Meeting with
Independent Experts (August 17, 2001) (Experts Memoranda). 

3. SSI, PPC and Their Restructuring

SSI's debt restructuring was accomplished pursuant to an agreement,
concluded during the POI, which was the final of four amendments to the
original Credit Facilities Agreement (CFA) of February 18, 1994. The
original CFA agreement between SSI and its private creditors, provided for
all of SSI's financing needs, which included short- and long-term
financing from both secured and unsecured lenders in baht and foreign
currency denominations. This financing was provided by a syndicate of
lending institutions following SSI's initial startup in 1992. PPC's debt
restructuring also was accomplished pursuant to an agreement with its
creditors during the POI and also involved both short- and long-term
financing. 

Evidence on the record indicates that SSI, PPC, and their creditors were
prompted to pursue debt restructuring by factors internal and external to
the companies and their creditors, including the economic climate
following the collapse of the baht in July 1997, and the financial
management strategy these companies pursued before and after this
collapse. All parties involved had incentives to achieve a loan
arrangement that would enable SSI and PPC to continue their operations and
repay their debts. The secured loans and unsecured bonds were restructured
at the same time to assure all creditors that the restructuring was viable.

While the details of the debt restructuring are proprietary, it is
sufficient for purposes of this final determination to characterize the
restructurings as having involved the reorganization of SSI's and PPC's
short-term and long-term debts to provide repayment terms under which SSI
and PPC could service their debt obligations in the coming years, based on
general economic and company-specific forecasts. The unsecured bonds,
which had been issued on the bond market in 1995 as debentures convertible
to equity, were converted to equity on terms which the private bondholders
(some of which were foreign) and SSI agreed would enable SSI to meet its
obligations. 

4. Analysis of SSI's and PPC's Debt Restructurings

In order to find a countervailable subsidy under the Act, the Department
must determine that the program is specific (section 771(5A) of the Act;
section 351.502 of the Department's regulations), that a financial
contribution is provided (section 771(5)(D) of the Act), and that there is
a benefit to the recipient (section 771(5)(E) of the Act; section 351.503
of the Department's regulations). 

According to the information on the record, SSI and PPC were invited to
participate in this process by virtue of them being named on CDRAC's first
list in March 1999, even though their debt restructurings were finalized
shortly thereafter, in June 1999. SSI and PPC reported that the
restructurings were achieved without adherence to any CDRAC procedures as
neither SSI nor PPC signed a DCA. The balance of evidence on the record
indicates that SSI and PPC were restructured before the procedures of the
CDRAC restructuring process were implemented with respect to their debt
restructurings.

Nevertheless, given the parallel tracks of the placement of SSI and PPC
on the list, and the development of the CDRAC procedures for debt
restructuring, we consider that an examination of the CDRAC process and
the creation of the first list of 351 firms, including the manner in

which the RTG exercised its discretion in the selection of these firms,
should be considered in our analysis. In the preliminary determination,
the Department resorted to adverse facts available as a result of the
RTG's failure to act to the best of its ability to provide the requested
information related to the list. The RTG had stated that they were
prohibited by Thai law from releasing this information because of
confidentiality constraints, but failed to explain why they were unable to
provide the requested information in accordance with the Department's
procedures for the protection of business proprietary information.
However, this list of 351, including the identification of companies that
had undergone debt restructuring, was provided for the Department's
examination at verification in order to analyze it in the context of the
de facto specificity criteria under section 771(5A)(D)(iii)(I)-(IV) of the
Act. Our examination of this list has made it possible for us to analyze
whether Thailand's debt restructuring was limited to an enterprise or
industry, or group thereof. In our examination of this list, we took into
account information which petitioners argue indicates that the steel
industry may have received special consideration prior to the CDRAC
process, and that the steel industry was identified by the RTG for debt
restructuring (32 of the 351 companies on the list are in the primary
metal production sector). See Steel Industry in Crisis, Bank of Thailand
(December 1999). We also examined the procedures used by CDRAC for
developing the list, as well as CDRAC's application of its stated criteria
that were used in identifying companies on the list. Finally, we discussed
whether all of the firms on the list were restructured. 

The information contained in the list specifically identified, among
other things, the name of each company, each company's status in terms of
whether it signed a DCA, the amount of debt owed by each company,
including the name of its largest creditor, and an International Standard
of Industrial Classification (ISIC) code associated with each company to
identify its relevant industry. The list also noted the outcomes of each
company's debt restructuring as being either a completed case (for those
who either signed or did not sign a DCA), an unsuccessful case (for those
that signed a DCA), a case where the debtor did not sign a DCA, or a case
where a company had normal loans that did not need to be restructured.
Based on these various outcomes, the Department is unable to draw any
meaningful conclusions as to whether specific creditors or companies were
targeted by the RTG to undergo debt restructuring. 

Much of our analysis of this list is based on proprietary information and
is discussed in the Memorandum from Case Analysts to Barbara E. Tillman,
Certain Hot-Rolled Carbon Steel Flat Products from Thailand: Analysis of
the List of 351 Firms (September 21, 2001) (List of 351 Memorandum).
However, for purposes of this public decision memorandum, we note that our
analysis of the list, in accordance with section 771(5)(A)(D)(iii)(I) of
the Act, indicated that the list was composed of 351 companies which
represented numerous and diverse industries (as identified by their ISIC
code at the two digit level). In determining whether an enterprise or
industry was either a predominant user or received a disproportionately
large amount of a subsidy as outlined in 771(5)(A)(D)(iii)(II) and (III)
of the Act, we examined the amount of debt restructuring identified for
each company and for each industry on the list (using the ISIC codes noted
above). SSI had a large amount of debt but its debt was less than a number
of other companies also identified on the list, and was not significantly
greater than many other companies named to the list of 351. An examination
at the industry level shows that the primary metal industry did not have
the largest percentage of debt and that a number of other industries also
had large amounts of debt outstanding. Although the primary metal
industry, of which SSI is a part, had a meaningful portion of the debt it
did not represent a disproportionate or overwhelming amount of the overall
debt restructuring on the list. 

When determining whether an analysis of the list, based on the
examination of the factors contained in section 771 (5A)(D)(iii) of the
Act, supports a finding that the debt restructurings were limited to a
specific enterprise or industry or group thereof, the Department looks to
the length of time during which a program has been in operation to inform
the application of the specificity factors enumerated above. See SAA at
261. This first list of 351 firms was approved by the CDRAC in March of
1999, and accounted for only a fraction of its 1,694 cases representing
numerous industries identified during the POI (1999). The 1,694case
amounted to 2,141.2 billion baht in debt to be restructured. Thus, in the
first complete year of the CDRAC process, the actual users of the CDRAC
process were not limited in number. See section 771(5A)(D)(iii)(I) of the
Act. See 1999 BOT Annual Report, Exhibit 4 of the RTG's Questionnaire
Response at 85 (February 6, 2001). Furthermore, the cases identified by
CDRAC from March 1999 through April 2001, total 2,845 and account for
2,313.8 billion baht, of which the primary metal industry represents 9.2
percent of the total debt subject to restructuring. See Table 1 and 2 of
Exhibit 6 of the RTG's May 30, 2001 submission. This percentage reflects
that the metal industry's representation among cases identified by the
CDRAC, decreased over this 25-month period when compared to its
representation in the first list of 351 firms, and further supports our
finding that the primary metal industry, did not account for a
disproportionate or dominant share of the debt restructurings. 

At verification, we reviewed the criteria used to identify companies on
the list of 351 firms in order to determine the manner in which the RTG
exercised its discretion and in accordance with section
771(5)(A)(D)(iii)(IV) of the Act. According to BOT officials, the CDRAC
initially aimed to develop a list of the first 200 cases, based on the
recommendation of the International Monetary Fund (IMF), as part of a
pilot program to expedite much needed debt restructuring in Thailand.
These recommendations are reflected in Letter of Intent (LOI) number Five
from the BOT to the IMF in response to meeting IMF conditions on which
further financial assistance was contingent. See RTG Verification Report
at 22. The Department found that the criteria, which were discussed in the
minutes of CDRAC's seventh board meeting, were consistently applied to
these initial 200 cases. In response to our inquiries as to why these
criteria were not fully applied to the remaining cases that ended up on
the first list, BOT officials provided a reasonable explanation of the
practical implications of including these cases, and described their
relationship to the original 200 cases. Again, this information is
proprietary. See List of 351 Memorandum.

Although the list of 351 firms plays a significant role in conducting our
specificity analysis, the question of whether the RTG exercised any
discretion or influence in the debt restructuring process in general and
on the CDRAC in particular, must also be addressed. At verification, the
Department interviewed a number of independent experts to gather
additional insight into the economic environment and the RTG's involvement
during the Thai economic crisis. One theme that was consistently expressed
by these experts was that this financial crisis was a systemic meltdown of
the economy, of which the non-performing loan (NPL) crisis was just one
symptom (NPLs in Thailand's financial system reached 50 percent overall at
the peak of the crisis). These experts uniformly noted that the CDRAC
process itself was not tailored to any specific industry group or sector,
and the development of the list was based on identifying large debtors
with many creditors in an attempt to stabilize the banking system in
Thailand. The CDRAC debt restructuring process was developed with the
express aim of bringing order to the Thai financial system. See Exhibit 5
of the RTG's May 30, 2001 submission. The experts also highlighted the
weakness of the Thai bankruptcy system and the poor judicial enforcement
of creditors' rights as important background against which to analyze the
development of DCA and ICA agreements, and the CDRAC process overall. In
the opinion of these experts, the signing of these agreements by creditors
and debtors was voluntary, and removed some of the uncertainties
associated with the Thai legal system. The experts also noted that the
CDRAC process overall provided some advantages to both debtors and
creditors. See Experts Memoranda. Thus, our analysis of the RTG's
discretion in applying the criteria used to identify the companies on the
list of 351 firms, amidst the background of the financial crisis and the
economic and legal environment existing at the time of SSI's and PPC's
restructuring, does not yield any conclusions which detract from our
finding of non-specificity under the de facto specificity criteria
enumerated in section 771(5A)(D)(iii)(I-IV) of the Act, nor does it allow
the Department to draw any inferences as to whether being named by the
CDRAC influenced the financial institutions or the companies in Thailand
to act in any specific manner.

As a result of our finding that SSI's and PPC's debt restructurings were
not specific pursuant to section 771(5A)(D)(iii) of the Act, it is not
necessary to examine the issues of financial contribution and benefit.

B. VAT Exemptions Under the Investment Promotion Act

In the preliminary determination, the Department mistakenly identified
Section 21(4) of the VAT Act as a program that provided benefits to BOI-
promoted companies. The Department has since learned that Section 21(4) is
in fact a provision in the Thai Revenue Code that addresses the treatment
of companies which received business tax exemptions or deductions before 

January, 1, 1992, when Thailand switched to a VAT system, and after that
time, received exemptions or reductions from VAT. Section 21(4) states
that these companies must track the business tax that they would have paid
under the previous system, while receiving their VAT exemptions or
reductions, so that if for any reason a company were to lose its BOI
privileges (e.g., if the certificate were revoked due to violation of its
terms), the amount of the business tax would come due as a penalty. See
RTG Supplemental Response, March 7, 2001, Exhibit 2 and RTG Verification
Report, page 11. 

However, the issue of how to deal with VAT exemptions provided by BOI
certificates to promoted companies still remains. In examining indirect
taxes, we are directed by section 351.510(a)(1) the Department's
regulations for domestic subsidies like Section 28:

"{i}n the case of a program, other than a export program, that provides
for the full or partial exemption or remission an indirect tax or an
import charge, a benefit exists to the extent that the taxes or import
charges paid by a firm as a result of the program are less than the taxes
the firm would have paid in the absence of the program."

We are also directed by section 351.517(a)(1) for export subsidies like
Section 36(1):

"{i}n the case of exemption or remission upon export of indirect taxes, a
benefit exists to the extent that the Secretary determines that the amount
remitted or exempted exceeds the amount levied with respect to the
production and distribution of like products when sold for domestic
consumption." 

