[Federal Register: February 8, 2002 (Volume 67, Number 27)]
[Page 6001-6008]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-274-805]
Preliminary Affirmative Countervailing Duty Determination and
Preliminary Negative Critical Circumstances Determination: Carbon and
Certain Alloy Steel Wire Rod from Trinidad and Tobago.
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
ACTION: Notice of preliminary affirmative countervailing duty
determination and preliminary negative critical circumstances
determination.
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SUMMARY: The Department of Commerce preliminarily determines that
countervailable subsidies are being provided to producers or exporters
of carbon and certain alloy steel wire rod from Trinidad and Tobago.
For information on the estimated countervailing duty rates, see infra
section on ``Suspension of Liquidation.'' We also determine that
critical circumstances do not exist with respect to imports of carbon
and certain alloy steel wire rod from Trinidad and Tobago.
DATES: February 8, 2002.
FOR FURTHER INFORMATION CONTACT: Melani Miller or Anthony Grasso,
Office of Antidumping/Countervailing Duty Enforcement, Group 1, Import
Administration, U.S. Department of Commerce, Room 3099, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-
0116 and (202) 482-3853, respectively.
The Applicable Statute
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (``the
Act''). In addition, unless otherwise indicated, all citations to the
Department of Commerce's (``the Department'') regulations are to 19 CFR
Part 351 (April 2001).
Petitioners
The petitioners in this investigation are Co-Steel Raritan, Inc.,
GS Industries, Keystone Consolidated Industries, Inc., and North Star
Steel Texas, Inc. (collectively, ``petitioners'').
Case History
The following events have occurred since the publication of the
notice of initiation in the Federal Register. See Notice of Initiation
of Countervailing Duty Investigations: Carbon and Certain Alloy Steel
Wire Rod from Brazil, Canada, Germany, Trinidad and Tobago, and Turkey,
66 FR 49931 (October 1, 2001) (``Initiation Notice'').
On September 21, 2001, the petitioners properly filed a new subsidy
allegation. Although it was filed prior to the signature of the
Initiation Notice, due to a lack of time for proper analysis, we did
not include this new allegation in our initiation. Instead, we
addressed the allegation in the October 17, 2001 memorandum to Richard
W. Moreland entitled ``New Subsidy Allegations''(``October 17
Memorandum''), which is on file in the Department's Central Records
Unit in Room B-099 of the main Department building (``CRU'').
On October 9, 2001, we received a request from the petitioners to
amend the scope of this investigation to exclude certain tire rod. On
November 28, 2001, the petitioners submitted further clarification with
respect to their scope amendment request. Also on November 28, the five
largest U.S. tire manufacturers and the industry trade association, the
Rubber Manufacturers Association (``tire manufacturers''), submitted
comments on the proposed exclusion. The tire manufacturers submitted
further comments on January 28, 2002. See, infra, ``Scope Comments''
section.
On October 11, 2001, we issued countervailing duty (``CVD'')
questionnaires to the Government of Trinidad and Tobago (``GOTT'') and
to Caribbean Ispat Limited (``CIL''), the only producer/exporter of
carbon and certain alloy steel wire rod (``wire rod'' or ``subject
merchandise'') in Trinidad and Tobago.
On October 18, 2001, the petitioners filed a letter raising several
concerns with respect to the Department's initiation of this
investigation and the concurrent CVD investigations in Brazil, Canada,
and Germany. With respect to Trinidad and Tobago, the petitioners also
filed a second letter on October 18 resubmitting a subsidy allegation
that the Department rejected in the Initiation Notice. The Department
addressed the concerns raised in these two letters with respect to
Trinidad and Tobago in the December 4, 2001 memorandum to Richard W.
Moreland entitled ``Petitioners' Objections to Department's Initiation
Determinations,'' which is on file in the Department's CRU.
On November 14, 2001, we postponed the preliminary determination of
this investigation until February 1, 2002. See Carbon and Certain Alloy
Steel Wire Rod From Brazil, Canada, Germany, Trinidad and Tobago, and
Turkey: Postponement of Preliminary Determinations of Countervailing
Duty Investigations, 66 FR 57036 (November 14, 2001).
On December 3, 2001, the Department received responses to the
Department's questionnaires from CIL and the GOTT (collectively, the
``respondents''). On December 10, 2001, the petitioners submitted
comments regarding these questionnaire responses. The Department issued
supplemental questionnaires to the GOTT and CIL on December 11, 2001
and January 4, 2002, and received responses to those questionnaires on
January 3, and January 11, 2002.
On December 21, 2001, the petitioners submitted a letter alleging
that critical circumstances exist with respect to imports of wire rod
from Trinidad and Tobago. Supplemental critical circumstances
information and arguments relating to Trinidad and Tobago were filed by
the American Wire Producers Association on December 31, 2001, the
petitioners on January 2, 2002 and January 25, 2002, and by the
respondents on January 11, and January 18, 2002. See infra ``Critical
Circumstances'' section for a discussion on the Department's critical
circumstances analysis for this preliminary determination.
Finally, the petitioners and respondents submitted comments on the
upcoming preliminary determination on January 17, and January 18, 2002,
respectively. In their comments, the petitioners made two new subsidy
allegations, and also resubmitted the subsidy allegation which the
Department addressed in its October 17 Memorandum. Under 19 CFR
351.301(d)(4)(A), new subsidy allegations are due no later than 40 days
prior to a preliminary determination, a deadline which had passed by
January 17, 2002. However, even if these allegations had been timely
filed, we would not have included them in our investigation for the
reasons outlined below.
[[Page 6002]]
The petitioners' first new allegation pertains to the GOTT's Repair
Program for the Iron and Steel Company of Trinidad and Tobago's
(``ISCOTT'') facilities. According to the petitioners, ISCOTT's
financial statements show that ISCOTT continued to incur expenses on
its leased assets during the period when CIL leased the ISCOTT
facilities (1989 through 1994). Citing to the Final Affirmative
Countervailing Duty Determination: Certain Stainless Steel Wire Rod
From Italy, 63 FR 40474, 40485 (July 29, 1998) and the Final
Affirmative Countervailing Duty Determination: Stainless Steel Bar from
Italy 67 FR 3163 (January 23, 2002), the petitioners allege that the
maintenance obligation during the pendency of the lease rested with the
tenant. Therefore, the petitioners claim, a subsidy was conferred in
the amount of the maintenance payments made.
