# Geneva Steel v. United States

> United States Court of International Trade · July 25, 1996 · 914 F. Supp. 563

URL: https://www.frixlaw.com/law-library/cases/2130796

## Case

- **Full name:** GENEVA STEEL, AK Steel Corporation, Bethlehem Steel Corporation, Gulf States Steel Incorporated of Alabama, Inland Steel Industries, Inc., LTV Steel Company, Inc., Laclede Steel Company, National Steel Corporation, Sharon Steel Corporation, U.S. Steel Group, a Unit of USX Corporation, and WCI Steel, Incorporated, Plaintiffs, v. UNITED STATES, Defendant, Fabrique De Fer De Charleroi, S.A., S.A. Forges De Clabecq, Sidmar N v.  and TradeARBED, Incorporated, Defendant-Intervenors
- **Court:** United States Court of International Trade
- **Decided:** July 25, 1996
- **Citations:** 914 F. Supp. 563; 20 Ct. Int'l Trade 7
- **Precedential status:** Published
- **Opinion:** Opinion by Carman
- **Judges:** Carman
- **Cited by:** 15 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2130796

## How later opinions describe it (automated extraction)

- describing Commerce’s practice of measuring countervailable benefits from government equity infusions

## Opinion text

OPINION
CARMAN, Judge.
Plaintiffs in this consolidated action, Geneva Steel, AK Steel Corporation,
1
Bethlehem Steel Corporation, Geneva Steel, Gulf States Steel Incorporated of Alabama, Inland Steel Industries, Incorporated, LTV Steel Company, Incorporated, Laclede Steel Company, National Steel Corporation, Sharon Steel Corporation, U.S. Steel Group a Unit of USX Corporation, and WCI Steel, Incorporated (collectively “Domestic Producers”), and Fab-rique de Fer de Charleroi, S.A. (Fabfer), move for judgment upon the agency record pursuant to U.S.CIT R. 56.2 contesting the determination by the International Trade Administration of the U.S. Department of Commerce (Commerce or Department) in
Certain Steel Products From Belgium,
58 Fed.Reg. 37,273 (Dep’t Comm.1993) (final determ.)
(Final Determination)
and
Certain
*569
Steel Products From Belgium,
58 Fed.Reg. 43,749 (Dep’t Comm.1993) (order and am. to final determ.)
(Amended
Determination). Defendant-Intervenors Sidmar N.V. and TradeARBED, Incorporated, Sidmar N.V.’s domestic importer, (collectively “Sidmar”), and S.A. Forges de Clabecq (Clabecq) have filed response briefs in opposition to Domestic Producers’ motion for judgment on the agency record. The United States Court of International Trade (CIT or Court) has jurisdiction over this matter pursuant to 28 U.S.C. § 1581 (c) (1988).
Background
In July 1992, Commerce gave notice of its investigation of several Belgian steel companies regarding three separate classes or kinds of merchandise: certain hot-rolled carbon steel flat products, certain cold-rolled carbon steel flat products, and certain cut-to-length carbon steel plate. The Belgian steel firms investigated were Fabfer, Clabecq, Sid-mar, and S.A. Cockerill Sambre (Cockerill).
2
The period of investigation (POI) for Fabfer and Clabecq was July 1990 through June 1991, and the POI for Sidmar and Cockerill was calendar year 1991.
Final Determination,
58 Fed.Reg. at 37,274-75.
The parties challenge numerous aspects of the
Final Determination
as amended. For purposes of clarity, this opinion will discuss the lead case,
Geneva Steel,
et al.
v. United States,
Court No. 93-09-00566-CVD, in section one, and the consolidated case,
Fabrique de Fer de Charleroi S.A. v. United States,
Court No. 93-09-00599-CVD, in section two.
3
Standard of Review
The appropriate standard for the Court’s review of a final determination by Commerce is whether the agency’s determination is “unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B)(i) (1994). Substantial evidence is that which “‘a reasonable mind might accept as adequate to support a conclusion.’ ”
Universal Camera Corp. v. NLRB,
340 U.S. 474, 477 , 71 S.Ct. 456, 459 , 95 L.Ed. 456 (1951) (citation omitted),
quoted in Matsushita Elec. Indus. Co. v. United States,
3 Fed.Cir. (T) 44, 51, 750 F.2d 927, 933 (1984).
The Court must accord substantial weight to the agency’s interpretation of the statute it administers.
American Lamb Co. v. United States,
4 Fed.Cir. (T) 47, 54, 785 F.2d 994, 1001 (1986) (citations omitted). While Commerce has discretion in choosing one interpretation over another, “[t]he traditional deference courts pay to agency interpretation is not to be applied to alter the clearly expressed intent of Congress.”
Board of Governors of the Fed. Reserve Sys. v. Dimension Fin. Corp.,
474 U.S. 361, 368 , 106 S.Ct. 681, 686 , 88 L.Ed.2d 691 (1986),
cited in Ceramica Regiomontana, S.A. v. United States,
10 CIT 399 , 405, 636 F.Supp. 961, 966 (1986) (“[T]his Court will not allow an agency, under the guise of lawful discretion, to contravene or ignore the intent of the legislature or the guiding purpose of the statute.”) (further citation omitted),
aff'd,
5 Fed.Cir. (T) 77, 810 F.2d 1137 (1987).
Discussion
SECTION ONE:
GENEVA STEEL,
ET AL.
V. UNITED STATES
I. The Classification of Hybrid Securities and the Countervailing of Debt-to-Equity Conversions
A. Classifying OCPCs and Parts Bénéfi-ciaries
In November 1978 and February 1979 the Belgian Council of Ministers decided that the
*570
government of Belgium (GOB) would assume the interest costs on all medium- and long-term loans held by certain steel companies agreed to before January 1, 1979.
Final Determination,
58 Fed.Reg. at 37,277. Pursuant to this decision and upon agreements with the steel companies, the GOB agreed to assume the interest costs in exchange for the companies’ promises of conditional future is-suances to the GOB of “obligations convertibles participantes et conditionnelles” (OCPCs), or “conditional and convertible participating bonds.” In this way, the GOB assumed the interest costs of Cockerill, Sid-mar, and Clabecq for the five-year period from 1979 through 1983.
Id.
OCPCs are called conditional because “certain conditions had to be met before the bonds could be issued.” (Conf.R. 39 at 11.)
4
Additionally, the instruments are named convertible because the bonds contained “a provision allowing for their eventual conversion to ordinary shares.” (Id.)
5
In 1985, Cockerill and Clabecq agreed, and Sidmar conditionally agreed to convert the OCPCs into securities known as parts bénéfi-ciaries.
Final Determination,
58 Fed.Reg. at 37,277. Parts bénéfíciaries, or “benefactor shares,” generally describe shares “given in remuneration of persons who made contributions or did consulting for a company prior to its establishment.” (Confid.R. 39 at 13.)
Commerce considered OCPCs and parts bénéfíciaries to be “hybrid securities” because they are “securities/instruments which appear to be neither debt nor equity (nor grants, since the funds are not given outright).”
General Issues Appendix,
58 Fed.Reg. at 37,254. After reviewing several techniques to classify such hybrid financial instruments, Commerce decided upon the following approach:
We have distinguished grants from both debt and equity by defining grants as funds provided without expectation of a:
(1) Repayment of the grant amount, (2) payment of any kind stemming directly from the receipt of the grant (including interest or claims on profits of the firm (i.e., dividends) with the exception of offsets as defined in the Proposed Regulations § 355.46), or (3) claim on any funds in case of company liquidation.
... To classify a hybrid instrument as either debt or equity, we have applied the following hierarchy which in the Department’s view establishes whether an instrument has the qualities of debt or equity: (1) Expiration/Maturity Date/Repayment Obligation, (2) Guaranteed Interest or Dividends, (3) Ownership Rights, and (4) Seniority. For each hybrid instrument, we considered the four sets of criteria in order. Once a characteristic is clearly indicative of debt or equity, we will stop our analysis and categorize the hybrid as debt or equity.
Id.
In the
Final Determination,
Commerce applied its new methodology and determined the OCPCs constituted debt.
Final Determination,
58 Fed.Reg. at 37,277 (citing
General Issues Appendix,
58 Fed.Reg. at 37,254-55).
Commerce also applied its methodology to the parts bénéfíciaries issued by Cockerill, Sidmar, and Clabecq, and determined the instruments constituted equity.
General Issues Appendix,
58 Fed.Reg. at 37,255. Because Commerce reached this conclusion using business proprietary information, the agency referred to a memorandum on file for an explanation of its reasoning. In that document, Commerce first distinguished parts bénéfíciaries from grants and found parts bénéficiaries should not be classified as grants because “[Redacted].” (Confid.R. 52 at 1.) Turning to the debt-equity classification and its first criterion, the “expiration/maturity date/repayment obligation,” Commerce concluded “Clabecq’s and Sid-
*571
mar’s [parts bénéficiaries] ... constitute equity” as they “[Redacted]”
(Id.
at 2.) Although it was unnecessary under its new methodology, Commerce also considered the second criterion, “guaranteed interest or dividends,” and determined the parts bénéficia-ries “[Redacted]” thus supporting its determination that parts bénéficiaries constituted equity.
(Id.)
After determining OCPCs constituted debt and parts bénéficiaries comprised equity, Commerce found the conversion of OCPCs into parts bénéficiaries amounted to a conversion of debt to equity.
Final Determination,
58 Fed.Reg. at 37,277. Because this assumption of interest costs in return for parts bénéficiaries was limited to a specific enterprise or industry, or group of enterprises or industries, Commerce determined the GOB’s conversion of OCPCs to parts bénéfi-ciaries was countervailable.
Id.
B. Measuring the Benefits from the OCPCs-to-Parts Bénéficiaries Conversions
To measure the countervailable benefits, if any, from government infusions of equity, Commerce used the market-determined prices of equity as a benchmark.
General Issues Appendix,
58 Fed.Reg. at 37,250-51. In determining the benchmark, Commerce distinguished between the primary market and the secondary market. (Def.’s Mem. in Opp’n to Respective Mots, of Domestic Producers and Fabfer for J.Upon Agency R. (Def.’s Br.) at 62.)
6
If the market-determined price for equity purchased directly from the firm, that is, in the primary market, was less than the price paid by the government for the same form of equity purchased directly from the firm, the premium conferred a countervailable benefit to the firm.
See
54 Fed.Reg. 23,366, 23,381 (Dep’t Comm.1989) (to be codified at 19 C.F.R. § 355.44 (e)(1)(i)) (proposed May 31, 1989)
(Proposed Regulations
).
7
If there was no market-determined price in the primary market, Commerce looked to the price of equity in the secondary market as a benchmark.
General Issues Appendix,
58 Fed.Reg. at 37,250. Commerce compared the price paid by the government to the prevailing market price and countervailed the premium, if any, paid by the government for its shares.
Id.
at 37,251 . Finally, if there was no market-determined price for the company’s shares, that is, if a company’s stock was not publicly traded, Commerce would resort to its equityworthiness test or inquiry.
Id.
Under this approach, if a company is unequityworthy Commerce will find that a government infusion of equity confers a countervailable benefit.
See Proposed Regulations,
54 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(1)).
To measure the countervailable benefits from Sidmar’s OCPCs-to-parts bénéficiaries conversion, Commerce verified that Sidmar’s stock was not publicly traded. Because Sid-mar had no market-determined price, Commerce turned to its equityworthiness test to determine if the conversion was countervaila-ble.
(See
Def.’s Br. at 98 (citing
Proposed Regulations,
54 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(1))).) Commerce did not initiate an equityworthiness
*572
investigation of Sidmar, however, because the agency found the petition did not contain sufficient evidence to support an allegation of unequityworthiness.
8
Final Determination,
58 Fed.Reg. at 37,275. The agency thus determined “the GOB’s conversion of its debt to equity does not provide a countervailable benefit to [Sidmar].”
Id.
at 37,277 .
In measuring the benefits from the OCPCs-to-parts bénéficiaries conversions by Cockerill and Clabecq, Commerce verified that although parts bénéficiaries may in some cases be purchased, the parts bénéficia-ries issued by Cockerill and Clabecq “are not publicly-traded on the Belgian stock exchange.” (Confid.R. 41 at 41.) Commerce determined, however, that the common shares of Cockerill and Clabecq were being traded and thus, Commerce elected to use the price at which the common shares were traded to provide a market benchmark against which to measure the benefit from the GOB’s purchase of parts bénéficiaries. (Def.’s Br. at 82.) In effect, “Commerce was forced to compare the GOB’s purchase price for [parts bénéficiaries] with the next most similar publicly traded equity instrument issued by Cockerill and Clabecq — common shares.”
(Id.)
Finding “the GOB paid considerably more for its shares than the market price at that time,” Commerce deemed the GOB’s acquisition of parts bénéficiaries on terms inconsistent with commercial considerations.
Final Determination,
58 Fed.Reg. at 37,277. To measure the benefit, Commerce calculated the premium paid by the GOB as the difference between the price paid by the government for the parts bénéfi-ciaries and the market price of the common shares.
Id.
9
Commerce found the resulting benefits to be nonrecurring and allocated the benefit to 1991.
Id.
C. Contentions of the Parties
1.
