RESULTS OF REDETERMINATION PURSUANT TO COURT REMAND

Acciai Speciali Terni S.p.A. and Acciai Speciali Terni USA v. United States

Court No. 99-06-00364, Remand Order (CIT Feb. 1, 2002)

I. 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 Acciai Speciali Terni S.p.A. and Acciai Speciali Terni USA v. United States, slip op. 2002-10 (CIT Feb. 1, 2002) ("AST").

II. Analysis

In the Final Affirmative Countervailing Duty Determination: Stainless Steel Plate in Coils from Italy, 64 FR 15508 (March 31, 1999) ("SSPC from Italy"), the Department determined that countervailable subsidies were being provided to producers and exporters of stainless steel plate in coils from Italy. Acciai Speciali Terni ("AST") challenged this determination before the CIT.

On February 2, 2000, in a case involving Pasta from Italy, 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. The Federal Circuit's decision in Delverde III caused the Department to request a remand of AST. Although the Department considered that the facts in Pasta from Italy and those in SSPC from Italy were different in certain fundamental respects ( Pasta from Italy involved a sale of assets by one private party to a distinctly different private party, whereas SSPC from Italy involved the sale of shares in a corporation that remained the same after the change in ownership), the methodology struck down by the Federal Circuit in Delverde III was similar to that employed in SSPC from Italy. Accordingly, the Department, with the consent of the parties, asked the CIT to remand AST for reconsideration in light of Delverde III.

On August 14, 2000, the CIT remanded AST 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)."

On December 19, 2000, the Department issued the Final Results of Redetermination Pursuant to Court Remand in Acciai Speciali Terni S.p.A v. United States, Court No. 99-06-00364) ("Remand Redetermination"). In that determination, in light of the requirement of Delverde III that the Department establish that the producer of the subject merchandise have received both a government financial contribution and a benefit, the Department analyzed the facts and circumstances of the privatization transaction to determine whether AST, following the privatization, was essentially the same person to whom the countervailable subsidies were given. Remand Redetermination at 7. Among the facts and circumstances condsidered, 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. at 14-22. Based on these factors, the Department determined that AST, after it was transferred to private ownership, remained essentially the same person as before. Consequently, the subsidies remained attributable to AST. Id. at 22.

After briefing and a hearing, the CIT, on February 1, 2002, again remanded AST to the Department. Acciai Speciali Terni S.p.A. and Acciai Speciali Terni USA v. United States, slip op. 2002-10 (CIT Feb. 1, 2002). Even though the Court affirmed the Department's determination that AST, following its sale to private investors, remained essentially the same person that had received the countervailable subsidies, and observed that "Commerce's logic is not inherently unreasonable" (AST, slip op. at 16) and that "it appears that AST was largely preserved" (AST, slip op. At 24), the Court appears to have felt constrained by its interpretation of Delverde III from upholding the application of the Department's revised methodology to AST.

The Court read Delverde III as prohibiting a per se rule that a subsidy continues to be countervailable after a change in ownership (of either the subsidized company itself or its productive assets). (1) Id., at 20-21. The Court then concluded that the Department's "same person" test "effectively" is such a prohibited per se rule, in which the Department ascribes a subsidy bestowed upon the "pre-sale entity" to the to the "post-sale entity" if the Department deems those two entities to be the same legal person. (2) Id. At 23. The Court rejected the Department's position that there were not two entities, but only one (AST), for which the statutory conditions had been satisfied, and remained satisfied after its sale to new owners. (3)

The Court observed that Commerce's finding that the statutory requirements had been satisfied for AST rendered the payment by KAI for the shares of AST (and the amount of that payment) irrelevant. Id. At 25. On remand, the Court directed Commerce to "examine and consider certain material facts as part of its analysis, including but not limited to the impact the purchase price paid by KAI for AST's assets has upon whatever benefit KAI-AST may have enjoyed." Slip op. at 34. By this, we believe that the Court intended the Department to determine whether the price paid by KAI for the shares of AST constituted "full value" for AST, and to find that, to the extent that KAI paid "full value" (and so did not receive a new benefit from the transaction) the original benefit to AST was no longer countervailable. (4) Id. at 25 - 27.

