[Federal Register Volume 63, Number 145 (Wednesday, July 29, 1998)]
[Notices]
[Pages 40474-40504]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-20015]
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DEPARTMENT OF COMMERCE
International Trade Administration
[C-475-821]
Final Affirmative Countervailing Duty Determination: Certain
Stainless Steel Wire Rod From Italy
AGENCY: Import Administration, International Trade Administration,
Department of Commerce.
EFFECTIVE DATE: July 29, 1998.
FOR FURTHER INFORMATION CONTACT: Kathleen Lockard or Eric B. Greynolds,
Office of CVD/AD Enforcement VI, Import Administration, International
Trade Administration, U.S. Department of Commerce, 14th Street and
Constitution Avenue, N.W., Washington, D.C. 20230; telephone: (202)
482-2786.
Final Determination
The Department of Commerce (the Department) determines that
countervailable subsidies are being provided to producers and exporters
of certain stainless steel wire rod from Italy: Cogne Acciai Speciali
S.r.l., Acciaierie Valbruna S.r.l., and Acciaierie di Bolzano S.p.A.
For information on the estimated countervailing duty rates, please see
the ``Suspension of Liquidation'' section of this notice.
Case History
Since the publication of our preliminary determination in this
investigation on January 7, 1998 (63 FR 809), the following events have
occurred:
On January 21, 1998, and March 4, 1998, we issued supplemental
questionnaires to the Commission of the European Union (EU), Government
of Italy (GOI), Cogne Acciai Speciali S.r.l. (CAS), and Acciaierie
Valbruna S.r.l. (Valbruna) and Acciaierie di Bolzano S.p.A. (Bolzano),
(collectively referred to as Valbruna/Bolzano). We received responses
to these supplemental questionnaires between February 9, 1998, and
March 27, 1998. Respondents submitted additional information on April
9, 1998.
On March 5, 1998, the final determinations in the antidumping and
countervailing duty investigations were postponed until July 20, 1998
(63 FR 10831). We conducted verification of the countervailing duty
questionnaire responses from April 15 through May 13, 1998. On May 7,
1998, we terminated the suspension of liquidation of all entries of the
subject merchandise entered or withdrawn from warehouse for consumption
on or after that date. Petitioners and Respondents filed case briefs on
June 11, 1998, and rebuttal briefs on June 16, 1998.
The Applicable Statute and Regulations
Unless otherwise indicated, all citations to the statute are
references to the provisions of the Tariff Act of 1930, as amended by
the Uruguay Round Agreements Act effective January 1, 1995 (the Act).
In addition, unless otherwise indicated, all citations to the
Department's regulations are to the current regulations codified at 19
CFR 351 and published in the Federal Register on May 19, 1997 (62 FR
27295).
Petitioners
The petition in this investigation was filed by AL Tech Specialty
Steel Corp.; Carpenter Technology Corp.; Republic Engineered Steels;
Talley Metals Technology, Inc.; and, United Steelworkers of America,
AFL-CIO/CLC (the Petitioners).
Scope of Investigation
For purposes of this investigation, certain stainless steel wire
rod (SSWR or subject merchandise) comprises products that are hot-
rolled or hot-rolled annealed and/or pickled and/or descaled rounds,
squares, octagons, hexagons or other shapes, in coils, that may also be
coated with a lubricant containing copper, lime or oxalate. SSWR is
made of alloy steels containing, by weight, 1.2 percent or less of
carbon and 10.5 percent or more of chromium, with or without other
elements. These products are manufactured only by hot-rolling or hot-
rolling, annealing, and/or pickling and/or descaling, and are normally
sold in coiled form, and are of solid cross-section. The majority of
SSWR sold in the United States is round in cross-sectional shape,
annealed and pickled, and later cold-finished into stainless steel wire
or small-diameter bar.
The most common size for such products is 5.5 millimeters or 0.217
inches in diameter, which represents the smallest size that normally is
produced on a rolling mill and is the size that most wire drawing
machines are set up to draw. The range of SSWR sizes normally sold in
the United States is between 0.20 inches and 1.312 inches in diameter.
Two stainless steel grades SF20T and K-M35FL are excluded from the
scope of the investigation. The percentages of chemical makeup for the
excluded grades are as follows:
SF20T
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.05 max
Manganese................................. 2.00 max
Phosphorous............................... 0.05 max
Sulfur.................................... 0.15 max
Silicon................................... 1.00 max
Chromium.................................. 19.00/21.00
Molybdenum................................ 1.50/2.50
Lead...................................... added (0.10/0.30)
Tellurium................................. added (0.03 min)
------------------------------------------------------------------------
K-M35FL
------------------------------------------------------------------------
------------------------------------------------------------------------
Carbon.................................... 0.015 max
Silicon................................... 0.70/1.00
Manganese................................. 0.40 max
Phosphorous............................... 0.04 max
Sulfur.................................... 0.03 max
Nickel.................................... 0.30 max
Chromium.................................. 12.50/14.00
Lead...................................... 0.10/0.30
Aluminum.................................. 0.20/0.35
------------------------------------------------------------------------
The products under investigation are currently classifiable under
subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and
7221.00.0075 of the Harmonized Tariff Schedule of the United States
(HTSUS). Although the HTSUS subheadings are provided for convenience
and customs purposes, the written description of the scope of this
investigation is dispositive.
Injury Test
Because Italy is a ``Subsidies Agreement Country'' within the
meaning of section 701(b) of the Act, the International Trade
Commission (ITC) is required to determine whether imports of the
subject merchandise from Italy materially injure, or threaten material
injury to, a U.S. industry. On September 24, 1997, the ITC published
its preliminary determination finding that there is a reasonable
indication that an industry in the United States is being materially
injured, or threatened with material injury, by reason of imports from
Italy of the subject merchandise (62 FR 49994).
Period of Investigation
The period for which we are measuring subsidies (the ``POI'') is
calendar year 1996.
[[Page 40475]]
Corporate Histories
CAS
From 1984 to 1987, the subject merchandise was produced at the
Aosta facilities operating under Deltasider, a wholly-owned subsidiary
of Finsider S.p.A. (Finsider), the GOI-owned holding company for steel
producers. Finsider was, in turn, wholly-owned by Instituto per la
Ricostruzione Industriale (IRI) an agency of the GOI. In 1987, the GOI
reorganized the Finsider corporate groupings and created Deltacogne
S.p.A., as a subsidiary to Deltasider. The Aosta operations were
transferred to Deltacogne S.p.A.
In 1988, IRI created ILVA S.p.A. as the successor to Finsider; ILVA
was also wholly-owned by the IRI of the GOI, and was created to act as
both an operating company and a holding company for the government-
owned steel production operations. In 1989, Deltacogne S.p.A., the
producer of SSWR, was merged into ILVA S.p.A. In December 1989, the GOI
again reorganized its steel producing subsidiaries and created Cogne
S.r.l., a wholly-owned subsidiary of the ILVA Group, which held the
Aosta operations. Cogne S.r.l. was later named Cogne Acciai Speciali
S.p.A. (Cogne S.p.A.). From 1990 to 1992, Gruppo Falck S.p.A. (Falck),
a private company with holdings in steel and real estate, held 22.4
percent of Cogne S.p.A.''s stock (with the remaining and controlling
interest held by ILVA). Falck acquired the shares of Cogne S.p.A. by
exchanging an equal value of shares of its own subsidiary, Bolzano. By
the end of 1992, Falck's interest in Cogne S.p.A. was dissolved by
losses and Cogne S.p.A. was again wholly-owned by the ILVA Group.
In 1991, Robles S.r.l., a subsidiary of ILVA Gestioni Patrimoniali
(ILVA GP), another ILVA subsidiary, acquired the land and buildings,
i.e., the non-productive assets, of the Aosta facilities from Cogne
S.p.A. Robles S.r.l. was then acquired by Compagnie Monegasque de
Banque S.A. at the end of 1991. In 1992, Robles was reacquired by ILVA
GP according to the terms of its original sales contract (which
required ILVA GP to repurchase Robles if at the end of one year the new
owners had failed to sell the Aosta land and buildings). Cogne S.p.A.
then acquired the shares of Robles from ILVA GP. The name of Robles
S.r.l. was then changed to Cogne Acciai Speciali S.r.l. (CAS).
At this time, the GOI decided to privatize the Cogne operations. At
the end of 1992, the assets and some of the liabilities of Cogne S.p.A.
were assessed and contributed to CAS on December 31, 1992, in exchange
for shares equal to the net value of the capital contribution, 40
billion lire. From that date, CAS assumed the on-going operations of
the Cogne facility and Cogne S.p.A. entered into liquidation and became
Cogne S.p.A. in Liquidazione. The GOI offered CAS for sale through an
open bidding process. Three parties submitted complete offers for CAS.
The bid of GE. VAL. S.r.l., a privately-owned holding company, was
accepted by Cogne S.p.A. in Liquidazione. The CAS shares were
transferred to GE. VAL. based on two installment payments, one on the
date of the agreement (December 31, 1993) and one 18 months later. At
the end of 1995, Cogne S.p.A. in Liquidazione was merged into ILVA
S.p.A. in Liquidazione, which was subsequently merged into IRITECNA,
another IRI company in liquidation. In 1995, GE. VAL. S.r.l. was merged
into MEG S.A., another holding company of the same corporate family.
Since that time, CAS has been owned and controlled by MEG S.A.
Bolzano and Valbruna
From 1985 through 1990, Bolzano was a wholly-owned subsidiary of
Acciaierie e Ferriere Lomarde Falck, the main industrial company of
Falck which was a private corporate group with holdings in steel, real
estate, environmental technologies, and other sectors. In 1990, ILVA
acquired 44.8 percent of the stock in Bolzano. ILVA acquired the shares
of Bolzano by exchanging an equal value of shares of its own subsidiary
Cogne S.p.A. ILVA also acquired shares in other Gruppo Falck steel
companies. In 1993, ILVA's interest in Bolzano was completely dissolved
because of losses, and Falck again held virtually all of the shares in
Bolzano. Falck decided to sell Bolzano based on its company-wide
strategic decision to withdraw from the steel sector. Falck contacted
Valbruna as a potential buyer in late 1994. Subsequently, the parties
entered into negotiations for the transfer of Bolzano. Each party had
an independent evaluation done of the value of the firm. A third study
was done to reconcile the points of the first valuations that were in
dispute relating to the final net equity and cash flow of Bolzano for
purposes of finalizing the purchase price. Valbruna acquired 99.99
percent of the shares of Bolzano for this final price on August 31,
1995. Since then, the two companies have issued consolidated financial
statements.
Affiliated Parties
In the present investigation, there are affiliated parties (within
the meaning of section 771(33) of the Act) whose relationship may be
sufficient to warrant treatment as a single company. In the
countervailing duty questionnaire, consistent with our past practice,
the Department defined companies as related where one company owns 20
percent or more of the other company, or where companies prepare
consolidated financial statements. See Final Affirmative Countervailing
Duty Determination: Certain Pasta (``Pasta'') From Italy, 61 FR 30287
(June 14, 1996) (Pasta from Italy). Valbruna owns 99.99 percent of
Bolzano. In the preliminary determination, we treated Valbruna and
Bolzano as a single company. Our review of the record and our findings
at verification have not led us to reconsider this determination.
Therefore, we have calculated a single countervailing duty rate for
these companies by dividing their combined subsidy benefits by their
consolidated total sales, or consolidated export sales, as appropriate.
Change in Ownership
In the 1993 investigations of Certain Steel Products, we developed
a methodology with respect to the treatment of non-recurring subsidies
received prior to the sale of a company. See Final Countervailing Duty
Determination; Certain Steel Products from Austria, et. al., 58 FR
37217 (July 9, 1993) (Certain Steel from Austria). This methodology was
set forth in the General Issues Appendix (GIA), attached to that
notice. The methodology was subsequently upheld by the Court of Appeals
for the Federal Circuit. See Saarstahl AG versus United States, 78 F.3d
1539 (Fed. Cir. 1996); British Steel plc versus United States, 127 F.3d
1471 (Fed. Cir. 1997).
Under the GIA methodology, we estimate the portion of the company's
purchase price which is attributable to prior subsidies. To make this
estimate, we divide the face value of the company's subsidies by the
company's net worth for each of the years corresponding to the
company's allocation period. We then take the simple average of these
ratios, which serves as a reasonable surrogate for the percentage that
subsidies constitute of the overall value, i.e., net worth, of the
company. Next, we multiply this average ratio by the purchase price of
the company to derive the portion of the purchase price that we
estimate to be a repayment of prior subsidies. Then, the benefit
streams of the prior subsidies are reduced by the ratio of the
repayment amount to the net present value of all remaining benefits at
the time of the change in ownership.
[[Page 40476]]
The methodology does not automatically treat all previously
bestowed subsidies as passing through to the purchaser, nor does it
automatically treat the subsidies as remaining with the seller or as
being extinguished as a result of the transaction. Instead the
methodology recognizes that a change in ownership has some impact on
previously bestowed subsidies and, through an analysis based on the
facts of each transaction, determines the extent to which the subsidies
pass through.
In the URAA, Congress clarified how the Department should approach
changes in ownership. Section 771(5)(F) of the Act states that:
A change in ownership of all or part of a foreign enterprise or
the productive assets of a foreign enterprise does not by itself
require a determination by the administrating authority that a past
countervailable subsidy received by the enterprise no longer
continues to be countervailable, even if the change in ownership is
accomplished through an arm's length transaction.
The Statement of Administrative Action accompanying the URAA,
reprinted in H.R. Doc. No. 103-316 (1994) (SAA) explains why Section
771(5)(F) was added to the statute. The SAA at page 928 states:
Section 771(5)(F) is being added to clarify that the sale of a
firm at arm's length does not automatically, and in all cases,
extinguish any prior subsidies conferred. Absent this clarification,
some might argue that all that would be required to eliminate any
countervailing duty liability would be to sell subsidized productive
assets to an unrelated party. Consequently, it is imperative that
the implementing bill correct such an extreme interpretation.
Consistent with the URAA and the SAA, the Department continues to
examine whether non-recurring subsidies benefit a company's production
after a change in ownership, even one accomplished at arm's length.
Accordingly, we continue to follow the methodology developed in the GIA
based on our determination that this methodology does not conflict with
the change in ownership provision of the URAA. As stated by the
Department, ``[t]he URAA is not inconsistent with and does not overturn
the Department's General Issues Appendix Methodology. * * *'' Certain
Hot-Rolled Lead and Bismuth Carbon Steel Products from the United
Kingdom; Final Results of Countervailing Duty Administrative Review, 61
FR 58377, 58379 (Nov. 14, 1996) (UK Lead Bar 94). We further clarified
in UK Lead Bar 94 that, ``[t]he language of Sec. 771(5)(F) of the Act
purposely leaves discretion to the Department with regard to the impact
of a change in ownership on the countervailability of past subsidies.''
Id. at 58379. The Department has been applying the methodology set
forth in the GIA. See, e.g., Final Affirmative Countervailing Duty
Determination: Steel Wire Rod From Trinidad and Tobago, 62 FR 55003
(October 22, 1997) (Steel Wire Rod from Trinidad and Tobago) and Final
Affirmative Countervailing Duty Determination: Steel Wire Rod from
Canada, 62 FR 54972 (October 22, 1997) (Steel Wire Rod from Canada).
CAS and Valbruna/Bolzano claim that, because the changes in ownership
occurred through arm's length transactions, the previously bestowed
subsidies were extinguished. However, for reasons discussed below (see
the Department's Position on Comments 5 and 9 through 13), we find that
application of the GIA methodology is appropriate.
CAS
To calculate the amount of the previously bestowed subsidies that
passed through to CAS, we followed the GIA methodology described above.
We were unable to calculate the subsidies-to-net worth ratios used in
the privatization calculation for 1985 and 1986, because the net worth
information was not available for the Aosta operations alone.
Therefore, in accordance with section 776 of the Act, as facts
available, we used an average of the years available (1987 through
1992) in the privatization calculation. As described in the ``Corporate
Histories'' section above, ILVA ceased operations following the
privatization and/or liquidation of all of its subsidiaries, operating
units, and divisions. For untied non-recurring subsidies provided to
ILVA (and prior to 1989, ILVA's predecessor, Finsider), Cogne's former
parent company, we calculated the amount of these untied subsidies
attributable to Cogne by applying a ratio of the Aosta operation's
assets to its parent company's assets in the year of receipt of the
subsidy. When calculating the subsidies to net worth ratios used in the
privatization methodology described above, we included Cogne's share of
the untied subsidies in the calculation.
As discussed in the ``Corporate Histories'' section above, from
1990-1993, ILVA held a minority interest in Bolzano and Falck held a
minority interest in Cogne. However, as examined previously by the
Department, the exchange of shares involved no cash transactions. See
Final Affirmative Countervailing Duty Determinations: Certain Steel
Products from Italy, 58 FR 37327 (July 9, 1993) (Certain Steel from
Italy). Moreover, the Cogne and Bolzano share exchange involved an
equal value of shares in each company. At verification we were able to
confirm this finding with respect to Cogne and Bolzano. See
Verification Report of Cogne Acciai Speciali S.r.l. (CAS), dated June
1, 1998, public version on file in the Central Records Unit (CRU), room
B-099 of the main Commerce building (CAS Verification Report) and
Verification Report of Acciaierie di Bolzano Sp.A. and Acciaierie
Valbruna S.r.l., dated June 1, 1998, public version on file in the CRU
(Valbruna/Bolzano Verification Report). There were no cash or other
asset contributions involved in this stock swap. Therefore, we did not
attribute any portion of ILVA's untied subsidies to Bolzano or Falck's
untied subsidies to CAS.
Bolzano
To calculate the amount of the previously bestowed subsidies that
passed through to Bolzano from Falck, we followed the GIA methodology
which the Department has previously determined is applicable to
private-to-private changes in ownership to examine the reallocation of
subsidies. See, e.g., Pasta from Italy. When Falck sold Bolzano to
Valbruna in 1995, Falck was in the process of transferring or closing
all of its steel operations. For untied non-recurring subsidies
provided to Falck in the years prior to Bolzano's sale to Valbruna, we
calculated the amount of these untied subsidies attributable to Bolzano
by applying a ratio of Bolzano's assets to Falck's assets in the year
of receipt of the subsidy. When calculating the subsidy to net worth
ratios used in the methodology described above, we included Bolzano's
share of the untied subsidies in the calculation. Also, as described
above, we have not attributed any portion of ILVA's untied subsidies to
Bolzano during the period in which ILVA held a minority interest in
Bolzano.
Subsidies Valuation Information
Benchmarks for Long-term Loans and Discount Rates: In our
preliminary determination, we used as our benchmark the average long-
term interest rate available in Italy based upon a survey of 114
Italian banks reported by the Banca D'Italia, the Central Bank of
Italy. However, during verification, we learned that the Italian
Interbank Rate (ABI) is the most suitable benchmark for long-term
financing to Italian companies. Because the ABI represents a long-term
interest rate provided to a bank's most preferred customers with
established low-risk credit histories, for other customers
[[Page 40477]]
commercial banks typically add a spread ranging from 0.55 percent to 4
percent onto the rate depending on the company's financial health. In
years in which the companies under investigation were creditworthy, we
added the average of that spread onto the ABI to calculate a benchmark.
In years in which the companies under investigation were
uncreditworthy, we calculated the discount rates according to the
methodology described in the GIA. Specifically, we added to the ABI a
spread of 4 percent in order to reflect the highest commercial interest
rate available to companies in Italy. We then added to this rate a risk
premium equal to 12 percent of the ABI, the equivalent of a prime rate.
Allocation Period: In the past, the Department has relied upon
information from the U.S. Internal Revenue Service on the industry-
specific average useful life of assets in determining the allocation
period for non-recurring subsidies. See GIA, 58 FR at 37227. However,
in British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995)
(British Steel I), the U.S. Court of International Trade (the Court)
ruled against this allocation methodology. In accordance with the
Court's remand order, the Department calculated a company-specific
allocation period for non-recurring subsidies based on the average
useful life (AUL) of non-renewable physical assets. This remand
determination was affirmed by the Court on June 4, 1996. See British
Steel plc v. United States, 929 F. Supp. 426, 439 (CIT 1996) (British
Steel II). Thus, we intend to determine the allocation period for non-
recurring subsidies using company-specific AUL data where reasonable
and practicable. See, e.g., Certain Cut-to-Length Carbon Steel Plate
from Sweden; Final Results of Countervailing Duty Administrative
Review, 62 FR 16551 (April 7, 1997).
In this investigation, the Department has followed the Court's
decision in British Steel, and examined information submitted by the
Respondent companies as to their average useful life of assets.
Valbruna/Bolzano: In the preliminary determination, we calculated a
single weighted-average AUL for Valbruna and Bolzano. We received no
comments on this calculation and our review of the record has not led
us to reconsider this finding. Therefore, the AUL for Valbruna/Bolzano
is 12 years.
CAS: In the preliminary determination, we did not calculate an AUL
based on CAS's financial information because the calculation provided
by the company included several distortions related to the asset
valuation methodologies employed by the company and its use of
accelerated depreciation. Instead, in the preliminary determination, we
used the AUL calculated for Valbruna/Bolzano as the most appropriate
surrogate for CAS's AUL. CAS did not present any additional information
on its AUL calculation for our consideration for the final
determination.
In the preliminary determination, we discussed the GOI's tax
depreciation schedule for the steel sector in Italy as a possible
surrogate AUL for CAS. According to the GOI, the depreciation schedule
was based on information acquired from an industry survey conducted in
1988. We asked the GOI to provide the survey so we could determine
whether the depreciation schedule reflected the average useful life of
assets in the Italian steel industry. The GOI did not submit this
survey. Therefore, we are unable to determine whether the schedule
represents the AUL of assets in the Italian steel industry. As such, we
are continuing to use the Valbruna/Bolzano AUL of 12 years as a
surrogate for a CAS AUL for this final determination.
Equityworthiness
In analyzing whether a company is equityworthy, the Department
considers whether that company could have attracted investment capital
from a reasonable private investor in the year of the government equity
infusions, based on information available at that time. See GIA, 58 FR
at 37244.
Our review of the record and our analysis of the comments submitted
(see Comment Section below) have not led us to change our finding in
the preliminary determination. Based on the Department's determination
in Final Affirmative Countervailing Duty Determination: Grain-Oriented
Electrical Steel from Italy, 59 FR 18357 (April 18, 1994), (Electrical
Steel from Italy), we continue to find ILVA's predecessors and ILVA
unequityworthy from 1985 through 1988 and from 1991 through 1992.
