RESULTS OF REDETERMINATION PURSUANT TO COURT REMAND

Allegheny Ludlum Corp., et al v. United States

Court No. 99-09-00566, Remand Order (CIT January 4, 2002)

Introduction

The Department of Commerce ("Department") has prepared these results of redetermination pursuant to an order from the U.S. Court of International Trade ("CIT") in Allegheny Ludlum Corp., et al v. United States, 182 F. Supp. 2d 1357 (CIT 2002).

II. Analysis

In the Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from France, 64 FR 30774 (June 8, 1999) ("French Stainless"), the Department determined that countervailable subsidies were being provided to producers and exporters of stainless steel sheet and strip in coils from France. Usinor challenged this determination before the CIT.

On February 2, 2000, the Court of Appeals for the Federal Circuit ruled in Delverde SRL v. United States, 202 F.3d 1360 (Fed. Cir. 2000), reh'g granted in part, (June 20, 2000) ("Delverde III"), that:

the Tariff Act as amended does not allow Commerce to presume conclusively, pursuant to a per se rule, 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.

202 F.3d at 1364. Although the Department considered the facts in Pasta from Italy (which gave rise to the Delverde III decision) and those in French Stainless were different in certain fundamental respects (the Department considered Pasta from Italy to involve a sale of assets by one private party to a distinctly different private party, whereas French Stainless involved the sale of shares in a legal person that remained the same after the change in ownership), the methodology analyzing Delverde's change in ownership and struck down by the Federal Circuit in Delverde III was similar to that employed in French Stainless. Accordingly, the Department asked the CIT to remand the French Stainless proceeding to it for reconsideration in light of Delverde III. The parties consented to this remand.

On August 15, 2000, the CIT remanded the French Stainless proceeding to the Department with instructions to: "issue a determination consistent with United States law, interpreted pursuant to all relevant authority, including the decision of the Court of Appeals for the Federal Circuit in [Delverde III]." Allegheny Ludlum Corp., et al v. United States, Court No. 99-09-00566, Remand Order dated August 15, 2000 ("Allegheny Ludlum I").

On December 20, 2000, the Department issued the Final Results of Redetermination Pursuant to Court Remand in Allegheny Ludlum Corp., et al v. United States, Court No. 99-09-00556 (December 20, 2000) ("Remand Redetermination"). In that determination, in light of Delverde III, the Department analyzed the facts and circumstances of the privatization transaction to determine whether the person to whom countervailable subsidies had been given in the past was essentially the same person after privatization. Remand Redetermination at 7. Among the facts and circumstances considered, the Department examined the Continuity of General Business Operations, the Continuity of Production Facilities, Continuity of Assets and Liabilities, and Retention of Personnel before and after the privatization. Id. 14-20. Based on these factors, the Department determined that post-privatization Usinor was essentially the same person as pre-privatization Usinor. Consequently, the pre-privatization subsidies remained attributable to Usinor following its privatization. Id. at 20.

After briefing and a hearing, the CIT, on January 4, 2002, (1) again remanded the French Stainless proceeding to the Department. Allegheny Ludlum Corp. v. United States, 182 F. Supp. 2d 1357 (CIT 2002). The court explained that the central question was whether the Department's remand decision was consistent with the statute, as interpreted by the Federal Circuit in Delverde III. Id. at 1364. The court found that Delverde III's requirements were as follows:

1. Section 1677(5) prohibits the Department from adopting any per se rule that a subsidy passes through, or is eliminated, as a result of a change in ownership. Id. at 1367,

2. The statute requires that the Department must look at the facts and circumstances of the entire transaction, including the terms of the sale, to determine if the purchaser/new owner received, directly or indirectly, a subsidy for which it did not pay adequate compensation. In other words, the Department must find that the purchaser/new owner indirectly received a subsidy from the government. Id. at 1367-1369.

The Court specifically rejected, as contrary to Delverde III, the Department's argument that, if the pre- and post-privatization companies are, in substance, the same legal person, the Department is not required to determine anew whether that same person has received a subsidy. Id.

On remand, the Court specifically directed the Department to "examine the details of the transaction to determine if goods imported by Usinor during the POI of 1997 were subsidized." Id. at 1369. Among the facts specifically cited by the Court were that the privatization involved two public offerings at different prices, and that there was an employee offering and a sale of certain stock to "stable shareholders" at a 2% premium over the international offering price. Id. at 1368-1369.

We have carefully reviewed the Court's decision and, while we do not agree with the Court's interpretation of Delverde III, we have performed the remand, as ordered. Accordingly, the Department has conducted a thorough analysis of the facts and circumstances of Usinor's privatization to determine whether the purchasers (i.e., the new owners) paid full value for the company. Based on our analysis below, we determine that the overwhelming majority of the purchasers of Usinor's shares paid the full fair-market value (or more than full value) for those shares and, therefore, did not receive any countervailable subsidy. (2) While we find that the Usinor employees who purchased the small percentage of remaining shares paid less than the full fair market value of those shares and, thus, did receive a subsidy from the French Government, this subsidy is not countervailable because these purchasers are distinct individuals who are not, in their individual capacity, engaged in production of the subject merchandise.

While we do not wish to belabor the arguments that we previously have presented to the Court, we think that it is appropriate to explain briefly why we disagree with the conclusion that we have been directed to reach. In short, we believe that the proper focus of our inquiry should have been the producer of the subject merchandise (Usinor), and not the owners of that producer.