At verification, the Department examined the Thai VAT system, and
particularly how it is used by SSI. Under the current system, VAT is
reconciled in SSI's accounting records on the fifteenth of every month.
The input and output VAT amounts for the month are totaled. If the total
input VAT is more than the total output VAT, then the company is due a
refund from the government. If the reverse is true, then the company owes
the government. Refunds from the government can be handled in two ways:
the company can ask the government for a refund (the amount of time it
takes to actually receive a refund check varies, but was found by the
Department to be well less than one year); or the company can take the
refund as a credit, which can be used to offset future VAT obligations
that will be owed the RTG. See SSI Verification Report, pages 11-12.

The Department normally treats exemptions of indirect taxes and import
charges the same way that rebates of such taxes are treated. (see section
351.510 and 351.517 of the Department's regulations). Absent evidence that
the exemption gives rise to a potential time-value-of-money benefit
because the tax rebates do not occur on a timely basis, there is no reason
to treat an exemption differently from a rebate or remission. The
Department found no evidence that there is a significant amount of lag-
time between a company's reconciliation of its VAT account and the time
when the RTG would provide refunds or credits. Thus, in this case, there
is no potential time-value-of-money benefit and we find that the VAT
exemptions provided to SSI through its BOI-promoted status provide no
benefit. The Department, therefore, finds this program not countervailable.


IV. Programs Determined to be Not Used

We verified that neither SSI nor PPC applied for or received benefits
under the following programs during the POI.

A. Duty Exemptions to PPC under Investment Promotion Act Section 29

B. Corporate Income Tax Exemptions under IPA Section 31

C. Incentives Under Investment Promotion Act Sections 36(2) and 36(4) 

D. Ministry of Industry's Steel Industrial Restructuring Plan 

E. Loans from the Industrial Finance Corporation of Thailand and the 
   Thai Export-Import Bank 

F. Other Loans and Loan Guarantees from Banks Owned, Controlled, or
   Influenced by the RTG 

G. Export Packing Credits 

H. Pre-shipment Finance Facilities 

I. Trust Receipt Financing for Raw Materials 

J. Export Insurance Program 

K. Tax Certificates for Export 

L. Import Duty Exemptions for Industrial Estates 

M. Export Processing Zone Incentives 



V. Programs Determined Not to Exist

Based on verification, we find that the following programs do not exist.

A. IPA Subsidies for Construction of SSI's On-Site Power Plant

B. Provision of Water Infrastructure for Less Than Adequate Remuneration



VI. Analysis of Comments

Comment 1: Availability of IPA benefits to companies and industries
within Thailand

In their case brief, respondents argue that the benefit packages that SSI
and PPC received are not specific to an enterprise, industry or group
thereof. They also argue that IPA benefits are available to a wide variety
of industries throughout the Thai economy, are non-sector specific, and
aimed at promoting Thailand's overall economic development. Citing to Rice
from Thailand, 51 FR 12356 (April 10, 1986), respondents note that the
Department determined IPA Section 35 benefits to be not specific to an
enterprise, industry, group of industries, or specific region of Thailand.
Respondents state that because the Department has previously found Section
35 to be non-specific and therefore not countervailable, all benefits
provided under IPA should also be found not countervailable. 

In their rebuttal brief, petitioners argue that IPA benefits are specific
because of the following: access to these benefits is limited to certain
companies that were awarded certificates even within the same industries;
the BOI limits these benefits to a handful of promoted industries
prominently including steel; approval of IPA promotion benefits depends on
BOI evaluation of a host of subjective criteria which do not meet the test
for a non-specific subsidy based on objective and automatic criteria for
eligibility; IPA subsidies (at least for the steel industry) appear to be
regionally specific; and, IPA benefits are contingent, at least as one
among several factors, on export, making them specific as export subsidies.

Department's Position:

While the Department did, as respondents point out, find IPA Section 35
to be non- specific in Rice from Thailand, the facts in this case are very
different. Because the BOI solicited applications for the creation of a
hot rolled steel industry and tailored a specific package of IPA benefits
to meet SSI's requirements, and the MOI announced it would not issue a
license approving hot-rolled production to any other companies for a
period of ten years, we find SSI's IPA benefits to be de facto specific to
an enterprise within the meaning of section 771(5A)(D)(iii)(I) of the Act. 

Rice from Thailand, as cited by the respondents, is not relevant to this
case. Because the BOI certificate awarded to SSI includes a package of IPA
benefits from the BOI that was specifically tailored for SSI, the
Department finds that all of the benefits provided under the umbrella of
the certificate are specific. Petitioners have made other arguments
regarding the specificity of the IPA programs. However, because we have
found that these programs are specific to SSI, we are not addressing
petitioners' other arguments. The Department also finds that the promotion
certificate awarded to SSI is not export specific, as the initial approval
did not consider export performance among the eligibility criteria. The
Department notes however, that Section 36(1) was eventually granted to
SSI, and that it does contain explicit export requirements. Therefore, as
discussed above in the section Duty Exemptions on Imports of Raw and
Essential Materials Under IPA Section 36(1), we have treated Section 36(1)
as an export subsidy. 

Comment 2: Tariff Rate for Duty Exemptions for Raw and Essential
Materials Under IPA Sections 30 and 36

In their brief, respondents argue that the Department should calculate
the benefit for Section 30 or 36(1) based on the one percent duty rate for
slab because this is the rate that SSI would have paid, but for BOI
benefits. Respondents claim that the current Thai tariff structure
specifically provides that the import duty rate for any "raw materials not
produced locally" would be reduced to one percent. They also note that the
Department found at verification that the "normal" rate, which the
Department used in its calculation in the preliminary determination, is
merely the ceiling rate in the Thai tariff schedule, and that the
"discount" rate is the rate paid by all importers of slab in Thailand.

Petitioners argue that the 10 percent duty rate is the appropriate rate
for calculating the benefits received by SSI under Sections 30 and 36(1).
They state that while the MOF has the ability to lower the duty rates,
such changes are only temporary, and the lowering of the duty rate for
slab to one percent was a narrowly-targeted government action. Further,
they argue that, even if access to the one percent duty rate was
"generally available," this would not excuse the subsidy, because flat
steel producers are the only beneficiaries of the MOF's manipulation of
the duty rates for slab. 

Department's Position:

The Department has used the one the percent duty rate for slab in the
benefit calculations for Sections 30 and 36(1). This rate is appropriate
because, as respondents point out, the MOF has the authority to adjust the
duty rates in the Thai tariff schedule as they see fit for the good of the
Thai economy. In addition, this is the rate used by the Thai Customs
Authority to determine the amount of duties SSI had to pay on imports made
under the duty reduction scheme pursuant to Section 30. 

While petitioners are correct that the reduction of duty rates for slab
by the MOF is temporary, the policy in which this reduction is founded has
been generally applied to any raw materials that are not produced in
Thailand. See RTG Verification Report, MOF Exhibit 1. The mere fact that
it may be utilized by only one industry in this instance does not mean
that the system is not uniformly applied. Many products have had their
duty rate lowered to one percent, not just slab. Accordingly, the
Department finds that one percent is the appropriate rate to use in the
calculations.

Comment 3: Countervailability of Section 36(1) Benefits.

Respondents argue that benefits received by SSI under Section 36(1) are
not countervailable. Because the BOI has in place a reasonable and
effective system for monitoring inputs and amounts that are consumed in
production of the exported product, and this system is based on generally
accepted commercial practices in Thailand, Section 36(1) meets the
requirements of the Department's regulations at section 351.519(a)(4).
Respondents note that the Department verified that the BOI has in place a
system for monitoring the consumption and re-export of goods imported
under Section 36(1), which includes a reasonable provision related to the
normal allowance for waste. Respondents further argue that the BOI's
procedures for determining what is "waste," and the process through which
they determine what is a "normal" allowance for waste, is reasonable and
effective in tracking yield amounts under Section 36(1). They state that
because the BOI calculates the "normal" allowance for waste prior to
actual exportation, as they did for SSI, in accordance with their own
published regulations for calculating yields, the BOI reasonably confirmed
a "normal allowance for waste." 

Petitioners argue that the respondents have not demonstrated that the RTG
either has in place or applies an effective system to confirm which
imported inputs exempted from duty are consumed in the production process.
They contend that the slab exempted from import duty under SSI's BOI
certificate can be used for export production at any time within the
approved period of benefits, which is more than five years. Petitioners
therefore argue that five years can pass before the correspondence between
exempted imports and qualifying exports must be shown. Petitioners further
argue that Section 36(1) duty exemptions also apply to slab imported by
SSI and used to make products sold to domestic customers, which prevents
Section 36(1) from qualifying as a duty drawback-like scheme. Petitioners
also argue that respondents have not demonstrated that under the exempted
program, normal allowances for waste have been made, because the waste
factors in use for Section 36(1) purposes, as the Department found at
verification, were different from the waste factors found in the anti-
dumping proceeding. 

Department's Position:

The Department agrees that the RTG does in fact have a system in place to
monitor and track the consumption and/or re-export of goods imported under
Section 36(1). However, the yield factor approved for the purposes of
Section 36(1) must fulfill two purposes: to determine the maximum volume
of raw material the company is allowed to import for re-export; and to
calculate the volume of raw material, including a normal allowance for
waste, incorporated into each reported export. The yield factor which the
BOI used for administering SSI's import duty reductions under Section 30
is the same yield factor applied to Section 36(1) imports. SSI also
reported that the yield factor approved by BOI reflects a normal allowance
for waste.

SSI further argued that its exported products undergo additional
processes and, consequently, exported products generate more waste. See
SSI Verification Report, page 10. If this is the case (which the record
does not clearly support), then the BOI should not have relied on the
yield formula it developed for SSI's total production under Section 30 to
determine the yield factor on exported products under Section 36(1).
Furthermore, in its yield factor formula, which, according to the
questionnaire responses, is supposed to reflect the normal allowance for
waste, the BOI did not take recoverable and saleable scrap into account
when determining which inputs are consumed in the production of the
exported products and in what amounts. Therefore, the Department finds
that there is not an effective or accurate system in place for calculating
a "normal allowance for waste" and confirming which inputs are consumed in
production and in what amounts. As such, we have found the entire
exemption countervailable in accordance with section 351.519(a)(4). 

Petitioners' argument that the correspondence between exempted imports
and qualifying exports must be shown every five years is inaccurate. As
respondents noted, SSI's eligibility for Section 36(1) benefits was
limited to a five-year period. SSI demonstrated that its exports
incorporating duty-exempt imported inputs were made within a 12 to 18
month period. See discussion of Section 36(1) above. 

Comment 4: Countervailability of a Portion of Section 36(1) benefits

Respondents argue that if the Department finds that Section 36(1) is
countervailable, then the benefit amount is only the amount of the duties
exempted on the excessive allowance for waste, and not the entire amount
of the import duty exemption. They argue that because Section 36(1) deals
with a duty exemption, and not a remission or drawback, section
351.519(a)(1)(ii) of the Department's regulations should apply. They
further argue that the BOI has in place a reasonable and effective system
for monitoring inputs and amounts that are consumed in production of the
exported product (including a normal allowance for waste) that is based on
generally accepted commercial practices in Thailand. Respondents cite
Certain Cut-to-Length Carbon-Quality Steel Plate from India, 64 FR 73131
(December 29, 1999) as evidence of the validity of their position. 

Respondents also argue that even though there are differences in the
reported waste rates found on the record for SSI, it does not mean that
the BOI waste rate is not a "normal allowance for waste." They further
claim that, under section 351.519(a)(4) of the Department's regulations,
the administering authority only need have in place a reasonable and
effective system that takes into account and calculates a "normal
allowance for waste" in calculating yield factors, and that the BOI has
such a system. Respondents argue that the antidumping duty investigation
of hot-rolled carbon steel flat products from Thailand, in calculating
SSI's "normal allowance for waste," failed to take into account several
factors which would change their finding. These factors included out-
sourced processing and the inclusion of products in addition to those for
export (exported products require additional processing and give rise to
greater waste). The respondents argue that in determining the excessive
amount of "waste," the Department should use the amount of allowable
"waste" reported in the AD investigation (as this amount is actually based
on SSI's experience, is closest to the POI, and was verified by the
Department) subtracted from the amount reported to the BOI. The difference
represents the excessive "waste." 