In measuring the benefit from a government equity infusion into an
unequityworthy company, the Department compares the price paid by the
government for the equity to a market benchmark, if such a benchmark
exists. In this case, a market benchmark does not exist so we used the
methodology described in the GIA, 58 FR at 37239. See also Steel Wire
Rod from Trinidad and Tobago, 62 FR at 55004. Following this
methodology, equity infusions made on terms inconsistent with the usual
practice of a private investor are treated as grants. Use of this
methodology is based on the premise that an unequityworthiness finding
by the Department is tantamount to saying that the company could not
have attracted investment capital from a reasonable investor in the
infusion year based on the information available in that year.
Creditworthiness
When the Department examines whether a company is creditworthy, it
is essentially attempting to determine if the company in question could
obtain commercial financing at commonly available interest rates. See,
e.g., Final Affirmative Countervailing Duty Determinations: Certain
Steel Products from France, 58 FR 37304 (July 9, 1993) (Certain Steel
from France); Final Affirmative Countervailing Duty Determination:
Steel Wire Rod from Venezuela, 62 FR 55014 (Oct. 21, 1997).
ILVA's predecessors and ILVA were found to be uncreditworthy from
1985 through 1992 in Electrical Steel from Italy; no new information
has been presented in this investigation that would lead us to
reconsider this finding. Therefore, consistent with our past practice,
we continue to find ILVA's predecessors and ILVA uncreditworthy from
1985 through 1992. See, e.g., Final Affirmative Countervailing Duty
Determinations: Certain Steel Products from Brazil, 58 FR 37295, 37297
(July 9, 1993). Our examination of the financial data and ratios from
1990, 1991, and 1992 has led us to determine that ILVA was also
uncreditworthy in 1993. We did not examine CAS's creditworthiness in
1994 and 1995 because the company did not receive equity infusions,
grants, long-term loans, or loan guarantees in the years. Based on our
examination of the financial performance of CAS in 1993, 1994, and
1995, and our analysis of its financial ratios, we continue to find CAS
creditworthy in 1996.
With respect to Falck and Bolzano, we have examined the
creditworthiness of Falck in 1992 since one of the loans was
renegotiated in that year. To determine Falck's creditworthiness in
1992, we examined financial statistics for the prior three years.
Falck's financial ratios showed that the company was able to cover its
obligations. Further, Falck's debt-to-equity position was strong.
Therefore, we determine that Falck was creditworthy in 1992.
Neither Falck nor Bolzano received any equity infusions, long-term
loans, or loan guarantees in the other years in which the companies
were alleged to be uncreditworthy. Therefore, we have not examined the
creditworthiness of Falck in the years 1993-1994 nor of Bolzano in the
years 1995-1996.
[[Page 40478]]
I. Programs Determined To Be Countervailable
Programs of the Government of Italy
A. Equity Infusions to Finsider and ILVA
The GOI, through IRI, provided equity infusions to Finsider in 1985
and 1986. IRI also provided equity infusions to ILVA in 1991 and 1992.
We determine that these equity infusions provide a financial
contribution that confer a benefit under section 771(5)(E)(i) of the
Act, in the amount of each infusion because the GOI investments were
not consistent with the usual investment practices of private investors
(see discussion of ``Equityworthiness'' above). These equity infusions
are specific within the meaning of section 771(5A)(D) of the Act
because they were limited to Finsider and ILVA. Accordingly, we find
that the equity infusions to Finsider and ILVA are countervailable
subsidies within the meaning of section 771(5) of the Act.
We have treated these equity infusions as non-recurring grants
given in the year the infusion was received because each required a
separate authorization. As discussed below in the Department's Position
on Comment 10, consistent with the Department's past practice, we
consider these equity infusions to be untied subsidies, which benefit
all the production of Finsider and ILVA, respectively, including the
production of their subsidiaries. See, e.g., Steel Wire Rod from Canada
62 FR at 54977-79. Because both Finsider and ILVA were uncreditworthy
in the year of receipt, we applied a discount rate that included a risk
premium. Since CAS has been privatized, we followed the methodology
described in the ``Change in Ownership'' section above to determine the
amount of each equity infusion appropriately allocated to CAS after the
privatization. We then divided the benefit allocated to the POI by
CAS's total sales. Accordingly, we determine the countervailable
subsidy to be 6.97 percent ad valorem for CAS.
B. Pre-Privatization Assistance and Debt Forgiveness
As explained in the ``Corporate Histories'' section above, Cogne
S.p.A. acquired the shares of Robles S.r.l. and changed the company's
name to Cogne Acciai Speciali S.r.l. (CAS), in 1992. The purpose of
acquiring the company was to prepare for the privatization of the Aosta
factory. In the preliminary determination, we countervailed debt
forgiveness provided in connection with the privatization of CAS. Based
on the information collected after the preliminary determination, and
comments submitted by the parties, we have modified our approach to
this program, in part.
At the end of 1992, Cogne S.p.A. transferred most of the productive
assets of the Aosta facility to CAS through the capital contribution
procedure under Italian law. Under this procedure, Cogne S.p.A. had
assets (and liabilities) assessed under the oversight of the Italian
Court and contributed them to CAS in exchange for shares in CAS worth
exactly the net value of the contribution. CAS officials explained that
pursuant to the capital contribution, CAS received the liabilities
associated with the production process, while Cogne S.p.A. retained the
other liabilities which were mostly long-term. From that point, CAS
became the operating company and Cogne S.p.A. entered into liquidation.
Cogne S.p.A. retained some of the inventories, and minor productive
assets. CAS acquired the retained inventories and assets that Cogne
S.p.A. did not sell to third parties for their book value of 122
billion lire. Cogne S.p.A. also retained part of the workforce on its
payroll. On December 30, 1993, Cogne S.p.A. bought the land and
buildings from CAS for the book value of 79.6 billion lire. Cogne
S.p.A. then sold the land and buildings to the Regional Government in
1994 (see ``Valle d'Aosta Regional Assistance Associated with the Sale
of CAS'' below).
CAS was offered for sale pursuant to an open bidding process
designed to obtain the best purchase price for the company.
Negotiations for the sale progressed through 1993; GE. VAL. S.r.l.'s
final offer was accepted, and CAS was privatized effective January 1,
1994. As of December 31, 1993, ILVA S.p.A. issued a guarantee on behalf
of Cogne S.p.A. for the uncovered liabilities of the firm, and the
anticipated costs of the liquidation process, for 380 billion lire.
CAS was the first of the ILVA Group companies to be privatized. The
plans for the privatization preceded the formal liquidation plans
approved by the EU in the Commission's Decision of April 12, 1994, 94/
259/ECSC. That plan divided ILVA into three companies: ILVA Laminati
Piani, Acciai Speciali Terni, and ILVA in Liquidazione. The first two
companies, which included the primary production activities of ILVA
S.p.A., were eventually privatized. The latter company, ILVA in
Liquidazione, retained responsibility for all of the ILVA entities
which could not be sold to private parties. The EU approved some 10
trillion lire of state aid connected with the liquidation of ILVA in
Liquidazione and its subsidiaries. The estimated costs of the
liquidation, 10 trillion lire, covered all of the ILVA companies
including the subsidiaries. The costs associated with the liquidation
of Cogne S.p.A. were included in that total. See Verification Report of
the Government of Italy dated June 1, 1998, public document on file in
the CRU (GOI Verification Report).
In the preliminary determination, we examined the individual costs
associated with the liquidation of Cogne S.p.A., instead of focusing on
the total costs associated with privatization of the entire ILVA Group,
because of the complexity of this series of transactions. Thus, we
calculated the benefit of the debt coverage by subtracting the book
value of the land and buildings (that were sold to the Region within
the next year) from the total liabilities on Cogne S.p.A.'s books on
December 31, 1993. We followed this methodology in the preliminary
determination because it was clear that the company was able to recover
the value of the land and buildings, and we were unsure as to what
other assets on Cogne S.p.A.'s books could be recovered. CAS argued
that this methodology overstated the true amount of any debt coverage
because other assets were, in fact, used to offset liabilities (see
Comment 11, below). At verification, it was established that the amount
of Cogne S.p.A. debt for which ILVA bore responsibility as of December
31, 1993, was 253 billion lire, as evidenced by ILVA in Liquidazione's
1993 balance sheet. That figure includes the total net liabilities of
Cogne S.p.A. as of December 31, 1993, plus the provisions for risks,
and other costs associated with the liquidation of the company. Thus,
we determine that CAS received 253 billion lire of debt coverage and
assumption of losses in conjunction with its privatization.
The pre-privatization benefits are specific under section
771(5A)(D) of the Act because they were provided to CAS, in connection
with the full package provided exclusively to the state-owned steel
industry. With these pre-privatization benefits, the GOI through ILVA,
made a financial contribution under section 771(5)(D) that benefits the
recipient in the amount of the total liabilities and losses assumed. To
calculate the benefit, we treated the debt assumption as a grant to CAS
received in 1993. The grant is non-recurring because the pre-
privatization assistance was a one-time, extraordinary event. We
allocated the benefit over twelve years, applied a risk premium because
the company was uncreditworthy in the
[[Page 40479]]
year of receipt, and followed the methodology described in the ``Change
in Ownership'' section above. We then divided the benefit in the POI by
CAS's total sales. On this basis, we determine the countervailable
subsidy to be 14.77 percent ad valorem for CAS.
C. Capacity Reduction Payments Under Law 193/1984
Among the benefits provided by Law 193/1984 were payments to
companies in the private steel sector which achieved capacity
reductions consistent with an agreement by the European Coal and Steel
Community (ECSC). The Department previously found that this program
provides countervailable subsidies in the form of non-recurring grants
to the private steel sector. See Certain Steel from Italy, 58 FR at
37332-33. No new information or evidence of changed circumstances has
been submitted in this proceeding to warrant reconsideration of this
finding. Valbruna and Falck received payments for capacity reduction in
1985 and 1986 under Articles 2 and 4 of Law 193/1984. Article 2 grants
covered ECSC steel production while Article 4 grants covered non-ECSC
pipe and tube production.
In our preliminary determination, we countervailed all closure aid
received by Valbruna. In the case of Falck, we did not countervail
assistance the company received under Article 4 in connection with its
pipe facility because in Certain Steel from Italy, the Department
determined that these grants were for restructuring of the pipe
facility.
However, at verification, GOI officials explained that the grants
Falck received under Article 4 were for the closure of its pipe
facility. As explained in the GIA, the Department considers grants
provided to shutdown part of a company's operations to benefit all
remaining production. GIA, 58 FR at 37270, citing British Steel Corp.
v. United States, 605 F. Supp. 286 (CIT 1985). See also Steel Wire Rod
from Canada, 62 FR at 54980. Therefore, we find all closure assistance
provided to Valbruna and Falck under Articles 2 and 4 of Law 193/1984
to be countervailable subsidies under section 771(5) of the Act.
To calculate the benefit attributable to Valbruna/Bolzano during
the POI from the grants to Falck, we first determined the amount of
Falck's grants attributable to Bolzano at the time the grants were
given, using the ratio of Bolzano's assets to Falck's assets. We then
allocated this amount over Valbruna/Bolzano's AUL to determine the
benefit in each year. Next, we determined the amount of the benefit
which remained with Bolzano after Bolzano was acquired by Valbruna in
1995, consistent with the methodology described in the ``Change in
Ownership'' section above. To calculate the benefit attributed to
Valbruna/Bolzano from the grants Valbruna received, we allocated the
grants over Valbruna/Bolzano's AUL to determine the benefit in each
year. We then summed the benefit amounts attributable to the POI from
Falck's and Valbruna's grants and divided the total benefit by
Valbruna/Bolzano's total sales. On this basis, we determine the
countervailable subsidy to be 0.14 percent ad valorem for Valbruna/
Bolzano.
D. Law 796/76 Exchange Rate Guarantees
Law 796/76 established a program to minimize the risk of exchange
rate fluctuations on foreign currency loans. All firms that had
contracted foreign currency loans from the ECSC or the Council of
Europe Resettlement Fund (CER) could apply to the Ministry of the
Treasury (MOT) to obtain an exchange rate guarantee. The MOT, through
the Ufficio Italiano di Cambi (UIC), calculated loan payments based on
the lira-foreign currency exchange rate in effect at the time the loan
was approved. The program established a floor and ceiling for exchange
rate fluctuations, limiting the maximum fluctuation a borrower would
face to two percent. If the lira depreciated against the foreign
currency, the UIC paid the difference between the ceiling rate and the
actual rate. If the lira appreciated against the foreign currency, the
UIC collected the difference between the floor rate and the actual
rate.
The Department previously found the steel industry to be a dominant
user of the exchange rate guarantees provided under Law 796/76, and on
this basis, determined that the program was specific, and therefore,
countervailable. See Seamless Pipe from Italy, 60 FR at 31996. No new
information or evidence of changed circumstances has been submitted in
this proceeding to warrant reconsideration of this finding. This
program provides a financial contribution that benefits the recipient
to the extent that the lira depreciates against the foreign currency
beyond the two percent band and provides a benefit in the amount of the
difference between the two percent ceiling rate and the actual exchange
rate.
We note that the program was terminated effective July 10, 1991, by
Decree Law 333/91. However, payments continue on loans that were
outstanding after that date. Bolzano was the only producer who used
this program, and it received payments in 1996 on loans outstanding
during the POI.
Once a loan is approved for exchange rate guarantees, payments are
automatic and made on a yearly basis throughout the life of the loan.
Therefore, we treat the payments as recurring grants. To calculate the
countervailable subsidy, we used our standard grant methodology for
recurring grants and expensed the benefits in the year of receipt. At
verification, we found that Bolzano paid a foreign exchange commission
fee to the UIC on each payment it received. We determine that this fee
qualifies as an ``. . . application fee, deposit, or similar payment
paid in order to qualify for, or to receive, the benefit of the
countervailable subsidy.'' See section 771(6)(A) of the Act. Thus, for
purposes of deriving the countervailable subsidy, we have added the
additional foreign exchange commission to the total amount Bolzano paid
under the Exchange Rate Guarantee program. We then divided the total
payments received in 1996 on the two loans by the value of Valbruna/
Bolzano's total sales in 1996. On this basis, we determine the
countervailable subsidy to be 0.08 percent ad valorem for Valbruna/
Bolzano.
E. Export Credit Financing Under Law 227/77
Under Law 227/77, the Mediocredito Centrale S.p.A. (Mediocredito),
a GOI-owned development bank, provides interest subsidies on export
credit financing. Under the program, the Mediocredito makes an interest
contribution to offset the cost of a supplier's or buyer's credit
financed by a commercial bank. The holder of the loan contract pays a
fixed, low-interest rate on export credits taken out through the
program with a commercial bank. The Mediocredito guarantees a specified
variable market rate, and pays the lender any shortfall between the
guaranteed market rate and the fixed rate provided to the borrower. If
the market rate falls below the rate provided to the borrower, the
Mediocredito receives the difference.
Valbruna used this program for a supply contract with its
affiliated U.S. subsidiary, Valmix Corporation, which entered into a
loan contract for purposes of importing merchandise manufactured by
Valbruna. The term of the loan was 18 months and during the course of
this financing arrangement, the Mediocredito made interest
contributions to Valmix's commercial lender.
In the preliminary determination, we found that this program
provides countervailable subsidies within the
[[Page 40480]]
meaning of section 771(5) of the Act. Our review of the record, our
findings at verification, and our analysis of the comments submitted by
the interested parties have led us to change, in part, our finding in
the preliminary determination. We stated that we would examine the
Respondents' claim that, because the interest contributions are
consistent with the OECD Arrangement on Guidelines for Officially
Supported Export Credits (OECD Guidelines), the program qualifies for
an exemption under Item (k) of the Illustrative List of Prohibited
Export Subsidies under Annex 1 of the WTO Agreement on Subsidies and
Countervailing Measures. Based on the record evidence, however, we find
that the OECD Guidelines do not apply to the Valmix loan because the
repayment terms of this loan are for 18 months and the OECD Guidelines
cover financing arrangements with repayment terms of a minimum of 24
months. Therefore, we need not consider Valbruna/Bolzano's arguments
with respect to Item (k). See, e.g., Final Affirmative Countervailing
Duty Determinations; Certain Carbon Steel Products from Austria, 50 FR
33369 (Aug. 19, 1985) (Carbon Steel Products from Austria). We continue
to find that the interest contributions provided on the Valmix loan
constitute a countervailable export subsidy under section 771(5) of the
Act.
In accordance with the Department's practice, we treat interest
contributions as reduced-interest rate loans if the borrower is aware
at the time the loans are undertaken that the interest contributions
will be received. See, e.g., Certain Steel from Italy, 58 FR at 37332.
In the preliminary determination, we treated the interest contributions
as grants because Valmix did not know at the time that the loan was
undertaken that it would receive the contributions. However, we learned
at verification that all parties were aware at the time that the loan
was contracted that Valmix would receive these contributions.
Therefore, we have changed our calculation of the benefit and have
instead treated the Law 227/77 export credit financing as a reduced-
interest rate loan. To calculate the benefit provided by this program,
we compared the amount that Valmix paid under the loan and the amount
Valmix would have paid on a commercial loan absent the interest
contributions. We divided the benefit during the POI by Valbruna/
Bolzano's total exports to the United States. On this basis, we
determine the countervailable subsidy to be 0.15 percent ad valorem for
Valbruna/Bolzano.
F. Law 451/94 Early Retirement Benefits
Law 451/94 authorized early retirement packages for steel workers
for the years 1994 through 1996. The law entitled men of 50 years of
age and women of 47 years of age with at least 15 years of pension
contributions to retire early. Employees of Bolzano used the measures
in all three years of the program. Bolzano is the only company subject
to this investigation that had workers retire under Law 451/94 during
or before the POI. In the preliminary determination, we found this
program to be not countervailable. Our review of the record, our
findings at verification, and our analysis of the comments submitted by
the interested parties have led us to change our finding from the
preliminary determination.
In the preliminary determination, we found early retirement
benefits under Law 451/94 non-countervailable because the program did
not relieve Bolzano of a normal obligation to its workers. Further, to
the extent that the company did have costs associated with employees
leaving through other means, those costs were lower than the ones faced
by the company under this early retirement measure. At verification,
information about this program was clarified. We learned that large
companies in Italy cannot simply layoff workers without using one of
the specially-designated programs for that purpose. The most comparable
program to Law 451/94 is the extraordinary Cassa Integrazione Guadagni
(CIG), which is used by companies in a wide variety of industries. The
CIG program was found non-countervailable in Electrical Steel from
Italy.
During verification, we found that under the extraordinary CIG,
companies must continue to pay a small percentage of the employee's
salary and set aside the mandatory severance contributions under
Article 2120 of the Italian Civil Code. Under Law 451/94, the company
incurs no additional costs. Thus, when we compared the costs associated
with Law 451/94 to the costs associated with the extraordinary CIG, we
found that companies would incur higher costs under the extraordinary
CIG.
On this basis, we determine that Law 451/94 provides a financial
contribution to the steel industry under Section 771(5)(D)(i) of the
Act, and it confers a benefit to the recipient in the amount of costs
covered by the GOI that the company would normally incur. Law 451/94 is
specific under 771(5A)(D) because early retirement benefits under this
program are limited, by law, to the steel industry. Accordingly, we
find early retirement benefits provided under Law 451/94 to be
countervailable subsidies under 771(5) of the Act.
Consistent with the Department's practice, we have treated payments
under Law 451/94 as recurring grants expensed in the year of receipt.
See GIA, 58 FR at 37226. To calculate the benefit conferred to Bolzano,
we calculated the costs Valbruna/Bolzano would have incurred during the
POI under the extraordinary CIG program and compared that to what the
company paid under the Law 451/94 early retirement program. We divided
this amount by Valbruna/Bolzano's total sales. On this basis, we
determine the countervailable subsidy for this program to be 0.04
percent ad valorem for Valbruna/Bolzano.
Programs of the Regional Governments
A. Valle d'Aosta Regional Assistance Associated with the Sale of CAS
As discussed in the preliminary determination, when CAS was
privatized, the land and buildings were sold to the Autonomous Region
of Valle d'Aosta which now leases back the facility to the new owners
of CAS. The framework for this triangular transaction among ILVA, CAS,
and the Region was established through the protocols of agreement
signed November 19, 1993. The Region, through its wholly-owned
financing corporation, Finaosta S.p.A., agreed to (1) purchase the
land, including the hydroelectric facilities owned by ILVA Centrali
Elettriche S.p.A. (ICE) for 150 billion lire, in five annual
installments, (2) to construct a waste plant, (3) to cover the costs of
environmental reclamation on the land, up to 32 billion lire, and (4)
to supply electricity directly to CAS from the ICE plants. In exchange,
ILVA agreed to transfer CAS to a private party by December 31, 1993,
with a restructuring fund. The purchaser of CAS's shares agreed to (1)
vacate and abandon areas of the property not used in production
activity; and, (2) to guarantee positions for 800 employees after the
privatization.
Because of the complex nature of these transactions, which included
different elements that were alleged to provide subsidies to CAS, we
have analyzed each element separately as detailed below.
1. Purchase of the Cogne Industrial Site
Under section 771(5) of the Act, in order for a subsidy to be
countervailable, it must, inter alia, confer a benefit. In the case of
the government acquisition of goods, in this case land and buildings, a
benefit is conferred if the goods are purchased for
[[Page 40481]]
more than adequate remuneration. Problems can arise in applying this
standard when the government is the sole purchaser of the good in the
country or within the area where the respondent is located. In these
situations, there may be no alternative market prices available in the
country. Hence, we must examine other options when determining whether
the good has been purchased for more than adequate remuneration. This
consideration of other options in no way indicates a departure from our
preference for relying on market conditions in the relevant country,
specifically market prices, when determining whether a good or service
is being purchased at a price which reflects adequate remuneration.
See, e.g., Final Affirmative Countervailing Duty Determination: Steel
Wire Rod from Germany, 62 FR 54990, 54994 (Oct. 22, 1997) (German Wire
Rod).
As discussed in the preliminary determination, because there were
no comparable sales of commercial real estate or other appropriate
benchmark prices, we examined the purchase price to determine whether
it was market-based. We found that the Region based its price upon a
detailed, independent appraisal of the value of the site, but further
discounted the price from the appraisal based on the fact that the land
was occupied and that it had some environmental problems. Based on this
analysis, we concluded that the Region did not purchase the Cogne
industrial site for more than adequate remuneration. No evidence has
been presented to warrant a change from this finding from the
preliminary determination. Therefore, we find that the Region of Valle
d'Aosta's purchase of the Cogne industrial site does not constitute a
subsidy within the meaning of section 771(5) of the Act.