In making this new subsidy allegation, the petitioners have not
demonstrated that a financial contribution or a benefit has been
provided by the GOTT to CIL or ISCOTT through this program pursuant to
sections 771(5)(D) and (E) of the Act. Furthermore, the Plant Lease
Agreement required that ISCOTT hand over the plant to CIL with the
plant operating in accordance with its specified design capacities.
Information on the record indicates that ISCOTT did not meet this
requirement, and the payments made by ISCOTT to CIL with respect to
plant maintenance were made in order to allow CIL and ISCOTT to meet
these Plant Lease Agreement stipulations. Therefore, unlike the Italian
cases, noted above, the evidence in this proceeding supports the
conclusion that CIL was not responsible for this maintenance.
Consequently, we neither have a basis to investigate these payments,
nor have the petitioners properly alleged the elements necessary for
the imposition of countervailable duties as required by section 701(a)
of the Act.
The petitioners' second new allegation relates to the sale of
ISCOTT's assets to CIL. The petitioners allege that the change-in-
ownership transaction was not at arm's length because, inter alia,
ISCOTT's and CIL's operations were closely intertwined as a result of
CIL's having leased ISCOTT's plant. Additionally, according to the
petitioners, ISCOTT did not receive fair market value when it sold the
assets to CIL. This is evidenced, the petitioners claim, by the fact
that ISCOTT received significantly less than the book value of the
assets. Thus, the petitioners allege, CIL received a benefit by virtue
of the low sales price it paid.
Under the Department's practice, when a change in ownership occurs
and we find that the pre-sale and post-sale entities are the same
``person,'' we do not conduct an analysis of whether the transaction
reflected fair value. (See ``Final Results of Redetermination Pursuant
to Court Remand'' Acciai Speciali Terni S.p.A. v. United States, Court
No. 99-06-00364, Remand Order (CIT August 14, 2000).) Because we have
determined that the business entity owned by ISCOTT prior to the 1994
sale was the same ``person'' as the business entity owned by CIL after
the 1994 sale (see ``Change in Ownership'' section, infra), we do not
reach the issue identified by the petitioners in this proceeding and
have no basis to investigate this transaction as a possible subsidy.
Finally, the petitioners raised again their allegation that CIL's
commitment to invest in the company it had just purchased conferred a
subsidy. This allegation had been dismissed by the Department in the
October 17 Memorandum, and the petitioners' January 17, 2002 submission
did not provide additional evidence in support of their claim. Based on
our review of the evidence, there is no indication that revenue was
foregone by the GOTT or ISCOTT in selling the wire rod production
assets to CIL.
Period of Investigation
The period for which we are measuring subsidies, or the period of
investigation (``POI''), is calendar year 2000.
Scope of Investigation
The merchandise covered by this investigation is certain hot-rolled
products of carbon steel and alloy steel, in coils, of approximately
round cross section, 5.00 mm or more, but less than 19.0 mm, in solid
cross-sectional diameter.
Specifically excluded are steel products possessing the above-noted
physical characteristics and meeting the Harmonized Tariff Schedule of
the United States (``HTSUS'') definitions for (a) stainless steel; (b)
tool steel; (c) high nickel steel; (d) ball bearing steel; and (e)
concrete reinforcing bars and rods. Also excluded are (f) free
machining steel products (i.e., products that contain by weight one or
more of the following elements: 0.03 percent or more of lead, 0.05
percent or more of bismuth, 0.08 percent or more of sulfur, more than
0.04 percent of phosphorus, more than 0.05 percent of selenium, or more
than 0.01 percent of tellurium). All products meeting the physical
description of subject merchandise that are not specifically excluded
are included in this scope.
The products under investigation are currently classifiable under
subheadings 7213.91.3010, 7213.91.3090, 7213.91.4510, 7213.91.4590,
7213.91.6010, 7213.91.6090, 7213.99.0031, 7213.99.0038, 7213.99.0090,
7227.20.0010, 7227.20.0090, 7227.90.6051 and 7227.90.6058 of the HTSUS.
Although the HTSUS subheadings are provided for convenience and customs
purposes, the written description of the scope of these investigations
is dispositive.
Scope Comments
In the Initiation Notice, we invited comments on the scope of this
proceeding. As noted above, on October 9, 2001, we received a request
from the petitioners to amend the scope of this investigation and the
companion CVD and antidumping duty (``AD'') wire rod investigations.
Specifically, the petitioners requested that the scope be amended to
exclude high carbon, high tensile 1080 grade tire cord and tire bead
quality wire rod actually used in the production of tire cord and bead,
as defined by specific dimensional characteristics and specifications.
On November 28, 2001, the petitioners further clarified and
modified their October 9 request. The petitioners suggested the
following five modifications and clarifications: (1) Expand the end-use
language of the scope exclusion request to exclude 1080 grade tire cord
and tire bead quality that is used in the production of tire cord, tire
bead, and rubber reinforcement applications; (2) clarify that the scope
exclusion requires a carbon segregation per heat average of 3.0 or
better to comport with recognized industry standards; (3) replace the
surface quality requirement for tire cord and tire bead with simplified
language specifying maximum surface defect length; (4) modify the
maximum soluble aluminum from 0.03 to 0.01 for tire bead wire rod; and
(5) reduce the maximum residual element requirements to 0.15 percent
from 0.18 percent for both tire bead and tire cord wire rod and add an
exception for chromium-added tire bead wire rod to allow a residual of
0.10 percent for copper and nickel and a chromium content of 0.24 to
0.30 percent.