Petitioners argue that the respondents have not made the necessary
showing that Section 36(1) operates as a bona fide duty drawback program,
and that section 351.519(a)(4) of the Department's regulations provides
that, absent such a showing, in a case of an exemption of import charges
upon export, or when the "waste" criterion is found to not be satisfied
"the Secretary will consider the entire amount of an exemption . . . to
confer a benefit." Petitioners support this by stating that the
information provided by respondents is inadequate in showing that a
mechanism, even if in place, is effective and actually applied to enforce
the conditions of the certificate and police violations. They also argue
that the RTG has not actually examined the inputs involved to confirm that
they were consumed in the production of the exported product and in what
amounts under section 351.519(a)(4). Therefore, petitioners argue, the
Department should countervail Section 36(1) at the full amount of the
duties exempted. 

Department's Position:

The Department disagrees with respondents that the countervailable
benefit from this program is only the "excessive amount of waste." Under
section 351.519(a)(4)(i) of the regulations, the entire amount of
exemptions will confer a benefit, unless the Department determines that:
"{t}he government in question has in place and applies a system or
procedure to confirm which inputs are consumed in the production of the
exported products and in what amounts, and the system or procedure is
reasonable, effective for the purposes intended, and is based on generally
accepted commercial practices in the country of export" (emphasis added). 

The evidence on the record indicates that the BOI did not isolate and
examine the amount of inputs consumed in the production of the exported
products and that it did not consider in its analysis whether any of the
scrap was recoverable and saleable. As discussed above in our analysis of
Section 36(1), we consider both of these elements to be essential in
determining the effectiveness of the system for the purposes intended. We
therefore determine that the allowance for waste which the BOI uses in
administering SSI's Section 36(1) duty exemptions is not "normal."
Consequently, the RTG's system for determining which inputs are consumed
in the exported product, and in what amounts, is not reasonable or
effective for the purposes intended, and the entire amount of SSI's import
duty exemptions under Section 36(1) provides a countervailable benefit,
consistent with section 351.519(a)(4)(i) of the Department's regulations. 

Contrary to respondents' argument, Certain Cut-to-Length Carbon-Quality
Steel Plate from India, 64 FR 73131 (December 29, 1999) does not
demonstrate that Section 36(1) is not countervailable. In that case the
Department found that the Government of India did not have in place a
system for tracking imports to be consumed in the production of exports,
or for determining if or in what amounts these imports were consumed in
products that are exported. In that case, the Department determined that
the entire amount of the import duty exemption was countervailable. While
the RTG does have a system in place to match imports with exports, the
Department has determined the system is not reasonable or effective for
the purposes intended, and therefore, and in accordance with section
351.519(a)(4)(i) of the Department's regulations, finds the entire
exemption countervailable.

Comment 5: Benefits under IPA Section 35(3)

In their case brief, respondents argue that the double deduction on
income taxes for the cost of transportation, electricity, and water under
Section 35(3) did not provide a benefit to SSI. They point out that
section 351.509(a)(1) of the Department's regulations states that "a
benefit exists to the extent that the tax paid by a firm would have been
paid in the absence of the program." Respondents claim that SSI had losses
carried forward at the end of fiscal year 1998 that were well in excess of
the potential taxable profits in 1998 on non-BOI activities. As a result,
they state that even absent Section 35(3) deductions, SSI would not have
paid any taxes for that year, and therefore did not receive any benefit. 

Respondents further state that in the preliminary determination, the
Department assumed that, in theory, SSI would first use Section 35(3) tax
deductions, earned in 1998, to reduce any tax liability on its 1998 income
tax return filed during the POI. As a result, respondents argue, the
Department's analysis does not square with the requirements of the WTO
Agreement on Subsidies and Countervailing Measures, because this
determination is not based on "positive evidence."

Lastly, respondents argue that, should the Department find Section 35(3)
deductions to provide a countervailable benefit, a more appropriate
calculation would take into account the percent of total loses in 1998
generated by Section 35(3) deductions, and would figure this percentage
into the calculations.

Petitioners argue in their rebuttal brief that the Department correctly
found countervailable and calculated the benefit for Section 35(3).
Petitioners state that SSI did, in fact, use its Section 35(3) benefits to
avoid taxes during the POI. They further argue that the Department's
finding at the preliminary determination is accurate because it is
consistent with the Department's findings in Final Affirmative
Countervailing Duty Determination and Countervailing Duty Order; Extruded
Rubber Thread From Malaysia 57 FR 38475, (August 25, 1992), and Final
Results of Countervailing Duty Administrative Review: Extruded Rubber
Thread from Malaysia 60 FR 17,516 (April 6, 1995).

Department's Position:

We disagree with respondents' argument that SSI's losses carried forward
from earlier years prevented SSI from achieving any benefit from the
Section 35(3) tax deductions in the POI. As stated in our preliminary
determination, we reasonably found that SSI would have claimed its Section
35(3) deductions first to offset the taxable income generated in 1998, the
tax return which was filed during the POI. SSI's use of Section 35(3)
deductions thus gave rise to countervailable benefits. As stated in the
preliminary determination, this finding is consistent with the approach
developed by the Department in Final Affirmative Countervailing Duty
Determination and Countervailing Duty Order; Extruded Rubber Thread from
Malaysia, 57 FR 38472 (August 25, 1992) (Malaysia Rubber Thread).

Furthermore, use of this approach minimizes the need to track SSI's tax
position and use of countervailable and non-countervailable tax deductions
in the future. In each year in which SSI claims a countervailable tax
deduction to offset taxable income, we recognize the tax benefits
associated with that use, without regard to losses carried forward from
previous years. With respect to SSI's argument that we calculate a ratio
of Section 35(3) benefits to total tax losses and apply that ratio to the
taxable income in determining the countervailable benefits, such an
approach would be inconsistent with our reasoning in Malaysia Rubber
Thread. There is no basis for assuming that, in offsetting taxable income,
SSI's tax losses come out of the pool in proportion to the pool's
composition.

Our approach reasonably assumes that countervailable tax programs should
be considered first. To do otherwise would require the Department to
investigate and analyze the source of tax losses carried forward to
determine if they were generated by the use of countervailable tax
programs. Our approach simplifies and makes predictable the Department's
calculation of countervailable benefits from income tax programs, and is
consistent with our finding in Malaysia Rubber Thread, where we stated "if
we treat only a portion of the countervailable allowances as having been
used, some of the amount carried forward for future use would also be
countervailable when used. This means that we would have to track carry
forwards and trace from year to year what portion of the allowances
carried forward is countervailable. To avoid an unadministrable system of
tracking and tracing, we have treated the countervailable portions as
having been used in the year under investigation." 57 FR at 38480.

Comment 6: Countervailability of Section 28 imports identified by
respondents as recurring.

Respondents note that the Department's preliminary determination found
duty exemptions received under Section 28 to be non-recurring, and
therefore countervailable, because they were tied to the capital assets of
SSI and PPC. In accordance with this finding, SSI separately identified
and reported those Section 28 imports that are not tied to capital assets
or costs. Respondents argue that the Department should exclude from the
calculations of Section 28 duty exemptions on those imports that SSI has
identified as recurring because they are not capital assets. Therefore,
under the Department's methodology for recurring benefits, duty exemptions
on such imports would be expensed in the year of receipt rather that
allocated over time. As such, respondents argue, these import duty
exemptions provide no countervailable benefits during the POI. 

Petitioners argue that the Department correctly found the entire amount
of SSI's import duty exemptions under Section 28 to be non-recurring and
fully countervailable. In rebutting respondents' argument, petitioners
state that the benefits provided under Section 28 are not amortizable only
as a result of how SSI's accountants treat them; petitioners argue that
they are amortizable because they are provided with respect to capital
assets. See Memorandum to Barbara E. Tillman: Analysis of Business
Proprietary Information on IPA Section 28 (April 13, 2001). Petitioners
further argue that all Section 28 benefits should be considered non-
recurring under section 351.524(c)(2)(ii) of the Department's regulations,
because all of these benefits required the government's express
authorization. Lastly, petitioners argue that amortizability of subsidy
benefits must be considered on a program-by-program basis, not on an entry-
by-entry basis. They claim there is no provision in the Department's
regulations, nor any precedent in its practice, for selectively expensing
individual benefits handed out under a non-recurring subsidy program.

Department's Position:

The Department agrees with petitioners. In considering whether an
adjustment to our calculations is warranted based on SSI's identification
of particular imports they considered to be not tied to capital assets of
the firm, and whether we should treat a subsidy traditionally considered
to be recurring as non-recurring, or vise-versa, we are guided by sections
351.524(b) and (c) of our regulations. The regulations direct us to
consider; (i) whether the subsidy is exceptional in the sense that the
recipient cannot expect to receive additional subsidies from the same
program on an ongoing basis from year to year; (ii) whether the subsidy
required or received the government's express authorization or approval
(i.e., receipt of benefits is not automatic); or, (iii) whether the
subsidy was provided for or tied to the capital assets of the firm.

SSI was approved for its BOI package to receive duty exemptions on
imports of machinery. Machinery is a capital asset. Thus, duty exemptions
on machinery are reasonably tied to the capital assets of a firm.
Furthermore, as reported by SSI and verified by the Department, each
import for which SSI received duty exemptions under Section 28 required
express government approval. SSI had to write a letter to the BOI, in
advance of the entry of the equipment, and include the supplier invoices.
BOI approval was granted in the form of a BOI letter to the RTG Customs
authorizing the exemption of the entry from duties. See RTG Verification
Report at page 7. Because duty exemptions on machinery are tied to capital
assets and because each importation required express approval from the
BOI, we find that, consistent with 351.524(c)(ii) and (c)(iii), it is
appropriate to treat all Section 28 exemptions as non-recurring benefits. 

Because we find all Section 28 benefits to be non-recurring based on the
first two arguments made by petitioners, we have not analyzed their third
argument concerning the selective expensing of individual benefits on a
program-by-program or entry-by-entry basis.

Comment 7: Methodology for Calculating IPA's Section 28 Benefits

Respondents argue that the Department made errors in the preliminary
determination with regard to the methodology that was used to calculate
Section 28 benefits and the countervailing duty rate. Respondents argue
that the we incorrectly performed the 0.5 percent test separately for SSI
and PPC. They claim the Department's regulations and the Preamble provide
that, where both the producer and a non-producing subsidiary receive
benefits, the subsidies should be attributed to the sales of both
corporations. Respondents argue, therefore, that the sales of both
corporations together are the relevant denominator in the calculation of
the subsidy. Also, the amount of benefits should be determined by adding
SSI's and PPC's benefits together. 

Respondents further argue that the Department should correct its use of
SSI's discount rates from Exhibit 9 of SSI's February 6, 2001 response,
and utilize the corrected version in Exhibit 23 of SSI's March 13, 2001
response.

Petitioners argue that the dilution of SSI's subsidies by combining SSI's
and PPC's sales is not required by the Department's regulations on cross-
ownership and attribution of subsidies. See section 351.525(b)(6) of the
Department's regulations. Petitioners further argue that the Department
rejected this flawed approach in the preliminary determination, and has
received no compelling reason to change its decision.

Department's Position:

In reviewing the facts in this case, and taking into account the comments
that have been submitted by petitioners and respondents, the Department
has found it necessary to clarify the calculation methodology that was
used in the preliminary determination. As discussed in the section on
Calculation of Ad Valorem Subsidy Rates above, because PPC is a non-
producing subsidiary, its sales are not included with SSI's in determining
the benefit attributable to subject merchandise from subsidies provided
directly to SSI. Therefore, for the 0.5 percent test for Section 28, we
compared SSI's duty exemptions in each year to SSI's sales in that year.
For the 0.5 percent test for PPC, we divided its duty exemptions by the
consolidated sales of the corporate group in which PPC's sales are
consolidated, which are the consolidated sales of SSI, net of inter-
company sales (see Calculation of Ad Valorem Subsidy Rates section above).
For those years in which the duty exemption exceeded 0.5 percent, we
allocated the annual total exemptions, in accordance with section
351.524(d) of the Department's regulations, to determine the Section 28
benefits attributable to the POI. As the discount rate, we used SSI's
average long-term interest rate, as reported in SSI's March 13, 2001
response and verified by the Department (see Allocation Period and
Discount Rates sections above). 