Nevertheless, we have conducted the analysis required by the Court's opinion and order of remand. In sum, we conclude that KAI paid at least fair market value for the shares of AST. Under the Court's reasoning as we understand it, we are, therefore, directed to find that the original subsidies to AST are no longer countervailable. While we do not agree with this determination, we have performed the remand as ordered.

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 (AST), and not the owners of that producer (KAI).

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. The concept of corporations as legal persons was created precisely to distinguish between corporations and their liabilities, on the other hand, and the investors and their assets on the other. In a countervailing duty 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. (5)

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. AST is that legal person. The statutory conditions have been satisfied for AST. Nothing in the statute indicates that the fact that AST 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 ownership.

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 relevant 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 AST (the Italian Government) and AST's new shareholder (KAI). The Italian Government transferred the shares of AST to KAI in consideration for cash. AST itself was not a party to this transaction nor was it materially affected by it. Following the change in its ownership, AST continued to produce the same subject merchandise, in the same facilities, with substantially the same management and workforce, and sell it to the same customers through the same channels of distribution. (6) We fail to see how this transaction must be treated as having extracted from AST subsidies that previously had been bestowed 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, AST, and therefore could not have extinguished previous subsidies to AST.

The Privatization of AST.

In determining whether KAI received a benefit from purchasing AST pursuant to the Court's order of remand, the Department first considered the process used by the GOI to sell AST. Specifically, 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. (7)

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 AST and whether those prices reflect the full value of those shares.

On December 12, 1992, the Italian Council of Ministers gave their approval for the privatization of ILVA, the state-owned steel group. Pursuant to this, the Government of Italy's holding company, Instituto per la Riconstruzione ("IRI"), moved to reorganize the ILVA Group to prepare it for sale. The ILVA Group consisted of the steel producer ILVA S.p.A. and a number of steel-related subsidiaries (service centers, trading companies, etc.). ILVA S.p.A. had four operating divisions including the specialty steel division.

As part of the reorganization of ILVA, the specialty steel operations were "demerged" and separately incorporated on December 31, 1993. The newly formed company, AST, (8) was entirely owned by IRI. At the same time, December 1993, IRI began the process of selling AST. It hired Barclays de Zoete Wedd Limited ("BZW") as its financial advisor. IRI also announced its intention to sell the company and solicited purchase offers through advertisements in Italian and foreign newspapers.

In its solicitation for purchase offers, IRI invited limited liability companies or similar entities to notify BZW of their interest in purchasing AST and to provide certain information about themselves. (9) The announcement explained that upon receipt of an expression of interest and the required information, the party would be asked to signed a confidentiality agreement and then could receive an information memorandum about AST prepared by BZW.

Nineteen expressions of interest were received by the due date of January 7, 1994. When the qualifying parties received the information memorandum from BZW, (10) they were also informed of the next step in the process: submission of preliminary, non-binding cash offers for 100 percent of AST's shares. These offers, which were due on February 11, 1994, were to include: [ * * * ] (11) See June 25, 1998 Questionnaire Response of AST ("AST 6/25/98 QR") at Exhibit A8-4.

Non-binding purchase offers were received from four parties. They were: Ugine (a French stainless steel producer); Krupp (a German steel company); Marcegaglia (an Italian investment group); and, a consortium of Italian steel producers (including Falck, Agarini, and Riva) ("the Italian Consortium"). These parties conducted due diligence meetings with AST during the period March 15 - May 13, 1994.

Also during this period, the four remaining parties were informed of the process for submitting final offers. Specifically, they were asked [ * * * ] See AST 6/25/98 QR at Exhibit A8-6.

Two final bids were received by the May 13, 1994 deadline. The first, from Ugine, was [ * * * ] See GOI 10/25/00 SQR - Remand at Exhibit 1.