Also on November 28, 2001, the tire manufacturers submitted a
letter to the Department in response to petitioners' October 9, 2001
submission regarding the scope exclusion. In this letter, the tire
manufacturers supported the petitioners' request to exclude certain
1080 grade tire cord and tire bead wire
[[Page 6003]]
rod used in the production of tire cord and bead.
Additionally, the tire manufacturers requested that the Department
clarify whether 1090 grade was covered by the petitioners' exclusion
request. The tire manufacturers further requested an exclusion from the
scope of this investigation for 1070 grade wire rod and related grades
(0.69 percent or more of carbon) because, according to the tire
manufacturers, domestic production cannot meet the requirements of the
tire industry.
The tire manufacturers stated their opposition to defining scope
exclusions on the basis of actual end use of the product. Instead, the
tire manufacturers support excluding the product if it is imported
pursuant to a purchase order from a tire manufacturer or a tire cord
wire manufacturer in the Untied States. Finally, the tire manufacturers
urged the Department to adopt the following specifications to define
the excluded product: A maximum nitrogen content of 0.0008 percent for
tire cord and 0.0004 percent for tire bead; maximum weight for copper,
nickel, and chromium, in the aggregate, of 0.0005 percent for both
types of wire rod. In their view, there should be no additional
specifications and tests, as proposed by the petitioners.
On January 28, 2002, the tire manufacturers responded to the
petitioners' November 28, 2001 letter. The tire manufacturers continue
to have three major concerns about the product exclusion requested by
the petitioners. First, the tire manufacturers urge that 1070 grade
tire cord quality wire rod be excluded (as it was in the 1999 Section
201 investigation). Second, they continue to object to defining the
exclusion by actual end use. Finally, they reiterate their earlier
position on the chemical specifications for the excluded product.
At this point in the proceeding, we recognize that the interested
parties have both advocated excluding tire rod and tire core quality
wire rod. However, the Department continues to examine this issue.
Therefore, for this preliminary determination we have not amended the
scope, and this preliminary determination applies to the scope as
described in the Initiation Notice.
We plan to reach a decision as early as possible in this
proceeding. Interested parties will be advised of our intentions prior
to the final determination and will have the opportunity to comment.
Injury Test
Because Trinidad and Tobago is a ``Subsidies Agreement Country''
within the meaning of section 701(b) of the Act, the International
Trade Commission (``ITC'') is required to determine whether imports of
the subject merchandise from Trinidad and Tobago materially injure, or
threaten material injury to, a U.S. industry. On October 15, 2001, the
ITC transmitted to the Department its preliminary determination that
there is a reasonable indication that an industry in the United States
is being materially injured by reason of imports from Trinidad and
Tobago of the subject merchandise. See Carbon and Certain Alloy Steel
Wire Rod From Brazil, Canada, Egypt, Germany, Indonesia, Mexico,
Moldova, South Africa, Trinidad and Tobago, Turkey, Ukraine, and
Venezuela, 66 FR 54539 (October 29, 2001).
Critical Circumstances
On December 21, 2001 petitioners alleged that critical
circumstances exist with respect to imports of subject merchandise
from, inter alia, Trinidad and Tobago. The petitioners provided the
Department with additional submissions supporting those allegations.
See Collier Shannon Scott submissions, dated December 21, 2001, January
2, 2002, and January 25, 2002. In accordance with 19 CFR
351.206(c)(2)(i), because the petitioners submitted a critical
circumstances allegation more than 20 days before the scheduled date of
the preliminary determination, the Department must issue a preliminary
critical circumstances determination not later than the date of the
preliminary determination.
Section 703(e)(1) of the Act provides that critical circumstances
exist if the Department determines that there is a reasonable basis to
believe or suspect that (1) an alleged subsidy is inconsistent with the
Subsidies Agreement\1\, and (2) there have been massive imports of the
subject merchandise over a relatively short period of time. In past
critical circumstances determinations, the Department has only found
``prohibited subsidies'' under Part II of the Subsidies Agreement to be
inconsistent with the Subsidies Agreement. See Notice of Preliminary
Affirmative Countervailing Duty Determination, Preliminary Affirmative
Critical Circumstances Determination, and Alignment of Final
Countervailing Duty Determination: Certain Softwood Lumber Products
from Canada, 66 FR 43186, 43189 (August 17, 2001). In the instant
investigation, petitioners argue that the class of subsidies found to
be inconsistent with the subsidies agreement should be expanded to
include ``actionable subsidies'' under Part III of the Subsidies
Agreement.
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\1\ The term ``Subsidies Agreement'' means the Agreement on
Subsidies and Countervailing Measures referred to in section
101(d)(12) of the Uruguay Round Agreements Act. (See Sec. 771(8) of
the Act).
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The Department preliminarily determines that critical circumstances
do not exist with respect to subject merchandise from Trinidad and
Tobago because we have preliminarily found no subsidies inconsistent
with the Subsidies Agreement to exist in Trinidad and Tobago. Thus, the
first requirement of Sec. 703(e)(1) of the Act has not been met. More
specifically, we have preliminarily found no prohibited subsidies
(i.e., Part II of the Subsidies Agreement) to be countervailable in
this case. Actionable subsidies, although they may give rise to a right
to a remedy (e.g. countervailing duties), are not inconsistent with the
Subsidies Agreement within the meaning of Section 703(e)(1) of the Act.
Change in Ownership
On February 2, 2000, the U.S. Court of Appeals for the Federal
Circuit (``CAFC'') in Delverde Srl v. United States, 202 F.3d 1360,
1365 (Fed. Cir. 2000), reh'g en banc denied (June 20, 2000) (``Delverde
III''), rejected the Department's change-in-ownership methodology as
explained in the General Issues Appendix of the Final Affirmative
Countervailing Duty Determination: Certain Steel Products from Austria,
58 FR 37217, 37225 (July 9, 1993). The CAFC held that ``the Tariff Act,
as amended, does not allow Commerce to presume conclusively that the
subsidies granted to the former owner of Delverde's corporate assets
automatically `passed through' to Delverde following the sale. Rather,
the Tariff Act requires that Commerce make such a determination by
examining the particular facts and circumstances of the sale and
determining whether Delverde directly or indirectly received both a
financial contribution and benefit from the government.'' Delverde III,
202 F.3d at 1364.
Pursuant to the CAFC finding, the Department developed a new
change-in-ownership methodology. This new methodology was first
announced in a remand determination on December 4, 2000, and was also
applied in Grain-Oriented Electrical Steel from Italy; Final Results of
Countervailing Duty Administrative Review, 66 FR 2885 (January 12,
2001). Likewise, we have
[[Page 6004]]
applied this new methodology in analyzing the changes in ownership in
this preliminary determination.