The distinction between companies and their owners -- between producers and investors -- is the cornerstone on which the company law of industrialized countries has been built. It is what the limited liability form of organization is all about. In a CVD proceeding, it is the company (i.e., the producer of the subject merchandise) that is subject to investigation, not the owners. Just as the position of the original owners is not relevant when the company receives a new subsidy an analysis of the position of the new owners is not relevant when the subsidized company is sold. (3)

In order for countervailing duties to be imposed on subject merchandise, the statute requires that the person that produced that merchandise has received a financial contribution and a benefit. Usinor is that legal person. The statutory conditions have been satisfied for Usinor. Nothing in the statute indicates that the fact that Usinor was sold to private owners after it received the financial contribution and benefit undoes the subsidy.

Delverde III confirms that the statutory test is whether the "person" that produced or exported the merchandise received the financial contribution and benefit. The Federal Circuit found that the person that produced and exported the merchandise in question could not be held liable for countervailing duties, because the subsidy had been bestowed upon "another person," which simply sold assets to Delverde. See Delverde III, pp. 1365, 1366, 1377. The court therefore found that the purchaser of those assets had not received a financial contribution and benefit, as required by the statute. Delverde III does not hold that, where a person has been shown to have received a financial contribution and benefit, a change in the ownership of that person undoes that financial contribution and benefit.

We agree that Delverde III requires an analysis of a privatization transaction. In our view, however, any analysis of a transaction must begin by identifying the parties to that transaction. Only then can the price be identified and analyzed and the effects of the transaction upon the parties be understood. In this case, the parties to the transaction were the old shareholder of Usinor (the French Government) and its new shareholders. The French Government transferred the shares of Usinor to the new shareholders in consideration for cash. Usinor itself was simply not a party to this transaction and continued to produce the subject merchandise afterwards. (4) We therefore fail to see how this transaction must be treated as having extracted from Usinor subsidies that previously had been conferred upon it. We do not believe that this analysis amounts to ignoring the purchase price. We believe that it properly and necessarily accounts for the fact that price was neither paid by, nor received by, Usinor, and therefore could not have extinguished previous subsidies to Usinor.

The Privatization of Usinor

In determining whether the government's actions were consistent with commercial principles, the Department considered whether there were any restrictions or requirements that distorted the bidding process itself. Conditions that unduly restrict the number or identity of otherwise legitimate bidders (e.g., exclusion of foreign purchasers or purchasers from a different industry, minimum bid requirements, overly-burdensome or unreasonable bidder-qualification requirements) would be particularly suspect, in that they would tend to undermine competition and increase the likelihood that something less than full value was paid for the shares or assets. (5)

On the other hand, if potential purchasers of a company were able to place their bids or purchase shares without burdensome restrictions and there were no restrictions which served to narrowly define the pool of potential purchasers, this would support a finding that the purchasers paid full value for the company they purchased. In addition to considering these general circumstances, we reviewed the specific information on the record concerning the prices paid for Usinor's shares and whether those prices reflect the full value of those shares.

1995 Sale of Shares

In 1995, the GOF and Credit Lyonnais Industrie-Clindus ("Clindus") (a subsidiary of the government-owned Credit Lyonnais) (6) initiated the privatization of Usinor. The GOF publicized its intent to sell Usinor with an announcement that appeared in the Journal Officiel de la Republique Francaise on June 1, 1995. (See Usinor Verification Exhibits submitted December 2, 1998, at Exhibit 9C.) On June 3, the GOF solicited stable shareholders through an announcement, also published in the Journal Officiel de la Republique Francaise. (See "Announcement Concerning Selling of Usinor-Sacilor by Mutual Agreement," Remand QR at Exhibit 3.) According to this announcement, the Ministry of Economic Affairs and Finance had decided to sell 12 percent (7) of Usinor's shares subject to "mutual agreement." (8) Interested parties were to submit their offers accompanied by financial references by June 19, 1995 . Terms and conditions of the sale were available from the Ministry of Economic Affairs and Finance. The announcement further stated that a prospective buyer should offer to buy a minimum of 1 million shares (approximately 0.4 percent of Usinor's total shares).

According to the GOF, all parties that applied to be stable shareholders were approved (Remand QR at 2), and this had occurred by June 26, 1995, when the official announcement of the Usinor stock offering was issued by the Ministry of Economic Affairs and Finance. See Remand QR at Exhibit 5. The Ministry's June 26 announcement differed from the June 1, 1995 announcement described above in that the Ministry's announcement provided the details of the stock offering including, inter alia, the names of the stable shareholders and the number of shares to be purchased by each of them.

The Ministry's June 26 announcement also explained that the GOF's shares would be sold to four different groups of purchasers. The first group was composed of "natural persons who are French nationals and who reside in France" and "natural persons possessing citizenship status within a member nation of the European Community or another nation which is a signatory of the Agreement concerning the European Economic Area.." The GOF intended to sell 34,883,721 shares to this group by means of a public offering at a price of French francs ("FF") 86 per share. Purchasers in this group were also eligible to receive "bonus shares" if they held their purchased shares for a period of 18 months. This is referred to as the "French public offering."