The second and winning bid was submitted by KAI Italia S.r.L ("KAI"), a consortium formed by Krupp and the Italian Consortium for purposes of purchasing AST. In its bid, KAI set the value of AST at [ * * * ] See GOI 10/25/00 SQR - Remand at Exhibit 1. After further negotiations between BZW (on behalf of IRI) and KAI, the cash price for AST was [ * * * ] See AST 6/25/98 QR at 142. The purchase agreement between IRI and KAI was signed on July 14, 1994.

As discussed above, to determine whether KAI paid full value for AST we considered whether competition to buy AST was restricted or lessened through actions taken by IRI or the GOI. We believe that the existence of an open selling process resulting in numerous bidders submitting offers for the company would provide a good indication that full value had been paid.

The information on the record of this proceeding shows that IRI sought at the outset of the privatization process to bring in many bidders for AST. The announcement of its intent to sell AST and its solicitation of expressions of interest in the company were widely publicized. Although certain informational requirements were imposed on interested parties, these were not onerous and would not appear to have discouraged potential buyers. Similarly, the requirements imposed on parties wishing to submit preliminary, non-binding bids were not overly burdensome. They appear to have been a first step in establishing whether these parties could be considered bona fide bidders. While a [ * * * ] (12) See AST 10/05/00 QR - Remand at Exhibit 1.

By the time of the final offers, however, the procedures became more restrictive. The most limiting factor appears to have been the short amount of time available for conducting the due diligence meetings and drawing up the final offers, March 15 to May 13. This is evidenced by [ * * * ] See GOI 11/13/00 SQR - Remand at Exhibit 3.

Similarly, [ * * * ] See AST 6/25/98 QR at Exhibit A8-7.



The second possible limiting factor on the number of final bids submitted was the [ * * * ]

We cannot know whether the limited time to prepare the final offers and the [ * * * ] drove away bidders or, perhaps, forced them to combine (as Krupp and the Italian Consortium did). Nevertheless, these restrictions potentially served to limit the number of competitors for AST in the final days of the process.

In this connection, we note one further piece of information in the record of this proceeding. At verification, AST officials stated that Krupp's perception during the privatization process had been that IRI placed importance on the presence of Italian investors and this led Krupp to combine with the Italian Consortium in making its bid. [ * * * ] See GOI 11/13/00 SQR - Remand at Exhibits 2 and 3).

If Krupp's perception was correct, i.e., that IRI would favor a bid including Italian investors, this would be an additional restriction on or obstacle to potential bidders and would limit competition for AST's shares reducing the likelihood that the GOI would receive full value for the company. (13)

Having analyzed the sales process, we turn next to the price received by IRI for AST. As noted above, the cash price for AST was [ * * * ]

As part of the reorganization leading up to the privatization of AST, IRI and ILVA appointed the Instituto Mobiliare Italiano ("IMI") to conduct a valuation study in 1993 of what was to become AST. IMI [ * * * ] (14) See AST 10/5/00 QR - Remand at Exhibit 1.

Once IRI announced its intention to sell AST, IRI commissioned a study by Pasfin Servizi Finanziari, an Italian investment firm. The purpose of this study was to determine the price range the GOI could expect to receive for AST. The Pasfin study set AST's value at [ * * * ] See GOI 10/25/00 SQR -Remand at Exhibit 2.

The [ * * * ] See AST 10/5/00 QR - Remand at Exhibit 6.

On the basis of these studies, including [ * * * ] These values are lower than the price paid by KAI for AST.

Therefore, although there were aspects of the sales process that potentially limited the number of competitors seeking to purchase AST causing the Department to question whether full value was paid for the company, comparison of the price actually paid for AST to market valuations of the company show that full value was paid for the AST.

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 the buyers of AST (KAI) paid full value for the shares of the company. Hence, KAI did not receive a subsidy as a result of the privatization. While we continue to believe that the entity that received the subsidy in the first place (AST), rather than its owners, would have been the proper focus of our analysis under the statute, the Court's decision rejected this approach, and we are bound by that ruling.