Domestic Producers
a. Classifying OCPCs and Parts Bénéficiaries
Domestic Producers claim parts bénéficia-ries have more in common with grants than equity instruments, and thus object to Commerce’s finding that parts bénéficiaries constitute equity securities. Parts bénéficiaries, Domestic Producers argue,
have all of the disadvantages of both debt and equity, and none of the advantages of either. Like debt, they have a ceiling on the amount of return they can earn for the investor.... Also like debt, they convey no voting rights, and there is no potential for capital appreciation. Like equity, they carry no guaranteed return and no protection against the loss of capital. Worse than either debt or equity, “parts bénéfi-ciaries” entitle their holder to payment, on liquidation of the company, only after creditors, preferred shareholders, and even after payments to the common shareholders.
(Mem. in Support of Domestic Producers’ 56.2 Mot. for J.Upon Agency R. (Domestic Producers’ Br.) at 14-15.) The parts bénéfi-ciaries acquired by the GOB, Domestic Producers argue, “do not entitle their holder to any meaningful claim on the profits of the firm,” (Domestic Producers’ Reply Mem. (Domestic Producers’ Reply Br.) at 3 (footnote omitted)), because the terms of parts bénéficiaries “make it highly unlikely that a holder of [parts bénéficiaries] would ever realize any return on the investment,”
(id.
at 3
*573
n. 3 (citation omitted)).
10
Domestic Producers also point out both Sidmar and the GOB apparently chose to classify parts bénéfícia-ries as grants as evidenced by their responses to Commerce’s questionnaires.
11
If Commerce’s finding that parts bénéficia-ries constitute equity is sustained, Domestic Producers assert, “it will open an enormous loophole in U.S., countervailing duty law.” (Domestic Producers’ Br. at 24.) Domestic Producers predict a company will be able to avoid the imposition of countervailing duties simply by giving the government, in return for the provision of funds, a right to receive repayment of those funds if and when the company liquidates.
(Id.)
b. Measuring the Benefits from the OCPCs-to-Parts Bénéfíeiaries Conversions
First, Domestic Producers argue the OCPCs-to-parts bénéfíeiaries conversions were inconsistent with commercial considerations because no rational private investor would have traded OCPCs for parts bénéfi-ciaries, given the inferior characteristics of parts bénéfíeiaries and their much lower potential for return. (Domestic Producers’ Reply Br. at 2 (footnote omitted).) Domestic Producers summarize their argument that the conversions were “clearly inconsistent with commercial considerations”:
The O.C.P.C.S were repayable on a date certain, bore interest and, under certain circumstances, entitled the holder to a five percent dividend. No reasonable investor would have exchanged such securities for securities that were required to be repaid only upon liquidation, did not bear interest and carried the remote possibility of only a very small dividend.
(Domestic Producers’ Br. at 16 (footnote omitted).) Thus, the conversion of OCPCs to parts bénéfíeiaries “must be countervailed,” Domestic Producers charge, “whether or not the transaction fits neatly into the Department’s existing methodology and whether or not the ‘parts bénéfíeiaries’ are determined to be grants, debt or equity.”
(Id.
at 17.)
Second, Domestic Producers contend that Commerce’s use of the secondary market price of Cockerill’s and Clabecq’s common stock was an unreasonable benchmark for measuring the countervailable benefit from the OCPCs-to-parts bénéfíeiaries conversions.
12
(Id.
at 49;
see also
Domestic Producers’ Reply Br. at 19-21.) Domestic Producers assert the
Proposed
Regulations
13
*574
provide for the use of a market-determined benchmark price “only where there is a contemporaneous purchase of ‘the
same form
of equity purchased directly from the firm.’ ” (Domestic Producers’ Br. at 49 (footnote omitted).) Because parts bénéfíciaries are clearly inferior to common shares and have significantly different terms, Domestic Producers maintain, it was unreasonable for Commerce to compare the secondary market price of common shares to the price the GOB paid for the parts bénéficiaries.
(Id.
at 20, 50.) Domestic Producers maintain they have set forth “overwhelming proof’ that the benchmark used by Commerce to measure the benefits from the conversions are distorted and deficient, and therefore the use of such a benchmark is in error. (Domestic Producers’ Reply Br. at 23-24.) Because there is no proper market-determined price for the parts bénéficiaries, Domestic Producers insist Commerce should have employed its equityworthiness test. (Domestic Producers’ Br. at 51.) In this way, Domestic Producers argue, Commerce should countervail the entire infusions as grants if the issuers are found to be unequityworthy.
(Id.)
Finally, Domestic Producers take issue with what they label Commerce’s discriminatory treatment of Sidmar on one hand, and Cockerill and Clabecq on the other, in determining whether the OCPCs-to-parts bénéfi-ciaries conversions provided countervailable benefits.
(Id.
at 20.) Domestic Producers claim
Commerce
made a false distinction between failing to initiate an equityworthiness
investigation,
as in the case of Sidmar, and failing to make an equityworthiness
determination
in the case of Cockerill and Clabecq.
14
(Id.
at 21-22.) Moreover, “[rjegardless of whether a company is equityworthy,” Domestic Producers suggest, “when a government trades one class of securities in that company for a different class with significantly inferior characteristics, a countervailable subsidy has been provided.”
(Id.
at 21.) Domestic Producers argue the recent CIT decision of
Aimcor, Alabama Silicon, Inc. v. United States,
18 CIT -, 871 F.Supp. 447 (1994), supports their argument that Commerce may not rely solely on the equityworthiness of the recipient in determining whether countervail-able benefits have been bestowed.
(See
Tr. at 98, 104-05.)
2.
Commerce
a. Classifying OCPCs. and Parts Bénéficiaries
Commerce responds its determination that parts bénéficiaries are equity and not debt is supported by substantial evidence on the record and is in accordance with law. (Def.’s Br. at 51.) After discussing the basis for Commerce’s new methodology of classifying hybrid instruments and its application to parts bénéficiaries in this case, Commerce contends it “has discretion to evaluate the facts on the record and to decide which are the most informative as to the nature of [parts bénéficiaries].”
(Id.
at 59 (citation omitted).) Commerce dismisses Domestic Producers’ claims to the contrary and contends, “[arguments by [Domestic Producers] to the effect that [parts bénéficiaries] have more in common with debt and are in fact contingent liability interest-free loans, simply confirm the hybrid nature of [parts bénéficia-ries] and invite the Court to second-guess the Department.”
(Id.
at 60.)
Commerce argues that several aspects of parts bénéficiaries suggest they should be treated as equity instruments:
*575
(i) [Redacted]; (ii) holders are entitled to a one percent subordinated dividend, which may be paid only after payment of a two percent dividend to holders of preferred shares and a seven percent dividend paid on common shares; (iii) after dividends, holders are entitled to share the remaining profit balance with common shareholders, provided that the yield on the [parts béné-ficiaries] can never be higher than the yield on the common shares; and, (iv) in the event of liquidation, holders would be paid, if at all, after the preferred and common shareholders.
(Id.
at 54-55 (footnotes omitted).) While recognizing that parts bénéficiaries also have attributes of debt,
(see id.
at 55), Commerce contends the application of the agency’s hierarchical methodology reveals parts bénéficia-ries “have characteristics more in line with equity than loans,”
(id.
at 59). Commerce also rejects Domestic Producers argument that the conversion of OCPCs to parts béné-ficiaries constituted the forgiveness of debt, because, Commerce argues, Domestic Producers have confused the issue of how Commerce should quantify the benefit from the conversions with the issue of whether parts bénéficiaries are debt or equity.
(Id.
at 60.)
b. Measuring the Benefits from the OCPCs-to-Parts Bénéficiaries Conversions
Commerce contends it acted in accordance with law when it measured the countervaila-ble benefits accruing to Clabecq and Cocke-rill by comparing the price paid by the GOB for the equity to the share price of publicly traded common shares.
(Id.)
The agency maintains market-determined benchmarks provide the best means of determining whether equity infusions confer a subsidy.
(Id.
at 61.) Commerce asserts its equitywor-thiness test, which Domestic Producers contend should have been employed here, is a second-best solution the agency turns to only when market benchmarks are unavailable.
(Id.
at 63.) The agency prefers using market-determined benchmarks over the equity-worthiness test, Commerce argues, because
“[t]he publicly traded price, we believe, is a much more accurate indicator of the company’s future earnings potential and worth than any hypothetical measurement which we could devise. It is a much more reliable and accurate gauge as to whether, and if so, to what extent, government equity infusions are inconsistent with commercial considerations.”
(Id.
at 65 (quoting
Subsidies Appendix,
49 Fed.Reg. at 18,023).) The equityworthiness inquiry, Commerce explains, is but a “reasonable surrogate for the ultimate arbiter of economic valuation — the marketplace. If there existed a reasonably accurate and administratively feasible method to calculate proxy stock market prices when no such prices exist, Commerce would use such a method instead of an equityworthiness test.”
(Id.
at 70-71 (footnote omitted).) Commerce rejects Domestic Producers’ contention that an equityworthiness determination was required in this ease and maintains the Domestic Producers’ argument misconstrues the
Proposed Regulations
and “attempts to narrow the choice of appropriate equity benchmarks to the point where a comparison to a market price for equity would rarely, if ever, be possible.”
(Id.
at 66.)
Commerce agrees with Domestic Producers that the agency’s
Proposed Regulations
state that Commerce will, whenever possible, compare identical instruments when comparing market-determined prices.
(Id.
at 82 (quoting
Proposed Regulations,
54 Fed.Reg. at 23,371 (preamble to regulation to be codified at 19 C.F.R. § 355.44 (e)) (“[A]n equity infusion confers a eountervailable benefit when the market-determined price for equity .■.. is less than the price paid by the foreign government for the same form of equity-”)).) Here, however, Commerce claims it verified that
these companies’ [parts bénéficiaries] are not publicly traded. Thus, Commerce was forced to compare the GOB’s purchase price for [parts bénéficiaries] with the next most similar publicly traded equity instrument issued by Coekerill and Clabecq— common shares.
In the present ease, private investors
were
purchasing equity in Coekerill and Clabecq. The price at which the common shares were traded provides a market-
*576
determined benchmark against which Commerce could measure the benefit from the GOB’s purchase of [parts bénéficia-ries].
(Id.)
Commerce concludes it properly countervailed the conversion of Clabecq’s and Cockerill’s OCPCs to parts bénéfíciaries to the extent of any premium paid by the GOB for the parts bénéfíciaries.
(Id.
at 83.)
15
Commerce counters Domestic Producers’ argument alleging discriminatory treatment of Sidmar vis-á-vis Cockerill and Clabeeq by pointing out first that “Cockerill and Clabeeq had publicly traded shares. These shares provided Commerce with the benchmark it needed to value their [parts bénéfíciaries], Sidmar’s shares, on the other hand, are not publicly traded.”
(Id.
at 100.) Second, Commerce responds the only way Commerce could have countervailed Sidmar’s debt-to-equity conversion would have been if Commerce had determined Sidmar was unequity worthy during the year of infusion.
(Id.)
Because Domestic Producers did not “establish the factual predicate for questionning [sic] Sidmar’s equityworthiness,” Commerce contends it had a rational basis for distinguishing between the different companies.
(Id.
at 101.)
3.
Foreign Producers
Clabeeq rejects Domestic Producers’ contentions and argues Commerce properly determined parts bénéfíciaries constitute equity securities and properly analyzed the OCPCs-to-parts bénéfíciaries conversions.
(See
Resp.Br. of Clabeeq in Opp’n to Pis.’ Mot. for J. on Agency R. Regarding Certain Country-Specific Issues (Clabecq’s Br.) at 12-13.)
16
Sidmar argues there is substantial evidence to support Commerce’s finding parts bénéfí-eiaries to be equity and not debt, and Domestic Producers’ arguments to the contrary “would require the Court to substitute its own judgment for that of the Department.” (Def.-Intervenors Sidmar and TradeARBED Resp.Br. in Opp’n to Pl.’s Mot. for J.Upon Agency R. (Sidmar’s Br.) at 14.)
Sidmar also contends Commerce’s finding that the conversion of OCPCs-to-parts béné-fieiaries was consistent with commercial considerations and therefore not countervailable is also based on substantial evidence and is otherwise in accordance with law.
(Id.
at 18.) Sidmar rejects Domestic Producers’ argument that parts bénéfíciaries are worthless and thus have “ ‘significantly inferior’ characteristics” compared to OCPCs.
(Id.
at 21.) Commerce has verified, Sidmar asserts, that parts bénéfieiaries are bought and sold in Belgian commercial markets in some cases.
(Id.
(citation omitted).)
Finally, Sidmar rejects Domestic Producers’ complaint that Commerce should not have reached different results for Cockerill and Clabeeq than it did for Sidmar.
(Id.)
This outcome is explained in part, Sidmar argues, because “[b]oth Cockerill and Cla-becq have publicly traded stock that can be used as a benchmark to evaluate whether an equity infusion confers a countervailable benefit. Sidmar does not.”
(Id.
at 22.) Thus, there was no need to invoke the equitywor-thiness inquiry in the case of Cockerill and Clabeeq, because under Commerce’s methodology, Commerce simply “determine[d] whether or not the government paid ‘too much’ for its equity based on publicly traded market prices prevailing at the time.”
(Id.
at 24.) In the ease of Sidmar, Sidmar alleges, Commerce determined three times that no evidence indicated Sidmar was unequitywor-thy.
(Id.
at 23 (footnote and citations omitted).) Thus, given that a reasonable investor could expect a reasonable rate of return in
*577
Sidmar shares, Sidmar claims Commerce correctly determined that the conversion from OCPCs to parts bénéficiaries did not confer a countervailable benefit.
(Id.
at 23-24 (footnote omitted).)