The first step under this new methodology is to determine whether
the legal person (entity) to which the subsidies were given is, in
fact, distinct from the legal person that produced the subject
merchandise exported to the United States. If we determine the two
persons are distinct, we then analyze whether a subsidy has been
provided to the purchasing entity as a result of the change-in-
ownership transaction. If we find, however, that the original subsidy
recipient and the current producer/exporter are the same person, then
that person benefits from the original subsidies, and its exports are
subject to countervailing duties to offset those subsidies. In other
words, we will determine that a ``financial contribution'' and a
``benefit'' have been received by the ``person'' under investigation.
Assuming that the original subsidy has not been fully amortized under
the Department's normal allocation methodology as of the POI, the
Department would then continue to countervail the remaining benefits of
that subsidy.
In making the ``person'' determination, where appropriate and
applicable, we analyze factors such as (1) continuity of general
business operations, including whether the successor holds itself out
as the continuation of the previous enterprise, as may be indicated,
for example, by use of the same name, (2) continuity of production
facilities, (3) continuity of assets and liabilities, and (4) retention
of personnel. No single factor will necessarily provide a dispositive
indication of any change in the entity under analysis. Instead, the
Department will generally consider the post-sale person to be the same
person as the pre-sale person if, based on the totality of the factors
considered, we determine the entity in question can be considered a
continuous business entity because it was operated in substantially the
same manner before and after the change in ownership.
The change in ownership being examined in this instance involves
the sale of ISCOTT's assets by the GOTT to CIL on December 30, 1994.
Although this change in ownership was analyzed in detail in the Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Trinidad and Tobago, 62 FR 55003, 55005 (October 22, 1997) (``1997
Trinidad and Tobago Wire Rod'') under the Department's previous
privatization methodology, as noted above, the Department's change-in-
ownership methodology has changed. Thus, a new analysis must be carried
out pursuant to the methodology currently being followed by the
Department.
As noted above, the first step under our current change-in-
ownership methodology is to determine whether the legal person, or,
more specifically, the business entity to which the subsidies were
given, is distinct from the business entity that produced the subject
merchandise exported to the United States. As the name of the
methodology implies, our analysis is triggered at the time of the
actual change-in-ownership event, and is based on a comparison of the
business entity before and after that ownership change. In this
instance, we have preliminarily determined that the business entity
owned by ISCOTT benefitted from subsidies bestowed by the GOTT between
1986 and 1991, and that this entity also received debt relief in 1994.
Although CIL leased and updated the wire rod plant from ISCOTT between
1989 and 1994, the actual change in the ownership of the business
entity did not occur until December 1994. Therefore, in analyzing
whether the subsidies received by ISCOTT continued to benefit CIL, we
have compared the business entity that was owned by ISCOTT (but run by
CIL) in 1994 prior to the change in ownership to the business entity
owned by CIL in 1995 after the change in ownership.
The first of the four criteria examined by the Department, as noted
above, is the continuity of general business operations, including
whether the successor holds itself out as the continuation of the
previous enterprise. This may be indicated, for example, by use of the
same name. In both 1994 and 1995, the respondents reported that
merchandise manufactured by the entity in question was marketed under
CIL's trade name. The respondents also reported that, because the
product lines manufactured at the plant are standard throughout the
industry (e.g., billets, wire rod, etc.), the product lines have
essentially remained the same. Thus, although a shift was being
implemented by CIL toward a higher-end line of wire rod products, the
plant continued to produce billets, steel wire rod, and direct reduced
iron both before and after the change in ownership in December 1994.
Thus, CIL's longer-term efforts to revise certain areas of the plant's
business operations notwithstanding, the overall business operations of
pre- and post- change in ownership were essentially the same.
As for the second and third criteria, continuity of production
facilities and assets and liabilities, the respondents reported that
major investments were made during the lease period (i.e. prior to the
sale of ISCOTT's assets to CIL) and after the sale was completed. The
respondents reported that, prior to the purchase of ISCOTT's assets in
1994, significant investments were made to repair and improve the plant
with the result that the plant's productivity was increased
significantly. The respondents further note that, following the sale,
CIL implemented an even more substantial program of major investments
and changes to the plant. The respondents also reported that no
liabilities were transferred to the new owners. Based on an examination
of this information, we note that a comparison of the asset structure
in 1994 and 1995 shows an increase in the plant's assets during those
two years, ostensibly based on the upgrades being carried out
throughout the plant. Thus, we note that changes in the plant's asset
structure were likely based on the plant upgrades that occurred both
before and after the sale.
Finally, regarding the fourth criterion, retention of personnel,
the respondents reported that few changes were made as a result of the
change in ownership.
Based on the totality of the factors considered, we preliminarily
determine that the pre- and post- sale production entity in question is
a continuous business entity because it was operated in substantially
the same manner before and after the change in ownership. Although it
is evident that long-term changes were being carried out by CIL, the
business entity continued to produce substantially the same products
under the same name. Thus, for the preliminary determination, we are
attributing subsidies received by ISCOTT that continue to be allocable
during the POI to CIL's sales during the POI.