We therefore conclude, pursuant to the Court's instructions, that, because the buyers/new owners did not receive a new countervailable subsidy as a result of the privatization transaction, the original subsidy to AST ceased to be countervailable. Accordingly, we have recalculated the total countervailable subsidy bestowed on the subject merchandise by eliminating those subsidies to which we applied the "change in ownership" methodology in SSPC from Italy. The resulting countervailing duty rate is 1.62 percent ad valorem.

IV. Comments

Comment 1

Petitioners contend that the draft remand failed to tailor its methodology to the Court's decision and, consequently, it is wholly unresponsive on its face. In particular, petitioners assert that the Department has articulated a per se rule (that subsidies are always extinguished by a change in ownership) that leads to a result that the Court and the Federal Circuit in Delverde III clearly stated was precluded by the governing statute. They argue that this per se rule can be seen from the fact that the Department found that the buyers of AST paid fair market value and, as a result, concluded that the buyers had received no new subsidy. Petitioners assert that the Court's remand opinion precludes such a determination because of the Court's statement that "the purchase of a public entity's assets at fair market value is not dispositive of a benefit determination . . ." AST, slip op. 2002-10 at 27 (hereinafter "slip op.") According to petitioners, the Department should revise its remand so that an arm's length, FMV sale does not control its consideration of the facts and circumstances of the change-in-ownership transaction and the extent to which the sale affects previous or new subsidies.

Respondents, on the other hand, assert that the draft remand implements the Court's instructions "to consider certain material facts as part of its analysis, including but not limited to the impact the purchase price paid by KAI for AST's assets has upon whatever benefit KAI-AST may have enjoyed." Slip op. at 34. In addition, respondents agree that in focusing upon whether the purchasers (i.e., the new owners) paid full value for the company, the Department's draft remand comports with the CVD statute, as interpreted by the Federal Circuit in Delverde III.

The Department's Position

We disagree that the Department's remand determination is contrary to the Court's instructions. Our reading of the Court's decision is explained above. As we explained in the draft remand, the Court found the "same person" test to be, in effect, a per se rule prohibited by Delverde III. Draft Remand at 3, quoting slip op. at 28 (emphasis by the Court). In its remand opinion, the Court cited with approval Allegheny Ludlum Corp. et al. v. United States, slip op. 2002-01 (CIT Jan. 4, 2002), and GTS Industries S.A. v. United States, slip. op. 2002-02 (CIT Jan. 4, 2002), noting that these opinions also rejected the "same person" test for similar reasons, i.e., that it "fails to meet the requirements of the statute because it concludes that a purchaser received a subsidy without making 'specific findings of financial contribution and benefit . . . that are required by 1677(5)(D) and E).'" Draft Remand at 3, quoting slip op. at 28, n.10 (Allegheny citation omitted).

The Court stated that in the context of a privatization "{i}t is possible that, as Plaintiffs argue, the value of any benefit received by a subsidized predecessor would be accounted for in full by a company's buyers." Draft Remand at 4, quoting slip op. at 25. Accordingly, on remand, the Court specifically directed that the Department "must examine and consider certain material facts as part of its analysis, including but not limited to the impact the purchase price paid by KAI for AST's assets has upon whatever benefit KAI-AST may have enjoyed." Id. at 34. That is precisely what the Department has done in this remand. We have analyzed the facts and circumstances of the transaction, including the purchase price and other record evidence regarding the value of AST at the time it was sold, to determine whether the buyers, i.e., the new owners, received a benefit as a result of the privatization of AST. While we believe that this procedure is inconsistent with the statute, we do not regard it as a per se rule - - if we had found that KAI had paid less than fair market value, we believe that we would have been free under the Court's order to find that not all of the original subsidies to AST were extinguished.