The second group was composed of employees and former employees of Usinor. The GOF intended to sell this group 9,352,175 shares. (9) These potential purchasers had two options. They could purchase their shares at a price of FF 86 per share. Alternatively, they could pay a discounted price of FF 68.8, with an extended payment period, if they agreed to hold their shares for two years. The employees were also eligible to receive bonus shares for holding onto their stock for specified periods.

The third group was the stable shareholders. As noted above, the stable shareholders had been approved and were identified in the Ministry's announcement. They had agreed to purchase 29,126,900 of Usinor's shares at a price of FF 90.78 per share.

Finally, the remaining shares to be sold by the GOF (129,040,742 shares) were to be placed on the French and international financial markets at a price of FF 89 per share. This is referred to as the "international offering."

The same Ministry announcement also indicated the possibility that shares could be transferred from the international offering to the French public offering, and that the bank syndicate managing the sale could receive additional shares to sell from the GOF.

The terms and conditions of the sale of Usinor as outlined above were also contained in the Prospectus, which was published on June 27, 1995. Additionally, the Prospectus described the Protocole signed by each of the stable shareholders. Under the Protocole, the stable shareholders agreed to various limits on the sale of their shares. Specifically, they agreed to hold their shares for three months. For the next 15 months, they could sell up to 20 percent of their shares to other stable shareholders. For the three years after the initial 18 months, the stable shareholders could sell their shares, but again only to other stable shareholders. Prospectus at pp. 23 - 24.

As discussed above, to determine whether the purchasers paid full value for Usinor, we considered whether competition to buy Usinor's shares was restricted or lessened through actions taken by the GOF. Had Usinor been privatized through a bidding process (i.e., a process in which potential purchasers submitted offers for the company), the existence of an open selling process that resulted in numerous bidders submitting offers for the shares would provide the best indication that full value had been paid for the company.

In Usinor's case, the company was not sold through a bidding process. Instead, the GOF set Usinor's share prices in advance and invited people to purchase the shares at those prices. Although Usinor's share prices could not be bid up, we can gauge the reasonableness of the prices set by the GOF and, consequently, whether full value was paid for the company by examining whether the sales process solicited the maximum number of potential purchasers practicable and whether the share prices set by the GOF were market-clearing prices. Regarding the latter point, a market-clearing price is one that equates the supply of shares with the demand for shares. If the GOF had set the prices for Usinor's shares too low, the offering would have been over-subscribed and many people seeking shares would not have been able to purchase them in the initial offering. Conversely, if the prices were set too high, the offering would have been under-subscribed and the GOF would not have been able to sell as many shares as it had planned.

It should be understood that the first and most crucial step of the analysis is to determine whether the sales process was open and competitive. Unless the process is designed to attract the maximum number of potential purchasers practicable, it is pointless to even ask the question of whether there was excess demand at the price set by the government. If potential purchasers were shut out of the process from the outset we would not be able to determine how they would have responded to the price set by the government. Alternatively, the situation may arise where only one or a few purchasers come forward. This could mainly result from either: (1) characteristics of the market inherent to the relevant industry, (2) restrictions or limits on who could purchase the shares or (3) too high a price being set by the seller. In the second situation, we would be less likely to find that full value had been paid for the shares because the sales process suggests that the competition to purchase shares was suppressed. In the third situation, the low number of purchasers would be less of a concern and we would be more likely to find that full value had been paid.

We turn now to our analysis of the GOF's sales process for Usinor in 1995. The GOF's plan for privatizing Usinor essentially divided potential purchasers of Usinor's shares into four pools: the French public, the international public, Usinor employees and stable shareholders. A certain number of shares were set aside for each of these groups and, generally, different prices were charged for each group. The broadest group was covered by the international offering. Under this offering, shares were available for FF 89. These shares could be purchased by anyone from the banks and investment companies underwriting the share sale. Also, the sale of Usinor's shares was publicized through announcements and the issuing of the Prospectus. Thus, we determine that there were no restrictions that served to limit purchasers or potential purchasers of these shares.

The next largest group was covered by the French offering. Purchasers falling in this category could obtain shares for FF 86 per share. Although this pool of potential purchasers was limited by virtue of nationality, we do not believe that this limitation presented a meaningful reduction in the competition for these shares. The pool of potential purchasers included French as well as other EC member state citizens. Finally, the French offering was publicized through announcements by the GOF. Therefore, we find that the sales process for shares covered by the French offering was generally open and unrestricted.

For the remaining pools, however, we find that the sales process was restricted and served to limit potential purchasers of Usinor's stock. With respect to the employee pool, these shares could only be purchased by current and past employees of Usinor. Hence, by its very terms, numerous potential purchasers were excluded at the outset from purchasing these shares.

With respect to the stable shareholders, we note that a public announcement was made inviting investors to become stable shareholders. We note further that the GOF accepted all the applicants. However, we find two aspects of the sales process that possibly served to limit the number of investors that might otherwise have come forward to purchase these shares. First, in its invitation, the GOF imposed a minimum investment requirement of one million shares. At a price of FF 90.78 per share, this required a sizeable commitment and could have had the effect of excluding many potential investors.