2. Lease of Cogne Industrial Site
Under section 771(5) of the Act, in order for a subsidy to be
countervailable it must, inter alia confer a benefit. In the case of
government provision of goods or services, a benefit is normally
conferred if the goods or services are provided for less than adequate
remuneration. The adequacy of remuneration is normally determined in
relation to local prevailing market conditions as defined by section
771(5)(E) of the Act to include, ``* * * price, quality, availability,
marketability, transportation, and other conditions of purchase or
sale.'' Problems can arise in applying this standard when the
government is the sole supplier of the good or service in the area, in
which case there may be no alternative market prices. In this case, we
must examine other options for determining whether the good has been
provided for less than adequate remuneration. Where the government
leases land, the Department has recognized several options for
examining whether a countervailable benefit is provided through the
relevant leasing arrangement. These options include examining,
``whether the government has covered its costs, whether it has earned a
reasonable rate of return in setting its rates and whether it applied
market principles in determining its prices.'' German Wire Rod, 62 FR
at 54994. This consideration of other options in no way indicates a
departure from our preference for relying on market conditions in the
relevant country, when determining whether a good or service is being
provided at a price which reflects adequate remuneration.
After the purchase of the land and buildings, Struttura Valle
d'Aosta S.r.l. (Structure), a company wholly-owned by the Region,
assumed the lease that had been between Cogne S.p.A. and CAS for the
use of the site until a new lease could be negotiated. In 1996,
Structure and CAS entered into a thirty-year lease for the facility
which produces subject merchandise. The new lease implements the
commitments set forth in the protocols of agreement: the facility is
leased to CAS; CAS undertakes all maintenance on the facility
(including extraordinary maintenance); and CAS commits to vacate
approximately 50 percent of the property in favor of the Region. The
lease was also designed to provide for the stable employment of 800
employees at the facility.
In the preliminary determination, we found that there was no
appropriate transaction benchmark for evaluating the adequacy of
remuneration in the lease. Therefore, we compared the Region's rate of
return in the lease to that which would be provided in a private
transaction for the long-term use of assets, using the average interest
rate on treasury bonds as reported by the Banca d'Italia. However, we
stated that for the final determination we would revisit this
methodology: (1) to gather the information necessary in order to
amortize the depreciation of the buildings subject to the lease; (2) to
determine whether payments for extraordinary maintenance should be
considered part of the lease; (3) to make an adjustment to the
benchmark to account for extraordinary maintenance if appropriate; and
(4) to determine whether there was a non-governmental interest rate
that would be a more appropriate benchmark.
We have reconsidered these issues in light of the information
gathered at verification and comments from the interested parties,
summarized below. The record evidence indicates that the average rate
of return on leased commercial property in Italy is 5.7 percent. See
``Discussions with company officials from Gabetti per L'impressa, Banca
di Roma and Reconta Ernst & Young,'' dated June 3, 1998, on file in the
CRU (Commercial Experts Report). We have used this rate of return as
the benchmark in evaluating the adequacy of remuneration in the lease.
As an average, this rate reflects different terms, lengths, and
locations of lease contracts throughout Italy. This rate better
reflects commercial practices in Italy than does the rate used in the
preliminary determination. That rate was based on treasury bonds and
would require a number of complicated and highly speculative
adjustments to reflect a representative rate for leasing commercial
property. Thus, in our view, the 5.7 percent rate is a more reliable
and representative rate to use in examining whether the facility is
being leased for less than adequate remuneration.
In applying the 5.7 percent rate, we have determined that no
adjustments to this rate are warranted for either depreciation or
extraordinary maintenance payments. First, we verified that the
buildings covered by the lease are very old. Given the age of the
structures, we have not adjusted the rate upward to reflect the
depreciation of the structures because the likely useful life remaining
would be relatively short.
Second, the record evidence demonstrates that although the Italian
Civil Code obliges the landlord to pay for extraordinary maintenance,
this obligation may be borne by the lessee if specified in the lease.
In particular, we learned at verification that long-term leases often
oblige the lessee to bear responsibility for these costs because of the
long-term costs involved. The CAS lease is for a period of 30 years,
the maximum allowed under Italian law. Thus, the terms of this
particular contract are such that a commercial landlord would most
likely have assigned this obligation to the tenant. Further, the
obligation would be factored into the negotiation for the lease rate.
To the extent that CAS may face an additional financial obligation not
incurred by other parties because of extraordinary maintenance, it is
balanced by the fact that CAS's lease term is much longer than the
norm.
[[Page 40482]]
Therefore, the average rate of return is an appropriate benchmark
without any adjustments for these terms.
In order to determine whether the Regional government receives
adequate remuneration under the CAS lease, we compared the amount paid
by CAS during the POI to the amount that would have been paid using 5.7
percent as the average rate of return. Based on this comparison, we
found that the Region is not receiving an adequate rate of return on
the lease, and therefore, we determine that the facility has been
leased for less than adequate remuneration. Through this lease, the
Autonomous Region of Valle d'Aosta made a financial contribution to CAS
within the meaning of section 771(5)(D)(iii) of the Act, equal to the
difference between what would have been paid annually in a lease
established in accordance with market conditions and what CAS actually
paid. The lease is specific within the meaning of section 771(5)(D) of
the Act, because the lease is limited to CAS. Therefore, we determine
that the CAS industrial lease provides a countervailable subsidy within
the meaning of section 771(5) of the Act.
To calculate the benefit, we determined the difference between the
amount that would have been paid during the POI if the lease rate had
been determined with reference to market conditions and the amount
actually paid. We divided the amount by CAS's total sales in 1996. On
this basis, we determine the countervailable subsidy to be 0.23 percent
ad valorem for CAS.
3. Provision of Electricity
In the preliminary determination, we found that this program does
not exist because the Region is not permitted to supply electricity
directly to CAS through the planned electricity consortium and because
CAS purchases electricity from ENEL, the state monopoly, in accordance
with standard provisions applied to other commercial electricity users
in Italy. Our review of the record, our findings at verification, and
our analysis of the comments submitted by the interested parties have
not led us to modify our finding from the preliminary determination.
Therefore, we continue to find that this program does not exist.
However, in the event this investigation results in a countervailing
duty order, we will continue to review this allegation in any
subsequent administrative review to determine whether changes in the
Italian law allow for direct purchase of electricity from entities
other than ENEL. Continued examination of this program in subsequent
reviews is necessary because the protocol agreements specify that the
Region will supply electricity to CAS.
4. Waste Plant
In the preliminary determination, we found that this program does
not yet exist because the Region has not yet started construction of
the waste plant. Thus, CAS is not benefitting from the provision of
waste disposal services that the Region will provide once the plant is
in operation. Our review of the record, our findings at verification,
and our analysis of the comments submitted by the interested parties
have not led us to modify our finding from the preliminary
determination. However, in the event this investigation results in a
countervailing duty order we will continue to review this allegation in
any subsequent administrative review to determine whether a benefit
will have been provided to CAS through the provision of waste disposal
services for less than adequate remuneration.
5. Loans Provided to CAS to Transfer Its Property
In the protocols of agreement of November 1993, the Region agreed
to provide financing through Finaosta S.p.A. for the costs involved
with the transfer of the CAS property off the portion of the site not
subject to the lease. The Region plans to develop facilities for small
and medium-sized enterprises on this portion of the site after the
environmental reclamation of the land is complete. The provision of up
to 25 billion lire in reduced interest rate financing to CAS was
authorized under Regional Law 37 of August 30, 1995.
The provision of these loans was evaluated by the EU under its
state aid rules. In a June 15, 1995, decision, the EU determined that
the loan was not aid, but instead an indemnity to CAS. The EU concluded
that because the Region had unilaterally terminated part of CAS's lease
(the Cogne S.p.A.-CAS lease which included the property to be vacated),
the loans represented compensation for the costs associated with the
termination. However, as detailed in the preliminary determination, our
analysis revealed other important facts related to this deal. CAS and
the Region agreed in the protocols of agreement that CAS would vacate
50 percent of the land. The protocols of agreement predate the Cogne
S.p.A.-CAS lease. As such, we found in the preliminary determination
that the loans provide countervailable subsidies to CAS within the
meaning of section 771(5) of the Act. Our review of the record and
comments summarized below have not led us to change this finding. See
Department's Position on Comment 16.
The Region's financing company, Finaosta, provided this financing
in three separate loan agreements over 1996 and 1997 with the interest
rate set at 50 percent of the Rendistato rate, a variable rate. Under
the terms of each loan contract, a deferred six-month payback schedule
was established. In the preliminary determination, we stated that these
loans had an eighteen-month interest-free grace period. At
verification, we discovered that, in fact, interest payments were
required during the first eighteen months of each loan. We have
modified our calculation accordingly. We compared the interest payments
made by CAS during the POI to the interest that would have been paid
under the benchmark loan during the POI, using the benchmark rate
discussed in the ``Subsidies Valuation Information'' section above. We
divided the benefit by the 1996 total sales of CAS. On this basis, we
determine the countervailable subsidy to be 0.19 percent ad valorem for
CAS.
B. Valle d'Aosta Regional Law 64/92
Law 64/92 of the Autonomous Region of Valle d'Aosta provides
funding to cover up to 30 percent of the cost of installing
environmentally-friendly industrial plants in the province. Any firm in
Valle d'Aosta may apply to the Regional Industry, Craft, and Energy
Department (ICED) to have part of its costs covered for a specific
environmentally-friendly project. Each project requires a separate
application which is evaluated by a technical committee appointed by
the ICED for this purpose. Each project must be approved by the
technical committee in order to be funded, up to 30 percent of the
total costs. These grants provide a financial contribution within the
meaning of section 771(5)(D)(i) of the Act and provide a benefit to the
recipient in the amount of the grant.
Law 64/92 is not de jure specific because the enacting legislation
does not explicitly limit eligibility to an enterprise or industry or
group thereof. We examined data on the provision of assistance under
this program to determine whether the law meets the criteria for de
facto specificity under section 771(5A)(D)(iii) of the Act. Since the
inception of the program only nine companies have been approved for
benefits. While this alone would be sufficient for a finding of de
facto specificity because there are only a few companies in a few
industries that have received assistance under this program, we also
examined data on the value of
[[Page 40483]]
grants given to these firms. CAS and one other firm received close to
two-thirds of the total assistance awarded, with each firm receiving
approximately one-third of the total. Thus, CAS received a
disproportionate share of the total assistance under this program.
Accordingly, we find Law 64/92 to be de facto specific within the
meaning of section 771(5A)(D)(iii) of the Act. Therefore, we determine
that Law 64/92 provides a countervailable subsidy within the meaning of
section 771(5) of the Act.
Since applicants must submit a separate application for each
project, we are treating the grants received under the program as non-
recurring. See GIA, 58 FR at 37226. CAS received three grants under the
program, two in 1995 and one in 1996. The total of the grants received
in each year did not exceed 0.5 percent of sales in the relevant year
so we have expensed the full amount of each grant in the year of
receipt. To calculate the countervailable subsidy, we divided the total
amount of the 1996 grant by the value of CAS's total sales. On this
basis, we determine the countervailable subsidy to be 0.02 percent ad
valorem for CAS.
C. Valle d'Aosta Regional Law 12/87
Law 12/87 of the Autonomous Region of Valle d'Aosta funds the
promotion of commercial activities of local firms in other regions of
Italy, and abroad. Companies apply to ICED for funding up to 30 percent
of the costs of promotional activities in Italy (up to 10 million lire)
and 40 percent of the costs of promotional activities abroad (up to 15
million lire). CAS submitted three applications for funding under this
program. The region approved and funded two of the proposals, both in
1996: a grant of 15 million lire for participation in the Singapore
Wire and Cable Fair and a grant of 12.7 million lire for participation
in the Dusseldorf Wire Fair. Law 12/87 provides a financial
contribution within the meaning of section 771(5)(D)(i) of the Act, and
provides a benefit to the recipient in the amount of the grant.
The Department has recognized that general export promotion
programs, programs which provide only general information services
including ``image'' events do not constitute countervailable subsidies.
See, e.g., Fresh Cut Flowers from Mexico, 49 FR 15007, 15008 (April 16,
1984) and Final Negative Countervailing Duty Determination: Fresh
Atlantic Salmon from Chile, 63 FR 31437, 31441 (June 9, 1998) (Chilean
Salmon). However, where such activities promoted a specific product, or
provided financial assistance to a firm for transportation and/or
marketing expenses, we have found the programs to constitute
countervailable subsidies. See, e.g., Final Affirmative Countervailing
Duty Determination; Certain Fresh Atlantic Groundfish from Canada, 51
FR 10041, 10067 (March 24, 1986) (Groundfish from Canada); Chilean
Salmon, 63 FR at 31440. CAS received direct contributions from the
Region of Valle d'Aosta to cover costs associated with participation in
these trade shows including transportation, lodging, and marketing
expenses. Because the financial assistance under this law was provided
to CAS for the promotion of its exports, we find that the assistance to
CAS constitutes an export subsidy within the meaning of section
771(5A)(B) of the Act.
We find that the grants received under this program are non-
recurring because they are exceptional rather than on-going and require
separate applications and approvals. See GIA, 58 FR at 37226. However,
because the grants did not exceed 0.5 percent of CAS's total exports in
the year provided (i.e., the POI), we allocated the entire amount of
the grants to the year of receipt. We divided the total amount of the
two grants by the value of CAS's total exports during the POI. On this
basis, we determine the countervailable subsidy to be 0.01 percent ad
valorem for CAS.
D. Province of Bolzano Assistance: Purchase and Leaseback of Bolzano
Industrial Site
As discussed in the preliminary determination, when Falck sold
Bolzano to Valbruna, it sold the Bolzano land and buildings to the
Autonomous Province of Bolzano which now leases the facility back to
Valbruna/Bolzano. The Province bought two pieces of property, the
``Stabilimento Sede,'' which was owned by Bolzano, and the
``Stabilimento Erre,'' owned by Immobiliare Toce S.r.l., a subsidiary
of Falck with real estate holdings. The purchase price for both
portions was established by the Provincial Cadastral Office. The
purchase was authorized under Provincial Council Resolution 850 of
February 20, 1995, and was made on July 31, 1995. Valbruna entered into
concurrent negotiations with the Province for a long-term lease of the
Bolzano industrial site.
Because of the complex nature of these transactions, which included
different elements that were alleged to provide subsidies to Bolzano,
we have analyzed each element separately as detailed below.
1. Purchase of Bolzano Industrial Site
Where the government purchases a good, the Department analyzes
whether the good was purchased for more than adequate remuneration and
therefore confers a benefit. Our standard with respect to the
government's purchase of goods is discussed in the ``Purchase of the
Cogne Industrial Site'' above. As with our analysis of the Cogne land
transaction, there are no private purchases of industrial sites
comparable to the Bolzano property that are representative of the
prevailing market conditions by which to assess the adequacy of
remuneration for the purchase of the Bolzano industrial site. However,
there is information on the record of this investigation that can be
used to determine the adequacy of remuneration of the Bolzano
industrial site.
In order to analyze whether the purchase of the Bolzano industrial
site was made for more than adequate remuneration, it is important to
understand the transactions underlying the purchase, and subsequent
leasing, of the Bolzano industrial site. The purchase of the industrial
site was part of a complicated process of transactions conducted by
three parties: The Province of Bolzano, Falck, and Valbruna. The
Province of Bolzano was interested in purchasing industrial land within
its borders and in maintaining employment. Falck was seeking to exit
the steel industry and was considering closing the Bolzano site.
Valbruna was interested in increasing its steel operations. Therefore,
while Falck was negotiating with the Province for the sale of the
Bolzano industrial site, Falck was negotiating with Valbruna for the
purchase of the Bolzano company. Concurrently, the Province and Bolzano
were negotiating for the lease of the land and buildings of the
industrial site. As a result of these negotiations, a share purchase
agreement, land sale agreement, and lease agreement finalized these
transactions on July 31, 1995. The transactions among the three parties
are interrelated. The purchase of the industrial site by the Province
of Bolzano is closely linked to the leasing arrangement between
Valbruna and the Province.
The price paid by the Province of Bolzano for the land was based
upon the estimate undertaken by the Provincial Cadastral Office. As
stated above, there were no purchases of industrial sites comparable to
the Bolzano site that could be used to assess the adequacy of
remuneration of that purchase price. However, we verified that Valbruna
had agreed to pay the same price as that
[[Page 40484]]
negotiated between Falck and the Province if those negotiations for the
sale of the land fell through. In the preliminary determination, we
concluded that Valbruna's agreement to purchase the site for the same
price indicated that the price paid by the Province was determined in
reference to market conditions. Therefore, we concluded that the
purchase of the land by the Province of Bolzano was not made for more
than adequate remuneration. Our review of the record, findings at
verification and review of comments summarized below (see the
Department's Position on Comment 1) have not led us to reconsider our
finding. Therefore, we find that this program does not constitute a
subsidy within the meaning of section 771(5) of the Act.
2. Lease of Bolzano Industrial Site
In the case of government provision of goods or services, the
Department analyzes whether the good or service was provided for less
than adequate remuneration and therefore confers a benefit. Our
standard with respect to the government's sale of goods is discussed in
the ``Lease of the Cogne Industrial Site'' section above. When the
government is the sole supplier of the good or service in the area and
there may be no alternative market price, it becomes necessary to
examine other options for determining whether the good has been
provided for less than adequate remuneration. The Department has
recognized several options with respect to the leasing of land, ``to
examine whether the government has covered its costs, whether it has
earned a reasonable rate of return in setting its rates and whether it
applied market principles in determining its prices.'' See, e.g.,
German Wire Rod at 54994. This consideration of other options in no way
indicates a departure from our preference for relying on market
conditions in the relevant country, when determining whether a good or
service is being provided at a price which reflects adequate
remuneration.
The terms of the Province of Bolzano-Valbruna lease are as follows.
The lease contract signed July 31, 1995, provides for a thirty year
term. Valbruna pays the Province of Bolzano rent in six-month
installments. Valbruna undertakes all maintenance on the facility
(including extraordinary maintenance). The lease was also designed to
provide for the stable employment of 650 employees at the facility.
In the preliminary determination, we found that there was no
transaction that could be used as an appropriate benchmark for
evaluating the adequacy of remuneration in the lease. Therefore, we
compared the Region's rate of return on the lease to that which would
be provided in a private transaction for the long-term use of assets,
using the average interest rate on treasury bonds as reported by the
Banca d'Italia. However, we stated that for the final determination we
would revisit this methodology: (1) to gather the information necessary
in order to amortize the depreciation of the buildings subject to the
lease; (2) to determine whether payments for extraordinary maintenance
should be considered part of the lease; (3) to make an adjustment to
the benchmark to account for extraordinary maintenance if appropriate;
and (4) to determine whether there was a non-governmental interest rate
that would be a more appropriate benchmark.
We have reconsidered these issues in light of the information
gathered at verification and comments from the interested parties,
summarized below. The record evidence indicates that the average rate
of return on leased commercial property in Italy is 5.7 percent. See
Commercial Experts Report. We have used this rate of return as the
benchmark in evaluating the adequacy of remuneration in the lease. As
an average, this rate reflects different terms, lengths, and locations
of lease contracts throughout Italy. This rate better reflects
commercial practices in Italy than does the rate used in the
preliminary determination. That rate was based on treasury bonds and
would require a number of complicated and highly speculative
adjustments to reflect a representative rate for leasing commercial
property. Thus, in our view the 5.7 percent rate is a more reliable and
representative rate to use in examining whether the facility is being
leased for less than adequate remuneration.
In applying the 5.7 percent rate, we have determined that no
adjustments to this rate are warranted for either depreciation or
extraordinary maintenance. First, we verified that the buildings
covered by the lease are very old. Given the age of the structures, we
have not adjusted the rate upward to reflect the depreciation of the
structures because the likely useful life remaining would be relatively
short.
Second, the record evidence demonstrates that although the Italian
Civil Code obliges the landlord to pay for extraordinary maintenance,
this obligation may be borne by the lessee if specified in the lease.
In particular, we learned at verification that long-term leases often
oblige the lessee to bear responsibility for these costs because of the
long-term costs involved. The Bolzano lease is for a period of 30
years, the maximum allowed under Italian law. Thus, the terms of this
particular contract are such, that a commercial landlord would most
likely have assigned this obligation to the tenant. Further, the
obligation would be factored into the negotiation for the lease rate.
To the extent that Bolzano may face an additional financial obligation
than other parties because of extraordinary maintenance, that is
balanced by the fact that CAS's lease term is much longer than the
norm. Therefore, the average rate of return is an appropriate benchmark
without any adjustments for these terms.
In order to determine whether the Provincial government receives
adequate remuneration under the Bolzano lease, we compared the rent
under the Bolzano lease to the amount that would have been paid using
5.7 percent as the average rate of return. Based on this comparison, we
found that the Province is not receiving an adequate rate of return on
the lease, and therefore, we determine that the facility has been
leased for less than adequate remuneration. Through this lease, the
Autonomous Province of Bolzano made a financial contribution to Bolzano
within the meaning of section 771(5)(D)(iii) of the Act, equal to the
difference between the Bolzano rent and what would have been paid
annually in a lease established in accordance with market conditions.
The lease is specific within the meaning of section 771(5)(D) of the
Act, because the lease is limited to Valbruna/Bolzano. Therefore, we
determine the Bolzano industrial lease provides a countervailable
subsidy within the meaning of section 771(5) of the Act.
To calculate the benefit, we found the difference between the
amount that would have been paid during the POI if the lease rate had
been determined with reference to market conditions and the actual
rent. We divided the amount by Valbruna/Bolzano's total sales in 1996.
On this basis, we determine the countervailable subsidy to be 0.16
percent ad valorem for Valbruna/Bolzano.
3. Lease Exemption
Under the Province of Bolzano-Valbruna/Bolzano lease, Valbruna/
Bolzano agreed to assume certain environmental reclamation costs
instead of paying rent for the first two years of the lease. In the
preliminary determination, we found that this program conferred a
countervailable subsidy to Valbruna/Bolzano. Based on our review of the
record, our findings at
[[Page 40485]]
verification, and our analysis of the comments submitted by the
interested parties, summarized below, we continue to find this lease
exemption to be a countervailable subsidy, but the basis for the
determination has changed, in part.
To determine whether the program provides a countervailable subsidy
to Valbruna/Bolzano, we examined whether the Province's actions in
granting the lease exemption were consistent with the usual practices
of private landlords. When the Province purchased the land and
buildings, there were a number of environmental problems that required
costly repairs. While such a situation would be extremely unusual, a
commercial landlord may very well have given a similar exemption to a
tenant in order to have these problems addressed. However, a private
landlord would ensure that the amount of repairs met or exceeded the
cost of the rent, the tenant actually did the work, and the landlord
legally had the responsibility to undertake the projects. At
verification, Valbruna presented evidence that the costs incurred
exceeded the amount of rent due. In addition, a list of environmental
issues that Valbruna agreed to remedy was included as an enclosure to
the lease. Valbruna documented that these projects, as well as other
measures related to asbestos clean-up, had been undertaken.