Comment 2

Petitioners contend that the draft remand completely eliminates the "same person" test. They claim that the Court viewed the "same person" test as a reasonable means of assessing whether a benefit continues after a change in ownership. Petitioners argue that the Court found fault with the test because the Department failed to "more fully probe the nature and character of the potential benefit enjoyed by the privatized entity." Slip op. at 25 n.7. To cure this deficiency, petitioners assert that all the Department needs to do is expand its factual analysis of its "same person" test to include the consideration of "certain mitigating factors," including in particular whether the specific terms of the transaction indicate that there was repayment of the subsidy.

The Department's Position

The Department's "same person" test is designed to determine whether the producer of the subject merchandise is the same legal person that received the subsidy. In this instance, the Department determined that AST, following its privatization, remained the same "legal person" that received the original subsidy. While the Court agreed with this analysis, we understand the decision as requiring us to determine that, to the extent that KAI paid fair market value for AST, the original benefit to AST was eliminated. We have followed this direction.

Comment 3

In order to determine whether KAI received a benefit from the purchase of AST, petitioners argue that all the Department needs to do is review the Purchase Agreement to determine whether there are any provisions that specifically indicate that a portion of the purchase price is dedicated to the repayment of prior subsidies. Absent such provisions, petitioners argue that none of the prior subsidies have been repaid, so that the original subsidies to AST continue to be countervailable.

The Department's Position

We do not agree with this approach. We think that the Court is concerned with whether the total consideration paid by KAI for AST is equivalent to the fair market value of AST, not how the parties may have chosen to describe the amount paid in the purchase agreement. We believe that petitioners' approach would amount to another kind of per se rule that the Court would not countenance.

Comment 4

Petitioners argue that, to respond effectively to the Court's concerns, the Department should revise its change-in-ownership analysis by explaining more fully how the benefit found to exist continues despite the change in ownership. This can be done, according to petitioners, if the Department explains and invokes basic principles of countervailing duty law which the Court appears to have misunderstood. Such an explanation should describe how a change in ownership does not require a reexamination of the benefit concept.

The Department's Position

We believe that we have provided a sufficiently detailed explanation to the Court of the rationale underlying the Department's "same person" methodology. See Final Results of Redetermination Pursuant to Court Remand, Ct. No. 99-06-00364 (Dec. 19, 2000). Despite the Department's attempt to explain how its "same person" methodology takes into consideration all of the facts and circumstances outlined in Delverde III, the Court concluded that the Department's "same person" methodology was insufficient under the CVD statute and, as a result, instructed the Department to examine whether the new owners received a subsidy as a result of the privatization of AST. While we do not agree with the Court's reading of Delverde III, we are bound by its decision.

Comment 5

Petitioners also contend that the Department should revise its methodology to include an examination of whether the buyers repaid prior subsidies. In support of this contention, they cite to a brief colloquy between the Court and counsel for the Government during the AST oral argument, which petitioners interpret as showing that the Court intended the Department's benefit analysis to focus on the question of repayment. Transcript of AST Oral Argument (Jan. 13, 2002) at 15, 25. Petitioners argue that the Court instructed the Department to determine whether a subsidy benefit "may be mitigated by a purchase price that reflects the value of the benefit." Slip op. at 25. They assert that the only way to do this is to determine whether the benefit is reflected in the purchase price.

Respondents, on the other hand, argue that nothing in the Court's remand opinion or order mandates or suggests that the Department's methodology must consider the extent to which a sale included an express repayment of subsidies previously bestowed. They argue that petitioners' contention that this colloquy constitutes an endorsement of the concept of repayment by the court is totally unfounded and incorrect. Moreover, respondents assert that any such approach would be inconsistent with Delverde III, which made no mention of such a requirement.

The Department's Position

As we have explained, the Court directed the Department to determine whether the buyer, (KAI)) received a benefit as a result of its purchase of AST. Contrary to petitioners' comments, this does not involve an inquiry into whether KAI owners repaid the subsidies. If KAI paid at least the fair value of AST's shares, it did not receive a benefit from the privatization transaction.