As defendant-intervenor, Fabfer supports Domestic Producers’ contention that Commerce erred in determining that parts béné-ficiaries constitute equity. (Resp. to Pls.’ Mot.Under R. 56.2 for Summ.J. on the Administrative R. (Fabfer’s Resp.Br.) at 1-2.) Fabfer contends Commerce should be directed to countervail the benefits from the OCPCs-to-parts bénéficiaries conversions as amortizable grants in the principal amounts of the debts forgiven.
(Id.
at 2.) Additionally, Fabfer agrees with Domestic Producers’ position that Commerce erred in using the secondary market price of common shares as a benchmark for the value of parts bénéficia-ries and preferred shares.
17
(Id.
at 4.) Commerce’s action, Fabfer argues, is contrary to the requirement in the
Proposed Regulations
that a secondary market price may be used as a benchmark only where there is a contemporaneous purchase of “ ‘the
same form
of equity purchased directly from the firm.’ ”
(Id.
(quoting
Proposed Regulations,
54 Fed.Reg. at 28,381 (to be codified at 19 C.F.R. § 355.44 (e)(1)(i))).) Because Commerce failed to provide any justification for using the market price of one form of equity as a benchmark for another, Fabfer concludes, Commerce’s determination cannot be upheld.
(Id.).
D. Discussion
1.
Classifying OCPCs and Parts Bénéficiaries
The definition of the term “subsidy” in the countervailing duty (CVD) statute is necessarily broad as Congress could not possibly contemplate and describe all those transactions that could give rise to a countervailable subsidy.
See
19 U.S.C. § 1677 (5)(A) (1988) (defining “subsidy” for purposes of CVD statute).
18
Therefore, Commerce has erected numerous methodologies to enable the agency to evaluate transactions in light of the directives outlined in the statute. One such methodology is Commerce’s new methodology employing a hierarchical set of criteria to classify hybrid securities as grants, debt, or equity. To distinguish between debt and equity, the methodology calls for an examination of four characteristics hybrid securities may possess: “(1) Expiration/Maturity Date/Repayment Obligation, (2) Guaranteed Interest or Dividends, (3) Ownership Rights, and (4) Seniority.”
General Issues Appendix,
58 Fed.Reg. at 37,254. Commerce chose this methodology after considering and rejecting several other options.
See id.
(“We examined several options for addressing these issues (for a complete discussion of those options,
see
Mem. from Staff to Joseph A. Spetrini, dated June 21, 1993)_”).
19
In adopting this hierarchical approach, Commerce explained in detail how it would consider each criterion as it applied to a hybrid security:
Loans typically have a specified date on which the last remaining payments will be made and the obligation of the company to the creditor is fulfilled. Even if the instrument has no pre-set repayment date, but a repayment obligation exists when the instrument is provided, the instrument has characteristics more in line with loans than equity. Equity, on the other hand, has no expiration date. The rights to ownership theoretically extend to infinity.
If after applying the first set of criteria, we are unable to establish whether the
*578
hybrid instrument is debt or equity, we will turn to the second set of criteria. Debt instruments guarantee the creditor a certain payment (i.e., the firm is obligated to pay). The rate may be fixed or variable but the requirement for, or schedule of, payments is pre-determined. Any interruption in payment results in a default on the loan by the company. Equity on the other hand, has no guaranteed return. Companies are not required to issue a dividend to their stockholders. There is no counterpart to default for failure to pay a dividend on equity by the company.
The next set of criteria in the hierarchy is ownership rights. Equity, unlike debt, confers ownership rights. (See Principles of Corporate Finance, by Richard A. Brea-ley and Stewart C. Meyers (McGraw-Hill, Inc., 1988, page 305) which states that stockholders have ultimate control, through voting rights, on the company’s affairs). Stockholders also have a claim on the profits of the firm, manifested in the form of dividends or capital appreciation.
Finally, the last set of criteria in the hierarchy, seniority, refers to the order of reimbursement in case a company liquidates. The order of payment of funds from liquidated assets are as follows: taxes and administrative expenses, wages, creditors (secured, priority, and unsecured), and, lastly, shareholders. Id. at 743 .
Following the hierarchy outlined above, if an instrument has an expiration/maturity date or a clear repayment obligation, it will be treated as a loan.
The remaining three characteristics of criteria in the hierarchy should be used to classify the instrument if the first set of criteria fails to provide a clear indication of the proper classification. A guaranteed payment, whether interest or dividend, is more characteristic of debt than equity and can be an important element in calculating the subsidy. Ownership rights are considered more important than seniority in this hierarchy because they are definite characteristics of equity whereas seniority exists in a continuum. In this continuum, creditors come before owners but there is no definite line of distinction as to where one begins and the other ends. In addition, unlike ownership rights where potential profit sharing could affect subsidy calculations, seniority plays no quantitative role in determining countervailable benefits. Seniority matters only when the company is liquidated, whereas ownership rights are significant throughout the life of the company. Seniority does, however, play a qualitative role in discerning debt from equity which is why it is included in the hierarchy.
Id.
Because the CVD statute does not speak directly to the precise question of how to examine hybrid securities, the question for the Court is whether the agency’s answer is based on a permissible construction of the statute.
See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837, 842-43 , 104 S.Ct. 2778, 2781-82 , 81 L.Ed.2d 694 (1984) (footnote omitted),
quoted in Texas Crushed Stone Co. v. United States,
12 Fed.Cir. (T) -, -, 35 F.3d 1535, 1540 (1994). Commerce may not, however, “contravene or ignore the intent of the legislature or the guiding purpose of the statute.”
Ceramica Regiomontana,
10 CIT at 405, 636 F.Supp. at 966 (citations omitted). Given the broad definition of a “bounty or grant” in the statute,
20
Congress has delegated to Commerce as the administering agency the authority to carve out the specific methods to apply in identifying a bounty or grant. There is no requirement that the methodology adopted by Commerce be the most comprehensive or the most exact — it need only be reasonable and in accord with legislative intent.
See U.H.F.C. Co. v. United States,
9
*579
Fed.Cir. (T) 1, 10, 916 F.2d 689, 698 (1990) (“It is well settled that an agency’s interpretation of the statute it has been entrusted by Congress to administer is to be upheld unless it is unreasonable.”) (citations omitted). Commerce’s analysis as explained above sets forth a reasonable method of identifying and classifying those bounties or grants that take the form of hybrid securities. Furthermore, it is consonant with the intent of Congress to afford Commerce wide latitude in defining a bounty or grant.
See PPG Indus., Inc. v. United States,
9 Fed.Cir. (T) 71, 74, 928 F.2d 1568, 1572 (1991). Accordingly, the Court holds Commerce’s hierarchical method of classifying hybrid securities to determine whether such securities are grants, debt, or equity under the CVD statute is based on a permissible construction of the statute and is in accord with congressional intent.
As explained above in section one, part I.A, Commerce moved the parts bénéficiaries through the hierarchical set of criteria and deemed the instruments to be equity. The agency considered the characteristics of parts bénéfieiaries in light of the first criterion, the “expiration/maturity date/repayment obligation,” and found this criterion militated in favor of classifying the parts bénéfieiaries as equity.
(See
Confid.R. 52 at 2 (cited in
General Issues Appendix,
58 Fed.Reg. at 37,255).) Although it was not necessary under the methodology, Commerce stated in an internal memorandum that it examined the “guaranteed interest or dividends” criterion and found business proprietary evidence relevant to this factor supported the agency’s determination that parts bénéfieiaries constituted equity instruments.
(See id.)
The Court is unpersuaded by Domestic Producers’ and Fabfer’s attempt to discredit Commerce’s determination that parts bénéfieiaries constituted equity because parts bénéfieiaries did not have all the characteristics generally associated with equity shares. This argument proves little because it is plain parts bénéfieiaries did not possess all the characteristics of equity otherwise they would not have been called hybrid securities and there would have been no need for Commerce to design a methodology to determine whether they were grants, debt, or equity. More important, Commerce applied the hierarchical criteria to parts bénéfieiaries by considering evidence on the record. The Court finds no reason to second-guess the expertise of Commerce even if the Court were to disagree, which it does not, with Commerce’s conclusion.
21
Domestic Producers and Fabfer do little more than recite other evidence on the record they argue militates against the determination reached by Commerce. This Court will not overturn Commerce’s determination merely because Domestic Producers and Fabfer produce evidence supporting their arguments and opposing the determination reached by Commerce.
See Consolo v. Federal Maritime Comm’n,
383 U.S. 607, 620 , 86 S.Ct. 1018, 1026 , 16 L.Ed.2d 131 (1966) (“[T]he possibility of drawing two inconsistent conclusions from the evidence does not prevent an administrative agency’s finding from being supported by substantial evidence.”) (citations omitted);
Tehnoimportexport v. United States,
15 CIT 250 , 253, 766 F.Supp. 1169, 1173 (1991) (explaining “Commerce’s determination will not be overturned merely because the plaintiff is able to produce evidence ... in support of its own contentions and in opposition to the evidence supporting the agency’s determination.”) (citation and internal quotations omitted). The Court holds Commerce’s use of the hierarchical method of examining hybrid securities to find parts bénéfieiaries constituted equity is based on substantial evidence and is otherwise in accordance with law.
2.
Measuring the Benefits from the OCPCs-to-Parts Bénéfieiaries Conversions
Domestic Producers’ and Fabfer’s claim that Commerce improperly used secondary
*580
market prices to calculate the benefit from the equity infusions occasioned by Coekerill’s and Clabecq’s parts bénéfíciaries conversions is equally misguided. The first issue here is whether it was proper for Commerce to use the “next most similar publicly traded equity instrument” as a benchmark when the agency’s
Proposed, Regulations
call for an examination of the “same form of equity.”
See Proposed Regulations,
54 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(1)(i)). The second issue is whether Commerce’s examination of both the primary and secondary markets for a benchmark was proper given that the
Proposed Regulations
explicitly mention only the primary market. The Court finds Commerce’s application of its
Proposed Regulations
was proper in both instances.
a. Use of the “Next Most Similar Publicly Traded Equity Instrument” as a Benchmark
The Court agrees with Commerce that at its core, the
Proposed Regulations
express a preference for a market-determined benchmark before permitting the agency to turn to its equityworthiness inquiry.
See, e.g., Proposed Regulations,
54 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(1)(ii)) (directing Commerce to invoke its equityworthiness inquiry when there “is no market-determined price”). The preamble to the
Proposed Regulations
cites the
Subsidies Appendix
in its discussion of Commerce’s existing practice of determining when a government provision of equity confers a countervailable benefit.
Id.
at 23,371 . In the
Subsidies Appendix,
Commerce explained “[i]f the government buys shares directly from the company ... and
similar shares are traded in a market,
a subsidy arise [sic] if the government pays more than the prevailing market price.”
Subsidies Appendix,
49 Fed.Reg. at 18,020 (emphasis added). Thus, it is consistent with the tenor of the
Proposed Regulations
for Commerce to turn to the “next most similar publicly traded equity instrument” as a benchmark when the “same form of equity” does not exist. The Court finds Commerce’s interpretation of the
Proposed Regulations
in this instance is based on substantial evidence and is otherwise in accordance with law.
Because Cockerill and Clabecq’s parts bén-éficiaries were not publicly traded, Commerce selected the companies’ common share prices as the benchmark because the common shares were “the next most similar publicly traded equity instrument issued by Cockerill and Clabecq.” (Def.’s Br. at 82.) Commerce has not, however, invited the Court’s attention to any record evidence showing that the common shares were the “next most similar publicly traded equity instrument” after the parts bénéfíciaries. Commerce’s failure to do so is all the more glaring given that Commerce did perform such an analysis when it compared Clabecq’s common shares and preference shares in deriving a market benchmark to measure the benefits from Clabecq’s debt-to-preference shares conversion.
22
Accordingly, the Court remands the
Final Determination
as amended to Commerce to permit the agency to explain the basis upon which it determined Cockerill’s and Clabecq’s common shares were “next most similar publicly traded equi
*581
ty instrument” after the parts bénéfíciaries and to indicate the record evidence the agency relied upon in reaching its determination.
b. Use of a Secondary Market Price to Derive a Market Benchmark When No Primary Market Price Exists
The Court finds Commerce’s examination of secondary market price in its search for a market benchmark under the
Proposed Regulations
when no primary market price existed was proper. First, a close reading of the
Proposed Regulations
demonstrates they do not foreclose the use of secondary market prices as a benchmark, as Domestic Producers argue.
23
Second, in the
General Issues Appendix,
Commerce explained its preference for secondary market prices over the agency’s equityworthiness test.
See General Issues Appendix,
58 Fed.Reg. at 37,251. The agency’s reasoning that market prices of publicly traded instruments are a “much more accurate indicator of [a] company’s future earnings potential and worth than any hypothetical measurement which [Commerce] could devise,”
see Subsidies Appendix,
49 Fed.Reg. at 18,023, is well within the discretion of the agency to adopt. In its expertise, Commerce regards the comparison of the price paid for equity to the secondary market price as a “reliable and accurate gauge as to whether ... government equity infusions are inconsistent with commercial considerations.”
See id.