Comment 8: The Time Value of Money and Countervailability of VAT
Exemptions under the Investment Promotion Act

In their brief, petitioners argue that, contrary to the Department's
preliminary findings, SSI received a countervailable benefit during the
POI from VAT exemptions under Section 21(4) of the VAT Act. Petitioners
state that the Department noted in the preliminary determination that the
only potential benefit to a promoted company receiving VAT exemptions is
the time value of money. Petitioners also state that the courts have
recognized the significance of the time value of money. See Bethlehem
Steel Corporation et al., Slip-Op 01-38 at 9 and 18-19. Petitioners argue
that considering the high time value of money in Thailand and for steel
makers, the benefit from VAT exemptions is quite high. 

Respondents argue that, in recognition of the widespread use of VAT,
Annex I of the WTO Agreement on Subsidies and Countervailable Measures
(SCM) in footnote 60 specifically excludes VAT from countervailable
subsidies and only permits VAT taxes to be countervailed if they involve
excessive remission, which is not the case here. Respondents point out
that the Department recently determined in Final Negative Countervailing
Duty Determination: Elastic Rubber Tape from India, 64 FR 19124, 19130
(April 19, 1999), to not countervail an exemption under India's excise
tax, similar to Thailand's VAT, because that exemption from the tax does
not confer a benefit. The respondent's also note that the Department has
specifically stated in Rubber Tape from India, "{t}he excise tax, like a
value added tax, is treated as being passed on to the consumer. . ." and
because the company does not bear the tax, the Department determined that
the exemption was not a countervailable benefit. 

Respondents further argue that even if the Department decides to
countervail VAT exemptions, there would be no benefit to SSI during the
POI. VAT exemptions are recurring benefits. See section 351.524(c) of the
regulations. Respondents argue that because all of SSI's VAT exemptions
related to Section 28 occurred outside of the POI, from 1992-1997, they
are not countervailable. 

Department's Position:

The Department agrees with respondents. In the preliminary determination,
the Department found not countervailable VAT exemptions received on
imports under Section 28. As discussed in the VAT Exemptions Under the
Investment Promotion Act section above, the Department uncovered no
evidence to change this decision.

In the preliminary determination, the Department stated that it would
address the VAT exemptions received under Section 36(1) in the final
determination, after it had examined Section 36(1) more thoroughly at
verification. The Department has found no reason to believe that the VAT
system in Thailand provides an excessive remission, nor does it appear
that the amount of time which the RTG takes to reconcile its VAT system is
inordinate or that it would give rise to a time-value-of-money benefit. 

Comment 9: IPA Benefits and Investments by SSI's Initial Investors

Petitioners argue that the initial investment by investors into SSI is a
countervailable benefit because the RTG acted to induce equity infusions
by private investors through its "announcement," offering benefits to
parties for the creation of a steel facility, which eventually became SSI.
Petitioners further argue the RTG offered these benefits as a matter of
national interest as opposed to one of the economic merit of steel
production in Thailand.

Respondents argue that the "economic boom" in the late 1980's, and the
fact that all flat steel demand in Thailand then was served by imports,
were catalysts for SSI's decision to develop a flat steel mill. They cite
the fact that SSI was already in discussions with foreign steel companies
about the creation of a flat steel mill before the BOI announced its
intent to promote a flat steel industry as evidence that the benefits
offered by the BOI did not cause SSI to build their factory. SSI further
argues that the MOI announcement that it would not consider any
applications for a factory license for hot-rolled steel production for a
period of 10 years was lifted on November 11, 1994, shortly after SSI
commenced production in February 1994, as evidence that the creation of a
steel industry Thailand was imminent and inevitable. 

Department's Position:

We analyzed the elements of petitioners' allegation and found it
insufficient to warrant an investigation of SSI's equityworthiness at its
founding. See Memorandum to the File through Barbara E. Tillman,
Countervailing Duty Investigation of Certain Hot-Rolled Carbon Steel Flat
Products from Thailand: New Subsidy Allegation on file in the CRU. 

Comment 10: Provision of Electricity as General Infrastructure

Respondents argue that the government provision of electricity to SSI and
PPC constitutes general infrastructure, and therefore, does not provide a
financial contribution pursuant to section 351.511(d) of the Department's
regulations. Respondents cite to the Preamble to the regulations, which
states, "{f}or example, interstate highways, schools, health care
facilities, sewage systems, or police protection would constitute general
infrastructure if we found that they were provided for the good of the
public and were available to all citizens or to all members of the public
. . . Any infrastructure that satisfies this public welfare concept is
general infrastructure and therefore, by definition, not subject to any
specificity analysis." 63 FR 65348, 65378-79 (November 25, 1998).
Respondents note that Thai electricity utilities provide an essential
service for the broad public welfare of all Thais, and that this service
is made available to all members of the public and all citizens at the
same rates within a user category. Further, there are no special discounts
or payment schemes being extended to SSI or PPC; there were no special
facilities constructed to generate or distribute power to SSI or PPC; and
there are no unique contracts or other pricing arrangements for the
provision of electricity to SSI or PPC. SSI and PPC pay the same
electricity rates as any other industrial company in Thailand. 

Respondents claim that the fact that EGAT charges a different transfer
price to MEA than it does to PEA does not establish countervailability,
and that the reasons for the difference only prove that the program is
general infrastructure. The differential, respondents note, arises from
three broad public policy goals: 1) providing electricity to low-income
households; 2) rural electrification; and, 3) promoting the location of
industries outside of the congested Bangkok metropolitan area. That the
pricing differential is designed to serve these goals demonstrates that
the provision of electricity is general infrastructure, and requires a
finding of non-countervailability. 

Petitioners rebut respondents' argument by noting that electricity is a
good, and unlike infrastructure, once used, does not remain to be used
again (like a road, bridge, or school). Petitioners reiterate their
allegation that the RTG is providing electricity to SSI and PPC at a
subsidized price, not that the RTG built a power grid over which
electricity could flow to SSI and PPC. 

Department's Position:

The RTG's provision of electricity does not constitute general
infrastructure, and as such it does constitute a financial contribution by
the RTG in accordance with section 771(5)(D)(iii) of the Act. The RTG is
responsible for providing the vast majority of electricity to all
consumers in Thailand through three government-owned entities: EGAT, which
is responsible for generation and transmission, MEA which is responsible
for distribution and service in the Bangkok Metropolitan area, and PEA,
which is responsible for distribution and service to the region outside
the Bangkok Metropolitan area. These three authorities are required to
follow broad social criteria in the provision of electricity to consumers,
including supporting low rates for low-income customers and promoting
rural electrification. In addition, they promote the location of
industries outside of the Bangkok metropolitan area. They also are
required, as a matter of policy, to charge a uniform national tariff rate
to each class of customer including industrial users, as well as
residential users. Respondents argue that the application of these broad
social criteria and the uniform national tariff requirement mean that
electricity in Thailand is a service that is provided for the good of the
public and is available to all citizens. We disagree.

Section 351.511(d) of the regulations states that, for goods and
services, a financial contribution does not exist in the case of
government provision of general infrastructure. First, the electricity at
issue here is not a service, as respondents argue, but a good that, as
petitioners point out, has its own tariff schedule classification.
Furthermore, the electricity at issue here is not general infrastructure,
but a good that is bought and sold in the marketplace. In the Department's
view, the term infrastructure refers to the types of goods and services
described in the Preamble to the regulations, including schools,
interstate highways, health care facilities and police protection.
According to our regulations, if we find that these types of
infrastructure were provided for the broad societal welfare, they would be
considered general infrastructure. However, we make clear in the
regulations that even infrastructure of the types described may not
constitute general infrastructure if it does not satisfy the public
welfare concept. 

The good at issue in this investigation is not the physical plant
associated with the generation, transmission and distribution of the
electricity. Moreover, even if it were the physical plant, that does not
necessarily mean that it would constitute general infrastructure unless
the public welfare concept articulated in the regulations is met. The fact
that the RTG applies a uniform national tariff for electricity to meet
broad social goals cannot be equated with the public welfare concept set
forth in the Preamble to the regulations. The price of electricity cannot
be the basis on which a decision is made that electricity constitutes
general infrastructure. The analysis of whether a good or service
constitutes general infrastructure falls under the financial contribution
standard, while the pricing of the good must be analyzed as a function of
the adequacy of remuneration under the benefit standard. Although the
government has established a uniform national tariff structure, that fact
cannot and does not render the provision of electricity to be general
infrastructure. 

Nothing in the regulations points to the Department ever considering the
provision of electricity to constitute general infrastructure. Rather, in
the Preamble to the regulations, the Department uses electricity to
illustrate its point that other approaches to determining adequate
remuneration (the benefit standard) may be necessary when the government
is the sole or major provider of a good in an economy. Respondents cite no
case precedent to support their claim that the provision of electricity
should be considered general infrastructure, and as petitioners point out,
under both pre- and post-URAA precedents, we have found the government's
provision of electricity to provide countervailable benefits in a number
of cases. Accordingly, there is no basis for considering the provision of
electricity by the RTG to constitute general infrastructure. 


Comment 11: The Uniform National Tariff and Specificity 

Respondents argue that, because the prices paid for electricity do not
vary depending on whether a company is located inside or outside of
Bangkok, there is no regional specificity. All Thai industries in the same
tariff category are charged the same electricity prices regardless of
where they are located. Petitioners argue that the benefits associated
with PEA's provision of electricity to SSI and PPC are regionally
specific, because of the considerable variations in the cost/price ratios
from one region of Thailand to another.

Department's Position:

The fact that the RTG has established a policy for social reasons that a
uniform national tariff rate be charged to all users across the country in
each customer category does not eliminate the issue of whether electricity
is being provided to a specific group of users for less than adequate
remuneration. The definition of specificity includes subsidies that are "
. . . limited to enterprises or industries located within a designated
geographical region within the jurisdiction of the authority providing the
subsidy" (section 771(5A)(D)(iv) of the Act). In this case, the RTG is
providing a financial contribution in the form of a good (electricity),
and a benefit is conferred because the electricity is being provided for
less than adequate remuneration to a specific group of users (i.e.,
companies located in the region designated by the RTG to be served by
PEA). 

While, on its face, the application of a uniform national tariff rate
structure appears to be non-specific, a closer examination of why this
national policy was created and how it is implemented reveals that the
uniform national tariff structure was established to encourage economic
activity outside the Bangkok Metropolitan area, and is maintained through
internal subsidies within the RTG electricity authorities. At
verification, RTG officials stated that the uniform national tariff rate
structure was created to support low income users across the country and
to ensure rural electrification (RTG Verification Report at 12 and 15). In
response to further questioning as to why it was necessary to retain a
uniform national tariff for industrial users, if the purpose of the
uniform national tariff was to support low-income users and to ensure
rural electrification, officials responded that another purpose of the
uniform national tariff structure was to promote economic activity outside
of the Bangkok Metropolitan area (the area outside the Bangkok
Metropolitan area is the region served by PEA). Thus, PEA serves a
designated region of Thailand, and one of the purposes of a uniform
national tariff is to promote economic activity in that region. Taken
together, these two factors support a finding that PEA's provision of
electricity is regionally specific. When added to the analysis of adequate
remuneration (detailed in the Department's Position to Comment 12 below,
it is clear that the subsidy is specifically provided to enterprises or
industries located in a designated geographical region within the
jurisdiction of the authority providing the subsidy.