Comment 6

Petitioners claim that an examination of the terms of the transaction and the facts and circumstances of the privatization demonstrate that the subsidy continued to benefit AST after the privatization as there was no repayment of the subsidy. According to petitioners, this is evident by examining the Purchase Agreement, which they assert contains no reference to any repayment of subsidies. In sum, they claim that the record is clear that the value of previous subsidy benefits was not accounted for in the price paid for AST.

The Department's Response

We agree with petitioners that the Purchase Agreement does not include any explicit provisions which deal with the repayment of subsidies. However, as we explained above, we disagree with petitioners that the description of the price paid in the Purchase Agreement is dispositive of this issue. As we have noted above, we believe that the Court directed the Department to determine whether the price paid by KAI was equal to the fair market value of the company. Where that condition was satisfied, we believe that we were required to find that the original subsidies to AST were extinguished, regardless of how that price may have been described in the purchase agreement.

Comment 7

The petitioners contend that the sale of AST by the GOI was "not even close" to a fair market value transaction. This is evidenced, in their view, by several facts: [ * * * ] Regarding the first, according to the petitioners, [ * * * ].

Second, the petitioners claim, certain sources of value were not accounted for in the purchase price. In support of this claim, they assert that the studies prepared in connection with the sale and purchase of AST contain [ * * * ] Because these aspects were not accounted for, the petitioners claim, the valuations were understated and, thus, the Department's erred in finding that fair value was paid for AST.

Third, the petitioners argue, GOI control over the AST extended beyond the 1994 sale because of conditions on AST and its subsidiaries for several years after the sale. These conditions were central to the terms of sale and played an important part in what parties would be willing to bid for the company. Such terms and conditions would not, in the petitioners' view, be part of a fair market value sale.

Respondents, in contrast, agree with the Department's finding that full value was paid for AST. They disagree, however, that any aspects of the privatization transaction served to limit the number of competitors seeking to purchase AST. Regarding the obstacles identified by the Department in its draft redetermination, the respondents claim first that the time to prepare final offers for AST was not too short. They point out that two full months were available, that final offers were submitted, and that any company in a position to buy a large steel company could mobilize its resources to ensure the necessary steps could be taken within deadline.

Second, the respondents disagree that the requirement for a guarantee constrained the ability of parties to participate. They argue that the guarantee fee was modest in comparison to the value of AST and, again, that any company in a position to buy a large steel company would not find the guarantee fee burdensome.

Finally, regarding the perception that the GOI would favor a bid including Italian partners, the respondents state that any such perception was unfounded. They claim that any requirement that bidders include Italian partners would have violated Italian and EU law, the terms of the privatization plan and IRI's intent to sell to the highest bidder.

The Department's Response

As in our draft redetermination on remand, we continue to find that the bidding process became more difficult and potentially exclusionary at the final bid stage. Although respondents dismiss the Department's concerns about the shortness of the process because [ * * * ], we disagree that this demonstrates that ample time was given. As evidenced by the language cited above (15) [ * * * ] While we cannot point to specific evidence that other potential bidders felt constrained by the deadlines, when companies like [ * * * ] have trouble meeting the deadline, we believe it is correct to raise the shortness of the final bid process as a limiting factor.

Regarding the guarantee requirement, it is not clear whether this in and of itself would limit bidders. However, in combination with the other impediments listed it helped to raise the bar for bidders at the final stage.

Finally, regarding the perception that IRI would favor bidders with Italian partners, Krupp clearly believed this and, as discussed above, [ * * * ] may have as well. Given the EU and Italian laws referenced by respondents, perhaps these companies misperceived the bidding process. Nevertheless, to the extent that potential bidders perceived that the IRI would favor bidders with Italian partners, potential bidders would presumably act on this belief and seek Italian partners (introducing another obstacle to the bidding process) or they would drop out of the process (thereby reducing the competition for AST's shares).