Thus, in order to determine whether the nonpayment of rent for the
first two years constitutes a countervailable subsidy to Valbruna/
Bolzano, we examined whether or not the Province of Bolzano would have
been responsible for these environmental reclamation costs. Under
Italian law, the landlord would normally bear the responsibility for
pre-existing environmental costs under a normal lease agreement. In the
preliminary determination, we countervailed this lease exemption as a
grant because we found that the projects undertaken related to the
plant and equipment which was owned by the company instead of the
buildings which were owned by the Province. However, upon further
examination during verification, we found that most of the projects
undertaken related to modifications of the buildings in order to permit
the installation of new or alteration of existing equipment.
During verification, we received clarification as to when the need
to undertake some of these environmental reclamation projects had been
identified. In particular, we noted that one of the principal measures
which related to noise and air pollution, had been identified several
years prior to the purchase of the land. The Province explained that
local residents had complained in the past regarding air and noise
pollution originating from the Bolzano site. The Province asked Bolzano
to develop a proposal to solve the problem. In 1992, the Province
agreed to Bolzano's proposal to encapsulate the melting furnace in
order to reduce air and noise pollution. By 1995, Bolzano still had not
undertaken the encapsulation project. Instead, it was included in the
round of environmental work covered by the lease payment exemption.
This project accounted for a substantial portion of the costs
undertaken by Valbruna in exchange for the period of free rent. Thus,
the Province imposed an obligation on Bolzano to undertake
environmental measures several years before the signing of the lease.
Then, the Province agreed to forgo revenue in order to see that the
obligation was fulfilled.
Valbruna also reported costs related to the clean up and removal of
asbestos from the buildings. According to the Province, regulations
regarding the removal of asbestos are designed to protect the health
and safety of workers. Thus, normally the employer has primary
responsibility for these efforts. When the employer rents the facility,
the company could, as the tenant, request that the landlord undertake
the asbestos removal on the buildings. However, since Valbruna agreed
to assume the obligation for extraordinary maintenance under the lease,
the company would have no means of requiring the owner to do the
repairs. Thus, the Province agreed to forgo revenue in order to have
the asbestos problem addressed even though it would not have been its
responsibility to pay for the damages.
In both of these instances, the Province did not have an obligation
to undertake the work in question. Thus, since it was the obligation of
Valbruna/Bolzano to pay for these projects, which accounted for
virtually all of the costs incurred, either because the obligation was
incurred before the lease or because the company had assumed the
obligation under the lease, there is no basis for Valbruna/Bolzano's
claim that the rent exemption is not countervailable because it only
covered costs for which the Province was responsible. Therefore, we
find that the relief from rent payment for the first two years of the
Valbruna/Bolzano industrial lease provides a financial contribution
within the meaning of section 771(5)(D)(ii) of the Act, in the form of
revenue forgone, which provides a benefit in the amount of rent that
would normally have been collected. The lease exemption is specific
under section 771(5)(D) of the Act because it was limited to Valbruna/
Bolzano. Accordingly, we determine that the exemption from payment of
rent under the lease of the Bolzano industrial site provides a
countervailable subsidy under section 771(5) of the Act. The lease
exemption provides non-recurring subsidies because its provision is
limited, by the terms of the lease, to the first two years. However,
because the benefit from the exemption did not exceed 0.5 percent of
Valbruna/Bolzano's total sales in the years provided, we allocated the
entire amount to the year of receipt. We divided the amount of the rent
exemption for the POI by Valbruna/Bolzano's total sales. On this basis,
we determine the countervailable subsidy to be 0.38 percent ad valorem
for Valbruna/Bolzano.
E. Province of Bolzano Law 25/81
The Province of Bolzano Law 25/81 is a general aid measure that
provides grants to companies with limited investments in technical
fixed assets. It targets advanced technology, environmental investment,
or restructuring projects. Restructuring assistance is provided to
companies under Articles 13 through 15. Articles 13 through 15
establish different eligibility requirements, different application
procedures, different levels of available aid, and different types of
aid (grants and loans) than assistance provided under other Articles of
Law 25/81. Therefore, we find it appropriate to examine Articles 13
through 15 of Law 25/81 as a separate program. See, e.g., Live Swine
from Canada; Final Results of Countervailing Duty Administrative
Review, 62 FR 18087, 18091 (April 14, 1997) (Live Swine from Canada).
Bolzano received a total of 18.6 billion lire in restructuring grants
from 1983 through 1992. It also had a small amount from restructuring
loans outstanding during the POI, which were provided at concessionary,
long-term fixed rates.
In our preliminary determination, we did not make a
countervailability finding on Articles 13 through 15 because we did not
have the information to analyze the de facto specificity of assistance
provided solely under the restructuring program, i.e., Articles 13
through 15. As discussed above, we have determined it is appropriate to
examine the restructuring aid provided through these articles as a
separate program. During verification, we obtained Provincial budget
records which listed the total amount from
[[Page 40486]]
loans and grants provided through the restructuring program in the
years 1982 through 1992, because these were the years during which
Bolzano was provided assistance. In each of the years in which Bolzano
received funds under this program Bolzano received a significant
percentage of total assistance awarded. While assistance was provided
to a number of firms during this period, Bolzano received a much larger
share in comparison to the total aid awarded. In fact, Bolzano was the
largest single recipient of restructuring assistance. Bolzano received
far more than the average recipient over this period. Thus, we conclude
that the restructuring assistance granted to Bolzano under Articles 13
through 15 of Law 25/81 is de facto specific within the meaning of
section 771(5A)(D)(iii) of the Act because Bolzano received a
disproportionate share of benefits. The restructuring aid provides a
financial contribution which confers a benefit in the amount of grants,
and interest savings on reduced-rate long-term loans. Therefore, we
determine that Articles 13 through 15 of Provincial Law 25/81 provide a
countervailable subsidy within the meaning of section 771(5) of the
Act.
We note that on July 17, 1996, the EU found in its decision number
96/617/ECSC that the aid granted to Bolzano under Law 25/81 was illegal
because it was not notified to the EU, and was ``incompatible with the
common market pursuant to Article 4(c) of the ECSC treaty.'' See
October 27, 1997, response of the EU, public version on file in the
CRU. As a result, the EU ordered the repayment of all grants and loans
made to Bolzano which were approved after January 1, 1986. The EU
decision did not require the repayment of Bolzano assistance approved
prior to January 1, 1986.
As discussed in the ``Corporate Histories'' section above, Falck
sold Bolzano to Valbruna in 1995. According to the terms of the sale,
Falck retained the liability for repayment of these benefits should the
EU rule against Bolzano. Pursuant to the EU's 1996 ruling, Falck
effectively repaid the assistance under Law 25/81 approved and granted
to Bolzano after 1986. Repayment was effected through Falck receiving a
lower payment from the GOI under an assistance program and the GOI
transferring that amount to the budget of the Province of Bolzano.
Falck is appealing the EU's decision. For the reasons set forth in the
Department's Position on Comment 3 below, we do not consider the
payment by Falck to affect our analysis of the benefit to Bolzano.
Bolzano received grants for four restructuring projects under this
law: one was approved in 1983, another was approved in 1985, and two
were approved in 1988. Because Bolzano submitted a separate application
to the regional authority for each project, we are treating the grants
received under Articles 13 through 15 of Provincial Law 25/81 as non-
recurring. See GIA, 58 FR at 37226. Pursuant to the Department's non-
recurring grant methodology, to calculate the benefit from the
restructuring grants we allocated the grants over Valbruna/Bolzano's
AUL to determine the benefit in each year. To determine the benefit
from the restructuring loans that were still outstanding during the
POI, we compared the long-term fixed-rate provided under the program to
the benchmark rate described in the ``Subsidies Valuation Information''
section above since the company did not have long-term fixed rate loans
from the same period. We then applied the Department's standard long-
term loan methodology and calculated the grant equivalent for the
loans. Next, we applied the methodology discussed in the ``Change in
Ownership'' section above to the grants and loans. We then summed the
benefit amounts attributable to the POI from Bolzano's grants and loans
and divided the total benefit by Valbruna/Bolzano's total sales. On
this basis, we determine the countervailable subsidy to be 0.28 percent
ad valorem for Valbruna/Bolzano.
Programs of the European Union
A. ECSC Article 54 Loans
Article 54 of the 1951 ECSC Treaty established a program to provide
industrial investment loans directly to the iron and steel industries
to finance modernization and the purchase of new equipment. Eligible
companies apply directly to the EU for up to 50 percent of the cost of
an industrial investment project. The Article 54 loan program is
financed by loans taken out by the EU, which are then refinanced at
slightly higher interest rates than those at which the EU obtained
them.
The Department has found Article 54 loans to be specific in several
proceedings, including Electrical Steel from Italy, Certain Steel from
Italy, and UK Lead Bar 94, because loans under this program are
provided only to iron and steel companies. No new information or
evidence of changed circumstances has been submitted in this proceeding
to warrant reconsideration of this finding. This program provides a
financial contribution within the meaning of section 771(5)(D)(i) of
the Act that provides a benefit to the recipient in the difference
between the amount paid on the loan and the amount which would be paid
on a comparable commercial loan that the recipient could actually
obtain.
Valbruna did not use this program. Bolzano and CAS received Article
54 loans. Bolzano had two loans outstanding during the POI, one
denominated in U.S. Dollars, the other in Dutch Guilders. CAS received
one Article 54 loan in 1996 with a variable interest rate on which no
interest or principal payments were due during the POI. Since these
payments would not have been due on a comparable commercial loan, there
is no benefit received during the POI, and thus, we find that the
program is not used with respect to CAS.
With respect to the loans to Bolzano, we would have used as a
benchmark interest rate a long-term borrowing rate for loans
denominated in the appropriate foreign currency in Italy. However, we
were unable to find such rates. Therefore, we used the average yield to
maturity on selected long-term corporate bonds as reported by the U.S.
Federal Reserve for the loan denominated in U.S. dollars, and the long-
term bond rate in the Netherlands as reported by the International
Monetary Fund for the loan denominated in guilders. (We note that
Bolzano entered into the loan contract for the loan denominated in U.S.
dollars in 1979. However, the interest rate for that loan was
renegotiated in 1992. Therefore we have treated it as a new loan from
that point and used a 1992 benchmark).
At verification, we found that Bolzano paid foreign exchange fees
and semi-annual guarantee fees on the Article 54 loans. Thus, we added
these additional expenses into the total amount that Bolzano paid under
the program. We also added an amount equal to the foreign exchange fees
Valbruna/Bolzano pays on commercial loans to the benchmark loan. We
then compared the cost of the benchmark financing for each loan to the
financing Bolzano received under the program and found that both loans
provided a financial contribution. To calculate the benefit in the POI,
we employed the Department's standard long-term loan methodology. We
calculated the grant equivalent and allocated it over the life of each
loan. We then applied the methodology discussed in the ``Change in
Ownership'' section above. We divided the benefit allocated to the POI
by the 1996 sales of Valbruna/Bolzano. On this
[[Page 40487]]
basis, we determine the countervailable subsidy to be less than 0.005
percent ad valorem for Valbruna/Bolzano.
B. European Social Fund
The European Social Fund (ESF) is one of the Structural Funds
operated by the EU. The ESF was established in 1957 to improve workers'
opportunities and raise their standards of living. The ESF principally
provides vocational training and employment aids. There are five
objectives identified under the ESF for funding: Objective 1 covers
projects located in underdeveloped regions, Objective 2 covers areas in
industrial decline, Objective 3 relates to the employment of persons
under 25, Objective 4 relates to vocational training for employees in
companies undergoing restructuring, and Objective 5 relates to
agricultural areas. CAS, Valbruna, and Bolzano received ESF assistance
under Objective 4 during the POI.
In the preliminary determination, there was insufficient evidence
on the record to determine whether Objectives 3 and 4 provide
countervailable subsidies. We noted, however, that the Department had
previously found certain benefits under Objectives 1, 2, or 5(b)
countervailable because assistance was limited to companies in specific
regions. See, e.g., Pasta from Italy, 61 FR at 30294. Nevertheless,
based on the record evidence, we were unable to determine whether the
companies in this proceeding received ESF funding based on their
location. In light of this insufficient record evidence, we explained
that we would continue to examine the specificity of this program for
the final determination.
During verification, we clarified several critical facts related to
the ESF program. First, we clarified that companies may receive ESF
funding directly even if they are not located in Objective 1, 2, or 5
regions. Neither Valbruna nor Bolzano is located in an Objective 2
region. Second, we discovered that funding was provided to companies
subject to this investigation only under Objective 4 of the ESF.
Objective 4 is aimed at vocational training, in particular anticipating
labor market trends, training employees of small and medium-sized
enterprise, and training workers at risk for unemployment. Officials
explained that for Objective 4, there are 13 regional and three
multiregional operational programs in Italy.
At the beginning of each multi-year programming period, the
Regional authorities, GOI, and the EU negotiate the framework and the
budget for projects to be funded and administered pursuant to Objective
4. This negotiation establishes the Single Programming Document, which
includes broad goals for the Objective 4 projects throughout Italy and
sets the budget and more specific goals for each of the operational
programs. The most recent Single Programming Document for Italy covers
the years 1994 through 1999. For the regional operational programs,
normally 45 percent is funded by the EU, 44 percent by the GOI, and 11
percent by the Region. The regional operational programs are
administered by the regions, which each publicly announce opportunities
to receive funding for projects consistent with Objective 4 objectives.
The multiregional operational programs are funded only by the EU and
the GOI with approximately 55 percent of the program funding from the
EU and 45 percent from the GOI. See GOI Verification Report. The GOI
administers these multiregional programs. Although the EU and the GOI
monitor the overall implementation of Objective 4 regional operational
programs, and the EU monitors the overall implementation of Objective 4
multiregional operational programs, neither entity participates in the
project approval process.
The ESF programs under Objectives 1, 2 and 5b are similar to the
projects provided under Objective 4 but identify broader goals and
target different segments. Under Objectives 1, 2, and 5b, the
unemployed, and workers in science and technology are also eligible for
training projects including post graduate training. In Objective 1,
teachers, pupils, and civil servants may also benefit from training
programs that are aimed at strengthening education and training
programs. Thus, even at the broadest level, the Objectives have
different aims.
Based on the fact that the projects funded pursuant to each ESF
Objective are administered by different authorities at the EU, the GOI,
and regional levels, the budgets are set for each separate objective
with no transferability between the objectives, and there is a separate
approval process for projects under different objectives, we find that
Objective 4 of the ESF in Italy should be examined as a separate
program for the purpose of determining whether funding provided under
Objective 4 is specific within the meaning of the Act. See, e.g., Live
Swine from Canada, 62 FR at 18091.
The Department normally examines funding provided from
jurisdictional levels separately to determine whether each level of
funding is specific within the meaning of the Act. Since funding for
Objective 4 projects is provided at three different levels for the
regional operational programs, we have examined each separately to
determine specificity. The Single Programming Document negotiated among
the EU, the GOI, and the regional authorities sets the program goals
and budgets for the Objective 4 projects funded throughout Italy.
Although Objective 4 funding is available throughout the Member States,
the EU negotiates a separate programming document to govern the
implementation and administration of the program with each Member
State. See ``Verification Report of the Responses of the European
Commission of the European Union,'' dated June 1, 1998, public version
on file in the CRU. We find that the EU funding under Objective 4 in
Italy is de jure specific within the meaning of section 771(5A)(D)(iv)
of the Act because it is limited on a regional basis to Italy. See,
e.g., Groundfish from Canada, 51 FR at 10048. GOI funding of Objective
4 projects is available in all areas of Italy except the Objective 1
areas, thus, eligibility is limited on a regional basis to the center
and north of Italy. See GOI Verification Report. On this basis, we also
find the GOI funding to be de jure specific within the meaning of
section 771(5A)(D)(iv) of the Act.
We then examined the funding provided by the Region of Valle
d'Aosta and the Province of Bolzano in the regional operational
programs. We found that the operational programs in both Valle d'Aosta
and the Province of Bolzano are not de jure specific. We also examined
each of the regional authorities' funding pursuant to the de facto
specificity criteria under section 771(5A)(D)(iii) of the Act. In each
case, we found that benefits were distributed to many firms within each
region and that the firms represented a wide variety of the industries
within each region. Further, the steel industry in each region received
a small amount of the total benefits awarded in comparison to other
industries in the region. We determine that the funding provided by
Valle d'Aosta and the Province of Bolzano under their respective
regional operational programs (11 percent) is not specific under
section 771(5A)(D) of the Act, and is therefore, not countervailable.
The Department considers training programs to benefit a company
when the company is relieved of an obligation it would otherwise have
incurred. See Electrical Steel from Italy, 59 FR at 7255. All three
companies subject to this investigation applied for grants to conduct
training programs to increase the production-related skills of their
own employees. Since companies normally fund training to enhance the
[[Page 40488]]
job-related skills of their own employees, we determine that ESF
Objective 4 funds relieve companies of an obligation. The ESF Objective
4 grants are a financial contribution under section 771(5)(D)(i) of the
Act which provide a benefit to the recipient in the amount of the
grant. Therefore, we determine that the ESF grants constitute
countervailable subsidies within the meaning of section 771(5) of the
Act.
The Department normally considers worker training programs to be
recurring. See GIA, 58 FR at 37255. However, ESF Objective 4 grants
relate to specific and individual projects and each project requires
separate government approval. Therefore, we determine that ESF
Objective 4 grants are non-recurring; however, because the Objective 4
grants provided to CAS in 1994 through 1996 and Valbruna/Bolzano in
1996 were less than 0.5 percent of the company's sales, we allocated
the full amount of the Objective 4 non-recurring grants to the years of
receipt.
To calculate the benefit from the regional operational programs, we
used 89 percent of each grant awarded to CAS and Bolzano during the
POI. This percentage represents the amount of funding from the GOI and
EU under the regional operational programs. To calculate the benefit
from the multiregional program, we used 100 percent of the grant
awarded to Valbruna, because only the GOI and EU funded grants provided
under the multiregional operational programs. For Valbruna/Bolzano, we
summed the benefits from the grants and divided by the company's total
sales. For CAS, we divided the benefit by the company's total sales. On
this basis, we determine the countervailable subsidy to be 0.03 percent
ad valorem for CAS and 0.05 percent ad valorem for Valbruna/Bolzano.
II. Programs Determined to be Non-Countervailable
A. Law 46: Technological Innovation Fund
Under the Technological Innovation Fund (FIT) of Law 46/82, the GOI
provides grants to companies for projects that contain a high degree of
technological innovation. In the preliminary determination, we found
that this program was not countervailable because it was not specific
within the meaning of section 771(5A) of the Act. However, we stated
that for the final determination, we would continue to examine whether
the provision of FIT assistance was contingent upon export performance.
We verified that FIT assistance has been awarded to non-exporters,
companies with low-levels of export sales, and companies with high-
levels of export sales and that export performance is not a factor in
the evaluation process. We reviewed applications which were both
accepted and rejected and found that in no case was an application
accepted because of high levels of exports or potential high levels of
exports, and in no case was an application rejected because of a low
level of exports. In all cases, the applications were evaluated based
solely on the degree of technological innovation contained in the
proposal. Thus, we verified that export performance was not a criterion
used in the approval of grants under this program. Therefore, we
determine that the Law 46 FIT program does not meet the definition of
an export subsidy within the meaning of section 771(5A)(B) of the Act,
and we continue to find the program not countervailable.
B. Law 308/82
In response to our request for information on ``other subsidies''
in the questionnaire, the GOI reported that Valbruna received grants
for energy conservation under Law 308/82. However, this program was
found to be non-countervailable in Certain Steel from Italy because it
provided benefits to a wide variety of industries, with no sector
receiving a disproportionate amount. No new information or evidence of
changed circumstances has been submitted in this proceeding to warrant
reconsideration of this determination.
III. Programs Not Used
Based on the information provided in the responses and the results
of verification, we determine that CAS and Valbruna/Bolzano did not
apply for or receive benefits under the following programs during the
POI:
A. Benefits Associated with Finsider-to-ILVA Restructuring
In the preliminary determination, we countervailed the GOI's
coverage of Deltacogne S.p.A.'s losses in conjunction with the
restructuring of Finsider into ILVA. We followed the methodology used
in Electrical Steel from Italy in examining the restructuring of
Deltacogne into Cogne S.r.l. Electrical Steel from Italy, 59 FR at
18366. This approach resulted in a calculation of 120 billion lire in
losses that we assumed remained with Finsider and were covered by IRI.
At verification, we discovered new information relevant to the
Department's treatment of the Deltacogne-to-Cogne S.r.l. restructuring.
Deltacogne was merged into ILVA S.p.A. with ILVA receiving all of the
assets and liabilities of Deltacogne. No liabilities or losses remained
in a shell company that were folded into Finsider and assumed by the
GOI. We were able to confirm this by examining the merger contract and
examining information in the 1989 ILVA financial statement. To the
extent there was a difference in the financial condition of Deltacogne
and Cogne S.r.l., it reflects that the companies had different
holdings. Therefore, we find that the ``Benefits Associated with the
Finsider-to-ILVA Restructuring Program'' is not used.
B. Grants for Interest Payments Under Law 193/1984
C. Law 46 and 706 Grants for Capacity Reduction
D. ECSC Article 56(2)(b) Retraining Grants
E. Resider Program
F. Law 675
1. IRI Bonds
2. Mortgage Loans
3. Personnel Retraining Aid
4. Interest Grants on Bank Loans
G. Debt Forgiveness: 1981 Restructuring Plan
H. Law 481/94
I. Decree Law 120/89
J. Law 394/81 Export Marketing Grants and Loans
K. Law 488/92 and Legislative Decree 96/93
L. Law 341/95 and Circolare 50175/95
M. Valle d'Aosta Regional Law 16/88
N. Valle d'Aosta Regional Law 3/92
O. Bolzano Regional Law 44/92
P. Interest Rebates on ECSC Article 54 Loans
Q. ECSC Article 56 Loans
R. European Regional Development Fund
IV. Programs Determined Not to Exist
Based on information provided in the responses and the results of
verification, we determine that the following programs do not exist:
A. R&D Grants to Valbruna
B. Subsidies for Operating Expenses and ``Easy Term'' Funds
C. 1993 European Commission Funds
Interest Party Comments
Comment 1: Province of Bolzano's Purchase of the Bolzano Industrial
Site: Valbruna/Bolzano asserts that the Department properly determined
that the Province of Bolzano did not purchase the Bolzano industrial
site for more than adequate remuneration. Respondent argues that
Valbruna's willingness to purchase the Bolzano industrial site at the
purchase price
[[Page 40489]]
agreed to by the Province and Falck, in the event that the sale was not
consummated, and the fact that the purchase price paid by the Province
was in line with the estimates in an independent appraisal done by an
architect hired by Valbruna, demonstrate that the industrial site was
not purchased for more than adequate remuneration. Valbruna states that
the Province's own estimate of the price of the land, which was
comparable to that paid for neighboring properties on a per-square
meter basis, demonstrates that the purchase was in accordance with
market conditions and could not be for more than adequate remuneration.