If the marketplace is the “ultimate arbiter of economic valuation,” certainly a plausible if not irrefutable position, Commerce’s preference to look to market-determined prices before resorting to its equityworthiness inquiry, which it calls a
reasonable surrogate
for valuation, is a proper exercise of Commerce’s discretion. The Court holds Commerce’s use of secondary market price to derive a market benchmark when no primary market price exists for measuring subsidy benefits is based on substantial evidence and is otherwise in accordance with law.
c. Application of the Equityworthiness Test
As explained above, if the primary and secondary markets do not yield a reliable benchmark, Commerce turns to its equity-worthiness test. If a company is found unequityworthy under Commerce’s methodology, the equity infusion is treated as a grant and countervailed accordingly.
See British Steel pic,
19 CIT at -, 879 F.Supp. at 1309-10 (upholding Commerce’s grant methodology, which treats equity infusions into unequity-worthy companies countervailable as grants). In this case, Domestic Producers contest Commerce’s decision not to countervail Sid-mar’s conversion of parts bénéficiaries simply because, Domestic Producers argue, Commerce did not make an equityworthiness determination as to Sidmar.
In the
Final Determination,
Commerce stated it did not initiate an equityworthiness investigation with respect to Sidmar and “[therefore, we have determined that the GOB’s conversion of its debt [OCPCs] to equity [parts bénéficiaries] does not provide a countervailable benefit to that company.”
Final Determination,
58 Fed.Reg. at 37,277. There is little in the record to support Commerce’s decision not to countervail Sidmar’s parts bénéficiaries conversion other than an internal memorandum stating that Commerce “found no reason to believe or suspect that Sidmar was unequityworthy and, so, no basis to conclude that the equity infusion was
*582
made on terms inconsistent with commercial considerations.” (Pub.R. 62 at 1.)
“According to Commerce’s traditional methodology, where a company’s stock is not publicly traded, a government’s infusion of equity will only confer a countervailable benefit if the company is not equityworthy.” (Def.’s Br. at 98 (citing
Proposed Regulations,
58 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(1))).) It appears then, Commerce has adopted the position that once it determines a company without a market benchmark is equityworthy, equity infusions to that company are consistent with commercial considerations and not countervailable.
The Court finds this limited analysis is not in accord with Commerce’s statutory mandate to countervail a bounty or grant or “[t]he provision of capital ... on terms inconsistent with commercial considerations.”
See
19 U.S.C. § 1677 (5)(A)(ii)(I). That is, there is insufficient evidence on the record demonstrating that Commerce analyzed the conversion of Sidmar’s OCPCs to parts bénéficia-ries to determine if the conversion was on terms inconsistent with commercial considerations. Instead, Commerce simply appears to have concluded that because it found no reason to suspect that Sidmar was unequity-worthy, it did not need to examine whether the equity infusions via the parts bénéficia-ries conversions were countervailable as “[t]he provision of capital ... on terms inconsistent with commercial considerations.” As aptly stated by the Court in a recent case wherein Commerce applied this same practice,
where a company is equity-worthy, as here, it does not necessarily follow that the purchase of stock from that company will be consistent with commercial considerations. Commerce appears to establish a blanket rule that the stock issued by an equity-worthy company would be equity-worthy as well.
The court does not agree....
... This court cannot, consistent with the intent of Congress, permit Commerce to base its decision in this matter solely upon the equity worthiness of the issuing company. Congressional intent, rather, dictated the imposition of countervailing duties to offset the provision of capital when made on terms inconsistent with commercial considerations.
Amicor,
18 CIT at -, 871 F.Supp. at 454 .
This Court finds no fault with Commerce’s methodology of turning to its equityworthiness inquiry after determining a reliable benchmark in the primary or secondary market does not exist. Furthermore, as stated above, Commerce is on solid ground when its equityworthiness inquiry leads the agency to countervail as grants equity infusions made to unequityworthy companies. The shortcoming of Commerce’s methodology is Commerce’s failure to determine whether an equity infusion is “on terms inconsistent with commercial considerations” notwithstanding Commerce’s finding that the company is equityworthy.
24
In light of the foregoing, this Court finds Commerce’s determination not to countervail Sidmar’s conversion of OCPCs to parts bénéficiaries is not based on substantial evidence and is not otherwise in accordance with law. Therefore, the Court remands the
Final Determination
as amended to Commerce for a determination whether Sidmar’s conversion of OCPCs to parts béné-ficiaries was on terms inconsistent with commercial considerations and to indicate the record evidence the agency relied upon in reaching its determination.
II. Commerce’s Decision Not to Make Equityworthiness Determinations of Cockerill and Clabecq in Certain Years
The next issue concerns Commerce’s decision not to initiate equityworthiness investigations of Cockerill for the years 1980 through 1988, and Clabecq for the years 1980 through 1989. In such an investigation,
*583
Commerce attempts to determine whether a company demonstrates the ability to generate a reasonable rate of return within a reasonable period of time.
General Issues Appendix,
58 Fed.Reg. at 37,244 (citing
Proposed
Regulations). Using financial criteria described in the
Proposed Regulations,
Commerce examines whether the ability to generate such a return is evident “from the perspective of a reasonable private investor examining the firm at the time the government equity infusion was made.”
Proposed Regulations,
54 Fed.Reg. at 23,381 (to be codified at 19 C.F.R. § 355.44 (e)(2)). The equity worthiness test plays a key role in the agency’s grant methodology, which “treats equity infusions into unequityworthy companies as grants.”
See General Issues Appendix,
58 Fed.Reg. at 37,241.
25
As explained above in section one, part I.B, the equityworthiness test is used to measure the countervailable benefit only when a company receiving an equity infusion does not have a market-determined price or where such market benchmark is shown to be deficient, tainted, or distorted.
See id.
at 37,252 . Commerce’s rationale is that “[a]s long as a company’s shares are being traded in the secondary market, we obviously cannot reach ... a conclusion [that no reasonable investor would have invested in the company]. Reasonable investors are investing in the company, albeit only at a certain price.”
Id.
In the
Final Determination,
Commerce found “Clabecq’s and Coekerill’s shares were publicly traded on Belgian markets.”
Final Determination,
58 Fed.Reg. at 37,277. Thus, Commerce did not make an equityworthiness determination for Cockerill or Clabecq because “the market price [of their publicly traded shares] serve[d] as a benchmark price for the value of the shares.”
Id.
at 37,275 .
A. Contentions of the Parties
1.
Domestic Producers
Domestic Producers first claim Commerce erred in falling to investigate the equitywor-thiness of Cockerill and Clabecq despite substantial evidence on the record regarding the unequityworthiness of both. (Domestic Producers’ Br. at 32.) If the agency had done so and determined the companies were unequi-tyworthy, Domestic Producers argue, Commerce would have countervailed the infusions as grants.
(Id.
(citing
General Issues Appendix,
58 Fed.Reg. at 37,239).) Moreover, Domestic Producers fault Commerce’s practice of proceeding to an equityworthiness determination only when there is no market-determined price for the company’s existing shares as based on faulty reasoning and inconsistent with Commerce’s own pronouncements on the meaning of equityworthiness.
(Id.
at 33 (citation omitted).)
Second, Domestic Producers argue Commerce’s resort to an equityworthiness determination only when there is no market-determined price reflects a fundamental misunderstanding of the relevance of the secondary market to a company’s equity-worthiness.
(Id.
at 39.) Domestic Producers suggest that equityworthiness “relates to a company’s ability to attract
new
capital from reasonable private investors.... When investors buy a company’s existing stock on the secondary market from existing owners, they are not investing
in the company.” (Id.)
Commerce itself, Domestic Producers argue, has found that sales on the secondary market do not provide a benefit to the company whose stock is being traded. (Domestic Producers’ Reply Br. at 15 n. 36 (citing
Certain Steel Products From Belgium,
47 Fed.Reg. 39,304, 39,319 (Dep’t Comm.1982) (final determ.)
(1982 Final Determination)
(“If the government buys previously issued shares on a market or directly from shareholders rather than from the company, there is no subsidy to the company.”)) (further citations omitted).) Furthermore, Domestic Producers suggest, Commerce’s use of the secondary market to measure the value of shares creates an enormous loophole in CVD law as a “government could pour unlimited amounts of capital into a company, regardless of its ability to produce a reasonable return on that capital.” (Domestic Producers’ Br. at
*584
46.) In this way, a company could avoid countervailing duties “so long as [the government] received in return the number of shares which, when divided into the amount of the infusion, yielded the then prevailing secondary market price.”
(Id.)
Third, Domestic Producers contend Commerce’s position that the presence of a secondary market in a company’s shares is proof of the firm’s equityworthiness is contrary to Commerce’s prior recognition that firms with publicly traded shares can be unequitywor-thy.
(Id.
at 40.) Domestic Producers point to the
1982 Final Determination
wherein Commerce considered the soundness of investments in Cockerill at a time when the company’s shares were publicly traded in the secondary market.
(Id.)
In that determination, Commerce declared, “ “we do not regard these Belgian steel companies [those that merged to create Cockerill] as representing sound commercial investments at the time the GOB acquired equity positions in them.’ ”
(Id.
(quoting
1982 Final Determination,
47 Fed.Reg. at 39,307).) Domestic Producers contend Commerce endorsed this finding in the current investigation.
(Id.
(citing
Final Determination,
58 Fed.Reg. at 37,279).) Finally, Domestic Producers cite record evidence supporting their claim that Cockerill and Clabecq were unequityworthy in the years of the equity infusions.
(See id.
at 42-45 .)
2.
Commerce
As discussed above in section one, part I.C.2.b, Commerce argues the equityworthiness test is a substitute for the market price benchmark and is only employed where no market price exists or where such benchmark is deficient, tainted, or distorted. (Def.’s Br. at 63 (citations omitted).) Commerce explains it prefers using a “market-determined price as a benchmark for measuring subsidies before substituting its own judgment in an equityworthiness determination.”
(Id.
at 65.) Because it has consistently preferred to use the share price in the secondary market before resorting to the equityworthiness test, Commerce argues, it found no reason to abandon its practice in this determination.
(Id.
at 63-64 (citing
General Issues Appendix,
58 Fed.Reg. at 37,251).) Commerce is quick to point out, however, “there may be instances where the market might not operate optimally.”
(Id.
at 74.) If evidence of tainted, deficient, or distorted share prices is present, Commerce acknowledges it can reject the market benchmark as it has done in other investigations.
(Id.
at 73 (footnote omitted).)
Commerce
argues Domestic Producers’ attempt to show Cockerill and Clabecq were unequityworthy misses the point. The issue is not the equityworthiness of those firms, Commerce insists, but rather the reasonableness of Commerce’s long-standing policy of employing actual market prices before invoking the equityworthiness test.
(Id.
at 69.) Moreover, Commerce believes it is inappropriate for Domestic Producers to argue the merits of an equityworthiness determination as to Cockerill and Clabecq when such a determination was never considered or briefed in the administrative proceeding below.
(Id.
at 69 n. 143.)
There is no danger, Commerce assures the Court, that the use of stock market prices creates a loophole in CVD law as argued by Domestic Producers.
(Id.
at 73.) Commerce rejects the scenario that a foreign government could pour unlimited capital into a company, and avoid creating a countervailable subsidy by dividing the infusion amount by the prevailing market price to yield an appropriate number of shares purchased.
(Id.)
In such a case, Commerce suggests, the market would respond to this dilution of equity by devaluing share prices. Furthermore, if the agency had substantial evidence of inflated share prices, Commerce reasons, it would adjust share prices accordingly.
(Id.
(citing
General Issues Appendix, 58
Fed.Reg. at 37,252-53).)
Finally, Commerce concedes it erred in the
Final Determination
by mischaracterizing the
1982 Final Determination
as having made the determination that Cockerill was unequityworthy.
(Id.
at 75 n. 160 (citing
Final Determination,
58 Fed.Reg. at 37,-279).) In light of its lengthy explanation and justification for the use of market prices as benchmarks, and Commerce’s long-standing policy of preferring market-determined prices as benchmarks before resorting to the
*585
equityworthiness inquiry, however, Commerce argues Domestic Producers’ focus on this and other “harmless errors” is unavailing.
(Id.
at 76-77.)
3.
Foreign Producers
Clabecq argues Commerce properly refused to undertake an equityworthiness investigation of Clabecq because the company’s stock was publicly traded on the Belgian stock exchange. (Clabecq’s Br. at 3.) “[A] company whose shares are publicly traded is plainly ‘equityworthy,’ ” Clabecq argues, because “independent investors are willing to take equity ownership positions in the company.”
(Id.
at 4.) After discussing the
Subsidies Appendix
and Commerce’s
Proposed Regulations,
Clabecq concludes Commerce’s decision not to proceed with an equityworthiness determination in the ease of Clabecq was fully consistent with the agency’s longstanding policies and practices.
(Id.
at 5.)
As defendant-intervenor, Fabfer supports Domestic Producers’ contention that Commerce erred in failing to make an equitywor-thiness determination with respect to Cocke-rill and Clabecq. (Fabfer’s Resp.Br. at 2.) Fabfer concedes that publicly traded shares presumptively establish a market-determined price for the company’s shares.
(Id.
at 2-3.) Fabfer cautions, however, this does not necessarily establish that the company’s financial condition is sound, or that the company would be able to produce a reasonable return on additional capital.
(Id.
at 3.) Given the financial evidence on the record, Fabfer argues, Commerce should have conducted equi-tyworthiness determinations for Cockerill and Clabecq despite the fact their shares were publicly traded.
(Id.)
