Opinion

British Steel PLC v. United States

879 F. Supp. 1254
19 Ct. Int'l Trade 176
19 C.I.T. 176
17 I.T.R.D. (BNA) 1161
1995 Ct. Intl. Trade LEXIS 21

Court: United States Court of International Trade
Filed: Feb 9, 1995
Status: Published
Author: Carman
On the bench: Carman
Cited by: 40 cases
Authority: More cited than 92.1%

stating that foreign governments cannot utilize the form of a privatization transaction to evade assessment of countervailing duties because “Commerce, using its considerable expertise and insisting that such transactions be based upon good faith commercial considerations, should be able to ferret out sham transactions”

How later courts described this case

stating that foreign governments cannot utilize the form of a privatization transaction to evade assessment of countervailing duties because “Commerce, using its considerable expertise and insisting that such transactions be based upon good faith commercial considerations, should be able to ferret out sham transactions”
stating that Commerce’s methodology “provides a reasonable method of allocating the value of subsidy benefits from the bestowal of equity infusions into une-quityworthy companies”
concluding “Commerce’s use of a 15-year allocation period based solely on the IRS tax tables is ‘unsupported by substantial evidence on the record [and is] otherwise not in accordance with law’”
holding Commerce erred in shifting from applying a company-specific margin in its preliminary results to a country-wide margin in the final determination without informing interested parties

Written by the judges who cited it.

The opinion

Table op Contents

Introduction ......................................................................... 1261

Standard op Review.................................................................. ' 1263

Section One: Privatization............................................................ 1263

I. Certain Steel Products From Mexico.......................................... 1264

Background................................................................... 1264

Contentions op the Parties.................................................... 1266

The Foreign

Producers.............................................. 1266

The Domestic

Producers............................................. 1267

The Department of

Commerce........................................ 1268

Discussion...............................:.................................... 1270

II. Certain Steel Products from Brazil .......................................... 1277

Background................................................................... 1277

Contentions of the Parties.................................................... 1278

The Foreign

Producers.............................................. 1278

The Domestic

Producers............................................. 1278

The Department of

Commerce........................................ 1279

Discussion.................................................................... 1279

III. Certain Steel Products from the United Kingdom.............................. 1280

Background................................................................... 1280

Contentions of the Parties.................................................... 1280

The Foreign

Producers.............................................. 1280

The Domestic

Producers............................................. 1281

The Department of

Commerce..........'.............................. 1281

Discussion.................................................................... 1282

IV. Certain Steel Products from Germany......................................... 1283

Background................................................................... 1283

*1261

Contentions of the Parties.................................................... 1284

The Domestic

Producers............................................. 1284

The Foreign

Producers.............................................. 1284

The Department of

Commerce........................................ 1285

Discussion..............................'...................................... 1285

V. Motion for Summary Judgment Based on Issue Preclusion....................... 1288

Conclusion ................................................................... 1288

Section Two: Allocation Methodology................................................. 1289

Background................................................................... 1289

Issue Presented .............................................................. 1290

Contentions of the Parties.................................................... 1290

A. Plaintiffs........................................................... 1290

B. Defendant.......................................................... 1292

C. Defendantr-Intervenors............................................... 1292

Discussion.................................................................... 1293

Conclusion ................................................................... 1298

Section Three: The Grant Methodology............................................... 1299

Background................................................................... 1300

The Rate of Return Shortfall

Method................................. 1300

The Grant

Methodology.............................................. 1300

Equity Infusions in Brazil, France, and Korea

....................... 1301

Issues Presented.............................................................. 1302

Contentions of the Parties.................................................... 1302

A. Plaintiffs........................................................... 1302

B. Defendant.......................................................... 1304

C. Defendantr-Intervenors............................................... 1305

Discussion.................................................................... 1306

Commerce’s Abandonment of the RORS Methodology

.................. 1306

Commerce’s Adoption of the Grant

Methodology....................... 1307

Conclusion ................................................................... 1309

Section Four: Sales Denominator..................................................... 1310

Background................................................................... 1310

Issue Presented .............................................................. 1311

Contentions of the Parties.................................................... 1311

A. Plaintiffs........................................................... 1311

B. Defendant.......... 1312

C. Defendantr-Intervenors............................................... 1314

Discussion.................................................................... 1315