The architect's appraisal corroborates this conclusion. Finally,
Valbruna argues that the information about other land transactions in
the Province of Bolzano is an appropriate benchmark to evaluate the
adequacy of remuneration, and this information demonstrates that
Bolzano received no countervailable benefit from the sale of the land.
Petitioners argue that Valbruna cannot be considered an
uninterested party in the land deal. Petitioners state that although
Valbruna claimed it was willing to pay the same price for the property
as the Province in the event that arrangements with Falck fell through,
the chronology of the deal demonstrates that Valbruna knew it would
never have to purchase the site. Petitioners contend that the Share
Purchase Agreement provides evidence that Valbruna would not have been
required to purchase the site. Petitioners further argue that Valbruna
never has provided an adequate appraisal of the property and that the
architect's appraisal is based on a number of inaccurate assumptions.
Petitioners compare the facts related to the Bolzano land sale to the
Cogne land sale, and contend that this comparison reveals that the
Bolzano transaction was not in accordance with market conditions
because unlike Valle d'Aosta, Bolzano's appraisal of the property is
insufficiently detailed. Petitioners contend that other information
also indicates that other parties were not interested in purchasing the
land.
Petitioners also argue that the Department should use the amount of
debt reduction that Bolzano experienced contemporaneously with the sale
of its industrial property as a proxy for the benefit derived from this
transaction since Respondents failed to provide sufficient information
to establish an appropriate benchmark to measure the adequacy of
remuneration in the land deal. Petitioners state that the other sites
--Magnesio, Aluminia, and IVECO--are not comparable to the Bolzano
site. Petitioners argue that the Department should select a benchmark
in order to evaluate whether the site was purchased for more than
adequate remuneration which reflects that the site had minimal
commercial value because of the environmental problems. Petitioners
state that the purchase price for the land was used to improve the
financial health of Bolzano by reducing its financial burdens, and thus
Valbruna received a benefit from the transaction. Petitioners argue
that the primary goal of the land deal was improving Bolzano's balance
sheet.
Respondent replies that Falck's use of the money is irrelevant and
that the reduction of debt resulting from the sale of the land cannot
be demonstrated to be a countervailable benefit.
Department's Position: Regarding the Province's purchase of the
Bolzano industrial site, we agree with Respondent's arguments that the
purchase was not made for more than adequate remuneration. Our findings
at verification on this matter confirmed that: (1) the Cadastral Office
of the Province of Bolzano conducted an appraisal of the land and
buildings prior to purchasing the site from Falck; (2) Valbruna agreed
to purchase the site at the price determined by Bolzano in the event
that the arrangement between the Province and Falck did not come to
fruition; and (3) the Province had fulfilled all of its contractual
agreements to Falck regarding the purchase of the site. On this basis,
we find that the price paid by the Province for the Bolzano industrial
site was in accordance with market conditions.
Regarding Petitioners' argument that the Department should use the
amount of debt reduction that Bolzano experienced contemporaneously
with the sale of its industrial property as a proxy for the benefit
derived from this transaction, the Department disagrees. Because the
Department has determined that the Province did not purchase the site
from Falck for more than adequate remuneration, the Department finds
that Falck and its subsidiaries did not derive a countervailable
benefit from the sale, within the meaning of section 771(5)(E)(iv) of
the Act.
In addition, we also disagree with Petitioners' argument that
Valbruna's agreement to purchase the land from Falck is inappropriate
to consider in determining whether the Province of Bolzano paid more
than adequate remuneration for the industrial site. We recognize that
it was highly unlikely that Valbruna would have to perform on this
obligation. However, given that the Province used the acquisition price
in determining the lease rate, we infer that Valbruna had a strong
commercial interest in ensuring that Falck did not pay more than
adequate remuneration for the site. In addition, under the leasing
agreement between the Province of Bolzano and Valbruna, Valbruna has
the option to purchase the industrial site from the Province within
five years of the signing of the lease. For these reasons, we consider
Valbruna's guarantee to Falck that it would acquire the property for
the price agreed to between Falck and the Province of Bolzano is an
indication that the price paid by the Province of Bolzano for the
Bolzano industrial site was reflective of market considerations.
Therefore, the purchase of the industrial site by the Province of
Bolzano does not constitute a subsidy within the meaning of section
771(5) of the Act.
Comment 2: Bolzano Lease: Valbruna/Bolzano argues that the Province
of Bolzano's lease of the Bolzano industrial site to Valbruna provided
adequate remuneration to the Province and thus did not confer a
benefit. Respondent claims that because the lease covered the
Province's costs, earned a reasonable rate of return based on what was
charged in other provinces, and reflected market-based pricing, it is
provided for adequate remuneration. Regarding the two-year rent
exemption, Respondent argues that the exemption reflected an exchange
between the parties in accordance with market principles in which
Valbruna reciprocated by assuming responsibility for environmental
reclamation and extraordinary maintenance costs usually attributed to
the lessor. Respondent further argues that the Department should
combine Valbruna's annual rent charges with its environmental and
extraordinary maintenance expenses in determining whether the company
paid adequate remuneration to the Province under the lease.
Petitioners argue that the provisional lease agreement with
Valbruna did not reflect normal market conditions and therefore
provides a countervailable subsidy. In calculating the benefit,
Petitioners argue that the Department should not offset rent payments
with any extraordinary maintenance or environmental reclamation
payments by the company. In addition, Petitioners argue that, due to
the length of the lease, the Department should treat the lease as a
long-term loan and use the adjusted Bank of Italy Reference Rate as a
benchmark. Petitioners further argue that Valbruna has failed to
undertake environmental clean-up costs as required under the lease.
Petitioners contend that the Department should treat these unpaid costs
as revenue
[[Page 40490]]
foregone within the meaning of the statute in its final analysis.
Department's Position: Section 771(5)(E) of the Act states that the
adequacy of remuneration with respect to a government's provision of
goods or services shall be determined in relation to prevailing market
conditions for the goods or services provided. When the government
leases land, the Department has determined that examining the rate of
return is a reasonable approach in determining the adequacy of
remuneration in the absence of alternative market reference prices.
See, e.g., German Wire Rod, 62 FR at 54994. As explained above, the
record evidence demonstrates that the average rate of return in Italy
on leased commercial property is 5.7 percent. See Commercial Experts
Report. Based on our comparison of the Province's rate of return under
the Bolzano lease with this benchmark, we determine that the Province
did not receive adequate remuneration. As Valbruna/Bolzano acknowledges
in its case brief, the Province earned less than a 5.7 percent rate of
return on the lease.
Based on our analysis of the Province's rate of return under the
lease, a further examination of whether the Province covered its costs
and whether the terms of the lease reflected market-based pricing is
unnecessary. As we noted in German Wire Rod, the Department identified
the factors of covering costs, earning a reasonable rate of return, and
reflecting market-based pricing as several reasonable options, and not
a three-prong analysis as Valbruna suggests. Because we were able to
obtain a reliable rate of return to serve as the appropriate benchmark,
we have not relied upon additional factors in this final determination.
The record evidence also supports our determination to countervail
the two-year rent exemption Valbruna/Bolzano received under the lease.
The Province agreed to offset Valbruna/Bolzano's rent payments for the
first two years of its lease in exchange for the company's agreement to
pay for extraordinary maintenance and environmental clean-up costs at
the Bolzano plant site. However, the record evidence demonstrates that
in situations involving long-term leases, the lessee often bears
responsibility for extraordinary maintenance costs. See Commercial
Experts Report. While the Italian Civil Code does provide for
extraordinary maintenance to be paid by the landlord in instances where
it is otherwise not specified in the contract, the terms of Valbruna's
contract, in particular the company's thirty-year lease term, lead us
to conclude that a commercial landlord would have assigned the
extraordinary maintenance costs to the tenant, with no special rent
abatement. Thus, we do not consider this arrangement to constitute a
sid pro quo exchange between Valbruna and the Province.
Moreover, the record evidence demonstrates that the Province's
normal practice is to require lessees to pay for environmental clean up
costs. Provincial government officials explained that the Province
normally requires companies to pay for environmental costs and
investments without any kind of rent exemption from the Province. As an
example, Provincial officials described a situation involving Falck,
the former parent company of Bolzano. In 1992, the Province issued a
decision requesting that Falck proceed, at its own expense, with a
noise reduction project. See Province of Bolzano Verification Report,
dated June 1, 1998, public version on file in the CRU. Although Falck
never proceeded with the plan, the Province's request for Falck to
assume responsibility for the costs of the environmental project
provides a concrete example of how companies in the Province are
normally responsible for costs associated with environmental
reclamation projects. This record evidence supports our determination
that the two-year rent exemption provided a financial contribution in
the form of foregone government revenue. On this basis, we also find it
inappropriate to make any adjustments for Valbruna's extraordinary
maintenance or environmental costs.
As discussed above, because we were able to obtain a reliable
average rate of return on commercial leased property, we have not
adopted the Petitioners' proposal that we use the adjusted Bank of
Italy Reference Rate as a benchmark. Although this 5.7 percent rate of
return reflects rates that include different terms, lengths, and
locations in Italy, we consider this benchmark to be a better
reflection of commercial practices than the methodology described in
the preliminary determination and that put forth by Petitioners.
Moreover, the rate used in the preliminary determination was based on
treasury bonds and would require a number of complicated and highly
speculative adjustments to reflect a representative rate for leasing
commercial property.
Petitioners' argument that we should not make an adjustment for the
costs of environmental clean-up because Valbruna failed to undertake
such activity is not supported by the record evidence. We verified that
Valbruna did incur many expenses related to the environmental projects
on the Bolzano site. However, as explained above, we have not made any
adjustments to the rate, and therefore the issue is moot.
Comment 3: Province of Bolzano Law 25/81: Valbruna/Bolzano argues
that for a subsidy to exist, there must be a financial contribution
which confers a benefit. Valbruna/Bolzano contends that the Department
verified that the financial contribution under this program was repaid
and therefore, the subsidy ceases to exist. Respondent argues that the
Department has applied this rationale in cases where Respondents have
repaid grants, citing Certain Fresh Cut Flowers from Peru, 52 FR 6837
(March 5, 1987) and Certain Steel Products from South Africa, 58 FR
62100 (Nov. 24, 1993), as case precedent for treating repaid subsidies
as noncountervailable. Further, Valbruna/Bolzano argues that Falck's
decision to appeal the matter is irrelevant citing Certain Steel
Products from Germany, 58 FR 37315 (July 9, 1993).
Alternatively, to the extent the Department determines that some or
all of the Law 25/81 assistance constitutes a countervailable subsidy,
Respondent contends that the subsidy is not de facto specific. First,
Respondent argues that the Department should assess the specificity of
the program across Law 25/81 as a whole as opposed to treating the
restructuring assistance granted under Articles 13 through 15 as a
separate program. Valbruna argues that under this analysis, Law 25/81
provides aid to a wide variety of industries and enterprises.
Respondent also argues that Bolzano did not receive a disproportionate
share of benefits. Finally, Respondent argues that, in the event that
the Department limits its specificity analysis to Articles 13 through
15, it should examine the aid Bolzano received in the context of the
entire life of the program.
Petitioners take issue with Respondent's arguments regarding the de
facto specificity analysis of the restructuring assistance granted to
Bolzano under Law 25/81. Petitioners argue that the Department should
uphold the decision reached in its preliminary determination and treat
the restructuring assistance granted under Articles 13 through 15 of
Law 25/81 as a separate program. Petitioners contend that under this
analysis, Bolzano received a disproportionate share of benefits in each
award year. Petitioners also argue that the Department should examine
the de facto specificity of the restructuring assistance granted to
Bolzano on a year-by-year basis. With respect to Respondent's repayment
argument, Petitioners counter that
[[Page 40491]]
because Falck has appealed the EU's decision that part of the
assistance provided under the program was illegal and had to be repaid,
the final disposition of the matter has not been settled so the
Department may not consider the funds as being repaid.
Department's Position: We disagree with Respondent's argument that
we should find no benefits from assistance approved after 1986 under
Law 25/81 because part of the subsidy has been repaid. As discussed
above, Falck has appealed the EU's decision, and therefore, we are not
considering this issue. Contrary to Respondent's assertion, this appeal
is relevant to this inquiry because the final disposition of the
repayment has not been settled. In Certain Steel from Germany, the
Department treated grants that would be repaid after the POI as a
contingent liability. During verification in that case, the Department
met with the tax authority that controlled the matter, and found that a
repayment schedule was imminent. Thus, the Department was satisfied
that the decision of the tax authority was final. See Certain Steel
from Germany, 58 FR at 37324. Falck has appealed the EU's decision to
the Court and the matter will likely remain unresolved for a number of
years. Therefore, we are not considering the repayment at this time and
need not address Respondent's arguments pertaining to this issue. We
have appropriately treated this assistance as countervailable and have
allocated to Valbruna/Bolzano the benefit derived from these subsidies
using the Department's standard methodology described in the ``Change
in Ownership'' section above. Should this investigation result in a
countervailing duty order and should an administrative review be
requested, once there is a final judgement concerning Falck's appeal,
we will reconsider this issue at that time.
We also disagree with the Respondent's argument that the aid given
to Bolzano under Articles 13 through 15 of Law 25/81 is not de facto
specific. In our preliminary determination, we found that there were
separate and distinct eligibility requirements, levels of funding,
application procedures, and types of benefits provided under Articles
13 through 15. At verification, we confirmed these facts. Therefore,
consistent with the Department's practice, we have examined the
restructuring assistance under Articles 13 through 15 as a separate
program. See, e.g., Live Swine from Canada, 62 FR at 18091. Respondent
has presented no arguments to counter this finding, but argues that Law
25/81 assistance is not de facto specific using data based on benefits
provided under the entire aid program rather than aid provided solely
under Articles 13 through 15, the restructuring program. However, when
the level of benefits is examined under Articles 13 through 15, the
record evidence supports our finding that Bolzano received a
disproportionate share of assistance in each year in which Bolzano was
provided assistance. Bolzano was the largest single recipient of aid
from the inception of the program through the POI and received a far
higher level of assistance when compared to the other firms that also
received aid.
The Respondent's cite to Certain Steel Products From Belgium 58 FR
37280 (July 9, 1993) as support for its claim that the Department
examines dominant use across the entire life of the program is
misplaced. In that case, we examined disproportionate use of the
Societe Nationale de Credit a l'Industrie (SNCI) program on a year-by-
year basis. We stated, ``[f]or each of the years for which we have data
during this period, the steel industry was the largest single recipient
of SNCI investment lending.'' Steel from Belgium, 58 FR at 37280. The
Department listed the percentage of benefits the steel industry
received in each year the Belgian steel producers used the program. Id.
Thus, the case cited by Respondent does not support the argument
presented. However, as we stated in that case, we normally do not rely
on a single year's worth of data to determine dominance or
disproportionality as that might yield anomalous results. Thus, we
examine all the years in which a company received benefits and
additional years, if warranted, prior to each year assistance was
provided. Whether we examine assistance under Articles 13 through 15 on
a year-by-year basis, or for the span of years during which Bolzano
received assistance, 1982 through 1992, we find that Bolzano received a
disproportionate share of funds awarded.
Comment 4: Early Retirement Benefits under Law 451/94: Valbruna/
Bolzano argues that the Department should affirm its preliminary
determination that Law 451/94 is not countervailable. Valbruna states
the Department correctly found that companies face the same, if not
greater, financial commitments to their workers under Law 451/94 as
under other early retirement programs that are available to non-steel
workers in Italy, such as the extraordinary CIG program. Therefore,
Respondent argues that Law 451/94 does not confer a benefit to Bolzano.
To the extent that Law 451/94 did relieve Bolzano of an obligation,
Respondent argues that it was an additional financial burden imposed by
the GOI exclusively on the Italian steel industry that was over and
above the obligations imposed upon other industries. Respondent states
that under these circumstances the Department's policy is to treat
worker assistance as noncountervailable, citing Certain Steel Products
from Belgium, 58 FR at 37276. Alternatively, Respondent contends that,
should the Department determine that Law 451/94 does provide a
countervailable subsidy, the Department should measure the benefit as
no higher than the difference between the expenses Bolzano would have
incurred during the POI under the extraordinary CIG program and the
expenses the company incurred under Law 451/94.
Petitioners argue that the Department should reverse its
preliminary determination that Law 451/94 early retirement benefits are
not countervailable because information submitted to the record
subsequent to the Preliminary Determination demonstrates that the
program relieves companies of obligations that they would otherwise
incur. Petitioners contend that the verified record demonstrates that
Law 451/94 imposes fewer early retirement costs on companies than the
extraordinary CIG program. Petitioners agree with Respondent's
assertion that the benefit under Law 451/94 should be calculated as the
difference between the expenses Bolzano would have incurred during the
POI under the provisions of the extraordinary CIG program and the
expenses the company incurred under Law 451/94.
Department's Position: The Department's practice is to treat early
retirement benefits as countervailable when the company is relieved of
an obligation it would otherwise incur and that relief is specific. See
GIA, 58 FR at 37255. During verification, GOI officials confirmed that
Italian companies are not free to layoff workers at will. See GOI
Verification Report. We also learned that, absent the Early Retirement
Program under Law 451/94, steel companies would incur the costs
associated with the extraordinary CIG program, including the
contribution of a percentage of the worker's salary and the mandatory
severance contributions under Article 2120. GOI officials also
explained that the Early Retirement Program under Law 451/94 is less
costly from the employer's perspective than the extraordinary CIG
requirements because the company would not be required to contribute a
percentage of salary or continue to set aside Article
[[Page 40492]]
2120 contributions. See GOI Verification Report, dated June 1, 1998, on
file in the CRU. On this basis, we determined that Law 451/94 relieves
steel companies from the obligation to pay the higher costs associated
with the alternative CIG program. Therefore, we have countervailed the
benefits Bolzano received under Law 451/94 in this final determination
by calculating the costs Bolzano would have incurred under the
extraordinary CIG program including the severance contributions that
the company did not face under Law 451/94.
In claiming that Law 451/94 provides a benefit to the workers and
not the steel companies, Valbruna has misconstrued the Department's
practice. As explained in the GIA, where governments simply reimburse
companies for additional payments imposed by special worker assistance
programs, the governments have not relieved the companies of any
obligation. GIA, 58 FR at 37256. In these situations, the Department
considers the workers and not the companies as the recipient of the
benefit. Id. Thus, in Steel from Belgium, the Department did not
countervail the portion of benefits provided to the companies that were
reimbursements for the additional payments imposed by the special steel
program because those payments were never an obligation of the
companies. See Steel from Belgium, 58 FR at 37276. Here, however, the
record evidence demonstrates that because Italian companies are unable
to layoff workers at will, companies are obligated to pay for severance
and pension programs mandated under Italian law. Law 451/94 relieves
the steel companies from the higher costs associated with these other
severance and pension programs, such as the extraordinary CIG, and
therefore is countervailable.
Comment 5: Plant Closure Grants under Law 193/84: Valbruna/Bolzano
argues that the grants Falck received under Articles 2 and 4 of Law
193/84 were tied to the production of tubular and flat steel products,
goods outside the scope of this investigation and, therefore, provided
no benefit to Bolzano's exportation or production of subject
merchandise. Consistent with the Department's practice for ``tied''
subsidies, the grants cannot be said to benefit the subject
merchandise. Citing to Steel Wire Rod from Canada, Respondent also
claims that the Department has refused to accept the ``tied'' nature of
closure benefits only when the assistance is received after the plant
has ceased production. Respondent further argues that the grants under
Law 193/84 are not countervailable because the Department has not
properly determined that the grants received by Falck passed through to
Valbruna upon its purchase of Bolzano. Respondent contends that under
the CIT's ruling in Delverde S.r.l. v. United States, 989 F. Supp. 218
(CIT 1997), because this is a private-to-private arm's length
transaction, the Department must explain how the benefits received by
the previous owner are not reflected in the purchase price and how the
new owner received a benefit.
Petitioners respond that it is the Department's practice to
attribute grants provided for the specific purpose of closing plants to
all merchandise produced by the recipient, noting that the CIT upheld
this practice in British Steel Corp. v. United States, 605 F. Supp. 286
(CIT 1985). Petitioners also argue that, pursuant to its practice, the
Department is not obligated to explain whether or not Falck's benefits
under Law 193/84 were reflected in the market value paid by Valbruna
for the purchase of Bolzano's shares. Petitioners contend that the
Delverde decision is not a binding final and conclusive judgment
reversing Commerce's practice. Therefore, Petitioners argue that the
Department should affirm its finding that the benefits attributable to
Bolzano from Falck's use of Law 193/84 ``passed through'' to Valbruna
when it bought Bolzano from Falck.
Department's Position: The Department disagrees with Respondent's
assertion that the plant closure assistance Falck received under Law
193/84 did not benefit the export or production of the subject
merchandise. The Department's practice with respect to corporate
restructuring through the closure of plants is articulated in the GIA,
58 FR at 37270:
* * * It has been argued that because plant closure results in
the reduction of capacity, subsidies that promote such reduction
cannot fall into the category of benefitting the manufacture,
production or export of subject merchandise. However, * * * the
Department's determination reflects the fact that once inefficient
facilities are closed, the company can dedicate its resources to the
efficient production of the remaining facilities. Therefore, closure
payments for plants producing subject and non-subject merchandise
alike are countervailable.
Moreover, contrary to Respondent's claim, this practice applies
regardless of whether the assistance is received prior to the plant
closure. See e.g., Steel Wire Rod from Canada, 62 FR at 54981. In
British Steel, the CIT upheld the Department's practice ruling that,
``[a]s a company becomes more cost efficient and thereby more price
competitive, there is a direct benefit to the manufacture, production,
and export of all the firm's products.'' British Steel, 605 F. Supp. at
293. The Department's ``tying'' practice is inapplicable to closure
payments because the assistance provided confers a benefit on all of
the company's operations.