Comment 12: Provision of Electricity and Adequate Remuneration

Respondents argue that the Department's analysis in the preliminary
determination is an unprecedented price discrimination analysis which did
not consider the RTG's price setting from a national perspective, which is
how pricing policy is made. Instead, the Department determined that PEA's
remuneration was not adequate because there is transfer price
discrimination, even though retail prices are uniform nationally. While
PEA's distribution costs are higher than MEA's, respondents argue that the
Department ignored extensive evidence in the record that SSI and PPC are
not the type of customers which are the cause of PEA's higher distribution
costs, and that the Department wrongly assumed that the prices charged to
companies like SSI and PPC were insufficient to cover PEA's distribution
cost, and therefore did not constitute adequate remuneration.

Respondents note that the Price Waterhouse Coopers report (PWC Report)
which was provided in the February 6, 2001 questionnaire response, was an
independent analysis of the costs and pricing of EGAT, PEA, and MEA,
delineated by customer category. The PWC Report demonstrates, according to
respondents, that there are significant cost variances among customer
categories, and further, that customers in the same category as SSI and
PPC are "generating revenues in excess of their marginal costs," by an
estimated 15 percent. Thus, respondents argue, there is overwhelming third-
party evidence that the RTG has received adequate remuneration for its
electricity sales to SSI and PPC. Further, respondents argue that the
Department ignored the recommendation in the PWC Report that electricity
charges to customers like SSI should be reduced in order to align them
more closely with marginal costs and still provide PEA with adequate
returns on investment. They argue that PWC found that, even without the
cross-subsidy, large general service users, like SSI, would pay a lower
tariff rate. If anything, respondents argue, SSI and PPC have paid too
much, rather than too little, for their electricity purchases from PEA,
and therefore there can be no countervailable benefit. 

In addition, respondents claim that, at verification, the Department was
unwilling to tackle the complicated and highly technical issues in
analyzing the electricity allegations. They also argue that the
Department's requests, at verification, for PEA to demonstrate that,
without the internal subsidy, the tariff rate was still sufficient for it
to meet the required financial criteria were complicated and confusing,
and could not be accomplished in perfect detail in a quick turnaround.

Petitioners argue that record evidence does not support respondents'
conclusion that covering costs establishes the adequacy of remuneration.
Petitioners specifically note that, at verification, PEA was unable to
demonstrate that its high overall costs derive from the cost of serving
rural villages and agricultural pumping stations, not Large General
Service users, like SSI and PPC. Further, petitioners note that the claims
that PEA was profitable during the POI and would have been able to meet
its own financial criteria without the deduction from the bulk supply
tariff were essentially unverified. 

Department's Position:

As discussed above, EGAT generates and transmits electricity to MEA,
which distributes electricity to the Bangkok Metropolitan area, and to
PEA, which distributes electricity to the rest of Thailand. All three of
these authorities are owned by the RTG. EGAT charges MEA and PEA the same
bulk supply tariff rate; however, it then requires MEA to pay a surcharge
on its purchases of electricity and it provides PEA a deduction on its
purchases of electricity. It is only through this surcharge and deduction
that the tariff rates charged to PEA's customers are sufficient to cover
PEA's marginal costs and to meet its financial criteria. 

With respect to respondents' argument that the Department has used an
unprecedented price discrimination analysis which did not consider the
RTG's price-setting from a national perspective, which is how pricing
policy is made, we note that, for this final determination, we have not
relied on a price discrimination analysis. Moreover, we have examined the
RTG's price setting policy, and find that, in theory, it meets the
precepts of market principles (i.e., each of the three RTG electricity
authorities must ensure that the tariff rate is sufficient to meet
marginal costs and required financial criteria). In implementation,
however, social criteria (including the promotion of economic activity
outside of the Bangkok area), have been given precedence over these market
principles. Consequently, it was necessary for the Department to examine
whether the provision of electricity by PEA was at tariff rates that
reflect adequate remuneration. 

With respect to respondents' argument that the PWC Report shows that the
categories in which SSI and PPC are classified (large and medium general
service users) generate revenues in excess of their marginal costs, we
note that the RTG itself requires the tariff rate to be sufficient to
cover not only marginal costs, but also to meet specific financial
criteria (see RTG Verification Report at 15, and also NEPO Report at 2 and
7). Furthermore, contrary to respondents' argument, the Department has not
ignored the recommendation in the PWC Report that electricity charges to
large general service users should be reduced, we simply do not find it
probative of whether the RTG, through PEA, is receiving adequate
remuneration for the electricity sold in the region. One of the conditions
imposed by the RTG on PWC in undertaking its review of electricity tariffs
was that the uniform national tariff rate be maintained. As such, PWC did
not examine the issue of what rates PEA should or would charge to any of
its customer classes in the absence of this policy, and whether they
should or would be different from the rates charged by MEA. 

Regarding respondents' arguments concerning the Department's
verification, we note that our requests were based on verifying the RTG's
questionnaire responses that it had received adequate remuneration in the
provision of electricity to the region served by PEA. Furthermore, the RTG
itself has a requirement in place that each electricity authority be able
to cover its marginal costs and to meet the specified financial criteria
(RTG Verification Report at 15, "NEPO officials stated that the first
three World Bank criteria have been adopted by . . . NEPO as the basis for
evaluating whether the tariff rate is sufficient"). Because the RTG has a
pricing philosophy for electricity that incorporates the precepts of
market principles set forth in our regulations (i.e., setting of prices
that are sufficient to cover costs and to ensure future operations (see
Preamble at 65378)), the Department had to examine at verification whether
the RTG, in the actual provision of electricity in the region served by
PEA, met this pricing philosophy without the internal subsidy. Thus, the
Department asked the officials at verification to undertake the same type
of analyses that they stated the electricity authorities undertake in
analyzing the sufficiency of the tariff rates (see RTG Verification Report
at 15), but to factor out the internal subsidy. Since the electricity
authorities are required to undertake this type of analysis on a regular
basis (albeit with the subsidy included), we do not think that the
Department's request was either complicated or confusing, and, as
documented in the verification report, we provided the authorities with
several opportunities to prepare the requested information. Each time they
presented the analyses, the results either changed, or the officials did
not provide the requested supporting calculations or documentation. Thus,
the RTG was not able to demonstrate that, without the internal subsidy,
the tariff rates charged by PEA are sufficient to meet the pricing
philosophy of the RTG, and as discussed, above, the Department has applied
facts available in determining the benefit from the provision of
electricity. 

We also disagree with respondents' argument that PWC concluded that, even
without the cross-subsidy between MEA and PEA, large general service users
would pay a lower rate. Our review of the NEPO report, to which
respondents cite, indicates that the cross-subsidies to which PWC referred
are those within and across the customer categories at the retail level,
not the lower rates that PEA pays on the bulk supply tariff in order for
the retail tariff rate to be sufficient to cover marginal costs and meet
the required financial criteria. As such, we find the following statement
in the NEPO report (NEPO is the RTG authority that contracted PWC to
undertake the review of the electricity tariffs) to be more probative of
whether PEA is receiving adequate remuneration from the electricity tariff
charged to users in the region, "{s}ince the supply costs of the two
distribution utilities are different while the uniform retail tariff is
applied nationwide, the financial transfers from the MEA to the PEA are,
therefore, essential so that the financial status of the two utilities
would meet the specified criteria." (NEPO report at p. 23 submitted as
Exhibit J-8 to the RTG February 6, 2001 questionnaire response)." Thus,
the NEPO Report supports the conclusion that, without the internal subsidy
to PEA, PEA would not be able to meet its required financial criteria and
cover its marginal costs under the uniform national tariff rate structure,
and would have to charge higher tariff rates to its customers. Therefore,
based on the evidence on the record, we are not able to conclude that
electricity in the region served by PEA is provided at prices that reflect
adequate remuneration. 

Comment 13: PEA's Financial Performance and Adequacy of Remuneration

Respondents argue that EGAT's and PEA's significant operating profits in
1999 should be sufficient to demonstrate the adequacy of their
remuneration. Indeed, respondents note that both agencies were able to
return large remittances to the Ministry of Finance. Furthermore, PEA made
a profit in 1999 even without the EGAT transfer price discount.
Respondents note that only the extraordinary foreign exchange losses in
1999 turned EGAT and PEA operating profits into net losses and that these
losses resulted from changes in accounting practices concerning
unforeseeable exchange losses in 1997 as a result of foreign borrowings.
Between 1995 and 1999, 1999 is the only year in which either agency
experienced net losses, and respondents note that these losses are
extraordinary, and directly attributable to the change in accounting
policies to recognize the exchange losses from an earlier period.
Regardless of these extraordinary losses, both agencies were required to
make remittances to the Ministry of Finance. 

Respondents argue that these extraordinary losses also affect the
assessment of whether the rates of return are sufficient to ensure future
operations. However, even with the lower transfer price charged to PEA,
and the extraordinary losses, EGAT's performance, measured against the
World Bank lending criteria, met one of the required financial criteria in
1999. Finally, respondents maintain that the Department has received and
verified enough information to determine that PEA's prices to SSI and PPC
allow for an adequate rate of return. Even without the EGAT discount, in
1999, PEA realized net operating income and paid a large remittance to the
Ministry of Finance. 

Petitioners note that the Department was unable to verify respondents'
claims that the PEA was profitable and able to meet the financial criteria
without the deduction and surcharge to the bulk supply tariff. Therefore,
petitioners argue, these claims cannot form the basis for a finding of
adequacy of remuneration. 

Department's Position:

As discussed in the Department's Position on the prior comment, the RTG
has developed a pricing philosophy for its electricity authorities. The
tariff rate must be sufficient for the authority to cover marginal costs
and to meet the specified financial criteria. PEA could not demonstrate
that without the internal subsidy that it receives, the tariff rates it
charges would meet the specified financial criteria. Thus, whether or not
EGAT and/or PEA made a profit in any given year (and we do not necessarily
agree with respondents' statements that we should only consider operating
profits and not the profit, or in this case, the loss, after all
adjustments) or made remittances to the Ministry of Finance, neither is
sufficient to undermine an analysis based on the RTG's own price-setting
philosophy for determining the sufficiency of its electricity tariffs;
tariff rates must cover all marginal costs and meet the specified
financial criteria.

Comment 14: Provision of Electricity and Adjustment of Benefit

Respondents argue that, should the Department continue to countervail
electricity, it should adjust the calculations to exclude electricity
which SSI purchases from PEA and resells to other users. This adjustment
should be made, respondents maintain, because SSI has separate electric
meters in place, the meters are calibrated by PEA, and the electricity is
resold to the other users at precisely the rates the other users would pay
if they purchased electricity directly from PEA. Respondents cite to
section 351.525(b)(5) of the Department's regulations to support their
contention that, because these onward electricity sales represent
electricity use which is not tied to the production of subject
merchandise, any benefits associated with this electricity use should be
excluded from the Department's calculations.


Petitioners argue that respondents have not demonstrated that SSI derived
no benefit from these subsidized electricity purchases. Moreover, they
argue that SSI has not demonstrated that these benefits are tied to non-
subject merchandise. As such, petitioners argue that no calculation
adjustment is warranted.

Department's Position:

The tying arguments presented by both parties are inapposite. As
explained in the Preamble to the regulations, " {o}ur tying rules are an
attempt at a simple, rational set of guidelines for reasonably attributing
the benefit from a subsidy based on the stated purpose of the subsidy or
the purpose we evince from record evidence at the time of bestowal" (63 FR
65403, emphasis added). The Preamble also makes clear that we will ". . .
not trace the use of subsidies through a firm's books and records. Rather
we analyze the purpose of the subsidy based on information available at
the time of the bestowal." Our tying rules follow the legislative history
in H.R. Rep. No. 96-317 at 74-75 (1979). They also reflect the guidance
provided in section 771(5)(C) of the Act, the Statement of Administrative
Action at 926, and section 351.503(c) of the regulations which provide
that the effect of a subsidy on a firm is not considered in determining
whether there is a benefit to the firm. 

The time of bestowal for electricity is the point at which PEA provides
the electricity. SSI is the only entity to which PEA is providing the
electricity, and at the point of bestowal, PEA does not direct or require
SSI to sell it or distribute it to any other entities. Thus, the subsidy
is not tied to non-subject merchandise and there is no basis for adjusting
the benefit calculation because SSI decides, on its own accord, that it
will resell some of the electricity it purchases from PEA. 