Second, the process of advertising for and selecting stable shareholders happened very quickly. The announcement seeking stable shareholders was published on June 3, 1995. Applications, with financial references, had to be submitted no later than 6:00 p.m. on June 19, 1995. By June 26, 1995, the stable shareholders had already been selected. Thus, potential investors had only 16 days to obtain further information about the terms and conditions that would apply to stable shareholders; (10) to decide whether to make an offer; and to pull together the necessary paperwork. Given that the stable shareholders were decided upon within one week of the deadline for filing the applications, it seems that there was very little opportunity to perfect any deficiencies that might have existed in the applications. Thus, it is reasonable to conclude that, like the minimum purchase requirement, the compacted nature of the sales process for stable shareholders may have reduced the number of potential participants in this pool.

Having analyzed the sales process and the likely impact it had on each category of investor, we turn next to the prices charged by the GOF. We begin with the French and international offerings. The prices in these two offerings were FF 86 and FF 89, respectively. The evidence on the record shows that because of the high level of demand, the number of shares made available in the French offering had to be increased. (11) First, shares were moved from the international offering to the French offering. Additional shares subsequently were made available under the provision allowing the bank syndicate responsible for the sale to obtain more shares from the GOF. Regarding the international offering, shares were originally moved from there to the French offering but, subsequently, the number of shares sold under the international offering was increased. At the conclusion of the initial offering, nearly 50 million shares had been sold under the French offering for a price of FF 86 per share and nearly 199 million shares had been sold under the international offering at a price of FF 89 per share.

Given the over-subscription at the FF 86 price; the fact that shares were moved from the international offering to the French offering; and the number of shares sold at each of the two prices, it appears that the market clearing price for Usinor's shares was between FF 86 and 89. Therefore, because the sales process for these two offerings was open and competitive, and because the government set market-clearing prices for the shares, we determine that full value was paid for the shares sold under the French and international offerings.

Two observations about these prices and our determination are warranted. First, our conclusion is based upon an ex post analysis of the sale of Usinor. Although it may be possible to reach certain conclusions about the correct price after the sale based on the amounts of shares purchased at different prices, this information was obviously not available to the GOF when it set the share prices. In this instance, our ex post analysis shows that the GOF made a reasonably accurate estimate of the value of the shares prior to the sale to those groups of investors. Second, we note that in setting the share values, the Ministry of Economic Affairs and Finance and the French Privatization Commission were guided by independent analyses of the value of the shares. (12) Objective and independent valuations of a company will frequently provide a measure of the privatized company's full value.

Regarding the share sales to the employees and stable shareholders, we have determined that the sales processes included restrictions and limitations which reduced the number of investors that might have participated in the share offering. Without the benefit of competition among buyers, it is less likely that the prices paid for the shares reflect their full value.

The shares set aside for employee sales could be purchased at two different prices. Prospectus at p. 23. First, shares were available for FF 86 per share, i.e., the French offering price. Employees who purchased shares at this price were entitled to receive free, "bonus" shares if they held onto their stock for one year. (13) Alternatively, employees could purchase shares for a price of FF 68.80. To receive this discounted price, the employee had to agree to hold the shares for two years. Additionally, for the discounted shares, the employee could make payment over time and free bonus shares were available if the stock was held longer than the 2-year period.

For the shares priced at FF 86 per share, because they were purchased at the same price charged under the French offering, and the terms were similar to the terms of the shares in the French offering, the restrictions on who could purchase the shares appears not to have resulted in the payment of less than full value. Regarding the discounted shares, however, the analysis is not as straightforward.

Clearly, the GOF sought to encourage shareholders to hold onto their stock. This was accomplished through the use of various inducements. As discussed above, purchasers under the French offering and employee purchasers who paid full price for their shares could receive free, bonus shares if they did not sell the shares for specified periods. Also, price discounts and delayed payment terms were offered to employees who agreed not to sell their shares. The existence of these inducements, as well as common sense, indicate that investors generally have to be rewarded or paid to accept restrictions on the resale of the assets they purchase. Put simply, the less liquid the asset, the less valuable it is. Regarding the employee shares purchased at a discount, it is reasonable to expect that they would sell at a lower price because the shares could not be sold for two years. However, we are not aware of any information on the record to support a finding that the relative illiquidity of these shares warrants a 20 percent discount and extended payment terms. We note that in the Prospectus, the GOF characterizes the terms of the sales to employees as "preferential." Therefore, we determine that the GOF did not receive full value for the discounted shares it sold to current and former employees of Usinor. As a result, we determine that the current and former employees of Usinor received a benefit from the government during the privatization process.

However, because the benefit was to the current and former employees of Usinor as individual investors, and not to Usinor itself, this subsidy is not countervailable. The countervailing duty statute, in relevant part, specifically applies only to "subsidies with respect to the manufacture, production, or export of a class or kind of merchandise imported or sold . . . for importation into the United States . . ." 19 U.S.C. 1671 (a)(1). A subsidy to a non-majority owning individual investor, i.e., all of the purchasers, including current and former Usinor employees, of Usinor's shares, is not granted "with respect to the manufacture, production, or export of a class or kind of merchandise."

Under these circumstances, the subsidy to the current and former employees cannot be attributed from those investors to the company. In different circumstances, such as where the company and owner become so merged that the law may make no distinction between them, the Department would have to consider whether a subsidy to the new owner could be attributed to the company.

Regarding the shares sold to stable shareholders, the stable shareholders paid a little more than full value for the shares and as such did not receive a benefit from the privatization transaction.