We also disagree with Respondent's argument that the Delverde
decision overturns the Department's methodology with respect to
analyzing private-to-private change in ownership transactions. The CIT
only directed the Department, on remand, to provide a fuller
explanation of its methodology, and has not ruled on the Department's
final remand determination. As explained in UK lead Bar 96, the
Department continues to follow its existing methodology. UK Lead Bar
96, 63 FR at 18371. Under our existing methodology, we neither presume
automatic extinguishment nor automatic pass through of prior subsidies
in an arm's length transaction. Contrary to the Respondent's contention
on this matter, the Department utilized the pertinent facts of the case
in determining whether the grants received by Falck passed through to
Valbruna. Following the GIA methodology, the Department subjected the
level of previously bestowed subsidies and the purchase price paid by
Valbruna to a series of tests and analyses. These analyses resulted in
the ``pass through ratio'' used in this investigation. Under this
methodology, some of the benefit passes through and some remains with
the seller. On this basis, the Department determined that a portion of
the benefits associated with Falck's closure assistance which were
allocated to Bolzano was not extinguished when Falck sold Bolzano to
Valbruna.
Comment 6: European Social Fund: Valbruna/Bolzano argues that
worker training grants received by Valbruna and Bolzano under the ESF
program did not relieve the company of obligations that they would
otherwise incur. Respondent states that there is no evidence on the
record to suggest that either company had incurred an obligation to
provide training, therefore, the funding did not provide a
countervailable subsidy. Respondent cites the preliminary determination
from Electrical Steel from Italy, 59 FR 4682 at 4690, as evidence that
the Department has agreed in other cases that ``Italian companies have
no legal obligation to retrain their workers.'' Should the Department
determine that funds under the ESF program constitute a subsidy,
Respondent maintains that the subsidy is not de facto specific.
Respondent further argues that should the Department determine that the
ESF
[[Page 40493]]
program confers a countervailable subsidy, it should deduct the amount
of service fees Valbruna paid to Riconversider for processing its
application from the total amount of the grant awarded to Valbruna.
Petitioners argue that the Department, based on verified record
evidence, should find the ESF countervailable on the basis of regional
specificity. Petitioners argue that there are no clear dividing lines
between the Objectives under the ESF as Cogne received funding under
multiple Objectives since 1984. Further, Petitioners point out that the
Province of Bolzano uses the same commission to evaluate applications
under Objectives 3, 4, and 5(b). Petitioners argue that the ESF
assistance is specific because the steel industry was a dominant user
of the program since Riconversider received more than 50 percent of the
funding under the Multiregional operational program during the POI.
Citing Electrical Steel from Italy, 59 FR at 18368, Petitioners argue
that the Department has a consistent policy of countervailing training
benefits intended to train a company's own workers.
Department's Position: We disagree with Respondent that the
training grants under the ESF program do not relieve Valbruna and
Bolzano of obligations. In the final determination of Electrical Steel
from Italy, we reversed the preliminary determination cited by
Respondents, finding that funds used to upgrade the skills of workers
are countervailable because these costs are normally borne by the
company to improve the efficiency of its workforce. See Electrical
Steel from Italy, 59 FR at 18368. In this investigation, we verified
that the training assistance provided to Respondents under ESF
Objective 4 funded training programs to enhance the skills of workers
to improve the production process. See CAS and Valbruna/Bolzano
Verification Reports. Companies have an implicit responsibility to
train their workers on the manufacturing process for their own
production. Therefore, we find that the training programs under
Objective 4 of the ESF relieved the companies of an obligation they
otherwise would have incurred.
We agree with Petitioners, in part, that the Objective 4 program in
Italy is regionally specific. In the case of regional operational
programs, funding for this program is divided between the EU, GOI, and
regional authorities. Funding for multiregional operational programs is
divided equally between the EU and the GOI. The EU portions of the
grants are de jure specific because they are limited to a designated
geographical region within the jurisdiction of the European Union. The
GOI portions of the grants are de jure specific because they are
limited to non-Objective 1 areas, i.e., the center and north of the
country. Because the funds provided by the Authority of the Region of
Valle d'Aosta and the Authority of the Province of Bolzano are not
limited on this basis, the Department analyzed whether the regional
operational programs for Valle d'Aosta and the Province of Bolzano are
provided on a de facto specific basis. The record evidence demonstrates
that within each region grants are awarded to a wide variety of
industries. Also, the steel industry's share of the grants was not
disproportionate to other industries' shares. Therefore, we find that
in the case of the regional operational programs, 89 percent of the
funds are countervailable (45 percent from the EU, 44 percent from the
GOI), and in the case of the multiregional operational funds, 100
percent of the funds are countervailable because these were funded
solely by the GOI and the EU.
Finally, the Department agrees with Respondent that the expenses
Valbruna paid to Riconversider should be deducted from the net amount
the company received under Objective 4 of the ESF program. We verified
that Valbruna had to pay service and commission fees in order to
receive the ESF assistance. See Valbruna/Bolzano Verification Report.
We determine that these fees qualify as an ``* * * application fee,
deposit, or similar payment paid in order to qualify for, or to
receive, the benefit of the countervailable subsidy.'' See section
771(6)(A) of the Act. Thus, in determining the benefit from the grants
disbursed to Valbruna under Objective 4 of the ESF program, the
Department subtracted the amount of money the company paid to
Riconversider to derive the net amount of grants it received under the
program.
Comment 7: ECSC Article 54 Loans: Respondent states that Bolzano
repaid the Dutch Guilder loan it received under the ECSC Article 54
loan program and, since the program was discontinued in 1994, there is
no possibility that Bolzano can receive any additional funding under
the program. Thus, Respondent argues that this loan should not be
included in any cash deposit rate established for Valbruna/Bolzano in
the event of an affirmative final determination, citing Pure and Alloy
Magnesium from Canada, 57 FR 30946 (July 13, 1992) in support of its
position.
Petitioners argue that the Department understated the value of the
benefit accruing to Bolzano as a result of its U.S. Dollar ECSC Article
54 loan. The interest rate for this loan was renegotiated in 1992. For
the purposes of deriving a grant equivalent, the Department based its
calculations from the time when the new interest rate was established.
Petitioners argue that Bolzano was uncreditworthy in 1992 and,
therefore, the Department should have used as a commercial benchmark,
the highest long-term fixed interest rate available in the United
States, plus a risk premium equal to 12 percent of the U.S. prime
interest rate. Petitioners further argue that benefits Bolzano received
under the Article 54 loan should be included in the cash deposit rate
established for Valbruna/Bolzano in the event of an affirmative final
determination.
Department's Position: We disagree with the Respondent's argument
that the countervailable benefit from the Dutch Guilder loan Bolzano
received under the ECSC Article 54 loan program, should not be included
in any cash deposit rate. The Department's practice is to adjust the
cash deposit rate to zero for countervailable subsidies only when there
is a program-wide change, such as termination, and there are no
residual benefits. See Final Affirmative Countervailing Duty
Determination: Certain Pasta from Turkey, 61 FR 30366, 30370 (June 14,
1996). The Department deems a countervailable benefit to be received at
the time when the firm experiences a difference in cash flows, either
in the payments it receives or the outlays it makes. In the case of
loans, the Department measures the receipt of the benefit at the time a
firm is due to make a payment on the loan. In this instance, Bolzano
repaid the Dutch Guilder loan it received after the POI. Moreover,
repayment of a loan does not constitute a program-wide change.
Therefore, consistent with the Department's practice, no change to the
cash deposit rate is warranted.
These circumstances are distinguishable from those in Magnesium
from Canada, where the Respondent repaid the grant in full during the
POI. Thus, the Department did not include the subsidy in the cash
deposit rate because the company's repayment of the grant during the
POI extinguished the possibility of any future benefit. Therefore,
should this investigation result in a countervailing duty order, the
Department will include the net subsidy from this program in Valbruna/
Bolzano's cash deposit rate.
We also disagree with Petitioners' claims that the Department
understated the value of the benefit accruing to Bolzano as a result of
its U.S. Dollar ECSC Article 54 loan. As stated above, in determining
the benefit under this
[[Page 40494]]
program, we derived our grant equivalent based on the year in which the
interest rate was renegotiated. We agree that the renegotiation of the
interest rate on the loan in 1992 can be viewed as the bestowal date of
the loan and have calculated a new grant equivalent based on the
renegotiated terms. However, contrary to Petitioners' claim, we do not
find Falck to have been uncreditworthy in 1992 and, therefore, we have
not added a risk premium to the benchmark rate.
Comment 8: Effective Interest Rates: Petitioners argue that the
Department should add to the benchmark interest rate for long-term
loans used in the preliminary determination, an additional spread that
is representative of what Italian banks normally charge in bank fees to
corporate clients. Petitioners also argue that the Department, in
making this upward adjustment, should rely on the average interest rate
spread on the ABI verified during its discussion with an official from
a private Italian Bank.
Department's Position: We agree with Petitioners' argument that the
Department should add a spread onto the benchmark in order to determine
an effective long-term interest rate. As stated earlier in the
``Subsidies Valuation Information'' section, for purposes of this final
determination, our long-term lira-denominated benchmark is based on the
Italian Interbank Rate (ABI) because we verified that commercial banks
in Italy consider the ABI rate the most suitable benchmark for long-
term financing available to Italian companies. Commercial banks add a
spread ranging from 0.55 percent to 4 percent onto that rate depending
on the financial health of the recipient. Therefore, in years in which
companies under investigation were creditworthy, we added the average
of that spread (i.e., 2.275 percent) onto the ABI rate to calculate a
benchmark.
During verification, a commercial banker informed us that the
interest rate charged to their clients is all inclusive and covers all
fees, commissions, and other charges associated with the loan. See
Commercial Experts Report. Therefore, by including the spread provided
to us by an Italian commercial bank, we have calculated the effective
cost of the loan because the benchmark interest rate includes all other
charges associated with the loan.
Comment 9: Assumption of Losses: CAS argues that the Department
erred in attributing any pre-1993 subsidies to CAS that were provided
to its predecessors and its predecessor's parent companies.
Specifically, CAS states that, because Deltacogne's accumulated losses
were not ``distributed'' to Cogne during the Finsider-to-ILVA
Restructuring, neither Cogne nor any other party that subsequently
owned the Aosta facility received a countervailable benefit. Respondent
states that there is no need for the losses of a predecessor company to
be distributed to a successor company. CAS argues that the Department
erred in calculating a benefit to CAS from this program because the
``losses'' involved no governmental transfers. CAS cites other cases
(Seamless Pipe from Italy and OCTG from Italy) where the Department
refused to investigate alleged assumptions on behalf of Dalmine
(another subsidiary of Finsider/ILVA) because there was no record
evidence demonstrating that the company's liabilities were forgiven by
the GOI. Further, CAS argues that the facts discovered at verification
confirm that ILVA's possible responsibility for a part of Deltacogne's
liabilities did not represent debt-forgiveness on the part of the
government. CAS states that no Deltacogne liabilities were assumed by
IRI through the restructuring process because Deltacogne was not placed
into liquidation, but was merged into ILVA.
Petitioners argue that the Department's preliminary analysis with
respect to the 1989 restructuring program understated the actual
benefit to CAS by focusing solely on losses instead of losses and
liabilities. Petitioners argue that the Department's practice supports
countervailing both the coverage of losses and the assumption/
forgiveness of liabilities as separate subsidy events. In support of
their position, Petitioners cite Electrical Steel from Italy which
involved the same circumstances, but a different Finsider subsidiary,
Terni Acciai Speciali S.r.l. (TAS), where the Department countervailed
both liabilities and losses that were not distributed to ILVA as a
result of the restructuring. Petitioners argue that the facts
discovered at verification regarding the method through which
Deltacogne was transferred to ILVA do not change the countervailability
of Deltacogne's losses and liabilities that were not distributed to
Cogne S.r.l., and to do so would elevate form over substance. Debts
left in ILVA are part of the same program. Petitioners assert that when
assets are redistributed and liabilities/losses are left in a shell
company, there need not be a separate government action to show a
benefit to the continuing entity. Petitioners state that it is the
Department's well-established practice to find that relieving the
continuing entity of the burden of liabilities and/or losses is a
countervailable event citing Certain Steel from Austria, Electrical
Steel from Italy, and Steel Wire Rod from Trinidad and Tobago. Thus,
Petitioners argue that the Department should countervail all
undistributed liabilities and losses with respect to the 1989
restructuring and creation of Cogne S.r.l. Petitioners state that the
transformation in corporate form from Cogne S.r.l. to Cogne S.p.A.
shortly after the creation of the company is important because it shows
that liabilities remained with ILVA through this restructuring.
CAS responds that the statute requires a determination that the
government provided a financial contribution to the entity, which is
not demonstrable in this case. CAS also states that losses are not
countervailable subsidies.
Department's Position: Based on the facts discovered at
verification, the situation described in the preliminary determination
does not accurately describe the events related to the restructuring of
Deltacogne into ILVA and the creation of Cogne S.r.l. Thus, we have
modified our approach to this program. As described in the ``Benefits
Associated with the Restructuring of Finsider'' program above, our
review of the record indicates that no liabilities/losses remained in
Finsider as a result of the restructuring of Deltacogne into ILVA and
subsequently, Cogne S.r.l. Because of the manner in which the
operations of the Aosta facility were transferred from Deltacogne to
ILVA and from ILVA to Cogne S.r.l., the record evidence does not
demonstrate the extent to which all the liabilities and losses were
distributed to Cogne S.r.l. that belonged to those operations. Several
operations were included in Deltacogne (Aosta factory, hydroelectric
plants, Verres steel works) which were merged into ILVA and then spun-
off into separate entities. Information contained in the financial
statements does not demonstrate that liabilities and losses that
properly belonged to the Aosta operations were not distributed to Cogne
S.r.l.
As the Petitioners point out, if liabilities or losses remained in
ILVA that should have transferred to Cogne S.r.l., we would treat that
as a separate subsidy event from the one originally alleged and
examined, which involved the assumption of liabilities and losses left
in Deltacogne S.p.A. by the GOI through Finsider S.p.A. See, e.g.,
Certain Steel from Austria, 58 FR at 37217.
In this respect, CAS is mistaken that assumption of losses by the
government is not countervailable. The Department's
[[Page 40495]]
long-standing practice has been to treat the assumption of losses as a
countervailable event because such governmental action confers a
benefit. See e.g., Certain Steel from Austria, 58 FR at 37217 and
Electrical Steel from Italy. 59 FR at 18359. If losses are not
distributed to the new company through a restructuring process, a
benefit is conferred upon the productive assets of the new entity.
Under Italian law, losses must eventually be accounted for--either
offset by future profits or by a reduction in share capital. If,
however, losses are assumed by the government that the company
otherwise would bear responsibility for, then there is a benefit to the
new company which receives the productive assets free of the losses
associated with previous years of inefficient production.
Further, we disagree with CAS's interpretation of the statutory
requirements regarding financial contributions. CAS apparently presumes
that the URAA reversed the Department's practice in this regard.
However, the SAA specifically states that ``practices countervailable
under the current law [the pre-URAA statute] will be countervailable
under the revised statute.'' SAA at 925. Moreover, the definition of
``financial contribution'' contained in section 771(5)(D) of the Act is
``not intended to be exhaustive'' but sufficiently broad to encompass
the same types of government actions countervailed under the pre-URAA
statute. Id. at 927. Thus, as with the assumption of liabilities, the
assumption of losses by the government provides the equivalent of a
direct transfer of funds that confers a benefit which is
countervailable under section 771(5) of the Act. See, e.g., Steel Wire
Rod from Trinidad and Tobago, 62 FR at 55012.
Respondent's reference to the initiations of OCTG from Italy and
Seamless Pipe from Italy is without merit because the Department's
legal standard in initiations is fundamentally different than that in
preliminary and final determinations. At the initiation stage, the
Department evaluates whether the information contained in the petition
is sufficient to warrant investigation of alleged subsidies. See
section 702(c) of the Act. Thus, a determination at the initiation
stage that the petition contains insufficient evidence to warrant
investigation is qualitatively different than a determination based
upon the record evidence that there is no countervailable benefit from
a program. Nevertheless, Respondent seems to be arguing that the
Department should determine, based on the record evidence, that there
is no benefit to CAS from this program. However, as discussed above, we
have examined the record evidence in this case and determined that CAS
did not receive countervailable benefits.
Therefore, while we agree with Petitioners that liabilities and
losses left in ILVA that were not properly distributed to Cogne S.r.l.
would constitute countervailable benefits that do not require a
separate government action, we cannot reasonably conclude from the
record evidence that liabilities and losses were not distributed to
Cogne S.r.l. As such, we have found this program to be ``not used.''
Comment 10: CAS Does Not Benefit from Equity Infusions: CAS argues
that the equity infusions to Deltasider and ILVA conferred no
countervailable benefit on Deltasider, Cogne, or any other owner of the
Aosta facility. CAS states the Department's proposed regulations and
policy establish a rebuttable presumption that a subsidy received by
one entity will be attributed to products only manufactured by that
entity. Countervailing Duties, Proposed Rule, 62 FR 8818 (Feb. 26,1997)
(1997 Proposed Regulations). CAS states that any subsidies ILVA
received from the 1991-1992 equity infusions should be allocated
exclusively to its unconsolidated operations because ILVA transferred
none of that equity to Cogne (or other subsidiaries). CAS argues that
in OCTG from Italy and Seamless Pipe from Italy, the Department
declined to investigate subsidies provided to ILVA S.p.A. as a benefit
to the subject merchandise in those cases because there was no evidence
that subsidies were being channeled through to the production of the
subject merchandise.
CAS argues further that Finsider's equity infusions in 1985-1986
provided no countervailable benefits to Deltasider, the Finsider
operating company that held the Aosta operations during those years.
CAS states that the Department's ``holding company'' rule, whereby
subsidies received by a holding company are attributed to that
company's consolidated sales, does not apply to government-owned
holding companies such as Finsider. CAS cites UK Lead Bar 96 and Brass
Sheet and Strip from France to support its position that in order for a
subsidy provided to a government-owned holding company to be attributed
to the sales of its subsidiaries, there must be a demonstrated
transfer. Further, CAS states that Finsider transferred none of its
1985-1986 equity infusions to Deltasider. CAS argues that, as a general
principle, attributing a recipient's subsidy to an affiliated party
absent evidence of an actual financial transfer violates standards
established by Generally Accepted Accounting Principles that the
Department must, in general, follow. CAS further argues that the
existence of a consolidated financial statement is irrelevant to
whether a subsidiary benefitted from a subsidy provided to the parent
company. CAS contends that this method of attribution could present
different results to similarly-situated subsidiary companies if one is
consolidated and one is not.
Petitioners argue that the Department properly countervailed all
instances of equity infusions in this case. Petitioners argue that
Respondents overstate the Department's practice with respect to holding
companies. Petitioners state that the Department's rule with respect to
holding companies calls for the attribution of the untied subsidy to
the consolidated sales, not any requirement to demonstrate pass-through
to a particular subsidiary entity. Petitioners state the corporate
relationship between ILVA and Cogne by itself is sufficient to
attribute a portion of the equity infusions to Cogne. Petitioners cite
the GIA and UK Lead Bar as support that, ``the Department often treats
the parent entity and its subsidiaries as one when determining who
ultimately benefits from the subsidy.'' GIA at 37262.
Department's Position: In the preliminary determination, the
Department appropriately attributed the benefits from non-recurring
untied subsidies received by ILVA and Finsider to the consolidated
operations of the ILVA and Finsider Groups which included Cogne, the
producer of subject merchandise. This is consistent with the
Department's practice that attributes untied subsidies to the company's
total domestically-produced sales. GIA, 58 FR at 37267. When the parent
company of a consolidated group receives untied subsidies, such as
equity infusions, these domestic subsidies are normally attributed to
the consolidated group. See UK Lead Bar 95, 62 FR at 53311.
We disagree that OCTG from Italy and Seamless Pipe from Italy
establish controlling precedent for the treatment of these equity
infusions. In those cases, the Department decided not to initiate on
alleged indirect equity infusions. This decision not to initiate cannot
be construed as precedent for how the Department treats untied
subsidies to parent or holding companies. Moreover, the particular
subsidies at issue in this case, equity infusions provided to Finsider
and ILVA, were not alleged in OCTG from Italy and Seamless Pipe from
Italy. See OCTG from Italy, 59 FR at 37965 and Seamless Pipe from
Italy, 59 FR at 37028. Respondent's quotation
[[Page 40496]]
from the initiation notices in those cases fails to include the primary
reason the Department decided not to initiate on an alleged
``indirect'' equity infusion into Dalmine which involved the sale of
shares of a partially-owned Dalmine subsidiary company to Dalmine's
parent, ILVA. The Department found that there was no basis for the
allegation that this acquisition of the subsidiary's shares constituted
an ``indirect'' equity infusion. Thus, the allegations in those cases
were substantively different than the program under examination in this
case which involves the direct purchase of equity by the GOI.
OCTG from Italy and Seamless Pipe from Italy also drew a
distinction between ILVA as an operating company and Finsider as a
holding company, which was somewhat artificial. ILVA was both a holding
company and an operating company. The Department has recognized that
where a holding/operating company exercises considerable control over
its consolidated subsidiaries, the two may be treated as one for
purposes of attributing subsidies. See, e.g., UK Lead Bar 95, 62 FR at
53316. In these instances, the Department has found that a subsidy
provided to one corporate entity can bestow a countervailable benefit
upon another entity within the corporate group. See, e.g., Steel Wire
Rod from Canada, 62 FR at 54978; Seamless Stainless Steel Hollow
Products from Sweden, 52 FR 5794 (Feb. 26, 1987). In such
circumstances, where the parent and its subsidiaries are treated as a
single entity, and we determine that the parent has received subsidies
not tied to production or sale of a particular product or to sales of
products in a particular market (i.e., untied subsidies such as equity
infusions), the Department allocates the benefit from such untied
subsidies over the total consolidated sales from domestic production.
See GIA, 58 FR at 37267; Final Affirmative Countervailing Duty
Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel
Products from France, 56 FR 6221, 6224-25 (Jan. 27, 1993) (France
Bismuth). Where the parent and subsidiary are essentially one entity,
it is unnecessary to analyze whether the parent has ``passed'' the
subsidy to the subsidiary because ``a parent company exercises control
over the capital structure and commercial activities of its
consolidated subsidiaries.'' UK Lead Bar 95, 62 FR at 53311.
Only in the limited circumstances where we determined that there is
an insufficient identity of interests between the parent and the
subsidiary to warrant treating the entities as one, do we not follow
this general practice concerning attribution of untied subsidies. See,
e.g., Ferrosilicon from Venezuela, 58 FR at 27542. In this case,
however, Finsider was a government-owned holding company that held
steel producing companies. An equity infusion into Finsider, a holding
company with no operations of its own, clearly benefitted the steel
production of its subsidiaries. Finsider existed solely to manage the
government-owned steel production companies. Thus, there is a clear
identity of interest between Finsider and its subsidiaries, including
the CAS predecessor companies, which makes it appropriate to attribute
the equity infusions to the consolidated holdings of the Finsider
Group. See, e.g., Steel Wire Rod from Canada, 62 FR at 54978. The same
identity of interest existed between ILVA and its consolidated
subsidiaries. Thus, the record evidence supports attributing benefits
received from equity infusions to the consolidated group holdings of
the Finsider Group and the ILVA Group, and no demonstration that untied
benefits passed through to the consolidated subsidiaries is required.