B. Discussion
Domestic Producers and Fabfer have simply raised another attack on Commerce’s use of secondary market prices as a benchmark to value subsidy benefits. In section one, part I.D.2.b
supra,
the Court upholds Commerce’s use of secondary market prices in lieu of the agency’s equitywor-thiness inquiry. The only issue here is whether Commerce properly chose not to make equityworthiness determinations as to Cockerill and Clabecq. The Court finds Commerce’s decision not to make such an equityworthiness determination is based on substantial evidence and is otherwise in accordance with law. Commerce adequately set forth why there was no need to make equityworthiness determinations as to Cocke-rill and Clabecq. The agency cited record evidence demonstrating the shares of both companies were publicly traded on Belgian markets. Thus, Commerce properly reasoned it need not make an equityworthiness determination for Cockerill or Clabecq because “the market price [of their publicly traded shares] serves as a benchmark price for the value of the shares.”
Final Determination,
58 Fed.Reg. at 37,275.
The Court is not persuaded by the evidence raised by Domestic Producers and Fabfer attempting to show that notwithstanding the availability of a market benchmark for the value of Cockerill’s and Cla-becq’s shares, the companies still showed signs of being unequityworthy. Under Commerce’s methodology, there is no need to examine evidence of a firm’s equityworthiness if an adequate market benchmark exists for the firm,
26
It is a reasonable exercise of Commerce’s discretion to express a preference for market-based benchmarks before substituting its own judgment by invoking the equityworthiness test.
See Wheatland Tube Corp. v. United States,
17 CIT 1230 , 1245, 841 F.Supp. 1222, 1234 (1993) (“Commerce has broad discretion to choose a methodology to satisfy the statutory mandate.”). The Court holds Commerce’s determination not to make equityworthiness determinations as to Cockerill and Clabecq is based on sub
*586
stantial evidence and is otherwise in accordance with law.
III. The Use of the Secondary Market Price of Clabecq’s Existing Common Stock on the Date the 1985 Debt-to-Equity Conversion Was Agreed to as the Benchmark
Even if the Court were to agree with Commerce’s determination that Clabecq was equityworthy and that the secondary market price of common stock is an appropriate benchmark for valuing the shares at issue, Domestic Producers argue, Commerce still erred in using as a benchmark the market price of the shares at the time Clabecq and the GOB agreed to the transaction. (Domestic Producers’ Br. at 77.) Domestic Producers contend the
General Issues Appendix
provides that “when using publicly traded shares as a benchmark to determine counter-vailable benefits, the Department will use the market price at the time of the infusion.”
(Id.
(citing
General Issues Appendix,
58 Fed. Reg. at 37,253).) In the present case, Domestic Producers argue Commerce has offered no explanation for its departure from this practice.
Commerce concedes it erred and states “it should have used the share price at the time of the infusion” in accordance with the practice outlined in the
General Issues Appendix.
(Def.’s Br. at 85.) Accordingly, if appropriate after Commerce’s consideration on remand of the use of Clabecq’s common shares as the “next most similar publicly traded equity instrument,”
27
Commerce shall recalculate the countervailing duty rate for the conversions of BF 211,835,100 and BF 1.288 billion Clabecq debt held by the Société Nati-onale pour des Reconstruction des Secteurs Nationaux (SNSN)
28
to ordinary and nonvoting preference shares, pursuant to the approval of the Belgian Council of Ministers on December 30, 1983, based on the date of the GOB’s equity infusion.
29
IV. The Use of Sidmar’s 1991 Consolidated Group Sales as the Sales Denominator
Sidlnvest N.V. (Sidlnvest) was created in 1982 as a holding company jointly capitalized by Société Nationale d’lnvestissement (SNI), a government agency, and Sidarfin, a wholly-owned subsidiary of Sidmar.
Final Determination,
58 Fed.Reg. at 37,281. The GOB created Sidlnvest and similar holding companies as part of its plan to restructure the steel industry. Although the original goal in creating the holding companies was to develop state-of-the-art steel companies, in 1983 the GOB revised the statutory purpose to include the start up or expansion of all industrial or commercial companies that contribute to Belgian economic development. Commerce verified that few of Sidlnvest’s investments have been steel-related.
Id.
The GOB gave Sidlnvest drawing rights on SNI to finance specific projects. The drawing rights took the form of conditional refundable advances (CRAs), which were interest free but repayable to SNI based on Sidlnvest’s profitability.
See id.
After the GOB sought to accelerate Sidlnvest’s repayment of the CRAs, the GOB swapped its uncertain repayment schedule for a fixed schedule.
Id.
at 37,282. “The face value of the outstanding CRAs would be repaid in 32 years. In the meantime, no interest would be paid [by Sidmar].”
Id.
Commerce determined this transaction created a 32-year interest free loan, which constituted a counter-vailable benefit.
Commerce also found the GOB sought immediate repayment of at least some of the money owed to it. Thus, Commerce determined SNSN effectively sold the 32-year interest free loan back to Sidlnvest for new
*587
shares in Sidlnvest and cash. The new shares were then sold for cash. Commerce found the transaction consisting of the exchange of the 32-year interest free loan for shares in Sidlnvest and Sidlnvest’s cash payment to SNSN gave rise to a countervailable benefit because the total amount of money received by SNSN was less than what Sidln-vest should have paid to repurchase its loan.
Id.
Commerce concluded these transactions bestowed countervailable benefits on Sidmar, and not Sidlnvest, because “any subsidies provided to Sidlnvest are not tied to Sidln-vest or to the specific activities in which it invested. Instead, any benefits flow to the Sidmar Group as a whole.”
Id.
Commerce explained that Sidlnvest was organized as an “investment” joint venture, meaning it would not engage in the production of any products.
Id.
at 37,291. Instead, Sidlnvest would invest the funds in unspecified projects and use the returns from these projects to repay the CRAs and the joint venture partners.
Id.
at 37,292 “[Wjhere the government provides assistance to a non-producing joint venture (or subsidiary) and where there are no specific conditions on how or where the funds should be invested,” Commerce explained,
it is reasonable to conclude that the subsidy benefits the participants in the joint venture rather than specific investments funded by the joint venture. In our view, subsidies to an investment joint venture, with no conditions on the use of the funds, are analogous to the receipt of “untied” subsidies. The Department’s practice in such instances is to allocate the benefit over the total sales of the recipient company.
Id.
In accord with this reasoning, Commerce treated the subsidies as untied benefits to the Sidmar Group. Commerce then calculated the benefits from the two subsidies using Sidmar’s company-specific benchmark for 1988.
Id.
at 37,282. The benefits from the interest-free loan were allocated over the life of the loan, and the benefits from the sale of the loan were allocated over fifteen years. Commerce then divided these amounts by the total 1991 sales of the Sidmar Group.
30
Id.
A. Contentions of the Parties
1.
Domestic Producers
First, Domestic Producers claim Commerce improperly used Sidmar’s consolidated group sales as the sales denominator in its subsidy calculation and should have used only Sidmar’s total sales as the denominator. (Domestic Producers’ Br. at 56-57.) Domestic Producers contend the Sidmar Group sales figure includes non-Belgian revenue and revenue generated in transportation charges, etc., which are not properly included in any countervailing duty denominator.
(Id.
at 57-58 (citing
General Issues Appendix,
58 Fed.Reg. at 37,231).) “A review of Sidmar’s annual report,” Domestic Producers argue, “confirms that [Sidmar] has at least nine fully consolidated foreign subsidiaries” and thus “use of the Sidmar Group figure artificially reduced the subsidy rate on Sidmar’s sales.”
(Id.
at 58.) “[I]t simply makes no sense to apply the Sidmar Group total sales figure when calculating the subsidy rate to Sidmar for the Sidlnvest program,” Domestic Producers contend, when all enterprises within the Sidmar Group were not investigated for subsidies. (Domestic Producers’ Reply Br. at 35 (footnote omitted).)
Second, assuming Commerce used the proper denominator, Domestic Producers argue Commerce should not have used the unverified worldwide sales figure for Sidmar. (Domestic Producers’ Br. at 57.) Domestic Producers allege that unlike the sales data for Sidmar, the Sidmar Group sales figure was not verified by Commerce and therefore the agency should have used the verified sales of Sidmar and its related service center as best information available (BIA).
(Id.)
*588
2.
Commerce
Commerce responds it properly-used the total sales figure for the Sidmar group in the denominator of the subsidy rate calculation for the Sidlnvest program. By employing its “traditional tying analysis,”
31
Commerce argues it found any subsidies provided to Sidlnvest are not tied to Sidlnvest or to the specific activities in which it invested, but rather, flow to the Sidmar Group as a whole. (Def.’s Br. at 108 (footnote omitted).) Furthermore, in response to Domestic Producers’ charge that Commerce improperly included transportation charges in its calculations, Commerce concedes it normally would use total sales of the Sidmar Group for the POI adjusted to an F.O.B. (port) value as the sales denominator.
(Id.)
32
In this investigation, however, the record contained only the relevant total sales figure, as set forth in Sidmar’s Annual Report, but not the necessary data to make the F.O.B. (port) value adjustment. (Def.’s Br. at 108-09 (footnote omitted).)
Similarly, Commerce defends its inclusion of non-Belgian company revenues in the sales figure and its use of the Sidmar Group total sales figure without adjustment for transportation charges as reasonable given “inadvertent evidentiary gap[s] in the record, not due to any failure on the part of the respondent.”
(Id.
at 110.)
33
Under these circumstances, Commerce argues, its use of the Sidmar Group total sales figure without adjustment for transportation charges and its inclusion of the non-Belgian company revenue is proper.
(Id.
at 113.) Thus, Commerce “used its ‘best estimate’ given the state of the record” and did not resort to BIA.
(Id.
at 110 (footnote omitted);
see also id.
at 114.)
Commerce defends its verification of the total sales figure for the Sidmar Group as contained in Sidmar’s Annual Report and argues the agency enjoys “significant latitude in implementing its verification procedures.”
(Id.
at 111 (citations omitted).) The agency’s “ ‘decision to select a particular method of verification rests solely within the agency’s sound discretion,”’ Commerce argues, and should be sustained if reasonable.
(Id.
(quoting
Floral Trade Council v. United States,
17 CIT 392 , 399, 822 F.Supp. 766, 772 (1993) (citation omitted)).) In this investigation, Commerce contends its spot-check of the information submitted was a reasonable method of verification as Commerce is not required to conduct an exhaustive examination of all information.
(Id.)
Furthermore, Commerce notes Sidmar’s Annual Report had been audited by an independent accounting firm giving Commerce no reason to inquire further into the accuracy of the report as Commerce routinely accepts audited data as accurate for verification purposes.
(Id.
at 112 (citations omitted).)
3.
Foreign Producers
Sidmar supports Commerce and agrees the agency properly used the Sidmar Group’s 1991 total sales figure as the denominator in its calculations regarding Sidlnvest.
(See
*589
Sidmar’s Br. at 42-44.) Sidmar also sides with Commerce to defend the agency’s verification process in this investigation and to reject Domestic Producers’ argument that Commerce should have used only Sidmar’s and its related service center’s total sales as BIA for the sales denominator.
(See id.
at 44-46.)
Sidmar raises an additional attack on Domestic Producers’ arguments and contends Domestic Producers are barred from raising the issue of the inclusion of foreign sales in the sales denominator because this issue was briefed, argued, and decided in another phase of this proceeding.
34
(Id.
at 47-49.) Sidmar asserts Domestic Producers failed to raise the issue of the denominator used in Commerce’s Sidlnvest calculations at that time and therefore Domestic Producers should be barred from being heard on this issue.
(Id.
at 48.) To allow otherwise, Sid-mar argues, would be prejudicial to Sidmar because, relying on the absence of any discussion by Domestic Producers of the Sidln-vest denominator in their briefing on the general issue of sales denominator, Sidmar did not actively participate in the denominator portion of the General Issues proceeding.
(Id.)
B. Discussion
The Court addresses as a threshold issue Sidmar’s contention that Domestic Producers are precluded from raising an argument concerning the calculation of the sales denominator because of the Court’s earlier consideration of that issue in
British Steel plc. See British Steel plc,
19 CIT at -, 879 F.Supp. at 1310-20. Sidmar is correct in arguing that parties are generally barred from re-arguing issues discussed in
British Steel pic
as general issues.
See supra
note 34. In this ease, however, the Court finds Domestic Producers are not precluded from raising their arguments because in this
Final Determination,
Commerce did not employ the refined sales denominator methodology at issue in
British Steel plc.
The refined sales denominator methodology at issue in
British Steel pic
was erected by Commerce to calculate the appropriate sales denominator
to be used in subsidy calculations when a respondent’s total sales include not only sales of domestically produced merchandise, but also sales of merchandise produced in one or more foreign countries. This issue arises in the Certain Steel Products investigations where the respondent is a parent company producing the subject merchandise in the country under investigation and in one or more other countries, typically through subsidiaries.
General Issues Appendix,
58 Fed.Reg. at 37,231. In this investigation, however, Commerce determined Sidlnvest “was set up as an ‘investment’ joint venture, i.e., it would not itself engage in production of any products.”
Final Determination,
58 Fed.Reg. at 37,291. Commerce stated that “subsidies to an investment joint venture, with no conditions on the use of the funds, are analogous to the receipt of ‘untied’ subsidies. The Department’s practice in such instances is to allocate the benefit over the total sales of the recipient company.”
Id.
at 37,292. Thus, Commerce treated the subsidies as untied benefits to the Sidmar Group and therefore, Commerce had no reason to apply its refined tying analysis in this case.
(See also
Def.’s Br. at 114 n. 270 (“Commerce did not have any basis for applying its new tying presumption (for firms with multinational production) in this case.”).) The Court finds the
*590
refined tying methodology at issue in
British Steel pic
was not employed by Commerce in this
Final Determination.