Subsequent Share Transactions

At the end of the 1995 share offerings, the GOF continued to own 9.8 percent of Usinor's shares. In 1997 and again in 1998, the GOF distributed free, bonus shares to the eligible shareholders who kept their shares for the specified periods. The total number of shares given as free, bonus shares amounted to 2.1 percent of Usinor's shares. The GOF's remaining shares (amounting to 7.7 percent of Usinor's shares) were sold in a public offering in October 1997. (14)

Regarding the shares that were distributed to eligible shareholders who kept the shares of Usinor's stock that they purchased in the initial offerings for the specified periods, we determine that they did not pay full value. As discussed above, these shares were offered as an inducement to investors to hold onto their shares. Because the GOF received no remuneration for these shares, full value was not paid. However, as discussed in detail above, because these non-majority shareholders are individuals plainly distinct from the producer of the subject merchandise, the benefits to these shareholders cannot be attributed to the company.

Regarding the 7.7 percent of Usinor's shares sold in 1997, the record does not contain the extent of detail that exists for the 1995 sales. In Final Affirmative Countervailing Duty Determination: Stainless Steel Sheet and Strip in Coils from France, 64 FR 30774, 30776 (June 8, 1999), the Department stated that the GOF sold these shares "on the market." The verification report from that investigation characterizes the 1997 sale as a public offering and states that the GOF received FF 113 per share. Usinor Verification Report at p. 10. Usinor has claimed that FF 113 was the prevailing market price at the time these shares were sold and this claim is supported by the reported prices for Usinor's traded shares. (15)

On the basis of this information, we determine that the sales process for the shares sold by the GOF in the 1997 public offering was open and unrestricted. Moreover, the prices paid for these shares reflected the market price for Usinor's shares. Therefore, we determine that these investors paid full value for these shares.

III. Conclusion

In accordance with the Court's order, we determine, based on a thorough analysis of the facts and circumstances of the privatization, including the terms of the sale, that, to the extent that the purchasers of Usinor's shares paid the full fair market value of those shares, those purchasers did not receive a subsidy as a result of the privatization. To the extent that purchasers did not pay full value for their shares, while they did receive a subsidy, it was not countervailable. While we continue to believe that the entity that received the subsidy in the first place, rather than its owners, would have been the proper focus of our analysis under the statute, the Court's opinion rejected this approach, and we are bound by that ruling.

We therefore conclude, pursuant to the Court's instructions, that the purchasers/new owners did not receive new countervailable subsidies as a result of the privatization transaction. Accordingly, we determine the rate of countervailable subsidy for the subject merchandise produced and sold by Usinor during the period of investigation to be 00.00 percent.

IV. Comments

Comment 1: The Department's Use of a Per Se Rule

The petitioners contend that the Department has applied a new per se rule in its change in ownership analysis, i.e., that the sale of a company for fair market value does not create new subsidies and, moreover, precludes continued attribution of prior subsidies. A careful reading of the Court's decision, however, precludes this per se rule, according to the petitioners. This is because, as the Court points out, the change in ownership provision of the statute and the Delverde III decision prohibit this result. The statute and its accompanying legislative history clearly establish, in the petitioners' view, that an arm's length sale of a company for fair market value does not extinguish prior subsidies. Further, Delverde III has interpreted the change in ownership provision to mean that the Department cannot rely on any presumption, including the presumption that an arm's length transaction for fair value is dispositive of the issue. Consequently, the petitioners argue, the Department's draft redetermination does not provide the outcome envisioned by the Court.

Department's Position: The Department has determined that the purchasers, except for one small class, paid full fair market value for the company. The Court's opinion requires the Department to find that prior subsidies were extinguished once such a finding is made. See GTS Industries, 182 F. Supp.2d at 1378.

Comment 2: The Department Incorrectly Abandoned its Same Person Test

The petitioners disagree with the Department's conclusion that Allegheny Ludlum precludes the Department from maintaining the same person test. They cite to the hearing transcript and Judge Barzilay's comment that the test may be consistent with Delverde III. Moreover, Delverde III cannot be said to preclude the same person test, according to the petitioners, because the test was not formulated until after the CAFC's ruling in that case. Consequently, the Department should retain the same person test and use it as the starting point for its analysis.

Department's Position: The Court found that the "person" test failed to meet the requirements of the statute and ordered the Department to perform a different analysis focusing on the benefit to the purchasers. See Allegheny Ludlum II, 182 F. Supp. 2d at 1366-7. The Department has complied with the Court's instructions.

Comment 3: Repayment of Prior Subsidies

The petitioners contend that the Department has ignored certain facts in its analysis of Usinor's sale. Importantly, in the petitioners' view, the Department did not consider whether the sale resulted in repayment of prior subsidies. Such consideration seems warranted in the Court's direction to examine "whether the new owners compensated the government for previous subsidies" (182 F. Supp.2d at 1365, n.9). The petitioners claim that there is no evidence in the record indicating that prior subsidies were repaid and that Usinor has stated that the GOF did not receive compensation for past subsidies. The petitioners ask the Department to address this fact in its remand redetermination and conclude that these subsidies were not repaid.

Department's Position: The Court held that in a situation where full fair market value was paid for a previously subsidized company the prior subsidies were extinguished by the privatization. See Allegheny Ludlem II, 182 F. Supp. 2d at 1366. Repayment is therefore not an issue.