Although we continue to find that the sales process potentially limited the number of competitors seeking to purchase AST, we disagree with the petitioners' characterization that the GOI [ * * * ] The initial stages of the process were open and appear to have encouraged many bidders. This process eventually resulted in [ * * * ] final bids, [ * * * ] While we agree that [ * * * ] Instead, we have looked beyond the sales process to the valuation studies.

The petitioners have contended that these valuation studies provide inadequate indication of the full or market value of AST. First they claim that the studies [ * * * ] We disagree that this is an accounting maneuver that resulted in undervaluation of AST. According to the [ * * * ] To carry out this mandate, [ * * * ] Based on the results of its analysis, [ * * * ] To effect that conclusion, [ * * * ]

Regarding the [ * * * ] Any reasonable comparison of the various valuations of AST with the price received by the GOI shows that the GOI received at least full value for the company.

Finally, the petitioners have argued that GOI-imposed conditions on AST and its subsidiaries for several years after the sale affected the terms of sale and would not be part of a fair market value sale. For purposes of this redetermination on remand, the Department's analysis has focused on the "package" that was offered by the IRI in the privatization of AST. While we agree with the petitioners that what comprises the package will affect the price received, we are not in a position to speculate about what the value would have been had the government offered a different package. Instead, we have analyzed the sale as it was fashioned by IRI, looking at whether the sales process was open and competitive, and whether the price received by IRI was consistent with the valuations made by outside parties. Based on this analysis, we have determined that full value was paid for AST.



Faryar Shirzad
Assistant Secretary
    for Import Administration

___________________________

Date: June 3, 2002

1. This cannot have been the holding of Delverde III, because the Federal Circuit was addressing a sale of assets, in which the producer of the subject merchandise (using those assets) had itself not received the financial contribution and benefit required by the statute. In contrast, the producer of the subject merchandise at issue here (AST) received a financial contribution and a benefit from the Italian Government.

2. The Court stated that the "same person" test "effectively presupposes that some benefit of a subsidy travels with the assets of the company." AST at 20. This is incorrect. If anything, the Department's methodology presumes the opposite - - that, where only assets are transferred, the purchaser of those assets (now the producer of the subject merchandise) has not received a benefit and therefore that subject merchandise produced with those assets are not subject to countervailing duties. The Department's methodology finds that subsidies remain countervailable only where the producer is, in fact, the same legal person upon which a financial contribution and a benefit were bestowed.

3. The Court concluded that "Commerce's interpretation of 'person' to mean a post-sale entity that is a distinct person from the pre-sale entity appears to be in conflict with Commerce's regulation. Id. at 22. This is a misunderstanding of the Department's position. The Department reached precisely the opposite conclusion - - that there were no distinct pre and post-sale entities, but that AST (which, as a corporation, was correctly treated as a legal person under the statute) remained the same person after it was transferred to new owners.

4. The Court referred to AST before its privatization as "GOI-AST" and to AST after its privatization as "KAI-AST," as if these were distinct entities, although the Court acknowledged that they were, in fact the same person. Id. at 33-34.

5. 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.

6. In contrast, if AST'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).

7. 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.

8. AST was originally formed as a limited liability company with the designation "S.r.l." In anticipation of its eventual sale the company was converted to a stock company with the designation "S.p.A." in February 1994. AST S.r.l. and AST S.p.A. are both referred to as AST in this redetermination.

9. The requested information included: a copy of the party's articles of incorporation and bylaws; a list of all members of the Board of Directors and the Board of Auditors; financial data for the last three years or, for parties established more recently, data for the available years. See October 25, 2000 Supplemental Questionnaire Response of the Government of Italy for the Remand ("GOI 10/25/00 SQR - Remand") at Exhibit 3.

10. [ * * * ] See AST 6/25/98 QR at Exhibit A8-4.

11. [ * * * ]

12. At this point in the process, the only the IMI study (described below) had been prepared.

13. This concern, among others, was noted by the Department in SSPC from Italy (64 FR at 15519).

14. [ * * * ] See AST 10/5/00 QR - Remand at Exhibit 1.

15. Supra at p. 11-12.