Agency Explanation of the Tying

Presumption........................ 1315

Adoption of the Tying

Presumption.................................. 1316

Motion to Strike Portions of Plaintiffs’ Reply

Brief................... 1317

Motion to Strike Plaintiffs’ Supplemental

Memorandum............... 1318

Conclusion ................................................................... 1319

Section Five: Disproportionality....................................................... 1320

Background................................................................... 1320

Contentions of the Parties.................................................... 1322

The Korean

Respondents............................................. 1322

The Department of

Commerce........................................ 1323

The Domestic

Producers............................................. 1324

Discussion.................................................................... 1324

Conclusion ................................................................... 1328

Opinion

CARMAN, Judge:

The following actions were consolidated by order of the Court of International Trade (CIT) dated February 4, 1994:

British Steel pic v. United States,

Court No. 93-09-00550-CVD and

Geneva Steel, et al. v. United States,

Court No. 93-09-00572-CVD consolidated as

British Steel pic v. United States,

Consol. Court No. 93-09-00550-CVD;

Usinas Siderurgicas de Minas Gerais, S.A v. United States,

Court No. 93-09-00558-CVD,

Gulf States Steel, Inc. of Alabama, et al. v. United States,

Court No. 93-09-00574-CVD, and

Usinas Siderurgicas de Minas Gerais, S.A. v. United States,

Court No. 93-09-

*1262

00578-CVD consolidated as

Usinas Siderurgicas de Minas Gerais, S.A. v. United States,

Consol. Court No. 93-09-00558-CVD;

Inland Steel Industries, Inc., et al. v. United States,

Court No. 93-09-00567-CVD,

Usinor Sacilor, et al. v. United States,

Court No. 93-09-00588-CVD,

Usinor Sacilor, et al. v. United States,

Court No. 93-09-00589-CVD,

Usinor Sacilor, et al. v. United States,

Court No. 93-09-00590-CVD, and

Usinor Sacilor, et al. v. United States,

Court No. 93-09-00591-CVD consolidated as

Inland Steel Industries, Inc., et al. v. United States,

Consol.Court No. 93-09-00567-CVD;

LTV Steel Co., Inc., et al. v. United States,

Court No. 93-09-00568-CVD,

Thyssen Stahl AG, et al. v. United States,

Court No. 93-09-00585-CVD,

AG der Dillinger Hüttenwerke v. United States,

Court No. 93-09-00596-CVD, and

Fried, Krupp AG Hoesch-Krupp and Krupp Hoesch Stahl AG v. United States,

Court No. 93-09-00603-CVD consolidated as

LTV Steel Co., Inc., et al. v. United States,

Consol.Court No. 93-09-00568-CVD;

Laclede Steel Co., et al. v. United States,

Court No. 93-09-00569-CVD,

Pohang Iron & Steel Co., Ltd. v. United States,

Court No. 93-09-00579-CVD,

Dongbu Steel Co. Ltd., et al. v. United States,

Court No. 93-09-00580-CVD,

Dongbu Steel Co. Ltd., et al. v. United States,

Court No. 93-09-00581-CVD, and

Pohang Iron & Steel Co., Ltd. v. United States,

Court No. 93-09-00582-CVD consolidated as

Laclede Steel Co., et al. v. United States,

Consol.Court No. 93-09-00569-CVD;

Lukens Steel Co., et al. v. United States,

Court No. 93-09-00570-CVD,

Altos Hornos de Mexico, S.A de C.V. v. United States,

Court No. 93-09-00618-CVD, and

Industrias Monterrey S.A de C.V. v. United States,

Court No. 93-09-00632-CVD consolidated as

Lukens Steel Co., et al. v. United States,

Consol.Court No. 93-09-00570-CVD;

and

Geneva Steel, et al. v. United States,

Court No. 93-09-00566-CVD and

Fabrique de Fer de Charleroi v. United States,

Court No. 93-09-00599-CVD, consolidated as

Geneva Steel, et al. v. United States,

Consol.Court No. 93-09-00566-CVD.