Comment 4: Method of Privatization

The petitioners additionally contend that the Department did not adequately consider that Usinor's sale was accomplished through a sale of shares (as opposed to assets). In their view, Delverde III focused on the sale of assets. The petitioners also point out that the Department itself recognized the distinction between stock and assets as "fundamental" in the draft redetermination. Moreover, in British Steel v. United States, 879 F. Supp. 1254 (CIT 1995), the court ruled that when a company's stock is purchased the Department may continue to countervail past subsidies. According to the petitioners, while certain aspects of this decision were reversed on appeal, the fundamental recognition of the continuation of subsidies in a stock sale was not disturbed. Consequently, the Department must give greater consideration to the form of the sale in its redetermination on remand.

Department's Position: While the Court acknowledged that there were differences between a sale of assets and a sale of entire companies, the Court ordered the Department to focus the analysis on the benefit to the purchaser. Allegheny Ludlum II, 182 F. Supp. 2d at 1366. While the Department respectfully disagrees with the Court's imposition of a "benefit to the purchaser" standard from Delverde III, (because that case involved the sale of assets, as opposed to this case where there is a sale of an entire company), we must follow the Court's instructions.

Comment 5: Continued Government Ownership

The petitioners also contend that the Department wholly ignored continuing government ownership of Usinor in its analysis. They claim that the record is clear that through the Stable Shareholders the French government retained an ownership position in Usinor. In support of their position, the petitioners point to the Court's instructions to examine whether the Stable Shareholders "provided a vehicle for subsidy pass-through" (Allegheny Ludlum, 182 F. Supp. 2d at 1368).

Department's Position: We disagree with petitioners' position that the Department wholly ignored continuing government ownership of Usinor. The shares in which the government had an interest were sold to "stable shareholders." We determined that those shares were not sold for less than fair value and, pursuant to the Court's interpretation of Delverde III, the prior subsidies are extinguished. It does not matter that some of those shares were sold to stable shareholders in which the government has an interest because fair value was paid.

Comment 6: "Full Value" v. "Full Fair Market Value"

The petitioners request that the Department replace all references to "full fair market value" and "full value" in the draft redetermination with the term "fair market value." This is because the terms that are objectionable to the petitioners are not defined in either the statute or in Allegheny Ludlum. The petitioners presume that "full" implies something more than fair value and, therefore, that the buyers accounted for something more than the factors normally used to assess the value of a company, such as repayment of prior subsidies. The petitioners object, however, that the purchasers did not repay prior subsidies and, accordingly, that only fair market value was paid for Usinor.

Department's Position: The Court in its remand order did not make a distinction between the terms "fair market value" and "full value." Therefore, for purposes of this remand, the Department likewise has not made a distinction.

Comment 7: Sale of Usinor was not an Arm's Length, Fair Market Value Transaction

The petitioners contend that the record does not support the Department's determination that Usinor's shares were offered at a price that reflected their market value. The petitioners claim that the agency admits as much when it states that its conclusion is based on an ex post analysis of the transaction. The petitioners label the Department's reasoning "circular," because it concluded that shares purchased at their offer price were necessarily sold at fair market value. The petitioners further contend that the valuations provided in support of the sales price were flawed and incomplete, citing to their October 12, 2000 submission on this point.

Additionally, the petitioners claim that the Department should have considered the FF5 billion capital increase in its fair market value analysis. In support of their position the petitioners cite to the Preamble to the Department's regulations where the Department discusses the concept of benefit (63 FR 65348, 65,360 (November 25, 1998)). The petitioners argue that even if the Department does not agree that the GOF's decision to issue new shares was a countervailable subsidy, the Department cannot ignore this aspect of the of the sale. In the petitioners' view, the issuance of these new shares influenced the sale and, at a minimum, calls into question whether the price received by the GOF reflected fair market value.

Department's Position: We disagree with the petitioners that our analysis was flawed. As we stated in the redetermination, we first focused on the sales process, believing that if potential purchasers of Usinor's shares were able to purchase shares without burdensome restrictions and there were no restrictions serving to narrowly define the pool of potential purchasers, then it would be more likely that full value was received for the company. We concluded that the sales process for the international and French public offerings was open and unrestricted. Further, we used the available information about the number of shares subscribed to analyze the correctness of the prices set for Usinor's shares. This is necessarily an ex post analysis because the number of shares purchased cannot be known until after the offering is made. We concluded that the GOF made a reasonably accurate estimate of the value of Usinor's shares offered in the international and French public offerings because the prices the GOF set cleared the market. Had we seen that the offerings were undersubscribed or vastly oversubscribed, we might have concluded that the prices set were too high or too low. Thus, our analysis was not circular.

We also pointed to the French Privatization Commission's and the Ministry of Economic Affairs and Finance's reliance on independent valuations to set the share values. The petitioners claim that the valuations are flawed and incomplete. First, we note that certain issues raised in the petitioners' October 12, 2000 letter were addressed in the supplemental questionnaire and the supplemental questionnaire response filed by Usinor on October 27, 2000. Second, although we have not analyzed the valuations, we have no reason to believe that they are inconsistent with the prices set by the GOF for Usinor's shares.