Therefore, Domestic Producers are free to raise their claims challenging the denominator calculation in this action and are not precluded from doing so by the terms of the scheduling order set down in
British Steel plc.
The Court is persuaded Commerce’s decision to use Sidmar’s consolidated group sales as the sales denominator in its subsidy calculation is based on substantial evidence and is otherwise in accordance with law. There is substantial evidence to support Commerce’s finding that given the state of the record in this investigation, the agency’s use of the Sidmar Group total sales figure without adjusting for transportation charges and including non-Belgian company revenue was a proper exercise of the agency’s discretion in these matters. The Court recognizes that Commerce has substantial license to determine what evidence it needs to carry out its statutory functions.
See Creswell Trading Co., Inc. v. United States,
12 Fed.Cir. (T) -, -, 15 F.3d 1054, 1062 (1994) (“Commerce is presumably in the best position to know what it means by its own requirements and what evidence will satisfy these requirements_”). Domestic Producers have raised no credible evidence leading the Court to question Commerce’s determination.
Additionally, the Court perceives no reason to overturn Commerce’s finding that the evidentiary gaps in the record were inadvertent and not due to any lack of openness on the part of Foreign Producers. Commerce explained .that “[g]iven the way in which the investigations developed ... the record only contained the relevant total sales figure ... but not the necessary data to adjust to an F.O.B. (port) value.” (Def.’s Br. at 108-09 (footnote omitted).) That is, “the record did not contain all of the data ideally available.”
(Id.
at 109.) Whatever the deficiencies in the record, there is no evidence that Commerce deemed respondents responsible for such deficiencies. Indeed, Commerce explains, the “inadvertent evidentiary gap in the record, [is] not due to any failure on the part of the respondent.”
(Id.
at 110.) It appears then the use of BIA is not appropriate in this instance as the statute “clearly requires
noncompliance with an information request
before resort to the best information rule is justified, whether due to refusal or mere inability.”
Olympic Adhesives, Inc. v. United States,
8 Fed.Cir. (T) 69, 79, 899 F.2d 1565, 1574 (1990) (discussing 19 U.S.C. § 1677e(b) (1982) redesignated in 1988 as § 1677e(c)
35
) (citation omitted). Commerce is in the best position to know if respondents have been forthcoming and whether resort to BIA is proper, the Court sees no reason to disturb Commerce’s decision not to resort to BIA
See Timken Co. v. United States,
18 CIT -, -, 852 F.Supp. 1122, 1125 (1994) (discussing 19 U.S.C. § 1677e(c) and the use of BIA in an antidumping proceeding and holding, “[i]t is well-established ... that Commerce has broad discretion with regard to when the use of BIA is appropriate.”) (citation omitted).
The Court agrees with Commerce that the agency enjoys “a degree of latitude in implementing its verification procedures” and such methods will not be questioned if reasonable.
Floral Trade Council,
17 CIT at 399, 822 F.Supp. at 772 (further citation omitted). Commerce’s decision to employ a spot-check of the information submitted was a reasonable method of verification as there is no obligation on Commerce to conduct a comprehensive examination of all information submitted.
See Monsanto Co. v. United States,
12 CIT 937 , 944, 698 F.Supp. 275, 281 (1988). The Court sustains in all respects Commerce’s use of Sidmar’s 1991 consolidated Group Sales as the sales denominator as based on substantial evidence on the record and otherwise in accordance with law.
V. The Countervailing of Benefits from the 1970 Economic Expansion Law Only to the Extent They Exceeded Benefits Already Available Under the 1959 Expansion Law
On July 17, 1959, the GOB passed an economic expansion law (1959 Law) providing
*591
for interest rebates, grants for capital investments, government loan guarantees, and other benefits designed to promote economic expansion and modernization in Belgium.
See 1982 Preliminary Determination,
47 Fed.Reg. at 26,305. Because the programs under the 1959 Law were available to companies in all regions in Belgium and were not directed to a specific enterprise or industry or group of enterprises or industries, Commerce declined to countervail benefits flowing from the 1959 Law.
1982 Final Determination,
47 Fed.Reg. at 39,310;
see also Final Determination,
58 Fed.Reg. at 37,275 (“The 1959 Law was found to be non-specific in Belgian Steel and, thus, not countervaila-ble.”).
The Economic Expansion Law of December 30, 1970 (1970 Law), offered similar “incentives to promote the establishment of new enterprises or the expansion of existing ones which contribute directly to the creation of new activities and new employment within designated development zones.”
Final Determination,
58 Fed.Reg. at 37,275. Commerce determined the 1970 Law provided benefits specifically to firms in certain regions of the country. Therefore, Commerce found the benefits dispensed under the 1970 Law were provided to a specific enterprise or industry or group of enterprises or industries and were eountervailable.
Id.
Commerce determined that firms qualifying for benefits under the 1970 Law would also qualify for benefits under the 1959 Law, albeit at a somewhat lower benefit level.
Id.
at 37,289. Thus, Commerce countervailed benefits under the 1970 Law only to the extent they exceeded benefits available under the 1959 Law.
Id.
at 37,275, 37,289.
A. Contentions of the Parties
1.
Domestic Producers
Domestic Producers charge Commerce’s determination that it need only countervail benefits provided under the 1970 Law to the extent they exceeded benefits available under the 1959 Law is not supported by substantial record evidence, is not in accordance with law, and is unprecedented and unexplained. (Domestic Producers’ Br. at 59.) Domestic Producers do not challenge Commerce’s determination that the 1970 Law is specific and that the 1959 Law is not specific.
(Id.
at 58-59, 59 n. 169.)
36
Rather, Domestic Producers argue the 1959 Law is entirely separate from the 1970 Law and Commerce erred in linking the two programs without making the requisite-finding that the programs were integrally linked.
(Id.
at 60 (footnote omitted).)
First, Domestic Producers challenge Commerce’s calculation of benefits provided under the 1970 Law and contend it is contrary to the agency’s
Proposed Regulations. (Id.
at 61.)
37
Domestic Producers assert the regulations provide Commerce “will countervail benefits under a program only to the extent that the benefits exceed the most favorable non-seleetive benefits available under that same program.”
(Id.
(discussing
Proposed Regulations,
54 Fed.Reg. at 23,382 (to be codified at 19 C.F.R. § 355.44 (n))).) Domestic Producers claim Commerce is “simply mistaken” when the agency argues that “ ‘by its terms the regulation is not limited to a single program.’” (Domestic Producers’ Reply Br. at 27 (quoting Def.’s Br. at 103).)
Second, Domestic Producers complain that Commerce’s calculation of the benefits is inconsistent with the agency’s past decisions, and further that Commerce has failed to
*592
provide a reasoned explanation for its departure from these precedents. (Domestic Producers’ Br. at 61, 62.) For example, Domestic Producers contend that in the
1982 Final Determination,
Commerce rejected the argument that because the 1970 Law provided only marginally higher benefits than those available under the 1959 Law, only the incremental benefits should be countervailed.
(Id.
at 61.) Domestic Producers claim Commerce has failed to cite any new evidence justifying a different approach in this investigation. (Domestic Producers’ Reply Br. at 31.) Further, Domestic Producers cite
Certain Granite Products From Italy,
53 Fed.Reg. 27,197 (Dep’t Comm.1988) (final determ.)
(Certain Granite Products From
Italy) where Commerce “not only applied the multi-tiered analysis to a single program, but clarified that the analysis is to be used “where the level of benefits under
a particular
program was tiered.’” (Domestic Producers’ Br. at 62 (emphasis added) (quoting
Certain Granite Products From Italy,
53 Fed.Reg. at 27,200).)
Third, Domestic Producers argue that because the 1959 Law and the 1970 Law are separate programs and there is no basis for applying a tiered-level of benefits analysis in the case of multiple programs, Commerce should “countervail the full amount of the benefits provided to Respondents under the 1970 Law, at least absent a finding that the two laws were in effect a single program,
i.e.,
that they were integrally linked.”
(Id.
at 63.) Domestic Producers argue an integral linkage analysis is useful for determining whether two programs are, in effect, one program for purposes of Commerce’s tiered-level analysis.
(Id.
(footnote omitted).) Applying the integral linkage analysis factors — ‘“the administration of the programs, evidence of a government policy to treat industries equally, the purposes of the programs as stated in their enabling legislation, and the manner of funding the programs’” and whether the programs are linked at inception — Domestic Producers survey the record evidence and conclude an examination of these factors demonstrates no integral linkage between the 1959 Law and the 1970 Law.
(Id.
at 64 (quoting
Proposed Regulations,
54 Fed.Reg. at 23,380 (to be codified at 19 C.F.R. § 355.43 (b)(6)));
id.
at 64-65 .)
2.
Commerce
Commerce defends its actions and contends it acted in accordance with law when it determined it need only countervail benefits provided under the 1970 Law to the extent they exceeded benefits available under the 1959 Law. (Def.’s Br. at 101.) Commerce responds to Domestic Producers’ argument concerning the agency’s
Proposed Regulations
and the tiered-level analysis by noting that although “this policy typically applies in situations involving a single program with more than one level of benefits ... by its terms the regulation is not limited to a single program.”
(Id.
at 103.) In any event, the agency argues, “Commerce did not actually apply its two-tiered policy to this case. Instead, Commerce reached the same result by analogy.”
(Id.)
To apply the two-tiered policy, Commerce continues, two conditions must be met:
First, the firm receiving the benefits from the specific portion of the program must have been eligible to receive the non-specific benefits. Second, Commerce must be able to determine the exact amount of benefits that would have been available under the non-specific portion of the program in order to measure the difference between the benefit levels.
(Id.)
Commerce contends both conditions were met in this case, first because steel producers in Belgium could have received benefits under the 1959 Law notwithstanding the 1970 Law, and second because Commerce was able to determine the exact amount of benefits that would have been available to the steel producers under the 1959 Law.
(Id.
at 104 (footnotes omitted).) Commerce rejects Domestic Producers’s argument that the agency’s action here was unprecedented and cites several determinations “involving multi-tiered subsidy programs in which Commerce has applied its tiered policy for determining the amount to be countervailed.”
(Id.
(citations omitted).)
Commerce also disputes Domestic Producers’ claim that Commerce’s action in this case was inconsistent with the agency’s determination in the
1982 Final Determination.
*593
(Id.
at 105.) At that time, Commerce contends, it “had not yet developed its policy toward programs with varying levels of benefits. Indeed, there is no instance where Commerce applied the policy before 1985.”
(Id.)
For this reason, Commerce argues, it was not required to cite to new facts or evidence as Domestic Producers claim.
Commerce also faults Domestic Producers’ reliance on the integral linkage policy to determine whether to apply the two-tiered policy. The integral linkage policy, Commerce explains, only applies “ Vhen we are attempting to make a specificity determination for programs.’”
(Id.
at 106 (quoting
Final Determination,
58 Fed.Reg. at 37,-289).) Because Commerce already had determined the 1970 Law was specific, Commerce contends there was no reason for the agency to apply its integral linkage analysis.
3.
Foreign Producers
Sidmar agrees with Commerce and argues Commerce properly determined the 1959 and 1970 Laws were not entirely separate programs because “ ‘firms qualifying for benefits under the 1970 Law would also qualify for benefits under the 1959 Law,’ albeit at different levels.” (Sidmar’s Br. at 50 (quoting
Final Determination,
58 Fed.Reg. at 37,-289).)
Sidmar rejects Domestic Producers’ argument that “it is ‘unprecedented for the Department to look to an entirely separate program ... when applying the multi-tiered analysis to another program.’”
(Id.
at 51 (quoting Domestic Producers’ Br. at 60).) To the contrary, Sidmar contends this appears to be exactly what the CIT instructed Commerce to do in
Comeau Seafoods Ltd. v. United States,
13 CIT 923 , 724 F.Supp. 1407 (1989).
(Id.)
In that decision, Sidmar argues, the Court “apparently recognized that even if two separate programs exist, one specific and one not, to the extent the programs provide parallel, complementary benefits, the benefits obtained from the specific program are countervailable only to the extent they exceed benefits available from the non-specific program.”
(Id.
at 53-54.)
Finally, Sidmar insists record evidence supports Commerce’s determination that the 1959 and 1970 Laws are not entirely separate programs. For example, Sidmar states Commerce verified that: (1) the purpose of the two laws is the same; (2) an overlap exists in benefits provided under the two laws; (3) the application forms and the general administration guidelines used for both laws is the same; and (4) the language of the decrees awarding benefits under both laws is essentially the same.
(Id.
at 54 (citations omitted).)
Fabfer concurs in Commerce’s determination and agrees that the integral linkage analysis only applies when Commerce is making a specificity determination for two or more programs. (Fabfer’s Resp.Br. at 6.) Accordingly, Fabfer argues Commerce properly countervailed benefits provided under the 1970 Law only to the extent the benefits exceeded those bestowed pursuant to the 1959 Law.
(Id.
at 6-7.)
B. Discussion
Domestic Producers argue the language of the
Proposed Regulations
restricts the tiered-level analysis to “benefits available under that same program.” The Court does not read the
Proposed Regulations
so strictly. Additionally, insofar as the
Proposed Regulations
are proposed and not final regulations, the Court interprets the rules as expressions of agency practice and not as promulgated final rules.