After several scheduling conferences and upon review and consideration of the minutes of the December 15, 1993, scheduling conference and upon agreement of all parties and pursuant to U.S. CIT R. 42(a), the Court entered the scheduling order governing the joint proceeding in the above-captioned cases. As a convenience to the parties, the Court used

British Steel plc v. United States,

Consol.Court No. 93-09-00550-CVD to identify this joint proceeding and to establish the guidelines set forth in the February 18, 1994 scheduling order. In accordance with that order, the parties were jointly ordered to brief five general issues which were divided into two groups. General Issues — Group One pertains to: (a) the Department of Commerce’s use of a fifteen-year allocation period to determine the benefit from several nonrecurring eountervailable grants; (b) the Department of Commerce’s use of a grant methodology to countervail equity infusions into an unequityworthy company whose shares are not publicly traded; and (c) the Department of Commerce’s treatment of privatization and restructuring regarding previously received subsidies, including the Department’s use of a repayment methodology. General Issues — Group Two pertains to: (a) the Department of Commerce’s determination of 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; and (b) the Department of Commerce’s treatment of disproportionality for the purpose of evaluating the specificity of a potentially eountervailable program. The Scheduling Order directed all questions of law and issues of fact regarding the five general issues to be briefed solely in

*1263

the context of the briefs on these issues. All parties were prohibited from re-briefing or re-arguing any of these questions or issues in the context of the briefs on the country-specific issues. The Court has jurisdiction over all of these matters pursuant to 28 U.S.C. § 1581 (c) (1988).

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) (1988). “Substantial evidence is something more than a ‘mere scintilla,’ and must be enough reasonably to support a conclusion.”

Ceramica Regiomontana, S.A v. United States,

10 CIT 399 , 405, 636 F.Supp. 961, 966 (1986),

aff'd,

5 Fed.Cir. (T) 77, 810 F.2d 1137 (1987) (citations omitted).

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.,

10 CIT at 405, 636 F.Supp. at 966 (“[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).

Section One: Privatization

On the general issue of privatization, British Steel pie, Usinas Siderurgicas de Minas Gerais, S.A., and Altos Hornos de Mexico, S.A. de C.V. (collectively “Foreign Producers”) have filed a joint motion for partial judgment on the agency record and supporting memoranda contesting the

General Issues Appendix

appended to

Certain Steel Products from Austria,

58 Fed.Reg. 37,225, 37,259-73 (Dep’t Comm.1993) (final determ.)

(General Issues Appendix),

as well as the application of the

General Issues Appendix

Certain Steel Products from Brazil,

58 Fed.Reg. 37,295 (Dep’t Comm.1993) (final determ.)

(Brazilian Final Determination

Certain Steel Products from Mexico,

58 Fed. Reg. 37,352 (Dep’t Comm.1993) (final determ.)

(Mexican Final Determination

and

Certain Steel Products from the United Kingdom,

58 Fed.Reg. 37,393 (Dep’t Comm. 1993) (final determ.)

(British Final Determination).

The Government of the United Kingdom of Great Britain and Northern Ireland, as plaintiff-intervenor, has filed a brief challenging the administrative determination on the issue of privatization in the

British Final Determination,

in support of the Foreign Producers’ motion.

AK Steel Corporation,

Bethlehem Steel Corporation, Geneva Steel, Gulf States Steel Incorporated of Alabama, Inland Steel Industries, Incorporated, Laclede Steel Company, LTV Steel Company, Incorporated, Lukens Steel Company, National Steel Corporation, Sharon Steel Corporation, U.S. Steel Group a Unit of USX Corporation, and WCI Steel, Incorporated (collectively “Domestic Producers”) have filed a joint motion for partial judgment on the agency record and supporting memoranda contesting the

General Issues Appendix

as well as the application of the

General Issues Appendix

in the

Bra

*1264

zilian Final Determination,

the

Mexican Final Determination,

the

British Final Determination,

and

Certain Steel Products from Germany,

58 Fed.Reg. 37,315 (Dep’t Comm. 1993) (final determ.)

(German Final Determination

AG der Dillinger Hüttenwerke has moved for summary judgment in

LTV Steel Co., Inc. et al. v. United States,

Consol.Court No. 93-09-00568-CVD, one of the consolidated eases under the Court’s scheduling order governing this joint proceeding.

I. Certain Steel Products From Mexico

Background

The Department of Commerce’s (Commerce) period of investigation (POI) of Altos Hornos de Mexico, S.A. de C.V. (AHMSA)

is calendar year 1991.