CAS also misconstrues the Department's practice with respect to
government-owned holding companies. As Petitioners correctly point out,
the Department has often attributed untied subsidies provided to a
holding company to the consolidated holdings of the company even where
the holding company is government-owned. See, e.g., Steel Wire Rod from
Canada, 62 FR at 54978; France Bismuth, 58 FR at 6224-25. One exception
to this rule is if the holding company was found to be merely a conduit
for channeling the subsidy to a particular subsidiary, in which case
the entire subsidy would be attributed to the subsidiary. See, e.g.,
Final Affirmative Countervailing Duty Investigation: Certain Carbon
Steel Products from Austria, 50 FR 33369 (Aug. 19, 1985). Thus, the
Department normally presumes that the untied subsidy benefits the
consolidated operations. The Department does not draw a distinction
between private and government-owned holding companies that share an
identity or commonality of interest (e.g., are steel producers). On
this point, we note that our statements in UK Lead Bar 96 concerning
attribution of subsidies between government-owned holding companies and
their related subsidiaries do not require a separate analysis for
government-owned holding companies, as CAS advocates. UK Lead Bar 96
should not be construed as establishing a separate test for determining
how subsidies provided to government-owned holding companies should be
attributed, but rather as a response to a distinction drawn by the
Respondent in UK Lead Bar 96 concerning our analysis in Ferrosilicon
from Venezuela, which involves the ``identity of interests'' concept
outlined above. See UK Lead Bar 96, 63 FR at 18373. As the case law
discussed above demonstrates, the Department's past attribution
practice has made no distinction based solely on the government
ownership of the holding company.
We also disagree with CAS that this policy violates GAAP. As
discussed in the Accounting Research Bulletin, provided by CAS in
support of its argument, a single enterprise may be organized either as
one corporation with branches and divisions, or as a parent company and
subsidiaries. The Accounting Research Bulletin goes on to explain that
consolidated financial statements recognize that ``* * * boundaries
between separate corporate entities must be ignored to report the
business carried on by a group of affiliated corporations as the
economic and financial whole that it is.'' See CAS April 9, 1998
submission at A3. If a subsidiary is consolidated with the parent
company for financial reporting purposes, normally it is because the
parent holds more than 50 percent of the shares in that company and
exercises control over its operations. There are legitimate business
reasons why certain subsidiaries are consolidated and certain others
are not. The examination of consolidated operations is appropriate in
the Department's attribution practice, because it is at this level that
a private investor (in the case of an equity infusion) or private
lender (in the case of a loan) would normally conduct its analysis of
whether an investment in the holding/parent company is a viable risk.
As stated in the Accounting Research Bulletin, ``[t]hose who invest in
the parent company * * * invest in the whole group, which constitutes
the enterprise that is a potential source of cash flow to them as a
result of their investment.'' Id. In this way, the consolidated
companies are tied together and may be appropriately treated as one for
purposes of attributing untied subsidies provided to the holding
company, including a parent company with its own operations.
Attributing untied subsidies provided to the parent/holding company
to the consolidated holdings does not imply a determination of which
corporate entity in a group owns specific assets. Attributing untied
subsidies provided to the parent/holding company to the
[[Page 40497]]
consolidated holdings of the corporate group merely assigns the benefit
on a pro rata basis across all operations.
We agree that the existence of consolidated financial statements is
not the only factor to be considered in determining the proper
attribution of an untied subsidy provided to the parent company of a
corporate group. For instance, we discussed above instances where a
subsidy is channeled through a holding company to a particular
subsidiary entity, in which case the subsidy would not automatically be
attributed to the entire group. In addition, if there is an
insufficient identity of interest among the corporate group, the
Department will consider these facts and determine whether it is
appropriate to attribute subsidies to the consolidated group holdings,
such as in Ferrosilicon from Venezuela. The Department will consider
other facts relevant to our determination including whether there have
been massive and complicated restructurings, in which case we may
attribute untied subsidies on an alternative basis other than
consolidated sales where appropriate. However, absent that type of fact
pattern, it is appropriate to find that the untied subsidy to the
holding/parent company benefitted all of its operations including its
consolidated operations. CAS's concern that this policy results in
inequitable results for consolidated and non-consolidated subsidiaries
is misplaced because the appropriate attribution of subsidies is based
on the specific facts in a particular case. UK Lead Bar 96, 63 FR at
18372.
In this investigation, the Cogne subsidiary companies (the
predecessor companies of CAS) were always consolidated with the parent
and there are no facts to demonstrate that the equity infusions were
channeled to a particular subsidiary (including a Cogne company). Thus,
we find that the equity infusions to ILVA and Finsider benefitted all
of their consolidated production including, on a pro rata basis,
production of subject merchandise. To determine the benefit to CAS, we
used the methodology described in the ``Change in Ownership'' section
above.
Comment 11: Assumption of Cogne's Liabilities: CAS argues that the
assumption of Cogne's liabilities at the time CAS was privatized
provided no financial contribution or other countervailable benefit to
CAS. CAS argues that Cogne and CAS were separately incorporated
entities that maintained separate financial records and did not
exchange assets ``without restriction.'' Further, CAS argues that the
GOI's ultimate responsibility for any portion of Cogne's liabilities
arose by operation of a generally applicable provision of Italian law
and not as a result of a Governmental decision. CAS argues that Italian
law makes all parent companies responsible for the debts of their
wholly-owned subsidiaries. CAS argues that since this provision of
Italian law governs all companies, any debt coverage provided to Cogne
in connection with the liquidation is not specific.
CAS also argues that the Department's methodology in the
preliminary determination overstated any benefit by failing to account
for the value of several substantial and bona fide assets including
inventories, current assets, and bank deposits that remained on Cogne
S.p.A. in Liquidazione's books as of CAS's privatization. Respondent
argues that there is no reason to subtract some, but not all of the
assets from the calculation of net liabilities, citing Steel Wire Rod
from Trinidad and Tobago. Further, CAS argues that losses are not
countervailable benefits.
Petitioners argue that the Department's preliminary determination
with respect to this program understated the actual benefit to CAS by
focusing solely on losses instead of losses and liabilities.
Petitioners argue that the Department's practice supports
countervailing both the coverage of losses and the assumption/
forgiveness of liabilities as separate subsidy events. Petitioners
argue that, if the Department adjusts the liabilities and losses for
the assets that remained in the books of Cogne S.p.A., certain assets
including the receivables from CAS should not be counted.
Department's Position: The Department properly countervailed
benefits provided in connection with the privatization of CAS in the
preliminary determination. Before CAS was privatized, its holdings and
those of its parent company, Cogne S.p.A., were reorganized, so that
Cogne S.p.A. contributed most of the assets and the responsibility for
continued operations to CAS, while retaining most of the liabilities.
Cogne S.p.A. was placed into liquidation, and was eventually absorbed
into ILVA in Liquidazione. However, we have revised our methodology
with respect to the calculation of this benefit for this final
determination based upon facts discovered at verification. In the
preliminary determination, we subtracted the book value of the land and
buildings from Cogne S.p.A.'s total liabilities and treated the
difference, approximately 411 billion lire, as the amount of
liabilities ILVA assumed through this process. However, former ILVA
officials reported at verification that the most appropriate figure
reflecting the cost of the liabilities/losses remaining in Cogne S.p.A.
at the time of CAS's privatization was reported on ILVA S.p.A. in
Liquidazione's 1993 financial statement. This figure, a 253 billion
lire fund established to cover liabilities and losses associated with
Cogne S.p.A.'s liquidation, represents the total cost incurred by ILVA
at that time. The cost to ILVA reflects the value of the liabilities
and losses which were assumed by the GOI as part of the privatization
process, and as such, constitute the benefit to CAS in connection with
its privatization, and the liquidation of Cogne S.p.A. as of year-end
1993. The assumption of the liabilities/losses by ILVA and the GOI
through this process constitutes a benefit to CAS because it was
relieved of financial obligations for which it would otherwise have
been liable. Using this figure also removes the problem of which assets
and liabilities should be included in the calculation of the net
liability as of year-end 1993, and whether losses should also be
included in the calculation. Accordingly, the interested parties'
arguments concerning the specific assets and liabilities that should be
included in the calculation of the benefit are moot. Notwithstanding
this change in our calculation, we continue to find that the assumption
and/or coverage of liabilities and losses are countervailable
subsidies. As we explained in the Department's Position on Comment 9
above, the assumption of losses provides the equivalent of a direct
transfer of funds that confers a benefit, which is countervailable
under section 771(5) of the Act.
We agree with CAS's statement that assets and liabilities did not
flow without restriction between Cogne and CAS. The companies were
separately incorporated. Once the capital contribution was made at the
end of 1992, nearly all of the productive assets of Cogne were
transferred to CAS in exchange for shares and CAS assumed the
production activities from that date. The transfers between the two
companies after that date were made at book value. By the end, CAS held
all assets with value. However, we note that this fact is not
particularly relevant to whether or not a subsidy was provided in
connection with the privatization of CAS and liquidation of Cogne
because our finding is based on the total amount that ILVA and the GOI
was forced to cover as of the time of privatization and is not
connected to individual transfers between the two companies.
[[Page 40498]]
We do not find CAS's argument pertaining to the sole shareholder
provision of Italian law persuasive. The liquidation of Cogne S.p.A.,
including the debt forgiveness/coverage that was provided, was done in
the context of a massive restructuring/privatization plan undertaken by
the GOI and approved and monitored by the EU. The costs of the
liquidation of Cogne S.p.A. were included in the total aid package
approved, for some 10 trillion lire. Thus, the benefits were provided
in the context of a massive state-aid package designed to allow the GOI
to rationalize and privatize its steel holdings. CAS mischaracterizes
the liquidation of Cogne S.p.A. as the normal application of a
provision of Italian law. As Cogne S.p.A.'s liquidation was part of
this extensive state-aid package, the record evidence demonstrates that
the liquidation is not a normal occurrence. Finally, CAS's argument
assumes that if a private company owned Cogne S.p.A., it would have
allowed the company's financial condition to deteriorate to the level
it did. This argument is without merit. There is no basis for
concluding that a private owner would have allowed such an unprofitable
operation--one that the EU recognized as uneconomical in 1989--to
continue operating for so long. See GOI December 2, 1997, questionnaire
response, public version on file in the CRU. This determination is
consistent with our past practice, see, e.g., Steel Wire Rod from
Trinidad and Tobago.
Comment 12: Cogne's Liquidation Extinguishes Prior Subsidies: CAS
argues that Cogne's liquidation extinguished all pre-1993 subsidies
otherwise attributable to CAS. CAS states that its shares were sold to
private investors in the course of the liquidation proceeding, and it
is the Department's long-established practice to consider that any
bankruptcy-type proceeding extinguishes all pre-bankruptcy subsidies,
citing Certain Stainless Steel Products from Spain 47 FR 51453 (Nov.
15, 1982) (Stainless Steel Products from Spain) in which benefits
provided prior to a receivership plan were found to be extinguished;
Certain Textile Mill Products and Apparel from Colombia, 52 FR 13272
(April 22, 1987) (Apparel from Colombia) in which the suspension of
interest payment obligations on loans was found not to be a subsidy
because it was done through bankruptcy laws; Salmon from Norway, 56 FR
7675 (Feb. 25, 1991) in which principal/interest suspensions and loan
write offs occurred through bankruptcy proceedings and were not found
to be subsidies; Pads for Woodwind Instrument Keys from Italy, 49 FR
17791 (April 25, 1984) (Instrument Key Pads from Italy) in which a
provincial program that allowed companies to recover from bankruptcy
was found not to be specific. CAS also cites OCTG from Canada, 51 FR
15037 (April 22, 1986) where the Department found that subsidies that
were provided to one company did not pass through to the purchaser of
that company's assets. CAS argues that the Department's practice with
respect to bankruptcy-type proceedings does not require that the
operation be closed in order for the pre-existing subsidies to be
extinguished. CAS argues that this position would be inconsistent with
commercial considerations and contrary to the intent of the
countervailing duty law because it would require operations to be
closed in order for subsidies to be extinguished when an on-going
operation can normally obtain a higher return on its sale.
Petitioners argue that the liquidation of Cogne S.p.A. is not
relevant to the Department's determination of whether or not there is a
subsidy. Petitioners argue that the sale of the CAS shares did not
arise out of the liquidation proceeding, but was a premeditated
decision by the GOI to continue the operation of the facility.
Petitioners argue that the GOI did not try to get the best possible
price for the shares as the real price was the net value of the company
minus the restructuring fund, and that the GOI actually paid the new
owners to purchase the company. Petitioners further argue that the
analysis provided by Respondents related to bankruptcy proceedings
relates solely to subsidies provided in the context of a bankruptcy
proceeding. Petitioners state that to find no subsidy benefits to the
new company would invite circumvention of the countervailing duty law
because governments could simply create new entities and leave the
debts in the old companies. Petitioners cite German Wire Rod to support
their position that the Department has determined that bankruptcy
proceedings do not impact previously bestowed subsidies if unaffected
through the bankruptcy process.
Department's Position: We agree with Petitioners that the facts
related to the liquidation of Cogne S.p.A. are not relevant to our
determination as to the existence and continuation of benefits from
previously bestowed subsidies. As discussed below, we find no factual
distinctions which render our standard privatization methodology
inappropriate. Moreover, the cases which CAS cites are distinguishable
from the facts surrounding CAS's privatization and do not reflect a
policy with respect to the forgiveness of debt provided to a
government-owned company.
In Apparel from Colombia, Stainless Steel Products from Spain and
Salmon from Norway, the Department found that the forgiveness of
obligations or beneficial repayment terms were not countervailable
because the forgiveness was done through a bankruptcy proceeding in
which the government acted in a manner consistent with commercial
banks. In those cases, the benefit at issue was provided through the
bankruptcy proceeding itself. See Apparel from Colombia, 52 FR at
13277; Stainless Steel Products from Spain, 47 FR at 51442, and Salmon
from Norway, 56 FR at 7685. In Instrument Key Pads from Italy, the
issue before the Department was the specificity of a government program
which provided financing to firms facing financial difficulties. The
existence of the bankruptcy proceeding did not lead to the
noncountervailability finding, but rather the Department determined
that the law in question was not limited to an enterprise or industry
or group of enterprises or industries. Instrument Key Pads from Italy,
49 FR at 17793-94.
Despite these factual distinctions, to the extent that the
Department's analysis in these cases may be interpreted as finding the
bankruptcy proceedings as extinguishing prior subsidies, that
interpretation is inapplicable to this investigation. In OCTG from
Canada, the Department noted the arm's length nature of the change in
ownership transaction. OCTG from Canada, 51 FR at 15042. In Certain
Steel Products from Spain, the Department suggested that pre-
receivership benefits were extinguished when these debts became
consolidated in the bankruptcy proceeding. Certain Steel Products from
Spain, 47 FR at 51443. However, in adopting the current privatization
methodology, the Department specifically disavowed any prior decisions
in conflict with its revised approach. The Department stated: ``[t]o
the extent that the approach adopted here arguably is inconsistent with
prior decisions, such decisions are superseded by our conclusions
here.'' GIA, 58 FR at 47263. Thus, these pre-1993 cases are not
controlling precedent on the Department's current privatization
methodology, which does not find extinguishment based upon bankruptcy
proceedings. See, e.g., German Wire Rod, 62 FR at 54992.
None of these case precedents require a determination by the
Department that the liquidation proceeding extinguished
[[Page 40499]]
subsidies or prevented subsidies from being passed through to CAS. In
this investigation we are not examining an instance of bankruptcy laws
providing beneficial repayment terms to the company or whether the
government was acting as a commercial entity as was the case in the
first three cases. Although Cogne S.p.A. could not have covered its
obligations on its own, the company was not placed into bankruptcy, but
into liquidation. Further, none of the payment terms/obligations were
reduced as a result of the liquidation process--they were simply
assumed by ILVA and later the GOI. In addition, specificity, which was
the issue in Instrument Key Pads from Italy, is not an issue in the
instant investigation. The debt forgiveness provided to CAS was part of
a 10 trillion lire state aid package for the liquidation and
privatization of the government-owned steel companies in Italy.
Further, OCTG from Canada involved the sale of physical assets at
an appraised value, not the sale of an on-going concern. CAS argues
that the purchasers of CAS bought only assets from Cogne S.p.A., not
Cogne S.p.A. itself. While it is true that they did not purchase Cogne
S.p.A. itself, what they got was even better--all of the productive
assets of Cogne S.p.A. (which had been transferred to CAS), and very
little of the company's extensive debt and loss burden. At no time did
operations cease, they were simply transferred from one company to
another. Thus, this is not the case of pieces of equipment being
auctioned to the highest bidder--CAS was sold as an on-going concern
with all of the productive assets and few of the liabilities and losses
associated with that operation.
In addition, the other cases cited by CAS involved whether the
actions of the government provided a countervailable subsidy. In
Certain Stainless Products from Spain, one Respondent went into
bankruptcy, a receivership plan was agreed to by the court, and the
company's creditors established payment terms for the company's debt.
The company's debt was comprised of loans from suppliers, short- and
long-term debt from commercial banks and short-term loans provided by
the government. Thus, in agreeing to the court approved debt
restructuring plan, the government was acting in the same manner as
commercial bankers and suppliers. We further noted in that case that
the short-term loans provided to the company by the government would
have been paid off within a year of their issuance but for the
declaration of bankruptcy. Similarly in Salmon from Norway, the issue
was the actions taken by the government with respect to outstanding
loan payments due them from commercial fish farmers. For fish farmers
facing financial difficulties, the government deferred interest and
principal payments. When it became apparent that the loans would never
be repaid, the government initiated a legal proceeding to declare the
company bankrupt and to seize the company's assets. These assets were
sold at a public auction and losses which could not be recovered were
then written off. We found that these actions by the government were
not countervailable because the government did not act ``in a manner
inconsistent with commercial considerations.''
Thus, the cases cited by CAS fail to support CAS's argument that
Cogne's liquidation extinguished its pre-1993 subsidies. We further
note that the cases cited by CAS address government actions with
respect to private not government-owned companies. Facts which may be
present with respect to bankruptcies of government-owned companies
raise issues that are not present in the bankruptcies of private
companies. For example, in the instant investigation, an Italian
commercial banker stated that in the event that a government-owned
company is unable to service its loan payments, it is assumed that the
government will intervene and make the remaining payments. See
Commercial Experts Report at 3. In addition, during our verification of
the CAS response, we asked the bankruptcy consultant hired by CAS
whether he was aware of any actual bankruptcy or liquidation of a
state-owned company where creditors were left without full repayment by
the government. The consultant stated that he was not aware of any such
instances. See CAS Verification Report at 9. Thus, the record evidence
in this case indicates that the treatment of bankrupt private companies
does not provide an appropriate basis for the treatment of bankrupt
government-owned companies or for bankruptcies where the government has
interfered. Therefore, even if the cases cited by CAS were relevant to
its debt forgiveness and privatization, those cases would not govern
the Department's analysis of the issues present in this investigation
because those cases failed to address the unique circumstances of a
bankrupt government-owned company or a company operating in an
environment where a government has interfered in normal commercial
banking operations.
Comment 13: Privatization Extinguishes Subsidies: CAS argues that
its 1993 privatization also extinguished all pre-privatization
subsidies. CAS states that the Department must consider the specific
circumstances of CAS's privatization in determinating whether pre-
existing subsidies survived the privatization. CAS states that the
transfer of a productive unit to CAS by Cogne at its full appraised
value extinguished pre-existing subsidies. CAS argues that the Court's
rationale in Inland Steel Bar Co. v. United States, 960 F. Supp. 307
(CIT 1997) (Inland Steel) requires a finding that there is no pass
through in this case, when a company transfers a productive unit
because a subsidy may only be received by a legal entity. CAS further
states that Cogne achieved not only an arm's length price in the
privatization of CAS, but the best possible price, as required by the
EU rules on privatization. CAS states that it was sold for the best
possible price and, thus, received no competitive benefit from the
transaction.
CAS argues that the attribution of pre-privatization subsidies to
CAS would violate the Department's obligation to allocate non-recurring
subsidies over a ``reasonable period'' based on the ``subsidy's
commercial and competitive benefit.'' CAS states that the only
``reasonable period'' for allocation would end in 1993 because of the
privatization of the company. CAS states that by allocating through the
AUL method, the Department recognizes that allocation is like
depreciation, and thus must be discontinued when an operation is closed
or abandoned. CAS further argues that Congress imposed no single,
inflexible formula on the Department's allocation of non-recurring
subsidies, and that it would be unreasonable and arbitrary to allocate
benefits over the average useful life of CAS's assets because it
receives no commercial or competitive benefit from pre-privatization
subsidies.
CAS claims that a policy mandating no extinguishment of pre-
privatization subsidies would produce inconsistent and absurd results
and compares the Department's practice with respect to upstream
subsidies to privatization to demonstrate this point. CAS hypothesizes
two scenarios, one in which an input is purchased for the best possible
price from a third party in which an upstream analysis would find no
subsidy and one in which the input is purchased from a privatization,
in which the subsidy would pass through. CAS states that for that
reason, the conclusions of the privatization analysis are absurd.
Petitioners argue that CAS's arguments merely demonstrate that the
[[Page 40500]]
company was sold at arms-length, which does not require the Department
to find that no subsidies passed through the privatization.
Department's Position: We agree with Petitioners. CAS's argument
merely attempts to demonstrate that the sale of the company was done at
arm's length, which does not demonstrate that previous subsidies were
extinguished. Section 771(5)(F) of the Act states that the change in
ownership of the productive assets of a foreign enterprise does not
require an automatic finding of no pass through even if accomplished
through an arm's length transaction. The SAA directs the Department to
exercise its discretion in determining whether a privatization
eliminates prior subsidies by considering the particular facts of each
case. SAA at 928. In this instance, consistent with the statute and
SAA, we have examined the facts of this case and determined it is
appropriate to allocate subsidies to CAS using the Department's
standard privatization formula.
First, CAS draws an artificial distinction between the ``best
possible price'' and the ``arm's length'' price. The commercial nature
of an arm's length transaction would almost always require that the
best possible price be paid because the seller has no incentive to
accept anything less. Nonetheless, the record evidence does not support
CAS's statement that it was sold for ``the best possible price.''