Finally, regarding the FF5 billion capital increase authorized by the GOF in connection with Usinor's privatization, we note that the Department included this alleged subsidy in its investigation and determined that the GOF did not forego revenue as a result of the capital increase. We reasoned that Usinor's value would be increased by the new capital, but any increase in the value of Usinor's shares would be offset by the addition of the new shares. Thus, we see no reason to single out the capital increase as a special feature of the privatization. It was simply part of the "package" being offered by the GOF in its sale of Usinor, and was well publicized to potential purchasers of Usinor's shares. Based on the sales process and our analysis of the prices received for Usinor's shares, we found that the GOF received full value for the vast majority of the shares it sold.

Comment 8: Application of the Analysis to Subsequent Share Transactions

The petitioners urge the Department not to apply its change in ownership methodology to the GOF's sales of Usinor's shares after 1995. The petitioners challenged application of the Department's former methodology (the "gamma" methodology) to these transactions before the Department and on appeal because these transactions did not result bona fide transfers of control. The petitioners claim that they specifically declined to pursue these claims after the first redetermination on remand in this proceeding because the same person test meant that these post 1995 transactions would have no effect.

With the methodology employed in this remand, these claims are again at issue. Thus, the petitioners refer to their Rule 56.2 brief filed in Allegheny Ludlum and urge the Department not to treat the post-1995 transactions as bona fide changes in ownership.

Department's Position: We disagree with the petitioners that post 1995 transactions have no effect with regard to the privatization analysis ordered by the Court. The Court has instructed the Department to examine the privatization transaction in terms of "fair value" and "benefit to the purchaser." Accordingly, in order to determine if "full fair value" was paid for the privatized company, we have analyzed all the stages of the privatization. To refuse to analyze the remaining transactions once at least 51 percent of the company was privatized would be contrary to the analysis requested by the Court.

Comment 9: Application of "Same Person" Test

The respondents disagree with the Department's statement that post-privatization Usinor and pre-privatization Usinor are the same person. According to the respondents, this finding overlooks the impact of Usinor's privatization on the company, including the elimination of government representatives from the company's board of directors and the changing of the company's market incentives.

Department's Position: The Court in Allegheny Ludlum II found that the "same person" test fails to meet the requirements of the statute. As a result, because the Department, pursuant to the Court's instructions, did not rely on the "same person" test, there is no need to address this comment.

Comment 10: Sale of Shares to Employees and Stable Shareholders

The respondents suggest that the Department has misunderstood the nature of the "restricted" shares sold to individual employees and to "stable shareholders." According to the respondents, the purpose of these shares sold to "stable shareholders" was to enhance the value of the company by providing stability and strong incentives with respect to the performance of the company following the privatization. They also claim that the shares to individual employees were "preferential" only in the sense that it was lower than the prices paid in the public offering. This lower price, the respondent's claim, was justified by the requirement that these shares be held for two years.

Department's Position: While it may be true that a required holding period for the employee shares would warrant a reduction in the share price, as we stated above, there is no evidence that a 20 percent reduction in share price is warranted by the illiquidity of these shares.

In any event, the reason for the lower price of the employee shares and whether those shares were or were not purchased at fair value is irrelevant because any ensuing benefit from the lower share price would have gone to the purchasers of the company, and not to the company itself. As this remand concludes, a benefit to the purchasers of a company is not countervailable.

As for shares sold to "stable shareholders," as we stated above, these shareholders paid at least full value for the shares and, thus, did not receive a benefit from the privatization transaction.

Comment 11: Distinction Between Company and Owners

The respondents find misguided the Department's statements that it does not agree with the CIT's interpretation of Delverde III and that, absent the court-mandated focus on whether a benefit is bestowed on the purchaser in the privatization transaction, it might otherwise conclude that the benefits of subsidies previously bestowed upon the company were unaffected by the transaction. By making these statements, the respondents claim the Department is signaling an attempt to walk away from Delverde III's holding that the Department must find that the purchaser indirectly received subsidies from a government before concluding that the purchaser was subsidized. According to the respondents, the Department's suggestion that the statute as interpreted in Delverde III tolerates an alternative to this purchaser-based inquiry is belied by the Delverde III opinion, wherein the Federal Circuit explicitly held that the statute does not contemplate any exception to the requirement that the Department determine that a government provided both a financial contribution and benefit.

In addition, the respondents contend that distinguishing between a company and its owners for purposes of determining whether subsidies survive a change-in-ownership was rejected by the WTO Panel in Certain Hot-Rolled Lead and Bismuth Carbon Steel Products Originating in the United Kingdom, WT/DS138/R (Dec. 23, 1999) at para. 6.82 ("In the context of privatizations negotiated at arm's length, for fair market value, and consistent with commercial principles, the distinction between a company and its owners is redundant for the purposes of establishing 'benefit.'"). The respondents argue that, in light of that decision, drawing a distinction between purchasers and the company, and finding that only repayment by the latter can eliminate non-recurring subsidies, would contravene the Charming Betsy doctrine.

Department's Position: We disagree with respondents' allegation that the Department is trying to walk away from the Federal Circuit's decision in Delverde III. In Delverde III, the Federal Circuit was faced with what it understood to be, based on the facts presented to it, a situation involving the sale of assets. The Federal Circuit determined that because the sale in Delverde III was an asset sale, that this means the pre- and post-sale entities were not the same legal person, and that, thus, benefits could not be attributed to the post-sale entity. As a result, the Department believes that Delverde III means that the threshold question in determining whether a company that has undergone a change in ownership has benefitted from prior subsidies is to examine whether the pre- and post-sale companies are the same person.