Mexican Final Determination,

58 Fed.Reg. at 37,354. The product covered by Commerce’s investigation is certain eut-to-length carbon steel plate.

Id.

at 37,353 .

In the

Mexican Final Determination,

Commerce confirmed its preliminary determination and found AHMSA equityworthy in 1977 and unequityworthy from 1979 through 1987.

Id.

at 37,355 . Commerce also found AHMSA unequityworthy for 1990 and 1991 and uncreditworthy from 1983 to 1986.

Id.

Commerce then concluded that the Government of Mexico was providing subsidies to AHMSA in certain years through various programs including equity infusions, assumption of debt, debt restructuring, short-term pre-export financing, short-term import financing, long-term loans, joint venture research and development, and pre-privatization lay-off financing.

Id.

at 37,356-61 .

Commerce also determined that AHMSA, a government-owned company, was privatized: “In November 1991, the [Government of Mexico (GOM) ] sold all of its ownership interest in AHMSA. Prior to privatization, AHMSA was almost entirely owned by the GOM. Since November 1991, the GOM holds no stock in AHMSA.”

Id.

at 37,355 . Accordingly, Commerce applied the privatization and repayment methodologies set forth in

General Issues Appendix

to the privatization of AHMSA. Commerce explained,

In these final determinations, we have decided that a portion of the price paid for a formerly government-owned company represents partial repayment of prior subsidies. We calculated the portion of the purchase price attributable to repayment of prior subsidies. We then reduced the benefit streams for each of the prior subsidies by the ratio of the repayment amount to the net present value of all remaining benefits from those prior subsidies at the time of privatization____ The subsidies allocated to the POI for AHMSA reflect, where appropriate, the application of the privatization methodology.

Id.

at 37,355 .

The nature of the

General Issues Appendix

is as follows. In the July 9, 1993, issue of the

Federal Register

Commerce published a series of countervailing duty (CVD) final determinations for twelve countries. Several broad methodological issues that were “not case-specific but rather general in nature” were common to many of the investigations involved in the twelve determinations.

Certain Steel Products from Austria,

58 Fed. Reg. 37,217 , 37,219 (Dep’t Comm.1993) (final determ.). Commerce addressed this situation by creating a

General Issues Appendix,

appended to the first determination in the series, in which Commerce set forth its posi

*1265

tions and analyses and addressed interested party comments on the several general issues consisting of allocation, denominator, equity, prepension program issues, privatization, and restructuring.

See generally General Issues Appendix,

58 Fed.Reg. at 37,225-73. Commerce then invoked by reference and applied its methodologies as set forth in the

General Issues Appendix

in each of the CVD determinations where those issues arose.

In the

General Issues Appendix

discussion of privatization, Commerce set forth its methodology for analyzing the privatization of some or all of a government-owned company.

General Issues Appendix,

58 Fed.Reg. at 37,259-73. Commerce began by analyzing the nature of countervailable benefits and concluded that the relevant statutory authority, legislative history, judicial opinions, and Commerce’s regulations “do not permit” Commerce to take into account the use to which subsidies are put or their effect on the recipient’s subsequent performance.

Id.

at 37,260-61 . Instead, CVD law requires Commerce “to countervail an allocated share of the subsidies received by producers, regardless of their effect____ [T]he statute embodies the irrebuttable presumption that subsidies confer a countervailable benefit upon goods produced by their recipients.”

Id.

at 37,260 .

“Accepting that the CVD law does not require a subsidy bestowed on a steel producer to confer a demonstrable competitive benefit on that producer in order to be countervailable,” Commerce turned to the specific issue of privatization.

Id.

at 37,261 (internal quotations omitted). Commerce rejected arguments that privatization automatically extinguishes prior subsidies and concluded that such arguments are contrary to CVD law. Instead, under Commerce’s methodology, “some portion of the prior subsidies received by the seller ‘travel[s] (with the productive unit) to its new home.’ ”

Id.

at 37,268 . Commerce explained,

[T]he countervailable subsidy (and the amount of the subsidy to be allocated over time) is fixed at the time the government provides the subsidy. The privatization of a government-owned company,

per se,

does not and cannot eliminate this countervailability____ [T]he statute does not permit the amount of the subsidy, including the allocated subsidy stream, to be reevaluated based upon subsequent events in the marketplace.”