Equityworthiness
Section 771(5)(E)(i) of the Act and 19 CFR 351.507 state that, in
the case of a government-provided equity infusion, a benefit is
conferred if the investment decision is inconsistent with the usual
investment practice of private investors. 19 CFR 351.507 states that
the first step in determining whether an investment decision is
inconsistent with the usual investment practice of private investors is
to examine whether, at the time of the infusion, there was a market
price for similar newly-issued equity. If so, the Department will
consider an equity infusion to be inconsistent with the usual
investment practice of private investors if the price paid by the
government for newly-issued shares is greater than the price paid by
private
[[Page 6005]]
investors for the same, or similar, newly-issued shares.
If actual private investor prices are not available, then, pursuant
to 19 CFR 351.507(a)(3)(i), the Department will determine whether the
firm funded by the government-provided infusion was equityworthy or
unequityworthy at the time of the equity infusion.
In making the equityworthiness determination, pursuant to 19 CFR
351.507(a)(4), the Department will normally determine that a firm is
equityworthy if, from the perspective of a reasonable private investor
examining the firm at the time the government-provided equity infusion
was made, the firm showed an ability to generate a reasonable rate of
return within a reasonable time. To do this, the Department normally
examines the following factors:
1) objective analyses of the future financial prospects of the
recipient firm; 2) current and past indicators of the firm's financial
health; 3) rates of return on equity in the three years prior to the
government equity infusion; and 4) equity investment in the firm by
private investors.
19 CFR 351.507(a)(4)(ii) further stipulates that the Department
will ``normally require from the respondents the information and
analysis completed prior to the infusion, upon which the government
based its decision to provide the equity infusion.'' Absent an analysis
containing information typically examined by potential private
investors considering an equity investment, the Department will
normally determine that the equity infusion provides a countervailable
benefit. This is because, before making a significant investment, it is
the usual practice of private investors to evaluate the potential risk
versus the expected return, using the most objective criteria and
information available.
Our equity analysis for ISCOTT is described below in the section
entitled ``Equity Infusions into ISCOTT.''
Creditworthiness
The examination of creditworthiness is an attempt to determine if
the company in question could obtain long-term financing from
conventional commercial sources. See 19 CFR 351.505(a)(4). According to
19 CFR 351.505(a)(4)(i), the Department will generally consider a firm
to be uncreditworthy if, based on information available at the time of
the government-provided loan, the firm could not have obtained long-
term loans from conventional commercial sources. In making this
determination, according to 19 CFR 351.505(a)(4)(i), the Department
normally examines the following four types of information: 1) the
receipt by the firm of comparable commercial long-term loans; 2)
present and past indicators of the firm's financial health; 3) present
and past indicators of the firm's ability to meet its costs and fixed
financial obligations with its cash flow; and 4) evidence of the firm's
future financial position. If a firm has taken out long-term loans from
commercial sources, this will normally be dispositive of the firm's
creditworthiness. However, if the firm is government-owned, the
existence of commercial borrowings is not dispositive of the firm's
creditworthiness. This is because, in the Department's view, in the
case of a government-owned firm, a bank is likely to consider that the
government will repay the loan in the event of a default. See
Countervailing Duties; Final Rule, 63 FR 65348, 65367 (November 28,
1998).
In this investigation, we are examining ISCOTT's creditworthiness
from 1986 (the beginning of the average useful life (``AUL'') period,
as discussed below in the ``Subsidies Valuation Information'' section)
through 1994. In 1997 Trinidad and Tobago Wire Rod, the Department
determined that ISCOTT was uncreditworthy during the time period June
13, 1984 through December 31, 1994. In 1997 Trinidad and Tobago Wire
Rod, we concluded the following:
ISCOTT did not show a profit for any year during this period and
continued to rely upon support from the GOTT to meet fixed payments.
The company's gross profit ratio was consistently negative in each of
the years in which it had sales. Additionally, the company's operating
profit (net income before depreciation, amortization, interest and
financing charges) was consistently negative. The firm continued to
show an operating loss in each year it was in production, and was never
able to cover its variable costs.
See 1997 Trinidad and Tobago Wire Rod, 62 FR at 55005.
Based on an examination of the information submitted in the instant
proceeding with respect to ISCOTT's creditworthiness during the period
1986 through 1994, we have concluded that no new information has been
presented that would lead to a different conclusion than the
determination made in 1997 Trinidad and Tobago Wire Rod. Therefore, we
preliminarily determine that ISCOTT was uncreditworthy from 1986
through 1994.
Subsidies Valuation Information
Allocation Period
Pursuant to 19 CFR 351.524(b), non-recurring subsidies are
allocated over a period corresponding to the AUL of the renewable
physical assets used to produce the subject merchandise. 19 CFR section
351.524(d)(2) creates a rebuttable presumption that the AUL will be
taken from the U.S. Internal Revenue Service's 1977 Class Life Asset
Depreciation Range System (the ``IRS Tables''). For wire rod, the IRS
Tables prescribe an AUL of 15 years. This is the same AUL period used
for CIL in 1997 Trinidad and Tobago Wire Rod. Neither CIL nor any other
interested party disputed this allocation period. Therefore, we have
used the 15-year allocation period for CIL.
Benchmarks for Discount Rates and Loans
Because we have found CIL's predecessor, ISCOTT, to be
uncreditworthy for the period 1986 through 1994 (see supra section on
``Creditworthiness''), we have calculated the long-term uncreditworthy
discount rates for the period 1986 through 1994 in accordance with 19
CFR 351.524(d)(3)(ii).
In accordance with 19 CFR 351.524(d)(3)(ii), the discount rate for
companies considered uncreditworthy is the rate described in 19 CFR
351.505(a)(3)(iii). To calculate that rate, the Department must specify
values for four variables: (1) the probability of default by an
uncreditworthy company; (2) the probability of default by a
creditworthy company; (3) the long-term interest rate for creditworthy
borrowers; and (4) the term of the debt.