Furthermore, the respondents, in effect, are requesting that the Department
offset the amount of the subsidy provided to SSI by these resales. Such an 
offset is not permitted under the Act. Section 771(6) expressly limits any
adjustments to the gross countervailable subsidy to: application fees,
loss in value of the subsidy due to deferred receipt of the subsidy, and
export taxes or duties. Thus, what a company chooses to do with a subsidy
it receives is not relevant to our determination of the amount of the
benefit (see also discussion on benefit, Preamble, at 65361). Accordingly,
no adjustment was made in calculating the benefit from the provision of
electricity.

Comment 15: CDRAC List of 351 and De Facto Specificity

Petitioners note that the purpose of the specificity test is to "function
as an initial screening mechanism to winnow out only those foreign
subsidies which truly are broadly available and widely used throughout an
economy." Uruguay Round Agreements Act, Statement of Administrative
Action, H.R. Doc No. 103-316 at 929 (SAA). Further, the specificity test
is only intended to avoid the absurd result of imposing countervailing
duties on subsidies "available to all industries and sectors," such as
"public roads and bridges." Carlisle Tire & Rubber Co. v. United States
564 F. Supp. 834, 838 (Ct. Intel Trade, 1983). Subsidy benefits are
specific if the allocation of the subsidy has the ability to distort the
allocation of resources within an economy. Thus, a subsidy is specific if
government laws or regulations limit its use; if in fact, it is used by an
industry or a limited group of industries; if in fact an industry or a
limited group of industries receives a dominant share of the benefits; if
in fact an industry or a limited group of industries receives a
disproportionate share of the benefits of the subsidy compared to its
contribution to the economy; or if the government exercises its discretion
such that the distribution is otherwise capable of misallocating
resources. In each instance, the allocation of resources within an economy
can be distorted. Petitioners argue that the steel industry's and SSI's
representation on the list is disproportionate in relation to their share
of Thailand's GDP. 

Petitioners argue that SSI's restructured loans provided benefits that
are not like public highways and bridges. The benefits here, according to
petitioners, are limited both by specific government action and in fact to
a very limited industry or group of industries. Further, petitioners note
that the SAA speaks of specificity as a "rule of reason . . . to avoid the
imposition of countervailing duties in situations where, because of the
widespread availability and use of a subsidy, the benefit of the subsidy
is spread throughout an economy." SAA at 930 (italics original,
underlining added). Thus, according to petitioners, the statute directs
the Department not to consider the distribution of the financial
contribution alone, but the distribution of the subsidy - the "benefit"
from the "financial contribution" under section 771(5)(B) of the Act.
Petitioners argue that this is consistent with the purpose of the
specificity test to identify subsidies capable of distorting allocation of
resources within an economy.

More precisely, petitioners argue that SSI is part of a limited group of
companies that benefitted from having their debts restructured despite
their commercial unviability. Petitioners argue that SSI was not viable
and gained access to restructuring in the first place because of the
application of the Bangkok Approach, which diverged sharply from the
London Approach, on which it was reportedly based. The London Approach,
according to petitioners, is a model for market-based debt restructuring
under which the government plays no role in determining which creditors or
debtors receive priority attention, and companies considered commercially
unviable without the effects of the financial crisis are not to be kept
afloat through restructuring. Petitioners argue that the correct
application of the London Approach would not have resulted in non-viable
companies, like SSI, being named to the list. Further, petitioners assert
that the non-viable companies named to the list of 351 constituted a
limited group of enterprises or industries, and there is no evidence that
a large number of the 351 debtors were non-viable for reasons independent
of the Thai financial crisis. 

Respondents maintain that the Department verified that the list shows
that debt restructuring was not targeted to SSI or the steel industry. The
list includes a wide range of industries segregated into eight broad
categories: manufacturing, real estate, public utilities, services,
commerce, banking and other financial business, mining and quarrying, and
agriculture and forestry. After reviewing the list, respondents note, the
Department found information which is dispositive evidence that neither
SSI nor the steel industry are disproportionately represented on the list. 

According to respondents, the verification reports of the independent
experts indicated that the RTG did not target particular companies or
industries in the CDRAC process. Respondents add that petitioners failed
to address the role of the IMF in developing this process, and that
petitioners made an unsupported claim that steel was the single largest
industry on the list. Respondents state that this claim that steel was the
single largest industry on the list is irrelevant to arguing
disproportionality or to otherwise assessing specificity, and is
inapplicable in this investigation because a comparison cannot be made
using a static list of 351 companies and the economy of Thailand of
undefined scope. Furthermore, respondents note that the Department
verified that SSI and the steel industry were not disproportionately
represented on the list of 351, a point which respondents illustrated by
comparing the total debt from the first two lists to Thailand's national
debt.

Petitioners rebut respondents' point by noting that the questions
relevant to specificity and the list of 351 hinge in part on whether SSI
and PPC were among a limited number of companies named to the list on a
non-commercial basis given that they were commercially non-viable for
reasons unrelated to the financial crisis; on whether steel was
disproportionately represented on the list or in the group of debtors
actually restructured during 1999; and, on whether benefits were made
available to debtors on a specific basis. Petitioners take issue with
respondents' calculation of the portion of total debt accounted for by the
steel industry on the list, and note that petitioners' calculated figure
is higher, indicating that respondents' calculation understates the true
value of steel industry debt in that it excludes some steel industry debt.
This higher figure, according to petitioners, demonstrates specificity.
Petitioners also reject respondents' conclusion that independent experts
dispelled the idea that there was targeting in developing the CDRAC list,
noting that targeting is not a requirement of the specificity test, and
that the opinions of the independent sources were mixed and include
statements indicating that the RTG did intervene to put favored companies
on the list. Finally, petitioners believe that respondents' provision of
information related to the list does not overcome the requirement that the
Department rely on adverse facts available in finding debt restructuring
to be specific. 

Respondents argue that petitioners' claim, that the Bangkok Approach
sharply diverged from the London Approach because viability was not
determined before a company was named to the list of 351 or underwent debt
restructuring, is misleading. According to respondents, the verification
and independent expert reports establish that the Bangkok Approach was
modeled on the London Approach and did not operate to induce or compel
banks to restructure the debts of unviable companies. Furthermore,
respondents state that before a debt restructuring plan was proposed, a
company's viability was determined by an independent financial expert.
Citing to one of the independent experts, respondents added "that while
accountants are always tasked with the job of commenting on a company's
viability, the determination in these cases, were left to the creditors."
Respondents state that SSI's and PPC's debt restructuring was achieved
outside the CDRAC process and were not bound by the DCA, and they argue
that these debt restructurings rested on an independent financial expert
report.

Department's Position:

The Department's analysis of the list of 351 firms, which is based on
information obtained at verification and on the record of this proceeding,
indicated the following: the RTG-led CRDAC group named numerous companies
in a wide array of industries to the original and subsequent lists
developed during the POI; no one industry represented a disproportionate
amount of the debt on the list; and, companies were named to the list
based on neutral and objective criteria that were established in
consultation with the IMF as part of broader commitments to economic
reform in Thailand. The detail of each of these issues is discussed in the
SSI and PPC Debt Restructuring analysis section above. We identified
several industries within the list of 351 using the Industrial Standard of
Industrial Classification (ISIC) code at the two-digit level. Although a
certain number of industries on the list, including the primary metal
industry of which SSI is a part, may be seen as constituting a meaningful
portion of the debt, these industries did not represent a disproportionate
or overwhelming amount of the overall debt restructuring. As noted above
in the analysis section, the Department was also able to examine publicly
available information related to all of the debt restructuring lists
issued by the CDRAC from March 1999 through April 2001. This examination
further supports our finding that no one industry or company was targeted
or accounted for a disproportionate or dominant amount of the
restructuring of debt in either the original or subsequent lists.

While we do not disagree with petitioners that in programs such as
economy-wide debt restructuring, it is permissible to use a GDP analysis
to inform our examination of whether such debt restructuring was provided
disproportionately to an enterprise or industry, we do not find that the
petitioners' analysis is reasonable or appropriate. Petitioners compare
the percentage that SSI's debt represented of all the debt on the list of
351, to the percentage that SSI contributes to the overall Thai GDP.
First, the figure that they use for SSI's contribution to GDP is only the
value added by labor because SSI has large losses. They provide no basis
for why labor value added should be considered a reliable surrogate for a
company's actual contribution to the GDP. Even assuming that labor value
added would be an appropriate surrogate for determining SSI's contribution
to the GDP, the percentage that the petitioners state that SSI represented
of the total debt on the list exceeds the percentage that the Department
has calculated based on verification that SSI itself represented of the
total debt on the list of 351. See List of 351 Memo on file in CRU. Thus,
petitioners are not making an apples to apples comparison because they are
comparing SSI's contribution to the GDP with something more than the
percentage that SSI represents of the total debt on the list of 351. When
the appropriate figure for SSI's debt is used, the difference between
SSI's contribution to the GDP and the percentage that SSI represents of
total debt is relatively small.

Although the Court of Appeals for the Federal Circuit has found such GDP
analysis to be a reasonable methodology, it has noted that
"{d}eterminations of disproportionality and dominant use are not subject
to rigid rules, but rather must be determined on a case-by-case basis
taking into account all the facts and circumstances of a particular case."
See AK Steel Corp. v. United States, 192 F.3d 1367, 1385 (Fed. Cir. 1999).
In the instant case, petitioners themselves point to the difficulty of
assessing SSI's contributions to Thailand's gross domestic product as a
result of the company losses sustained by SSI. See petitioner's April 5,
2001 submission on SSI's debt restructuring at 31. Given the large amount
of NPLs found throughout the Thai economy, similar difficulties would
arise in using such GDP analysis as the basis for determining whether the
steel industry received a disproportionate share of benefits resulting
from the restructuring of debt. Furthermore, there are other facts on the
record, as discussed in the "Debt Restructuring" section above, that
outweigh the value of the proposed GDP analysis in determining whether
SSI's debt restructuring was specific. 

The Department agrees with petitioners' argument that the representation 
of viable companies on the list should be considered in determining whether
a limited sub-group of debtors disproportionately benefitted from non-
commercial debt restructuring in light of the failure of the Bangkok
Approach to consider a company's viability. However, we have no evidence
on the record that indicates that the RTG was able to use the CDRAC
process to discretely single-out SSI or any other allegedly non-viable
company which might have been named to the list. In fact, we do find that
the "Framework for Corporate Debt Restructuring in Thailand" (the
guidelines espoused by the Bangkok Approach), specifically addresses the
need for an analysis of the long-term viability of the debtor without
reliance on short-term concessions. Furthermore, this framework states
that viability should be determined by an "independent and reputable
accountant or other expert as nominated by the creditors to undertake
appropriate due diligence," in order to meet "{t}he provision of credible
and reliable financial and operational information {that} is essential in
determining the future viability of the affected business." See the
Bangkok Approach Agreement, Exhibit 17 of the RTG's Questionnaire Response
(February 6, 2001). SSI did undertake such due diligence, and its
creditors were provided an independent report of SSI's financial condition
to assist in the debt restructuring process prior to SSI being named to
the list of 351 firms. See SSI Verification Report at 16. The report
itself, which was provided as Exhibit 10 of the SSI Verification Report,
indicates that the projected financial statements and assumptions are
appropriate as the basis for developing a debt restructuring plan. Id. at
18. Therefore, we find that the issue of SSI's viability was addressed
even though the CDRAC may have failed to directly evaluate these issue
themselves in the naming of these companies to the list.


Comment 16: Objective and Neutral Criteria, and RTG Discretion

Other evidence which supports a finding of specificity, according to
petitioners, is that benefits were not distributed based on "neutral and
objective" criteria. Petitioners note that subsidies are not specific when
provided through automatic eligibility determined by the evaluation of
objective criteria which are neutral, economic in nature and horizontal in
application. Although companies were reportedly named to the list because
of their large debts and their multi-creditor situations, petitioners note
the presence of what appears to be numerous smaller companies which
indicates that these criteria were not objectively applied. 