Id.

at 37,263 .

Commerce, however, rejected arguments that after privatization, only a full repayment by the new company can extinguish past subsidies.

Instead, Commerce announced a repayment methodology: “[A] private party purchasing all or part of a government-owned company (e.g., a productive unit) can repay prior subsidies on behalf of the company as part or all of the sales price.... [T]o the extent that a portion of the price paid for a privatized company can reasonably be attributed to prior subsidies, that portion of those subsidies will be extinguished.”

Id.

at 37,262-63 .

*1266

Under Commerce’s repayment methodology, Commerce examines the proportion of the privatized company’s subsidies to the company’s net worth from 1977

to the date of privatization.

Id.

at 37,263 . To calculate this proportion, Commerce takes the simple average of the ratios of subsidies to net worth for each year. Commerce averages those ratios to reach the “historical surrogate for the percent that subsidies constitute of the overall value, i.e., net worth of the company.”

Id.

Commerce then multiplies the average ratio by the privatization purchase price “to derive the portion of the purchase price attributable to repayment of prior subsidies.”

Id.

Finally, Commerce reduces “the benefit streams of the prior subsidies by the ratio of the repayment amount to the net present value of all remaining benefits at the time of privatization.”

Id.

Contentions of the Parties

The Foreign Producers

The Foreign Producers contend that Commerce erred by not finding, as compelled by the evidence, “that the production of a company that has been privatized in an arm’s-length transaction or otherwise at market value is not subsidized by reason of preprivatization grants or other untied capital subsidies that may have been provided to the state-owned enterprise.” (Resp’ts’ J.Br. in Supp. of Mot. for Partial J. on R., Vol. I at 2). The Foreign Producers contend that the true inquiry here is a statutory one. To impose a countervailing duty under 19 U.S.C. § 1671 (a)(1), Commerce must find a benefit to the company under investigation. According to the Foreign Producers, the benefit from a subsidy is a financial one, that is, the benefit of operating with funds for which the recipient does not have to pay market price. Because the companies at issue were privatized at arm’s length, the fair market value paid included the payment, at market price, of the value of the subsidies. Thus, the Foreign Producers contend,

A privatized company operating with full, market-oriented capital costs does not have an artificial, subsidized cost of capital as did the state-owned enterprise. Its production does not realize any such subsidy benefits and, accordingly, there is no basis under the statute for [Commerce] to determine that such production “is subsidized” because of those past subsidy funds.

(Id.

at 40).

The Foreign Producers further contend that Commerce, contrary to law, erected an “irrebuttable presumption that no subsequent event — including a privatization — can affect a subsidy allocation stream created by the Department under its methodology for allocating subsidies over time.”

(Id.

at 50). The Foreign Producers argue that no basis to erect such a presumption exists in the statute. Furthermore, they contend, the presumption contradicts the non-punitive nature of countervailing duties intended by Congress and is inconsistent with judicial precedent and Commerce’s own practice. Moreover, the Foreign Producers argue, under the irrebuttable presumption the value of countervailable benefits attributed to the privatized company exceeds the market value of the entire company in some eases.

Alternatively, the Foreign Producers contend that if the Court ultimately affirms Commerce’s determination concerning the countervailability of privatized companies for pre-privatization subsidies, the Court should hold Commerce’s repayment methodology arbitrary and capricious. The Foreign Producers claim Commerce adopted this methodology without notice and comment, the preclusion of which is sufficient to justify a remand. Furthermore, they claim, the repayment methodology contains fundamental flaws rendering the methodology arbitrary and capricious.

With regard to the privatization of AHM-SA, the Foreign Producers

admit that

*1267

Commerce made no specific finding regarding whether AHMSA was privatized at arm’s length. (AHMSA’s Resp. to Ct.’s Questions at 1). The Foreign Producers contend, however, “the evidence on the record demonstrates that the privatization of AHMSA was accomplished through a fair, open and transparent, competitive auction____ The privatization was ... a non-preferential arm’s-length transaction.”

(Id.).