For the probability of default by an uncreditworthy company, we
have used the average cumulative default rates reported for the Caa- to
C- rated category of companies as published in Moody's Investors
Service, ``Historical Default Rates of Corporate Bond Issuers, 1920-
1997'' (February 1998). For the probability of default by creditworthy
companies, we used the cumulative default rates for investment grade
bonds as published in Moody's Investor Services: ``Statistical Tables
of Default Rates and Recovery Rates'' (February 1998). For the
commercial interest rate charged to creditworthy borrowers, we used the
weighted-average rate on fixed-rate loans offered by commercial banks
in Trinidad and Tobago as reported by the Central Bank of Trinidad and
Tobago. For the term of the debt, we used the average cumulative
default rates for both uncreditworthy and creditworthy
[[Page 6006]]
companies based on a 15-year term, since all of the non-recurring
subsidies examined were allocated over a 15-year period.
Analysis of Programs
Based upon our analysis of the petition and the responses to our
questionnaires, we determine the following:
I.Programs Preliminarily Determined to Be Countervailable
A. Equity Infusions into ISCOTT
In 1978, ISCOTT and the GOTT entered into a Completion and Cash
Deficiency Agreement (``CCDA'') with several private commercial banks
in order to obtain a part of the financing needed for construction of
ISCOTT's plant. Under the terms of the CCDA, the GOTT was obligated to
1) provide certain equity financing toward completion of construction
of ISCOTT's plant, 2) cover loan payments to the extent not paid by
ISCOTT, and 3) provide cash as necessary to enable ISCOTT to meet its
current liabilities.
In Carbon Steel Wire Rod from Trinidad and Tobago: Final
Affirmative Countervailing Duty Determination and Countervailing Duty
Order, 49 FR 480 (January 4, 1984) (``1984 Trinidad and Tobago Wire
Rod''), the Department determined that payments or advances made by the
GOTT to ISCOTT through April of 1983, the end of the original POI, were
not countervailable because these advances were consistent with the
practice of a reasonable private investor.
Subsequently, in 1997 Trinidad and Tobago Wire Rod, the Department
determined that payments or advances made by the GOTT to ISCOTT during
the period June 13, 1984 through December 31, 1991 were not consistent
with the practice of a reasonable private investor and were
countervailable subsidies. Specifically, the Department found that,
during the period from 1983 to 1989, ISCOTT and the GOTT commissioned
several studies to determine the financially preferable course of
action for the company. Despite ISCOTT's continued losses, however, and
without any reason to believe that there was any hope of improvement
given the conditions in place at that time, the GOTT continued to
provide funding for ISCOTT, nor did the GOTT make its continued support
contingent upon actions that would have been required by a reasonable
private investor.
However, the Department also found in 1997 Trinidad and Tobago Wire
Rod that payments or advances made by the GOTT to ISCOTT after December
31, 1991 were consistent with the practice of a reasonable private
investor. Based on a review of internal documents, financial
projections, and historical financial data, the Department found that,
after December 31, 1991, the operations of the ISCOTT plant under CIL
and ISCOTT's financial condition improved such that investments in
ISCOTT after this date were consistent with the practice of a
reasonable private investor.
In the instant investigation, we are investigating these equity
infusions based on our previous finding that the investments up to
December 31, 1991 were countervailable. Moreover, because of the change
in our equity methodology since 1997 Trinidad and Tobago Wire Rod, we
initiated an investigation of the payments and advances made between
January 1, 1992 and December 31, 1994. The respondents do not contest
the Department's prior determination in 1997 Trinidad and Tobago Wire
Rod with respect to equity infusions received prior to April 8, 1988.
However, the respondents do challenge the Department's determination
with respect to the period April 9, 1988 through December 31, 1991.
Based on our finding in 1997 Trinidad and Tobago Wire Rod, and
because no new evidence has been submitted that would change that
determination, we preliminarily determine that GOTT equity infusions
received by ISCOTT from January 1, 1986 through April 8, 1988 are
countervailable subsidies. (We note that any benefit related to
countervailable equity infusions received prior to January 1, 1986
expired prior to the POI.) As for the GOTT equity infusions in ISCOTT
during the period April 9, 1988 through December 31, 1991, the
respondents have not provided any information that was not already
closely examined in 1997 Trinidad and Tobago Wire Rod. Therefore,
consistent with 1997 Trinidad and Tobago Wire Rod, we preliminarily
determine that these equity infusions are countervailable subsidies.
Finally, with respect to the GOTT's equity infusions in ISCOTT
during the period January 1, 1992 through December 31, 1994, the
Department conducted an extensive review of ISCOTT and CIL's internal
documents, financial projections, and historical financial data in 1997
Trinidad and Tobago Wire Rod. Much of that evidence has been submitted
in this investigation. This evidence shows that the GOTT, from very
early in ISCOTT's existence, sought objective outside advice on how to
address the problems that arose with respect to ISCOTT's operations.
As noted in 1997 Trinidad and Tobago Wire Rod, 62 FR at 5506,
``during the period 1983 to 1989, the GOTT commissioned several
objective, outside studies to determine the financially preferable
course of action for {ISCOTT}.'' Although the contents of these studies
are proprietary, the studies each consistently focused on the need for
ISCOTT and the GOTT to take steps to improve ISCOTT's operations and
the management of ISCOTT. For example, an August 27, 1987 International
Finance Corporation (``IFC'') report analyzed ISCOTT's position at the
time and its future prospects, and concluded that several options, such
as leasing the plant to an outside party, were possible to make
ISCOTT's operations viable. The IFC report stated that the lease of the
ISCOTT plant was likely the best option for making ISCOTT operationally
sound.
Subsequent to this study and consistent with its recommendations,
the GOTT formed an outside committee to negotiate a lease for ISCOTT.
Both this committee and another outside committee created to review the
findings of the first committee agreed with the IFC study that leasing
the ISCOTT property was the preferred option to make ISCOTT viable. The
studies from the two outside committees were completed in late 1987 and
early 1988.