Petitioners further argue that, even setting aside the characteristics of
the 351 companies named to the list, debt restructuring is specific
because the list of 351 debtors was plainly a limited group of
enterprises, especially in light of the hundreds of thousands of debtors
in Thailand eager for debt restructuring at the time.

Petitioners argue that the conferral of debt restructuring benefits is
wholly discretionary, and RTG officials used their discretion to steer
benefits to the steel industry and to SSI. Petitioners maintain that the
benefits extended to SSI through its debt restructuring were the result of
a negotiation in which company officials sat on one side of the table and
government representatives sat on the other. Petitioners argue that
government officials enjoyed discretion in determining who would have
access to early restructuring, and what particular terms would be offered
to each debtor once restructuring talks were underway. Petitioners offer
as evidence of this discretion the RTG's repeated identification of the
steel industry as a "targeted" industry of national importance; the BOI's
contribution as a facilitator of SSI's restructuring; and senior personnel
linkages between SSI and the RTG's Financial Sector Restructuring
Authority (FRA). This use of discretion in developing the list is also
evident, according to petitioners, in the over-representation of the steel
industry on the list; SSI's presence on the list despite its non-viability
for reasons unconnected to the financial crisis; and the granting to SSI
of loans terms vastly more favorable than those available under a
benchmark loan. 

Respondents contend that the Department's verification of the list
employed several different approaches and resulted in no finding that SSI
or the steel industry was targeted by the RTG.

Department's Position:

As noted above in the SSI and PPC Debt Restructuring section above, the
RTG's criteria for debt restructuring were objectively applied in
accordance with the recommendations of the IMF, as reflected in the BOT's
LOI number 5, and discussed in the minutes of CDRAC's seventh board
meeting. With respect to petitioners' observation that numerous smaller
companies were included in the list contrary to the enumerated criteria,
the BOT officials did provide the Department a reasonable explanation as
to their inclusion. See RTG Verification Report at 25. 

We disagree with petitioners' argument that the initial list of 351
companies itself limits the participation to a specific group of
enterprises. As noted above in the SSI and PPC Debt Restructuring analysis
section, we find that the companies on the list represent numerous and
diverse industries. Further, our finding is also supported by our
examination of the number of companies and industries reflected in the
1,694 cases named by CDRAC during the POI alone, and our consideration of
the fact that cases were being added and the number reached 2,845 by 
April 2001.


There is no evidence in the record which would support a finding that the
government played a role in negotiating SSI's debt restructuring, or in
determining the particular terms that would be offered to each debtor. As
pointed out to the Department at verification, SSI's banks were not
provided any guidance by the RTG with respect to focusing on any specific
industry sector for debt restructuring, nor did the Department find any
evidence that the RTG engaged in any meaningful discussions with SSI's
creditors. See Experts Memoranda. In describing the attempts made by SSI's
banks and finance companies to negotiate the actual terms of SSI's debt
restructuring deal, no reference was made of any RTG involvement in the
negotiation process. See SSI Verification Report at 17-18. Finally, the
uniform opinion of the independent experts that we interviewed at
verification, as noted above, was that the CDRAC did not target any
specific industry group. 

Comment 17: SSI's BOI Certificate and Debt Restructuring

Petitioners argue that SSI was among a limited group of enterprises to
have its debt restructuring facilitated with a BOI certificate. According
to petitioners, SSI's specific BOI investment-promotion certificate
constituted a government facilitation of its debt-restructuring and SSI's
certificate encouraged restructuring on more favorable terms. Moreover,
petitioners contend that such certificates were not generally available
and that SSI's certificate resulted from government actions specific to
SSI. Petitioners claim that the BOI rejected suggestions that it issue
such certificates more widely to facilitate debt restructuring generally.
Thus, petitioners argue, the advantage to certificate-holders like SSI was
maintained and even enhanced.

Department's Position:

We agree with petitioners that SSI, as a BOI promoted company, received
BOI incentives during the POI. We have determined that these benefits are
specific and countervailable as a result of the manner in which the
certificate was originally provided. See Incentives Under the Investment
Promotion Act, above. However, we do not find the petitioners' arguments
concerning the nexus between SSI's BOI incentives and SSI's restructuring
to be persuasive. The BOI's decision not to offer incentives on a wider
basis to assist in the overall debt restructuring after the economic
collapse cannot be a basis for determining that companies like SSI, which
had been approved for its BOI privileges well before its restructuring,
received advantages from their pre-existing BOI privileges in their debt
restructuring. 

Comment 18: Specificity and Facts Available

Petitioners argue that SSI's debt restructuring is specific based on
adverse facts available. Petitioners contend that the respondent failed to
disclose the "full" details of the list which prevents an analysis of the
application of the large debtor and multicreditor criteria in its
creation. Petitioners assert that the RTG withheld requested information,
failed to cooperate fully, and did not act to the best of its ability,
impeding the Department's analysis of specificity such that the Department
is permitted by section 776(b) to use an adverse inference to determine
that benefits from debt restructuring are specific. Petitioners argue that
respondents' claim that disclosure of the requested information is
prohibited by Thai law is unsubstantiated because the RTG did not provide
documents supporting this claim, and that, even under the alleged
prohibition, disclosure of the requested information is allowed with the
consent of parties. Petitioners maintain that the RTG reasonably could
have obtained consent and provided the requested information. In addition,
petitioners contend that the confidentiality of requested information is
not a legally valid ground for refusing to provide information, as the
Department's APO regulations are designed to protect such information. 

Petitioners assert that respondents' provision, during verification, of a
truncated list of debtors in no way cures respondents' failure to supply
the information requested. Petitioners contend that the list presented at
verification lacked much of the information necessary to do a complete
specificity analysis, i.e., precise terms of the new (restructured) loans
extended to various debtors and industries, so that a comparison of
benefits conferred to various industries and enterprises (and groups
thereof) could be conducted in order to examine the consistency with which
the "multicreditor" criterion and other criteria were applied in the
creation of the list. 

Petitioners assert that the list provided contains no information on the
outcome of the restructuring process for any debtor, or industry, or group
thereof, nor does it indicate which debtors had multiple creditors. As
evidence of the inadequacy of the information included in the version of
the list provided by respondents at verification, petitioners note that
PPC was not classified as a "steel" company in the list, and the debts of
one of SSI's affiliates, a steel producer, were excluded from the steel
totals in the list. 

Respondents maintain that they have overcome the information deficiency
which formed the basis of the Department's use of adverse facts available
for determining specificity in the Preliminary Determination. Respondents
note that the list of 351 debtors was provided for the Department's review
at verification, and argue that the Department verified that the list
demonstrates that debt restructuring was not targeted at SSI or at the
steel industry. Further, respondents maintain that the list includes a
wide range of industries segregated into eight broad categories:
manufacturing; real estate; public utilities; services; commerce; banking
and other financial business; mining and quarrying; and, agriculture and
forestry. Respondents argue that the Department's review of the list
showed that the steel industry and SSI, by their shares of the total debt
on the list, are not disproportionately represented, and therefore the
information on the list is dispositive of non-specificity.

Respondents refute petitioners assertions that the RTG failed to
cooperate during the verification by not providing precise terms of the
restructured loans that were extended to various debtors and industries.
According to respondents, the RTG does not have this information since the
debt restructurings were independently negotiated, and it would be
impossible for the RTG to acquire such information when more than 300,000
debt restructurings have occurred in Thailand since the financial crisis.
Respondents state that petitioners' claim that respondents' worksheet for
the list of 351 was specifically prepared for use in this investigation is
a false statement given the Department's extensive review of these
documents during verification.

Department's Position:

Respondents provided the Department complete access to the list of 351 at
verification which allowed the Department to obtain the information
necessary to complete a specificity analysis. The list of 351 firms
provided information such as: the name of the company; the company's
status as to whether it had signed a DCA agreement or not; the industry or
ISIC code that the company was included in; the debt amount of each
company; and, the name of each company's largest creditor. Furthermore,
the list organized each case under the following outcomes: completed
cases; unsuccessful cases; cases of legal action; and, those cases
involving normal loans. See RTG Verification Report at 24. All of the
Department's requests at verification for additional information and
documentation related to the list were met by the RTG. In response to
petitioners' contention that PPC was improperly classified, we found that
PPC was correctly classified as water transportation infrastructure. See
RTG Verification Report at 25.

In conducting a specificity analysis, it is not the Department's standard
practice to examine the specific terms of each loan as the basis for
comparing benefits among various industries and enterprises as suggested
by petitioners. The Department's normal practice is to examine the
distribution of the number of loans to determine whether recipients are
limited in number and to examine tha amount of the loans to determine; if
one recipient in particular is a predominant user; or, if a
disproportionate amount is received by one recipient. In addition, we have
no reason to suspect that the RTG maintains this type of information since
their direct involvement in the negotiation of these agreements appears
limited given the totality of evidence on the record of this investigation.

Comment 19: SSI Loans before Debt Restructuring and Creditworthiness of PPC

Petitioners argue that the Department undervalued the benefits to SSI by
failing to calculate the benefit arising from SSI's loans prior to the
completion of the debt restructuring. Petitioners also argue that since
the Department correctly used an uncreditworthiness benchmark to calculate
SSI's debt restructuring benefits, the Department also should use an
uncreditworthiness benchmark to calculate PPC's debt restructuring
benefits, as PPC was plainly uncreditworthy at the time.

Department's Position:

Since we have found SSI's debt restructuring not specific to an
enterprise, industry, or group thereof, we need not address petitioners'
argument with respect to calculating any alleged benefit prior to SSI's
debt restructuring, or for using an uncreditworthiness benchmark to
calculate PPC's alleged benefit arising from debt restructuring. 

Comment 20 : Benefit from Restructured Loans from Private Creditors

Petitioners argue that countervailable subsidies arise from restructured
loans provided to SSI by private creditors. Petitioners maintain that
there were three independent inducements by which the RTG "entrusted or
directed" the private creditors' actions. First, according to petitioners,
the RTG led a debt restructuring exercise in which government creditors
themselves contributed handsomely. Petitioners cite to Certain Steel
Products from Germany, 58 FR 37315, 37320 and 37323 (July 9, 1993), in
which the Department found that the government took the lead in organizing
the private creditors to rewrite loan contracts on terms more favorable to
the borrower. Second, petitioners maintain that the RTG made government
capital available to the private creditors as a reward for their
compliance with CDRAC priorities and in such a way as to induce the
provision of soft loans and equity infusions to SSI. The third category of
inducement, according to petitioners, is that the BOI promotion
certificate provided waivers of taxes and customs duties. Petitioners
argue that this certificate facilitated the early restructuring of its
holder. 

Petitioners reject as unpersuasive respondents' argument that because SSI
achieved its restructuring outside the CDRAC process, the existence of the
CDRAC process is irrelevant. Petitioners argue that the record shows that
even the private element of SSI's debt restructuring was heavily
influenced by the RTG. 

Department's Position:

Since we have found SSI's debt restructuring not specific to an
enterprise, industry, or group thereof, we need not address petitioners'
argument with respect to calculating any alleged benefit arising from
restructured loans provided to SSI by its private creditors as a result of
RTG inducements. 

Comment 21: Benefit from Private Creditors' Loans and Equity Infusions 

Petitioners argue that the extension of loans by private creditors and
the conversion of SSI's debentures into equity provided a benefit to SSI
in that these actions were inconsistent with the usual investment
practices of private investors. Because SSI was both uncreditworthy and
unequityworthy, according to petitioners, both the loans and the
conversions to equity provide benefits. 

Department's Position:

Since we have found SSI's debt restructuring not specific to an
enterprise, industry, or group thereof, we need not address petitioners'
argument with respect to calculating any alleged benefit arising from loan
or equity conversions provided to SSI on allegedly non-commercial terms by
its private creditors and bondholders. 