Therefore, because the purchaser “paid fair market value for the items it purchased in a fair and competitive auction, it fully paid for the entire value it received.... [T]here is no basis for finding that [the purchaser] or its steel-making operations were in any way subsidized.” (Resp’ts J.Br. in Supp. of Mot. for Partial J. on R., Vol. II Tab B at 13).

Furthermore, in their response to this Court’s post-oral, argument questions, the Foreign Producers contend Commerce “found that the post-privatization entity was fundamentally different” from pre-privatization AHMSA. (AHMSA’s Resp. to Ct.’s Questions at 4). The Foreign Producers claim “[a]s [Commerce] recognized, the privatization created a new consolidated ... entity, which had to be treated as a ‘single business enterprise.’ This new consolidated entity was clearly different from the preprivatization state-owned entity — of which [the purchaser] had not been a part.”

(Id.

(quoting

General Issues Appendix,

58 Fed. Reg. at 37,262)). To support these assertions, the Foreign Producers maintain that “facts demonstrate that the new entity created by the privatization process was physically different from the entity that existed before.”

(Id.).

Furthermore, even if no physical changes occurred, “privatization would still have made a fundamental change in the company____ [T]he payment of the purchase price by [the purchaser] in the privatization imposed new costs and obligations

on AHMSA”

thus eliminating any continuing benefit from pre-privatization subsidies.

(Id.

at 5 (footnote omitted)).

The Domestic Producers

The Domestic Producers contend Commerce properly determined in its final determinations that privatization itself does not render non-countervailable subsidies bestowed upon government-owned companies prior to privatization. (Pis.’ J.Br. in Supp. of Mot. for J. on R. at 20). Instead, the Domestic Producers challenge as unsupported by substantial evidence and not in accordance with law Commerce’s determination that privatization could result in a partial repayment of pre-privatization subsidies.

(Id.

at 20).

The Domestic Producers contend that CVD statutes do address repayment of subsidies and issues raised by privatization. According to the Domestic Producers, the CVD statutes require Commerce to countervail subsidies provided and specifically limit the instances in which Commerce may decrease subsidies otherwise countervailable. The specific instances allowing for offsets do not include repayment as a result of privatization.

In addition to contending that Commerce did not act in accordance with law, the Domestic Producers argue Commerce’s “interpretation of the statute as requiring the conclusion that subsidies are partially repaid as a result of privatization at fair market value is not reasonable.”

(Id.

at 31). According to the Domestic Producers, Commerce’s interpretation is inconsistent with both Commerce’s conceptual models of subsidies and its practice of not considering “subsequent events” in calculating the amount of duties imposed.

(Id.

at 36). Furthermore, Commerce’s repayment methodology ignores the fact' that, in a privatization by sale of stock, “[a]ll that ehange[s] hands [are] literally ‘pieces of paper,’ the certificates evidencing ownership of the company. The company itself [is] not affected by the privatization in and of itself.”

(Id.

at 42). Because “[e]ach of the transactions at issue here involved the sale by a government of stock in a state-owned company to private investors,” none of the subsidies were repaid.

(Id.

at 42). The Domestic Producers also contend that the repayment methodology itself is fundamen

*1268

tally flawed on both legal and economic grounds.

Finally, while the Domestic Producers agree with Commerce’s determination that in a corporate restructuring a portion of those subsidies allocable to the various productive units “travels” with the units, the Domestic Producers dispute the manner in which those subsidies are allocated across the various corporate entities benefitted. Specifically, the Domestic Producers dispute Commerce’s use of relative asset values as the basis for allocating- the subsidies. Citing the inherent subjectivity of asset valuations and their susceptibility to manipulation, the Domestic Producers argue that Commerce must use sales values in its calculations.

With regard to the privatization of AHM-SA, the Domestic Producers contend Commerce’s determination that AHMSA’s privatization could result in a partial repayment of pre-privatization subsidies is not supported by substantial evidence and is not otherwise in accordance with law.

See id.

at 2, 13-14.

As to the privatization transaction itself, the Domestic Producers “make no representations as to whether [any of] the privatization transactions occurred at fair market value, because it is not relevant to the law, which does not concern itself with whether the new

shareholders

benefit as a result of the change in the subsidized company’s ownership.” (AK Steel Corp.,

et al.,

Answers to Ct.’s Questions at 3).