The CIT, in this case, however, has interpreted Delverde III to mean that we should conduct an analysis of the price paid by the purchaser, without regard to whether the pre- and post-sale entities are the same person and without regard to whether the sale was of assets or shares. In complying with the CIT's instructions, we find that certain purchasers did receive a benefit by purchasing shares at below FMV. However, as we have stated in this redetermination, in this situation, a benefit to the purchaser (as opposed to the company) is not countervailable.

On the issue of the distinction between the company and its owners, the Department has provided a more detailed explanation of its position on owners and companies in the main text of the remand. Respondents invocation of a recent WTO panel decision and the Charming Betsy doctrine is inappropriate. First, the panel decision cited by respondents is only an interim report and not a final decision of the panel and could be subject to appeal. Second, even if the panel decision were final, under U.S. law, WTO panel decision do not automatically have the force and effect of law. 19 U.S.C. 3533(g). While the Charming Betsy doctrine is an important cannon of statutory interpretation, it cannot be used to automatically implement WTO panel decisions contrary to U.S. Law. In addition, the Charming Betsy doctrine traditionally been used to examine international obligations of the United States under international agreements and treaties. To use this doctrine to inject into U.S. law a foreign dispute resolution body's interpretation of U.S. obligations under an agreement or treaty would distort the Charming Betsy doctrine beyond recognition.

Faryar Shirzad
Assistant Secretary
    for Import Administration

_______________________

Date: June 3, 2002


footnotes:

1. The Court's Memorandum Opinion and Order is dated January 4, 2002, however, the order establishing the time frame for the remand is dated January 7, 2002.

2. We note that whether a benefit is bestowed on a purchaser in the privatization transaction is not relevant to the benefits previously bestowed upon the pre-privatization company. While we might otherwise conclude that this means the benefits of subsidies previously bestowed upon the company sold were unaffected by the transaction, our understanding of the Court's decision is that we are not free to reach that conclusion. To reach such a conclusion, we would have to ignore the Court's order stating that Delverde III and the statute require the Department to focus on the benefit to the purchaser of the company, not to the company itself. As discussed below, because in this case, the purchasers/new owners are not the company, any previous benefit to the company cannot be ascribed to the purchasers/new owners and any benefit to the purchasers/new owners cannot be ascribed to the company. As a result, under an analysis which focuses on the benefit to the purchasers/new owners, any prior subsidies become irrelevant because they cannot be ascribed to the purchasers/new owners and are thus no longer countervailable under the Court's interpretation of the statute and Delverde III.

3. It should be pointed out that a distinction between company and owner should not be absolute. Clearly, there may be situations where it would be appropriate to treat separately-incorporated members of a closely-integrated corporate group as, in essence, one entity, or where a "corporate veil" between a nominally-independent corporation and its owner may be "pierced" for some compelling reason. However, these special situations do not establish that there is no rule. On the contrary, there is a clear distinction between a company and its owners that is respected under the corporate laws of developed nations unless there is some special reason to disregard that distinction, and there are carefully prescribed rules and procedures to be followed in determining whether that distinction should be disregarded. In sum, there is no basis for routinely disregarding the distinction simply because the company in question is transferred to a new owner. If anything, the transfer of the company to a new owner emphasizes its status as an entity distinct from its original owner.

4. In contrast, if Usinor's assets had been sold to a different person, the producer of the subject merchandise following the sale would have been a different person from the person upon whom the original subsidies were bestowed (and would have been a party to the privatization transaction).

5. This is an illustrative list only. There may be other pertinent aspects of the sales or bidding process in other privatizations that inhibit the market's ability to settle a transaction at full value

6. Prospectus for International Offering of Usinor Sacilor at p. 12, Usinor Verification Exhibits submitted December 2, 1998, at Exhibit 9A ("Prospectus"). The French government and Clindus are together referred to as "GOF."

7. The percentage was calculated based on total shares, including new shares to be issued. Also, the 12 percent figure does not include the shares held by Credit Lyonnais as a stable shareholder. The "sale" to Credit Lyonnais was effected as a transfer from Credit Lyonnais' subsidiary, Clindus, to Credit Lyonnais. Prospectus at p. 12. Thus, the total percentage to be held by stable shareholders after the privatization was 15 percent.

8. This terminology, as well as "private placement" and "outside the market," is used to describe the sale to stable shareholders.

9. The number of shares set aside for the employees is illegible in the June 26 announcement. The number used here is taken from the Prospectus at p. 23.

10. For example, the announcement inviting investors to become stable shareholders did not include any reference to the limitations on selling the shares. See Remand QR at Exhibit 3.

11. See Memorandum to Susan H. Kuhbach from Rosa Jeong and Marian Wells entitled "Usinor Verification Report," dated February 19, 1999, ("Usinor Verification Report") at pp. 8 - 9.

12. See Usinor Verification Report at p. 8 and Memorandum to Susan H. Kuhbach from Marian Wells and Rosa Jeong entitled "GOF Verification Report" (undated) at p. 2.

13. Purchases under the French offering were also eligible for free bonus shares, if the purchaser held onto the shares for 18 months. Prospectus at p. 22. The rate at which bonus shares were provided differed between the employee and French offerings.

14. See Usinor's 1997 Annual Report, submitted as Exhibit 7 of the GOF's September 15, 1998 QR and Usinor Verification Report at p. 10.

15. See Memorandum to the File dated May 9, 2002.