Based on these studies and a detailed examination of the available
options, ISCOTT took steps to make its operations viable. ISCOTT leased
its assets to CIL as of May 1, 1989 according to the recommendations in
the studies, and, as noted in 1997 Trinidad and Tobago Wire Rod, by the
end of 1991, ISCOTT's financial picture had improved. Although no new
studies were performed after CIL's lease of the ISCOTT plant, we
preliminarily determine that the studies which led to the lease and
ISCOTT's actions in carrying out the recommendations in these studies
provided a sound basis for the GOTT to invest in ISCOTT from January 1,
1992 through December 31, 1994. Therefore, we preliminarily determine
that the GOTT's investments into ISCOTT from January 1, 1992 through
December 31, 1994 were consistent with the actions of a reasonable
private investor and, thus, did not provide a countervailable subsidy
pursuant to section 771(5)(E)(i).
Based on the above analysis and consistent with 1997 Trinidad and
Tobago Wire Rod, we preliminarily determine that the GOTT's equity
[[Page 6007]]
infusions in ISCOTT during the period January 1, 1986 through December
31, 1991 are countervailable subsidies within the meaning of section
771(5) of the Act. These equity infusions were a direct transfer of
funds under section 771(5)(D)(i) of the Act that confer a benefit
pursuant to section 771(5)(E)(i) of the Act because these investments
were not consistent with the usual investment practice of private
investors. We also determine that these investments were specific
within the meaning of section 771(5A) of the Act because they were
limited to ISCOTT.
As noted in the ``Change in Ownership'' section, supra, we have
determined that subsidies received by ISCOTT prior to the purchase of
ISCOTT's assets are attributable to CIL. Therefore, to calculate the
benefit to CIL during the POI from this program, consistent with past
cases (see 1997 Trinidad and Tobago Wire Rod and 1984 Trinidad and
Tobago Wire Rod), we treated the advances from 1986 through 1991 as
equity infusions and divided the amount of the equity infusions
attributable to the POI by CIL's total sales during the POI.
Accordingly, we preliminarily determine that a countervailable benefit
of 7.45 percent ad valorem exists for CIL.
B. Debt Forgiveness Provided in Conjunction With CIL's Purchase of
ISCOTT
In December 1994, CIL exercised the purchase option in the plant
lease agreement and purchased the assets of ISCOTT. After the sale of
its assets, ISCOTT was nothing but a shell company with liabilities
exceeding its assets. CIL, on the other hand, had purchased most of
ISCOTT's assets without being burdened by ISCOTT's liabilities.
The liabilities remaining with ISCOTT after the sale of productive
assets to CIL had to be repaid, assumed, or forgiven. In 1995, the
National Gas Company of Trinidad and Tobago Limited (``NGC''), which
was owned by the GOTT, and the National Energy Corporation of Trinidad
and Tobago Limited, a wholly owned subsidiary of NGC, wrote off amounts
owed to them by ISCOTT totaling Trinidad and Tobago Dollars (``TTD'')
77,225,775. Similarly, Trinidad and Tobago National Oil Company
Limited, also owned by the GOTT, wrote off debts owed by ISCOTT
totaling TTD 10,492,830 as bad debt.
In 1997 Trinidad and Tobago Wire Rod, the Department found that
this debt forgiveness constituted a countervailable subsidy because it
was a direct transfer of funds pursuant to section 771(5)(D)(i) with
the benefit being the amount of the debt forgiveness pursuant to
section 771(5)(E). The Department also found this transaction to be
specific within the meaning of section 771(5A) of the Act because it
was limited to one company. No information has been presented in this
investigation to warrant a reconsideration of these findings.
We also found in 1997 Trinidad and Tobago Wire Rod that, after the
1994 sale of assets, certain non-operating assets (e.g., cash and
accounts receivable) remained with ISCOTT. These assets were used to
fund repayment of ISCOTT's remaining accounts receivable. Consistent
with 1997 Trinidad and Tobago Wire Rod, in order to account for the
fact that certain assets, including cash, were left behind in ISCOTT,
we subtracted this amount from the liabilities outstanding after the
1994 sale of assets.
As noted in the ``Change in Ownership'' section, supra, we have
determined that subsidies received by ISCOTT prior to the purchase of
ISCOTT's assets are attributable to CIL. Therefore, to calculate the
benefit to CIL during the POI from this program, we used our standard
grant methodology and applied an uncreditworthy discount rate. We then
divided the benefit attributable to the POI by CIL's total sales during
the POI. Accordingly, we preliminarily determine that a countervailable
benefit of 0.93 percent ad valorem exists for CIL.
II. Program Preliminarily Determined to Not Be Countervailable
Provision of Electricity
The Trinidad and Tobago Electric Commission (``TTEC''), which is
wholly-owned by the GOTT, is solely responsible for the transmission,
distribution, and sale of electric power in Trinidad and Tobago. The
sole generators of electric power in Trinidad and Tobago are the Power
Generating Company of Trinidad and Tobago (``PowerGen'') and InnCogen,
Limited (``Incogen''). Prior to December 23, 1994, TTEC generated the
power that it sold, but on and after this date, TTEC divested its power
generating assets to PowerGen, which is owned 51 percent by TTEC, 39
percent by Southern Electric International Trinidad Inc., and 10
percent by Amoco Power Resources Corporation.
For billing purposes, TTEC classifies electricity consumers into
one of the following categories: residential, commercial, industrial,
and street lighting. Industrial users are further classified into one
of four categories depending on the voltage at which they take power
and the size of the load taken. Under TTEC's customer categories, CIL
is classified as a Rate E (Heavy Industrial - Very Large Load) user.
TTEC's rates and tariffs for the sale of electricity are set by the
Public Utilities Commission (``PUC''), an independent authority. In
setting electricity rates, the PUC takes into account cost of service
studies done by TTEC. These studies are submitted to the PUC, where
they are reviewed by teams of economists, statisticians, and auditors.
Public hearings are held and views expressed orally and in writing.
After considering all of the views and studies submitted, the PUC
issues detailed orders with the new rates and explanations of how they
were calculated. In establishing these rates, the PUC is required by
section 32 of the Public Utilities Act to ensure that the new rates
will cover costs and expenses and allow for a return. Additionally,
section 32 of the Public Utilities Act sets out the guidelines the PUC
is to follow in determining the extent of utility rate increases.