See supra
note 7. Moreover, Commerce explains it did not directly employ the tiered-level analysis described in the
Proposed Regulations
in making its determination to countervail only certain benefits. Instead, Commerce reached the same result by analogy. Commerce is afforded considerable leeway in erecting and applying methodologies to interpret the CVD statutes.
See Ipsco, Inc. v. United States,
8 Fed.Cir. (T) 80, 83, 899 F.2d 1192, 1194-95 (1990) (“[The Court] give[s] due weight to the agency’s interpretation of the statute it administers, and we accept that interpretation if it is ‘sufficiently reasonable.’ ”) (quoting
Zenith Radio Corp. v. United States,
437 U.S. 443, 450 , 98 S.Ct. 2441, 2445 , 57 L.Ed.2d 337 (1978) (further citations omitted)). This Court holds Commerce’s decision to apply the tiered-level
*594
analysis described in the
Proposed Regulations
by analogy is based on substantial evidence and is otherwise in accordance with law.
The Court finds little merit in Domestic Producers’ claim that Commerce has departed from its prior decision in the
1982 Final Determination
not to treat benefits provided under the 1970 Law as if they were provided under the 1959 Law.
See 1982 Final Determination,
47 Fed.Reg. at 39,313. Commerce explains it “had not yet developed its policy toward programs with varying levels of benefits” at that time and therefore does not have to substantiate the position it took in the current investigation with new facts or evidence. The Court finds no persuasive evidence undermining Commerce’s position.
Domestic Producers’ quarrel with Commerce’s reliance on
Certain Granite Products From Italy
as support for its treatment of benefits in this investigation is similarly unpersuasive. In
Certain Granite Products From
Italy,
38
Commerce explained that in past eases,
where the level of benefits under a particular program was tiered,
i.e.,
varied between regions, but the tiers together covered all regions of the country, we calculated countervailable benefits based on any additional benefits received over and above the lowest tier of benefits that was available under the program.
Certain Granite Products From Italy,
53 Fed.Reg. at 27,200 (citation omitted). Domestic Producers insist that Commerce’s use of the phrase “under a particular program” in
Certain Granite Products From Italy
dictates that the tiered-level analysis only applies to a single program. Commerce agrees the analysis “typically applies in situations involving a single program with more than one level of benefits,” but observes that “by its terms the [proposed] regulation is not limited to a single program.” As discussed above, the Court agrees and finds no inconsistency between Commerce’s determination in
Certain Granite Products From Italy
and its determination here.
Finally, the Court finds Commerce has provided a reasonable explanation for its decision not to employ the integral linkage analysis either explicitly or by analogy:
The discussion of integral linkage in section 355.43(b)(6) of the Proposed Regulations makes it clear that the test for integral linkage applies only when we are attempting to make a specificity determination for programs, which when considered on their own might be specific, but, when taken together, might be found non-specific. Before considering programs jointly for purposes of our specificity test, we must determine them to be integrally linked.
We have found the 1970 Law to be specific because benefits under the law are restricted to firms located in certain regions. Linking the 1970 Law with another law or program for purposes of determining its specificity is inappropriate because the law will always remain regionally specific. Therefore, the question of linkage does not apply here.
Final Determination,
58 Fed.Reg. at 37,289. It is evident from the preamble to § 355.43(b)(6) of the
Proposed Regulations
that the integral linkage analysis is a tool used to evaluate the specificity of a program — not for determining whether two programs are one.
See Proposed Regulations,
54 Fed.Reg. at 23,368 (“[Respondents have argued that in determining the specificity of a program ... the Department should consider the existence of comparable programs providing similar benefits to other industries. The Department’s position has been to reject such an analysis unless it finds that the programs are integrally linked to one another.”) (emphasis added) (citations omitted). Because Commerce reasonably determined the 1970 Law is specific, a determination that is not challenged in this proceeding, there is no need for Commerce to turn to its integral
*595
linkage analysis when that analysis by its terms is employed only to evaluate the specificity of a program. The Court finds Commerce’s decision not to invoke the integral linkage analysis is based on substantial evidence and is otherwise in accordance with law. Accordingly, the Court holds Commerce’s countervailing of the benefits from the 1970 Law only to the extent they exceeded benefits already available under the 1959 Law is based on substantial evidence and is otherwise in accordance with law.
VI. The Calculation of Interest Rate Subsidies Provided to Clabecq Pursuant to the 1959 Law and the Gandois Plan
Commerce determined Clabecq received an interest subsidy in the amount of BF 102 million pursuant to the 1959 Law, a program Commerce found not eountervailable in the
1982 Final Determination. Final Determination,
58 Fed.Reg. at 37,285. In the
Final Determination,
Domestic Producers alleged this amount was given to Clabecq under the Gandois Plan,
39
a restructuring plan benefit-ting solely the steel industry.
Id.
Commerce stated, however, it “found no evidence that Interest Rate Subsidies under the 1959 Law were given subject to the Gandois Plan [to Clabecq].”
Id.
at 37,289.
Domestic Producers argue the Gandois Plan was a “program” under Commerce’s
Proposed Regulations
and was selective because its benefits were limited to the steel industry. (Domestic Producers’ Br. at 65-66.) Under the Gandois Plan, Domestic Producers contend, the GOB approved interest rate subsidies to Clabecq in the amount of BF 102 million pursuant to the government’s authority derived from the 1959 Law.
(Id.
at 66.)
40
Consequently, Domestic Producers argue, “ “when 1959 Law benefits [we]re [selectively] targeted using one of the specific restructuring plans, those benefits are coun-tervailable.’”
(Id.
(quoting
Final Determination,
58 Fed.Reg. at 37,289) (bracketed material inserted to conform text to
Final Determination
quotation).) Fabfer agrees arguing Commerce ignored record evidence that indicates Clabecq received a eountervailable benefit from interest rate subsidies provided by the GOB under the Gandois Plan. (Fabfer’s Resp.Br. at 5.) In its papers before the Court, Commerce concedes it erred:
Upon review of the record and further analysis of the calculations concerning interest rate subsidies provided to Clabecq pursuant to the Gandois Plan and the 1959 Law, the Department concedes error in its calculation and requests a remand to correct the matter. Specifically, the Department’s review of its calculations reveals that, while it countervailed the amount of the loan which petitioners designated insofar as that loan was issued at an interest rate less than the agency’s benchmark interest rate, Commerce failed to include an amount for the further interest rate reduction which Clabecq admitted that it was granted. Commerce will correct this error upon remand by the Court.
(Def.’s Br. at 114-15 (footnote omitted).) Thus, it appears Commerce agrees with Domestic Producers and Fabfer that the interest rate subsidies were provided to Clabecq pursuant to the Gandois Plan. Accordingly, the Court remands the
Final Determination
as amended to Commerce with instructions to recalculate the countervailing duty rate for the loan received by Clabecq, which was outstanding as of June 30, 1991, to include the interest rate reduction, resulting from interest rebates, under the Gandois Plan.
41
VII. The Reimbursement of Worker Training Costs Program
Pursuant to the Royal Decree of December 20, 1963, the Belgian National Employment Office provided reimbursement to firms for various in-plant and outside professional training costs.
Final Determination, 58
Fed.Reg. at 37,285. Commerce determined
*596
the program was funded by the GOB. Commerce found Sidmar, Clabecq, and Coekerill received reimbursements of worker training costs from 1977 to 1991. Fabfer also received reimbursements, but subsequent to the relevant POI.
Id.
Commerce determined the reimbursement program was not
de jure
limited to any region or enterprise or industry or group of enterprises or industries. With respect to
de facto
limitations, the agency verified that training reimbursements had been provided to firms in many economic sectors throughout the Walloon, Flanders, and Brussels regions of Belgium.
42
After comparing the share by value of benefits received by respondents to those provided to all other users and recipients of the program, Commerce concluded the distribution of benefits under the program did not provide disproportionate benefits to the steel industry.
Id.
Accordingly, Commerce determined the program providing for the reimbursement of worker training costs was not eountervaila-ble.
A. Contentions of the Parties
1.
Domestic Producers
Domestic Producers allege Commerce erred in determining the reimbursement of worker training costs was neither
de jure
nor
de facto
limited to any region, enterprise, industry, or group. (Domestic Producers’ Br. at 68-69 (footnote omitted).) Thus, Domestic Producers contend Commerce has abrogated the CVD law and its own
Proposed Regulations
by failing to countervail selective benefits flowing from the reimbursement of training costs program.
(Id.
at 72.)
43
Domestic Producers insist record evidence indicates the reimbursement of training costs program provides
de jure
selective benefits.
(Id.
at 70.) First, they argue, the Belgian National Employment Office provides, as a matter of law, higher worker training benefits to qualifying companies in certain regions.
(Id.
at 72.) Second, Domestic Producers point to the GOB’s response to Commerce’s questionnaire wherein the GOB states the Belgian National Employment Office “assumes part of the ‘technical training costs inherent in investments’ for qualifying companies.”
(Id.
at 69 (quoting Pub.R. 82 at 37).) Third, Domestic Producers recount the
1982 Final Determination
where Commerce concluded the benefits provided under the reimbursement of worker training costs were countervailable because of the program’s regional nature.
(Id.
at 70 (citing
1982 Final Determination,
47 Fed.Reg. at 39,308).) Fourth, Domestic Producers argue generally “[t]he GOB’s Response and Sidmar’s Response in this investigation both confirm that only firms in particular regions are eligible for increased benefits.”
(Id.
(footnote omitted).)
To advance their argument that the benefits of the program are
de facto
specific, Domestic Producers contend one of the factors to determine
de facto
specificity is whether there are dominant users of a program.
(Id.
at 70-71 (citing
Proposed Regulations,
54 Fed.Reg. at 23,379 (to be codified at 19 C.F.R. § 355.43 (b)(2)(iii))).) Under this standard, Domestic Producers allege Fabfer, Coekerill, and Sidmar are all part of a group of enterprises or industries that is the dominant user of the reimbursement program in their respective regions.
(Id.
at 71-72.) The question for this Court, Domestic Producers claim, is to “decide if it is appropriate to define the group of enterprises or industries
*597
by region.” (Domestic Producers’ Reply Br. at 33.)
44
2.
Commerce
Commerce responds it properly determined the reimbursement of worker training costs by the GOB was neither
de jure
nor
de facto
specific to a region or to an industry or group of industries. (Def.’s Br. at 46 (footnote omitted).)
45
Commerce concedes that in the
Preliminary Determination
it appeared that the reimbursement program was
de jure
specific to companies in certain regions of Belgium.
(Id.
at 47 (citing
Preliminary Determination,
57 Fed.Reg. at 57,752).) In an internal memorandum, however, Commerce explains that after verification it determined the program was not
de jure
specific:
We note that in the preliminary determination, we countervailed this program because the response seem [sic] to point to the fact that the Brussels region did not qualify for benefits. At verification, we found that the Brussels region did, in fact, receive reimbursements. However, no steel companies are located in this region. Thus, it was not possible for the steel sector to receive benefits in this region.
(Confid.R. 53 at 29,
quoted in
Def's Br. at 49.)
Commerce also rejects what it perceives as Domestic Producers’ attempt to erect a new test for specificity. If Domestic Producers’ argument were adopted, Commerce contends, a program could be deemed specific if it provided disproportionate benefits to a group of regions. (Def's Br. at 49 (citing Domestic Producers’ Br. at 71).) Commerce notes that not only have Domestic Producers failed to point to a single instance where Commerce has invoked such a test, but also that a “finding of specificity based on such a grouping and calculation would be ludicrous.”
(Id.
at 50-51.) Commerce explains the distribution of benefits under the reimbursement program “reflects nothing more than the fact that certain regions are more heavily industrialized and populated than others.”
(Id.
at 50.) “[I]f Commerce were to apply a strict disproportionality analysis, as if regions were industries,” Commerce continues, Domestic Producers’ “analysis shows nothing more than that one half of the regions receive more benefits than the other half.”
(Id.)
A finding of specificity on such grounds would be without merit, Commerce concludes.
3.
Foreign Producers
Fabfer and Sidmar contend Commerce correctly determined the reimbursement of worker training costs program is not specific and does not confer countervailable benefits.
(See
Fabfer’s Resp.Br. at 7-8; Sidmar’s Br. at 56-60.) Sidmar points to record evidence demonstrating that a wide number of firms in a wide variety of industries used the reimbursement program, and that all regions of Belgium used the program. (Sidmar’s Br. at 57 (citations omitted).) In accordance with Commerce’s prior practice, Sidmar states, “if all sectors of the economy can participate in a program providing assistance for worker training, those benefits are not countervaila-ble.”
(Id.
at 58 (citation omitted).)
*598
Sidmar also rejects Domestic Producers’ argument that the benefits under the reimbursement program are
de facto
specific because certain provinces within the three regions of Belgium received a disproportionate share of the benefits.
(Id.
(citing Domestic Producers’ Br. at 70-72).) Specifically, Sid-mar cites to the
Proposed Regulations
indicating Commerce
“may
consider the proportion of enterprises or industries located in the regions in question” when examining specificity under the
Proposed Regulations. (Id.
at 59 n. 21 (discussing
Proposed Regulations,
54 Fed.Reg. at 23,379 (to be codified at 19 C.F.R. § 355.43 (b)(3))).) “This is as close to a disproportionality test as the Department comes with respect to regional specificity,” Sidmar contends.
(Id.)
Thus, Sidmar argues, Domestic Producers’ argument falls short as it “does not consider the proportion of industries in the provinces it claims receive disproportionate benefits. [Domestic Producers] merely state that because three of five provinces received 89.7% of the benefits, the program is regionally specific.”