Although CAS was sold pursuant to an open bidding procedure that
involved several bidders and multiple rounds of offers, the record
demonstrates that the purchase price was not the focus of negotiations;
all bidders agreed to pay the net worth of the firm. The actual
linchpin of the sale was the value of the restructuring fund the
purchaser would receive upon buying CAS's productive assets. (Given the
proprietary nature of the bidding documents, the specific details
surrounding the negotiations for the sale of CAS cannot be addressed in
this public notice). The restructuring fund was necessary because of
the company's history of poor performance. Thus, we find no
distinguishing facts surrounding CAS's purchase price to render
application of the Department's standard methodology inappropriate. We
also note that we have appealed the decision to the Federal Circuit.
Therefore, Inland Steel does not mandate a finding of no pass through
in this investigation. Rather, we continue to follow the methodology
upheld by the Federal Circuit in Saarstahl and British Steel.
Second, we disagree with CAS's arguments concerning the AUL period
and privatization for several reasons. There is no inconsistency
between the AUL period and the allocation of subsidies that passed
through to CAS. The AUL represents a reasonable period of years over
which a non-recurring subsidy benefits production. As we explained in
the GIA, ``the length of the benefit stream is not determined by how
the subsidy is used.'' GIA, 58 FR at 37229. Altering the AUL period
based on either use or change in ownership of the productive assets
would be tantamount to tracing the effect of the non-recurring subsidy
which is clearly not required by the CVD law. See section 771(5)(C) of
the Act. Altering the AUL period to account for a change in ownership
would result in an automatic finding of no pass through contrary to
section 771(5)(F) of the Act, the SAA, and practice.
Third, CAS argues that the use of an allocation period is similar
to depreciation and thus must end when enterprises are discontinued or
abandoned. CAS never permanently ceased operations. The sale of an on-
going concern is not similar to discarding a piece of equipment. CAS
attempts to draw a parallel between depreciating an asset that is
abandoned and the allocation of a subsidy through a change in ownership
where a parallel simply does not exist. We note that there are no facts
on the record of this case that would demonstrate that the allocation
period we have chosen is unreasonable.
Finally, CAS's argument comparing the Department's privatization
and upstream subsidy practices disregards the distinct analyses
performed under these methodologies. An upstream subsidy analysis
concerns subsidies provided to an input which is incorporated into a
downstream product. The Department is seeking to determine whether the
subsidy provided to the input can be attributable to the production of
the subject merchandise. See 771A of the Act. In the privatization
analysis, the Department has already made a determination that the
subject merchandise itself has benefitted from countervailable
subsidies, and the Department is seeking to determine whether subsidies
previously bestowed to the production of the subject merchandise pass
through to the new owner.
The Department does not trace the competitive benefit of subsidies
provided to subject merchandise. See 771(C) of the Act, GIA 58 FR at
37260-61. However, the competitive benefit analysis performed under the
upstream subsidy analysis is a narrow exception mandated by the
statute, which codifies the Department's chosen methodology to address
the particular factual circumstances of subsidized inputs used in the
production of the subject merchandise. Given the distinct factual
circumstances addressed by the privatization and upstream subsidy
analyses, we see no reason to change our established privatization
practice which is consistent with the statute, the We also disagree
with CAS that this policy violates GAAP. As discussed in the Accounting
Research Bulletin, provided by CAS in support of its argument, a single
enterprise may be organized either as one corporation with branches and
divisions, or as a parent company and subsidiaries. The Accounting
Research Bulletin goes on to explain that consolidated financial
statements recognize that ``* * * boundaries between separate corporate
entities must be ignored to report the business carried on by a group
of affiliated corporations as the economic and financial whole that it
is.'' See CAS April 9, 1998 submission at A3. If a subsidiary is
consolidated with the parent company for financial reporting purposes,
normally it is because the parent holds more than 50 percent of the
shares in that company and exercises control over its operations. If a
parent company prepares consolidated financial statements, there are
legitimate reasons why certain subsidiaries are consolidated and
certain are not--i.e., level of participation and control in the
subsidiary. The examination of consolidated operations is appropriate
in the Department's attribution practice, because it is at this level
that a private investor (in the case of an equity infusion) or private
lender (in the case of a loan) would normally conduct its analysis of
whether an investment in the holding/parent company is a viable risk.
As stated in the Accounting Research Bulletin, ``[t]hose who invest in
the parent company * * * invest in the whole group which constitutes
the enterprise that is a potential source of cash flow to them as a
result of their investment.'' Id. In this way, the consolidated
companies are tied together and may be appropriately treated as one for
purposes of attributing untied subsidies provided to the holding
company, including a parent company with its own operations. SAA, and
has been upheld by the Federal Circuit on two occasions. See, e.g.,
Saarstahl AG v. United States, 78 F.3d 1539 (Fed. Cir. 1996); British
Steel plc v. United States, 127 F.3d 1471 (Fed. Cir. 1997).
Comment 14: Restructuring Fund Provided to CAS is a Subsidy:
[[Page 40501]]
Petitioners argue that the restructuring fund given to CAS as part of
the 1993 pre-privatization aid program provided an additional
countervailable benefit that should be reflected in the final analysis.
Petitioners contend that the fact that the negotiations for the sale of
the company centered on how large the restructuring fund would be shows
that it was necessary to ``sweeten the pot'' in order to sell the
company. Further, Petitioners contend that even if commercial companies
may sometimes provide this type of restructuring fund in order to sell
a subsidiary company, the provision of such a fund by a government
entity remains a countervailable subsidy. Petitioners state that the
purpose of the fund was to sell the newly-created company by covering
bad will, not to reduce the liabilities left in Cogne S.p.A., and is
therefore, a separate subsidy event.
CAS states that the restructuring fund conferred no separate,
countervailable benefit to the new company. CAS cites OCTG from Canada
where the Department decided that special financing arrangements were
consistent with commercial considerations because it allowed the
government to recover some of the owed funds. CAS states that the
restructuring fund is similar to a special financing arrangement and
that private companies might provide this type of fund because it would
be cheaper than the costs that would be incurred closing the facility.
CAS states that the restructuring fund allowed for the best possible
price for the sale of the shares, and thus was consistent with
commercial considerations.
Department's Position: We are not countervailing the restructuring
fund as a separate subsidy event because the amount of the
restructuring fund was included in the benefit from the pre-
privatization assistance and debt forgiveness program discussed above.
While our calculation of the benefit from that program has changed
slightly from what was used in the preliminary determination, it
represents the total cost associated with the liquidation of Cogne as
of year-end 1993. That cost was made up, in large part, of the
liabilities in Cogne S.p.A. in Liquidazione as of that date, which
included the cost of the restructuring fund. If Cogne S.p.A. had not
given CAS a restructuring fund, the costs associated with its
liquidation would have been approximately 148 billion lire, instead of
the 253 billion that included the restructuring fund. Thus, the
restructuring fund has been appropriately captured in calculating the
benefit provided at the time of the privatization of CAS. Because the
benefit from the pre-privatization assistance and debt forgiveness
program includes any benefit provided by the restructuring fund, there
is no need to examine the restructuring fund separately.
Comment 15: Price Paid for CAS Should be Adjusted: Petitioners
argue that the price paid for CAS in 1993 should be reduced by the
amount deducted from the purchase price for environmental damage when
factored into the privatization calculation.
CAS argues that the deduction was the result of an obligation Cogne
S.p.A. had with respect to clean up of the site that it did not carry
out. This obligation was spelled out in the March 17, 1994, contract
which also specified that CAS would receive a 2 billion lire payment to
cover these costs in the event that Cogne S.p.A. did not undertake the
clean up. Thus, the amount was deducted from the subsequent payments of
the purchase price.
Department's Position: We disagree with Petitioners. We do not
consider this post-sale agreement between CAS and ILVA relevant to the
determination of the actual purchase price paid for the company, which
was agreed upon in the March 7, 1994 contract and is the price factored
into the privatization calculation. The information on the record
indicates that this 2 billion lire payment was for an obligation not
related to the purchase price. This obligation and payment were agreed
to March 17, 1994, after the date of the sales contract. Therefore, we
have not made an adjustment for purposes of this final determination.
Comment 16: Specificity of CAS Lease and Adjustment for
Extraordinary Maintenance: CAS argues that the Aosta lease is not
specific within the meaning of the law. CAS states that the Region's
rental terms are generally available and have been used by numerous
other entities. Further, CAS argues that the rental terms provided to
other entities are the same or better than those provided to CAS.
CAS also argues that the Department overstated the benefit to CAS
from the lease. CAS argues that in determining whether CAS received a
countervailable benefit, the Department should consider the lease and
provincial loans to be one program, and compare the benchmark rates to
the sum of CAS's base rent, interest, and payments, plus its cost of
extraordinary maintenance expenses and the extraordinary cost of moving
its plant to the premises subject to the lease. CAS further states that
there is no evidence on the record that would support a finding that
the lease confers a countervailable benefit on CAS.
Petitioners argue that verification confirms the Department's
preliminary finding that the CAS lease provides a countervailable
benefit. Petitioners further argue that the Department's benchmark for
evaluating the rate of return on the investment understates the actual
benefit to CAS and that the Department, instead, should use the
interest rate for a long-term loan in calculating the benefit.
Petitioners argue that the Department should not make an adjustment for
extraordinary maintenance costs in measuring the benefit from the
lease. Petitioners also argue that the transfer loans and lease should
be treated as separate programs as they were provided under separate
laws. Petitioners also state that the 30-year length of the lease is
unusual based on the facts of the record.
CAS counters that the size of the property is irrelevant to the
determination of whether the lease provides a subsidy. Further, CAS
argues that the 30-year term of the lease is also irrelevant in the
determination of whether the lease provides a subsidy. CAS states that
the fact that the regional government is interested in promoting
employment has no relevance in the determination of whether the lease
provides a countervailable benefit. CAS further argues that the maximum
rate of return benchmark that the Department may use in evaluating
whether the lease provides a benefit is the 5.7 percent figure
suggested by the real estate analysts. Respondent argues that the 5.7
percent rate is lower than that of commercial lending rates because of
the effect of inflation on property values. CAS also states that
Petitioners' statement that the facts demonstrate that it would be
``unusual'' for a landlord to pay for extraordinary maintenance is
inaccurate because this assignment of obligation is required by law.
Department's Position: We agree with Respondent, in part, and
Petitioners, in part. The Department has recognized that where the
government holds many leases with different parties, the terms of the
lease must be analyzed to determine whether the lease is specific
within the meaning of the Act. See German Wire Rod, 62 FR at 54994 and
Steel Wire Rod from Trinidad and Tobago, 62 FR at 55008. The CAS lease
has a different length, different terms, and the property is of a much
larger size than other leases with the Region. Further, the CAS lease
is contractually different than the other leases because it is between
Structure and CAS instead of being held directly by the Region. The
lease was the subject of almost year-long negotiations between the two
parties and reflects the individual needs of each
[[Page 40502]]
party in this particular landlord-tenant relationship. These specific
circumstances demonstrate that the CAS lease is distinguishable from
other leases negotiated and entered into by the Region. Contrary to
CAS's arguments otherwise, the size of the property and the length of
the lease are significant factors in determining whether the lease was
selectively provided to CAS. On this basis, we determine that the terms
of this lease are unique to CAS, which makes the provision of the CAS
lease specific under section 771(5A)(D)(i) of the Act.
We agree with Petitioners that it is inappropriate to consider the
lease and loans as a single program, because the measures were
authorized under separate laws. Thus, CAS's suggested methodology of
comparing the benchmark to the sum of CAS's rent, interest and payments
for the loan, cost of extraordinary maintenance, and cost of moving the
plant is inappropriate. Thus, we have examined the lease and loan
programs separately.
As discussed above, we do not consider the loan to be an indemnity.
The Region and CAS agreed from the beginning, as evidenced by the
Protocols of Agreement, that CAS would move its property. Thus, we must
only consider whether the provision of the loan is specific and whether
it provides a benefit within the meaning of the Act. Accounting for
CAS's moving expenses would contravene the Department's long-standing
policy of not examining the subsequent use or effect of subsidies. This
policy is articulated at the GIA at 37261, ``[i]n practice this means,
for example, if a government were to provide a specific producer with a
smokestack scrubber in order to reduce air pollution, the Department
would countervail the amount that the company would have had to pay on
the market, notwithstanding that the scrubber may actually reduce the
company's output or raise its cost of production.'' Thus, we also have
not included the expenses incurred from relocating the plant in the
calculation of the benefit from the loan.
We have not included the cost of extraordinary maintenance in the
calculation of the benefit from the lease. Petitioners and Respondent
have both provided arguments as to whether the record evidence shows
that the assignment of the extraordinary maintenance obligation to the
tenant is unusual or usual, respectively. However, the record evidence
demonstrates that the assignment of terms such as extraordinary
maintenance is negotiable under Italian law. In a commercial
transaction, the long-term cost of extraordinary maintenance would be
factored into the negotiated rate. The selected benchmark, the average
rate of return, accounts for such particularities in the negotiated
rate.
As discussed in the lease section above, we have modified our
calculation of the benchmark from the preliminary determination. Based
on information collected at verification from a commercial real estate
company, we believe that the appropriate rate of return is 5.7 percent.
We consider this rate to reflect an average rate of return for leases
of different sizes, lengths, terms, and locations in Italy. As such, it
is a fair reflection of the normal commercial value and does not
require highly complex and speculative adjustments for maintenance,
depreciation, or increased land values over time. Thus, we disagree
with Petitioners that we should use a long-term commercial loan rate to
calculate the benefit.
We agree with Respondents that the 5.7 percent figure is the
maximum rate of return benchmark appropriate for this calculation
without undertaking complex and speculative adjustments. However, we
disagree that the record contains no evidence that would support a
finding that the lease confers a countervailable benefit to CAS. We
verified that in Italy the commercial practice with respect to
maintenance terms is negotiable and that the average rate of return is
5.7 percent. We compared the rate of return on the CAS lease (3.5
percent) to the average rate of return in Italy and calculated the
benefit based on the difference.
In sum, in our review of the terms of the lease, we found that the
Region's interest is different from that of commercial landlords. We
compared the rate of return under the lease to the average rate of
return on commercial leased property and found that the Region of Valle
d'Aosta leases the property for less than adequate remuneration. We
also found that the lease is specific within the meaning of the Act.
Therefore, we found that the lease provides a countervailable subsidy
to CAS.
Comment 17: Benefit from Waste Plant: Petitioners argue that CAS is
receiving a benefit from the waste plant. Petitioners contend that the
waste plant will be completed in a matter of months. Petitioners state
that CAS is incurring costs for waste disposal and there is no evidence
that CAS is actually paying them. Thus, a service is being provided by
the regional government free of charge. CAS states that the waste plant
provides no benefit to CAS because construction has not even begun and
the plant is not operational. Further, CAS states that it pays for its
own waste storage in the interim, and has received no funds from the
Region to date for that purpose.
Department's Position: We agree with CAS. The Department verified
that this program does not yet exist because the Region has not yet
started construction of the waste plant, and therefore, CAS is not
benefitting from the provision of waste disposal services. CAS has not
received any payments from the Region for waste disposal. Therefore,
there is no benefit during the POI. However, in the event this
investigation results in a countervailing duty order we will continue
to review this allegation in any subsequent administrative review to
determine whether a benefit is provided to CAS through the provision of
waste disposal services for less than adequate remuneration.
Comment 18: Program Discovered at Verification: Petitioners argue
that the Department should countervail assistance received by CAS under
law 10/91 because CAS did not report the receipt of benefits under this
law in the questionnaire responses and the Department should use
``facts available.'' Petitioners also argue that even if the Department
does not rely on ``facts available'' to make a determination, the law
is specific because it limits assistance to large consumers of
electricity who are few in number.
CAS argues that the law is available to companies in many different
industries and that the company did not report the program because it
did not meet the definition of countervailable subsidy.
Department's Position: The Department discovered the existence of
this program during verification and determined that there was
insufficient time to consider the countervailability of the program for
this final determination. Therefore, pursuant to section 351.311(c) of
the Department's regulations, we are deferring examination of Law 10/
91. If the Commission's injury determination is affirmative and this
investigation becomes an order and an administrative review is
requested, we will examine this law during the course of that segment
of the proceeding to determine whether the program is countervailable.
Comment 19: Countervailability of Law 227/77: Valbruna/Bolzano
argues that export loans given under Law 227/77 are covered by an OECD
agreement which requires that export credits be provided at market
conditions. Further, Valbruna/Bolzano states that the
[[Page 40503]]
European Council expanded the applicability of the OECD guidelines to
export credits with terms between 18 and 24 months. Thus, Respondent
argues that the fixed interest rate provided under the program does not
represent a countervailable subsidy. Valbruna/Bolzano states that the
allowable rate under the program is a monthly average interbank
interest rate published by the GOI and is thus a market rate. If the
Department finds a countervailable benefit, the calculation of the
benefit should be based on the spread above the interbank rate.
Valbruna/Bolzano states that it normally pays LIBOR plus a spread for
short term loans and we should compare the rate provided under the
program to the rate plus the normal spread in order to calculate the
benefit. Further Respondent argues that there is no other benefit
besides the lack of a commercial spread and that the details of the
agreement between the Mediocredito and San Paolo Bank do not benefit
Valbruna.
Petitioners argue that the Department's preliminary determination
correctly determined that the program is countervailable and correctly
determined the benefit. Petitioners state that the Department's finding
was based on the fact that the applicant must have obtained the loan
before applying to the Mediocredito for the interest contribution which
was confirmed at verification. Thus, the Department must continue to
treat the interest contributions as grants.
Department's Response: We agree, in part, with Petitioners. The
OECD Guidelines apply to export credits with terms of two years or
more. The Valmix loan under which the Mediocredito made interest
contributions has a term of 18 months and thus, does not fall under the
OECD Guidelines. Therefore, we need not examine the applicability of
the item (k) exemption. See Carbon Steel Products from Austria, 50 FR
at 33374. Our review of the European Council's decision cited by CAS
indicates that this decision implemented the OECD Guidelines in 1992
but does not support the Respondent's claim that the decision extended
the Guidelines' applicability to 18-month loans. On this basis, we
continue to find that interest contributions made under Law 227/77 are
countervailable.
At verification, we learned that it was understood by all parties
that the Valmix application for assistance under the program would be
approved at the time that the contract between Valmix and the
commercial bank was signed. Therefore, in accordance with the
Department's practice, we consider the interest contributions to
provide reduced-rate loans. See, e.g., Certain Steel from Italy, 58 FR
at 37332. However, the GOI explained that in the event that the
application was rejected, then the company would become responsible for
the full rate guaranteed to the commercial bank. Valbruna's claim that
the contract does not specify these terms is not persuasive. The
payment arrangement between the lending bank and the Mediocredito
provided a benefit to Valmix because, absent approval of the
application, Valmix would be responsible for the full rate guaranteed
to the commercial bank. See GOI Questionnaire Response dated February
13, 1998, public version on file in the CRU. Respondent's claim that
this arrangement is merely a management decision by the Mediocredito is
unpersuasive because these interest contributions are the incentives
provided under Law 227/77 to offset the buyer's cost of credit in
export financing arrangements. Thus, Valmix receives the benefit of a
fixed, low-interest rate loan because the commercial lender is
guaranteed payments for any shortfall between the fixed rate and the
variable market rate.
We agree with Respondent that the interest contributions should be
treated as loans. However, we disagree with Respondent's proposal that
this benefit should be measured based upon the difference between
Valbruna's payments under the loan and the spread above the interbank
rate. In the absence of the Mediocredito's intervention, Valbruna would
be responsible for the full variable rate to the commercial bank. Thus,
we compared what Valmix paid under the fixed program rate and what it
would have paid for the loan absent the interest contributions and
found that the program provided a countervailable benefit.
Verification
In accordance with section 782(i) of the Act, we verified the
information used in making our final determination. We followed
standard verification procedures, including meeting with the government
and company officials, and examination of relevant accounting records
and original source documents. Our verification results are outlined in
detail in the public versions of the verification reports, which are on
file in public version form in the CRU.
Suspension of Liquidation
In accordance with section 705(c)(1)(B)(i) of the Act, we have
calculated an individual subsidy rate for each company investigated.
For companies not investigated, we have determined an all-others rate
by weighting individual company subsidy rates by each company's exports
of the subject merchandise to the United States.
In accordance with our affirmative preliminary determination, we
instructed the U.S. Customs Service to suspend liquidation of all
entries of SSWR which were entered, or withdrawn from warehouse, for
consumption on or after January 7, 1998, the date of the publication of
our preliminary determination in the Federal Register. In accordance
with section 703(d) of the Act, we instructed the U.S. Customs Service
to terminate the suspension of liquidation for merchandise entered on
or after May 7, 1998, but to continue the suspension of liquidation of
entries made between January 7, 1998, and May 6, 1998. We will
reinstate suspension of liquidation under section 706(a) of the Act if
the ITC issues a final affirmative injury determination, and will
require a cash deposit of estimated countervailing duties for such
entries of merchandise in the amounts indicated below. If the ITC
determines that material injury, or threat of material injury, does not
exist, this proceeding will be terminated and all estimated duties
deposited or securities posted as a result of the suspension of
liquidation will be refunded or canceled:
Ad Valorem Rate
------------------------------------------------------------------------
Net subsidy
Producer/exporter rate
(percent)
------------------------------------------------------------------------
CAS........................................................ 22.2
Valbruna/Bolzano........................................... 1.28
All Others................................................. 13.85
------------------------------------------------------------------------
ITC Notification
In accordance with section 705(d) of the Act, we will notify the
ITC of our determination. In addition, we are making available to the
ITC all non-privileged and non-proprietary information related to this
investigation. We will allow the ITC access to all privileged and
business proprietary information in our field provided the ITC confirms
that it will not disclose such information, either publicly or under an
administrative protective order, without the written consent of the
Deputy Assistant Secretary for AD/CVD Enforcement, Group II. If the ITC
determines that material injury, or threat of material injury, does not
exists, these proceedings will be terminated and all estimated duties
deposited or securities posted as a result of the
[[Page 40504]]
suspension of liquidation will be refunded or canceled. If, however,
the ITC determines that such injury does exist, we will issue a
countervailing duty order.
Return or Destruction of Proprietary Information
This notice serves as the only reminder to parties subject to
Administrative Protective Order (APO) of their responsibility
concerning the return or destruction of proprietary information
disclosed under APO in accordance with 19 CFR 355.34(d). Failure to
comply is a violation of the APO.
This determination is published pursuant to section 705(d) of the
Act.
Dated: July 20, 1998.
Joseph A. Spetrini,
Acting Assistant Secretary for Import Administration.
[FR Doc. 98-20015 Filed 7-28-98; 8:45 am]
BILLING CODE 3510-DS-P