The rates in effect during the POI for all rate classes, except
Rate D3 (Heavy Industrial - Large Load) and Rate E (Heavy Industrial -
Very Large Load), were published in PUC Order No. 80 in October 1992.
In July 1998, the electricity rates for industrial users D3 and E were
increased by PUC Order No. 85 and were applied retroactively to six
months before the date of TTEC's application, i.e., to January 11,
1997. These electricity rates were based on the Cost of Service Study
for 1996 and a formal claim filed by TTEC requesting an increase in the
rates and charges payable by industrial consumers.
As noted above, TTEC is the only supplier in Trinidad and Tobago of
electricity. Consequently, there are no competitively-set, private
benchmark prices in Trinidad and Tobago to use in determining whether
TTEC is receiving adequate remuneration within the meaning of section
771(5)(E) of the Act. Lacking such benchmarks, and consistent with 1997
Trinidad and Tobago Wire Rod, the only basis we have for determining
what constitutes adequate remuneration are TTEC's costs and revenues.
In 1997 Trinidad and Tobago Wire Rod, the Department found that,
despite the PUC's mandate to set rates that will cover the costs of
providing electricity plus an adequate return, past history indicated
that this directive was seldom met. Moreover, the Department found that
the evidence in the 1996 Cost of Service Study indicated that TTEC did
not receive adequate remuneration for
[[Page 6008]]
that year on its sales of electricity to CIL. Consequently, in 1997
Trinidad and Tobago Wire Rod, the Department determined that, under
section 771(5)(E) of the Act, the GOTT was bestowing a benefit on CIL
through TTEC's provision of electricity during the year of 1996. See
1997 Trinidad and Tobago Wire Rod, 62 FR at 55007.
In the current investigation, the GOTT provided in its
questionnaire responses the TTEC Cost of Service Studies for 1999 and
2000. These Cost of Service Studies indicate that TTEC realized profits
on its sales under the Rate E customer category. As noted above, in
1997 Trinidad and Tobago Wire Rod, we found this program to bestow a
benefit because the 1996 Cost of Service Study indicated that TTEC had
incurred losses on its sales to CIL (Rate E). See 1997 Trinidad and
Tobago Wire Rod, 62 FR at 55007. Consequently, as TTEC earned a profit
on the rate E customer category during the POI, we preliminarily
determine that the GOTT did not receive less than adequate remuneration
under section 771(5)(E) of the Act for its provision of electricity to
CIL.
On this basis, we preliminarily determine that the provision of
electricity is not countervailable.
III.Programs Preliminarily Determined Not To Have Been Used
Based on the information provided in the responses, we determine
that CIL neither applied for nor received benefits under the following
programs during the POI:
A. Export Allowance Under Act No. 14
B. Export Market Development Grants
C. Export Promotion Allowance
D. Corporate Tax Exemptions Under the FiscalIncentives Act
Verification
In accordance with section 782(i)(1) of the Act, we will verify the
information submitted by the respondents prior to making our final
determination.
Suspension of Liquidation
In accordance with section 703(d)(1)(A)(i) of the Act, we
calculated an individual rate for each manufacturer of the subject
merchandise. We preliminarily determine the total estimated net
countervailable subsidy rate for CIL to be the following:
------------------------------------------------------------------------
Producer/Exporter Net Subsidy Rate
------------------------------------------------------------------------
Caribbean Ispat Limited.............................. 8.38%
All Others........................................... 8.38%
------------------------------------------------------------------------
In accordance with sections 777A(e)(2)(B) and 705(c)(5)(A), we have
set the ``all others'' rate as CIL's rate.
Moreover, in accordance with section 703(d) of the Act, we are
directing the U.S. Customs Service to suspend liquidation of all
unliquidated entries of wire rod from Trinidad and Tobago for CIL and
for any non-investigated exporters that entered, or were withdrawn from
warehouse, for consumption on or after the date of the publication of
this notice in the Federal Register, and to require a cash deposit or
bond for such entries of the merchandise in the amounts indicated
above. This suspension will remain in effect until further notice.
However, this suspension of liquidation may not remain in effect for
more than four months pursuant to section 703(d)(3) of the Act.
ITC Notification
In accordance with section 703(f) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all nonprivileged and nonproprietary information relating to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our files, provided the ITC
confirms that it will not disclose such information, either publicly or
under an administrative protective order, without the written consent
of the Assistant Secretary for Import Administration.
In accordance with section 705(b)(2) of the Act, if our final
determination is affirmative, the ITC will make its final determination
within 45 days after the Department makes its final determination.
Public Comment
Case briefs for this investigation must be submitted no later than
one week after the issuance of the last verification report. Rebuttal
briefs must be filed within five days after the deadline for submission
of case briefs. A list of authorities relied upon, a table of contents,
and an executive summary of issues should accompany any briefs
submitted to the Department. Executive summaries should be limited to
five pages total, including footnotes.
Section 774 of the Act provides that the Department will hold a
public hearing to afford interested parties an opportunity to comment
on arguments raised in case or rebuttal briefs, provided that such a
hearing is requested by an interested party. If a request for a hearing
is made in this investigation, the hearing will tentatively be held two
days after the deadline for submission of the rebuttal briefs at the
U.S. Department of Commerce, 14th Street and Constitution Avenue, NW,
Washington, DC 20230. Parties should confirm by telephone the time,
date, and place of the hearing 48 hours before the scheduled time.
Interested parties who wish to request a hearing, or to participate
if one is requested, must submit a written request to the Assistant
Secretary for Import Administration, U.S. Department of Commerce, Room
1870, within 30 days of the publication of this notice. Requests should
contain: (1) the party's name, address, and telephone number; (2) the
number of participants; and (3) a list of the issues to be discussed.
Oral presentations will be limited to issues raised in the briefs.
This determination is published pursuant to sections 703(f) and
777(i) of the Act.
February 1, 2002
Faryar Shirzad,
Assistant Secretary for Import Administration.
[FR Doc. 02-3123 Filed 2-7-02; 8:45 am]
BILLING CODE 3510-DS-S