Comment 22: RTG Financial Contribution and SSI's Debt Restructuring 

Petitioners argue that the new loans provided by SSI's creditors qualify
as government financial contributions because the lenders included several
banks and finance companies which were under government control and acted
on behalf of the RTG at the time of the debt restructuring process. In
addition, petitioners argue that the BOI's involvement constitutes a
parallel line of government action, inasmuch as SSI's promotional
certificate from the BOI played a substantial role in causing and shaping
the company's debt restructuring. 

Respondents argue that the Department verified that there was no
government financial contribution evident in SSI's debt restructuring.
Respondents note that SSI's debt restructuring was achieved on commercial
terms, through a protracted negotiation, and with financial institutions
that were acting in their commercial self-interest, regardless of their
government or private ownership. According to respondents, SSI's creditors
forced the restructuring of its debt to protect their commercial
interests; the Department thoroughly verified every detail and found no
instance of RTG influence or control; these were true commercial
negotiations, involving several independent financial advisors and
consultants, which ultimately required the approval of the private
bondholders; several proposals were made and many rejected, and each new
proposal imposed tougher requirements on SSI; every party, including the
creditors with RTG ownership, was seeking to advance their own commercial
interests; and, SSI came out no better or worse with its private creditors
than with those taken over by the RTG. Respondents maintain that the
negotiating history itself reveals no direct or indirect financial
contribution from the RTG.

With respect to PPC's debt restructuring, respondents note that it, too,
involved an independent financial advisor, multiple proposals by both
parties as a result of the negotiation process, and monetary disputes.
Again, according to respondents, the Department found no direct or
indirect financial contribution by the government at verification.

Petitioners rebut each of respondents' arguments. Petitioners question
the independence of the outside experts whom the Department consulted, and
note that their views are "mixed" and include several statements
indicating that the RTG did intervene. Petitioners dismiss respondents'
point regarding the commercial nature of the conversion of foreign debt to
baht as irrelevant. Petitioners note that the inclusion of SSI's BOI
privileges in the independent financial review shows that the BOI
privileges constitute a government inducement of the debt restructuring.
Petitioners also dismiss respondents' claim that SSI's banks hoped to
avoid direct write-offs of debt. However, according to petitioners, this
did not eliminate the banks losses in net present value (NPV) associated
with the debt restructuring, which should be considered as benefits to SSI.

Petitioners dismiss respondents' claim that, at verification, the
Department found no RTG control, in light of the Department's Preliminary
Determination that there was "ownership and control sufficient to support
a conclusion that the provision of restructured loans by government-owned
or controlled creditors constitutes a financial contribution" (66 FR at
20258), and the verification which confirmed these findings. Petitioners
argue that the approval of the private bondholders is irrelevant, because
the bondholders would have wanted the creditors to write down their loans
and take large NPV losses. Petitioners note that respondents' claim that
SSI's requirements got tougher at each stage of the negotiations is
unsubstantiated by the record. On the contrary, in petitioners' view, the
verification reports show that SSI's creditors which were government-owned
steadily improved their terms; and, that SSI's creditors not yet under the
control of the government became more generous after the government-
control was established during the process. Petitioners dismiss
respondents' claim as sheer speculation that the creditors vigorously
pursued their own commercial interest, and note the personnel
relationships between SSI and its creditors during the debt restructuring
process.

Respondents argue that there is no evidence to support petitioners'
claims of a financial contribution by the government in the debt
restructuring of SSI and PPC. Respondents cite to the RTG Report (at 26)
in which BOT officials explained that "{i}f {the DCA and ICA} were not
signed, the BOT was not included in these meetings and monitored the
progress of the negotiations from a distance." 

Department's Position:

Since we have found SSI's debt restructuring was not specific to an
enterprise, industry, or group thereof, we need not address petitioners'
arguments with respect to alleged benefits arising from SSI's government-
owned and allegedly government-controlled banks, or derived from allegedly
favorable debt restructuring as a result of its BOI promotional
certificates.

Comment 23: Financial Contribution: The Bangkok Approach and CDRAC

Petitioners argue that the CDRAC is an RTG-created and controlled entity
which rewarded SSI's and PPC's creditors with generous doses of Tier 1
capital that can be considered RTG financial contributions to SSI.
Petitioners note that two of SSI's creditors participated in the CDRAC
process by signing inter-creditor agreements, and thereby, were eligible
to receive this additional Tier 1 capital.

Respondents contend that the CDRAC was formed to adopt resolutions to
augment the existing BOT debt restructuring guidelines, and to encourage
more negotiations between the creditors and debtors. However, according to
respondents, the CDRAC's initial efforts were ineffective due to the
complex nature of dealing with debt involving multiple creditors.
Therefore, the CDRAC adopted a voluntary framework known as the Bangkok
Approach (based on principles outlined in the London Approach) to
encourage debt restructuring. Respondents claim that this was
unsuccessful. Subsequently, respondents contend that the inter-creditor
and debtor-creditor agreements (ICA and DCA, respectively) were created in
order to get creditors and debtors to independently negotiate debt
restructuring without substantive RTG involvement. None of these
aforementioned initiatives, according to respondents, constituted a
government financial contribution to debt restructuring, and even if they
did, it would be irrelevant, as SSI's and PPC's debt restructurings were
achieved outside the CDRAC process (SSI did not sign a DCA).

Respondents contend that petitioners' assertion that the RTG made
governmental capital available to private creditors in order to reward
compliance with CDRAC priorities and guidelines, is not based on fact.
Respondents argue that petitioners are unable to link the RTG's general,
IMF-directed recapitalization efforts to any specific RTG involvement in
the debt restructurings of SSI and PPC. Likewise, respondents claim that
petitioners fail to provide any evidence of RTG involvement or influence
in SSI's bond-to-equity conversions since these conversions were voted on
and approved by the private bondholders acting in their own commercial
interests. 

Respondents reject petitioners' claim that the RTG influenced the
negotiated terms of the debt restructurings in a manner beneficial to the
companies. According to respondents, CDRAC is an organization which is led
and controlled by creditor and debtor representatives who used neutral
criteria to develop long lists of potential participants, such as SSI and
PPC. Respondents claim that the verification reports contain no evidence
to support petitioners' claim of RTG influence over the terms of the debt
restructurings. Finally, respondents note that CDRAC was occasionally
informed of the status of these negotiations as a "courtesy gesture," and
that the BOT inquired on the status of all the debt restructuring and
recommended legal proceedings against non-cooperative debtors. Respondents
maintain that these actions hardly constitute a sufficient causal nexus
for the Department to determine that the RTG exercised influence or
control, directly or indirectly, over the debt restructurings of SSI and
PPC, which essentially 

constituted a financial contribution to SSI and PPC. In their view, the
financial contributions are the loans and equity infusions provided in mid-
1999, by government-owned or -controlled financial institutions or by
private creditors entrusted or directed by the RTG.

Department's Position:

Since we have found SSI's debt restructuring was not specific to an
enterprise, industry, or group thereof, we need not reach the issue of
whether the terms of SSI's and PPC's debt restructuring conferred a
benefit and financial contribution from the government as a result of the
alleged direct or indirect actions of the RTG through the CDRAC or its
Tier 1 recapitalization program. 

Comment 24: Terms of SSI's and PPC's Debt Restructuring Confer Financial
Contribution from the RTG 

Petitioners argue that the new government loans given to SSI provided a
benefit in the form of softened loan terms that were advantageous to SSI:
increased access to debt restructuring would otherwise have been
unavailable to SSI given its unviable condition, and by virtue of its
early identification on CDRAC's initial debt restructuring list.
Petitioners note that the Department had found in its Preliminary
Determination that the loan terms provided a benefit. 

According to petitioners, the government-controlled entities should be
considered secured creditors given that they were in a position to assert
a priority claim on the proceeds from the sale of SSI's assets. This fact
would have influenced the creditors' behavior, and in petitioners' view,
set a ceiling on their tolerance for NPV losses in the debt restructuring.
Petitioners also reject respondents' assertion that the loans were
provided on the same terms as those accepted by the private creditors,
which indicates that the government-controlled creditors were acting on
commercial terms. In fact, petitioners argue, the actions of the
government-controlled creditors and the RTG resulted in the private
creditors being entrusted or directed to extend new loans to SSI at the
same soft terms, giving rise to additional countervailable benefits. 

Respondents reject petitioners' claim that SSI's debt restructuring was
in effect, a new loan, and that some of its creditors were government-
controlled financial institutions. According to respondents, verification
showed that SSI's debt restructuring did not involve any new loans but was
a restructuring of existing loans which allowed SSI to remain in operation
and repay its debts. Respondents contend that there is no evidence of
government influence or control in the debt restructuring negotiations
between SSI and its creditors, or that SSI's debt restructuring was
provided on non-commercial terms. SSI's banks are described by respondents
as being private, or in the cases where some of SSI's banks had RTG
ownership, still acting independent of the government in the making of
their financial decisions. In addition, respondents note that these banks
agreed to the same loan terms as the other finance companies involved in
the restructuring of SSI's loans, and because these banks were not bound
by the State Employees Liability Act (a statute which holds state
employees personally liable for losses of state assets), they cannot be
viewed as RTG entities. Respondents also contend that the banks acted in
their own interest in pressuring SSI to convert its foreign currency loans
to baht, and were opposed to any debt forgiveness because it would harm
the financial standing of the banks. In addition, the banks used an
independent financial advisor to help develop SSI's restructuring plan.
Finally, respondents argue that petitioners' reliance on Certain Steel
Products from Germany: Final Affirmative Countervailing Duty
Determination, (58 FR 37315, 37320, and 37323; 

July 9, 1993), is irrelevant because there are no facts on the record of
this investigation that indicate that SSI's private debt forgiveness was
required by the government, as was true in the cited case.

Respondents note that in the case of SSI's affiliate, PPC, PPC's bank
acted in accordance with normal private banking practices without RTG
involvement in PPC's debt restructuring. As evidence of this, respondents
cite to the verification report which indicates that PPC's creditor is not
subject to the State Employees Liability Act, and acted independently in
refusing multiple PPC debt restructuring proposals. 

Respondents argue that there is no record evidence that either company
received a benefit as a result of being on the CDRAC list of 351.
Respondents cite to the verification interviews with six independent
experts to confirm that being included on the list of 351 provided no
advantage to a debtor during its debt restructuring negotiations.
Respondents note that one of the experts explained that it was common for
the debt restructuring terms to include interest holidays and low interest
rates that gradually increased over the loan period. In addition, the
CDRAC process was described as being completely voluntary, with the
identification process being driven by the banks and the recommendations
of CDRAC committee members who had knowledge of the particular debtors.
Respondents cite to the statement of one expert who noted that no major
companies with NPLs avoided being identified by CDRAC, and that the
negotiations and terms of the restructured debt were decided by the banks,
themselves. In addition, respondents refer to the statements of another
expert who characterized the RTG's involvement as a "hands-off" approach
that helped banks by pressuring debtors to proceed with debt
restructuring. Finally, respondents contend that their was no evidence
that being named on the list of 351 influenced the success or the terms of
the restructuring, especially in the case where companies did not sign the
debtor-creditor agreements (DCA), such as SSI and PPC. 

Department's Position:

Since we have found SSI's debt restructuring was not specific to an
enterprise, industry, or group thereof, we need not reach the issue of
whether the terms of SSI's and PPC's debt restructuring conferred a
benefit and financial contribution from the government as a result of:
alleged 

direct or indirect influence or control by the RTG over the debt
restructuring negotiations between SSI and its creditors; CDRAC's early
naming of SSI and PPC as companies listed for debt restructuring; and,
SSI's and PPC's debt restructuring being provided on non-commercial terms.

VII. Total Ad Valorem Rate

We have revised the net subsidy rate that was calculated in the
Preliminary Determination. The revised subsidy rate for SSI is 2.38
percent ad valorem.

VIII. Recommendation

Based on our analysis of the comments received, we recommend adopting all
of the above positions. If these recommendations are accepted, we will
publish the results of the final determination in the Federal Register.



__________ __________
Agree      Disagree

______________________

Faryar Shirzad
Assistant Secretary 
  for Import Administration


______________________ 
Date