(Id.
(citing Domestic Producers’ Br. at 72).)
B. Discussion
The CVD statute provides that for Commerce to countervail a bounty or grant, the agency must determine
whether the bounty, grant, or subsidy in law or in fact is provided to a specific enterprise or industry, or group of enterprises or industries. Nominal general availability, under the terms of the law, regulation, program, or rule establishing a bounty, grant, or subsidy, of the benefits thereunder is not a basis for determining that the bounty, grant, or subsidy is not, or has not been, in fact provided to a specific enterprise or industry, or group thereof.
19 U.S.C. § 1677 (5)(B). A finding of
defacto
specificity “requires a ‘case by case’ analysis to determine whether ‘there has been a bestowal upon a specific class.’ ”
PPG Indus., Inc.,
9 Fed.Cir. (T) at 80, 928 F.2d at 1577 (quoting and discussing
Cabot Corp. v. United States,
9 CIT 489 , 498, 620 F.Supp. 722, 732 (1985),
dismissed as unappealable, 4
Fed.Cir. (T) 80, 788 F.2d 1539 (1986)). A determination of
de jure
specificity is accorded those programs, which, by law, limit benefits to a specific enterprise or industry, or group of enterprises or industries.
See Certain Hot Rolled Lead and Bismuth Carbon Steel Products From France,
58 Fed.Reg. 6221, 6224 (Dep’t Comm.1993) (final determ.) (citing 19 U.S.C. § 1677 (5)(B)).
46
The Court finds there is substantial evidence to support Commerce’s finding that the reimbursement of training costs program was not
de jure
specific. In its questionnaire response to Commerce, the GOB listed the eligibility criteria for firms seeking reimbursement under the program in one region and stated, “[e]ligibility is not limited to any industry or group of industries, nor to any area or subregion within the Flemish Region of Belgium.” (Pub.R. 82 at 44.) Additionally, Commerce found upon verification that “companies in various industries in all three administrative regions of Belgium (Flanders, Walloon, and Brussels) have used this program. ... We verified that the program is not
de jure
limited to any region or enterprise or industry or group of enterprises or industries.” (Confid.R. 53 at 29.) Domestic Producers unearth no persuasive evidence establishing the reimbursement program was
de jure
specific. The Court holds Commerce’s finding that the reimbursement of worker training costs program was not
de jure
limited to any region or enterprise or industry or group of enterprises or industries is based on substantial evidence and is otherwise in accordance with law.
To determine whether the steel firms received a disproportionate share of benefits and thus whether the program was
de facto
specific, Commerce compared the share of benefits received by the steel firms under investigation to the share of benefits provided to all other users and recipients of the
*599
reimbursement program.
See Final Determination)
58 Fed.Reg. at 37,285;
see also id.
at 37,280. Commerce explained in the
Final Determination
it did not consider the distribution of benefits among the steel firms in various Belgian regions to constitute a disproportionate distribution of benefits to the steel industry.
[W]e verified that training reimbursements have been provided to firms in many economic sectors throughout the Walloon, Flanders, and Brussels regions. Moreover, for the period 1987-1990, the Flemish steel industry received 7.3 percent by value of benefits disbursed under the program in Flanders. At least fifteen industrial sectors received benefits over this time period in Flanders. During the period 1988-1991, the Walloonian metals sector (which includes the steel industry) received 17.3 percent by value of the benefits disbursed under the program. At least 20 sectors received benefits over this time period in Walloon.
Id.
at 37,285 . Commerce considered this record evidence in concluding that the distribution of benefits from the reimbursement of training costs to the steel firms under investigation did not constitute disproportionate benefits to the steel industry and thus was not
defacto
specific.
Domestic Producers criticize Commerce’s finding and contend the Court must decide whether Commerce should define a group of enterprises or industries by region in applying the “dominant user” criteria of the
Proposed Regulations,
54 Fed.Reg. at 23,379 (to be codified at 19 C.F.R. § 355.43 (b)(2)(iii)).
(See
Domestic Producers’ Reply Br. at 33.) The Court declines Domestic Producers’ invitation. Commerce enjoys considerable deference in erecting methodologies and procedures for implementing the CVD laws.
See Wheatland Tube Corp.,
17 CIT at 1245, 841 F.Supp. at 1234 . This Court is in no position to require Commerce to modify its
de facto
test so long as the test as applied is reasonable and conforms to congressional intent. Hence, the Court rejects Domestic Producers’ argument that Commerce define a group of enterprises or industries by region in applying the “dominant user” criteria in its
Proposed Regulations.
The Court upholds Commerce’s determination that the reimbursement of worker training costs program was not
de jure
nor
defacto
specific as based on substantial evidence and as otherwise in accordance with law.
47
VIII. The Redemption of Sidmar’s Preferred Shares
Pursuant to a Royal Decree of December 31, 1983, the GOB made two share subscriptions in Sidmar in 1984.
Final Determination,
58 Fed.Reg. at 37,278. The decree permitted the GOB to make preference share subscriptions in the steel industry provided the subscriptions did not exceed one-half of the social capital of the company. Commerce explained that SNSN, the government agency purchasing the shares, paid cash for the first subscription, which consisted of ordinary shares in the company.
Id.
Because Commerce did not initiate an equityworthiness investigation with respect to Sidmar, it did not investigate SNSN’s first subscription of ordinary shares.
SNSN purchased a second subscription consisting of preference, or preferred, shares issued in return for the cancellation of certain debt claims held by SNSN against Sid-mar.
Id.
Commerce verified the characteristics of Sidmar’s preference shares issued in the transaction and found: (1) they bore a 2% priority dividend upon liquidation of the company; (2) they were non-voting, except
*600
under certain circumstances;
48
and (3) they were subject to redemption but not at a price lower than 80% of the nominal face value of the shares. (Confid.R. 41 at 21.) In the event the shares were not redeemed by 2004, they automatically converted to ordinary shares. (Confid.R. 4 at 27.)
Commerce examined the attributes of Sid-mar’s preference shares in light of Commerce’s hierarchical set of criteria used to distinguish debt from equity in cases of hybrid securities. As explained above in section one, part I.A, Commerce applies the following criteria to determine whether hybrid securities have the qualities of debt or equity: “(1) Expiration/Maturity Date/Repayment Obligation, (2) Guaranteed Interest or Dividends, (3) Ownership Rights, and (4) Seniority.”
General Issues Appendix,
58 Fed.Reg. at 37,254. Once a characteristic is clearly indicative of debt or equity, Commerce ends its analysis and categorizes the hybrid as debt or equity. Commerce applied this analysis to Sidmar’s preferred shares and concluded the shares constituted equity.
Id.
at 37,255. Because the reasons for Commerce’s determination were based on business proprietary information, the explanation was included in a separate memorandum to the file.
As explained by Commerce, Sidmar subsequently redeemed the preference shares:
In 1987, the GOB requested that Sidmar redeem the preference shares early for budgetary reasons. Therefore, in 1989, Sidmar and the GOB agreed to fix the amount due in the year 2004. However, in order to receive some money back immediately, the GOB asked Sidmar to pay the net present value in 1991 for the total due in 2004.
Final Determination,
58 Fed.Reg. at 37,278. Commerce verified the GOB asked Sidmar to redeem the preference shares early because the GOB had to finance coal mine closures immediately. (Confid.R. 41 at 22.) After examining the redemption, Commerce concluded:
We have determined that the redemption of the preferred shares in 1991 did not give rise to a countervailable benefit. In selling the preferred shares back to Sid-mar, we analyzed whether Sidmar paid the net present value in 1991 of the amount due in 2004. Using Sidmar’s benchmark interest rate for 1991, we determined that the total amount of money received by the GOB was more than what Sidmar should have paid for the preferred shares. Therefore, we find that this redemption does not provide a countervailable benefit to Sidmar.
Final Determination,
58 Fed.Reg. at 37,278.
A. Contentions of the Parties
1.
Domestic Producers
Domestic Producers complain Commerce incorrectly determined Sidmar’s preferred shares redeemed in 1991 were equity. Under Commerce’s methodology for classifying hybrid securities, Domestic Producers claim, Sidmar’s preferred shares constituted debt.
{See
Domestic Producers’ Br. at 27-29.) First, Domestic Producers argue, the shares had a repayment obligation — indicative of debt — as evidenced by Commerce’s finding that “ ‘Sidmar and the GOB agreed to fix the amount due [on the preference shares] in the year 2004.’ ”
(Id.
at 28 (brackets added in brief) (quoting
Final Determination,
58 Fed.Reg. at 37,278).) Second, although the shares were initially entitled to dividends, Domestic Producers argue, the dividends were capped at 2%. Thus, the dividends merely represented a “contingent interest, not a claim on profits of the firm.”
(Id.
at 29.)
49
Third, Domestic Producers claim that
*601
although the preference shares as issued had limited voting rights, an attribute of equity, “these rights were stripped away by amendment to Sidmar’s by-laws in 1984 and were never reinstated.”
(Id.
(footnotes omitted).) Finally, according to Domestic Producers, preferred share holders were given reimbursement priority upon liquidation ahead of other classes of Sidmar stock. Domestic Producers conclude “none of the four criteria used by [Commerce] to distinguish between equity and debt indicate that the preferred shares were equity.”
(Id.)
Domestic Producers also claim Commerce erred in concluding Sidmar’s redemption of the preferred shares in 1991 did not give rise to a countervailable benefit. This argument is tied to Domestic Producers’ contention that Commerce should have treated the preferred shares as debt, in which ease Commerce “would have applied its benchmark interest rate to countervail the absence of a return on these instruments, at least through the repayment date in 1991.”
(Id.
at 31.) Thus, Domestic Producers argue that “[a]s of the date of repayment, the Department would have countervailed either the difference between the amount repaid and the full principal owed, or the interest-free feature of the shares as if they had been outstanding through their due date in 2004.”
(Id.)
In either case, Domestic Producers conclude, Sidmar repaid far less than it owed and Commerce erred in failing to countervail this benefit. In light of the above, Domestic Producers ask the Court to direct Commerce to treat the preferred shares as debt and find that the amount of the debt forgiven — the amount owed minus the amount repaid — be countervailed as a grant.
(Id.
at 30.)
Additionally, at oral argument Domestic Producers claimed the Court’s recent decision in
Aimcor
supports their argument that Commerce failed to properly countervail the redemption of the preferred shares. Specifically, Domestic Producers argue that Commerce’s refusal to countervail is improper because “if [the preferred shares] were equity and even if the company is equity worthy, under
[Aimcor)
that doesn’t dispose of the question of whether this was an investment on terms inconsistent with commercial considerations.” (Tr. at 94.) A review of the record, Domestic Producers insist, reveals there is no indication Commerce considered whether this transaction was on terms inconsistent with commercial considerations.
(Id.
at 181.)
2.
Commerce
Commerce rejects Domestic Producers’ criticism and argues Commerce’s determination that the redemption of Sidmar’s preferred shares did not give rise to a counter-vailable benefit is supported by substantial evidence and is otherwise in accordance with law. (Def.’s Br. at 86.) Commerce contends it acted in “strict accordance” with its hierarchical criteria and properly categorized Sid-mar’s preferred shares as equity.
(Id.
at 92 (footnote omitted).) Commerce explains it first addressed whether the preferred shares should be categorized as grants.
(Id.
at 94 n. 222.) Finding [Redacted], Commerce determined the shares were not outright grants.
(Id.
(quoting Confid.R. 52 at 2).)
Commerce argues it next applied the agency’s hierarchy to determine whether the shares constituted debt or equity. Turning to the first criterion, Commerce explained if Sidmar’s preferred shares contained an expiration or maturity date, they would be treated as debt.
(Id.)
Upon examination, however, Commerce noted that it was “[Redacted]” (Confid.R. 52 at 2.) Because the evidence regarding the first criterion was inconclusive, Commerce argues, it considered the second criterion, guaranteed interest or dividends. Commerce contends [Redacted]
(Id., quoted in
Def.’s Br. at 93.) From Commerce’s viewpoint, this established that the preferred shares did “[Redacted]” (Def.’s Br. at 93.)
Commerce argues it did not need to examine the third criterion, ownership rights, and the fourth criterion, seniority, because the second criterion had already established that the preferred shares were equity. Nonetheless, Commerce explains, these criteria support the finding that the shares were equity. As to ownership rights, Commerce relates it found [Redacted] (Confid.R. 52 at 2,
quoted in
Def.’s Br. at 93.) Commerce disagrees
*602
with Domestic Producers’ contention that the voting rights of the preferred shares were “ ‘stripped away by amendment to Sidmar’s by-laws in 1984.’ ” (Def.’s Br. at 94 n. 221 (quoting Domestic Producers’ Br. at 29).) Commerce argues that nothing in the evidence cited by Domestic Producers establishes the limited voting rights of the shares were extinguished.
(Id.
(citing Confid.R. 4 Ex. 13a).) Finally, regarding seniority, Commerce agrees that Sidmar’s preferred shares, by their nature, gave holders “certain rights that were superior to the rights possessed by holders of common shares.”
(Id.
at 93 n. 220.) Commerce, however, rejects Domestic Producers’ contention that the preferred shares were debt because they had reimbursement priority over other classes of Sid-mar stock: “[Tjhere is nothing in the record which indicates that holders of Preferred Shares were to be given priority over Sid-mar’s creditors in the event of liquidation.”
(Id

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2130796. Public record. Not legal advice.