The Domestic Producers do contend, however, that AHMSA is “in all material and commercial respects the same” company that received pre-privatization subsidies.

(Id.

at 4 (stating that all of “the companies under investigation are in all material and commercial respects the same companies that received the subsidies”)). In the case of AHM-SA, “the privatization! ] ... involved a straightforward sale of shares.”

(Id.

at 17). In fact, “all of the privatizations under review here involved the sale of shares in the company that had received subsidies, so that the company continued in existence and operations were completely uninterrupted or changed under the new ownership.”

(Id.

at 16-17).

The Department of Commerce

Commerce contends that although neither the statutes nor the legislative history provides specific guidance on the issue of privatization, Congress “has directed Commerce to countervail subsidized imports when it is determined that a domestic industry has been injured by reason of such imports.” (Def.’s Br. in Opp’n to Mots, for J. on R. at 10-11). Accordingly, Commerce reasonably continued to countervail subsidies of public corporations subsequent to the privatizations of those corporations.

Commerce maintains it has broad authority both to interpret CVD statutes and to pursue subsidies. Commerce defends its “irrebuttable presumption” as reflective of the basic concept that subsidies confer countervailable benefits.

(Id.

at 77-100). Furthermore, Commerce contends, Congress intended the agency to countervail subsidies aggressively. Using its broad statutory au

*1269

thority and in accordance with congressional intent, Commerce determined it must measure subsidies on the date those subsidies are bestowed. The statutory scheme does not require Commerce to remeasure the competitive benefits of subsidies due to subsequent events such as privatization. Commerce argues that contrary to this Court’s opinions in

Saarstahl, AG v. United States,

18 CIT -, 858 F.Supp. 187 (1994), and

Inland Steel Bar Co. v. United States,

18 CIT -, 858 F.Supp. 179 (1994), legislative history clearly shows Congress did not want Commerce to engage in an “effects” analysis. Instead,

Commerce

reasons:

When untied subsidies are bestowed upon a company, they are presumed to benefit the entire company and are allocated across the total sales of the company. This means, in effect, that each of the various productive parts of the subsidized company derive benefits from those subsidies. Therefore when a company is sold, those previously bestowed subsidies continue to be allocable to it.

(Def.’s Br. in Opp’n to Mots, for J. on R. at 14).

Commerce further argues it reasonably concluded that “because a portion of the value of the company is due to prior subsidies, it was reasonable to consider that some or all of the sale price could constitute repayment for those prior subsidies.”

(Id.

at 15). Commerce contends its repayment concept does not contradict Commerce’s position that it is not required to take into account subsequent effects. Rather, Commerce argues, the repayment methodology “merely represents an allocation of the remaining unamortized subsidies between the seller ... and the private purchaser.”

(Id.).

Finally, Commerce defends its use of asset values as the basis for allocating subsidies to a productive unit of a government-owned company when that unit is sold to a private party.

(Id.

at 71-77). Commerce explains that because its definition of a productive unit does not require a unit to be a profit center, “the value of a productive unit’s sales may not be identifiable.”

(Id.

at 76 (citing

General Issues Appendix,

58 Fed.Reg. at 37,268)). In order to eliminate the necessity of artificially constructing a productive unit’s sales value, Commerce reasonably chose to use book value for assets.

(Id.).

With regard to AHMSA, Commerce maintains that AHMSA was privatized by a bidding process through which “the Government of Mexico sold all of its ownership interest in AHMSA in November 1991.”

(Id.

at 8 (citing the

Mexican Final Determination,

58 Fed.Reg. at 37,355)). Grupo Acerero del Norte (GAN), the purchaser of AHMSA, “is a holding company formed by a group of private investors for the purpose of purchasing AHMSA.” (Def.’s Resp. to Ct.’s Questions at 13). Commerce maintains “[t]he record reflects that the privatization represent ed a complete transfer of assets from the GOM to [GAN], the ultimate purchaser.”

(Id.

at 6-7).

Commerce, however, makes no specific assertions concerning whether AHMSA’s privatization was effected through an arm’s-length transaction.

(Id.

at 2, 3).

Instead, Commerce maintains that in all of the determinations under review, its “principal concern was whether a legitimate sale had taken place.”

(Id.

at 2). Commerce explains,

Commerce applied its privatization methodology only in instances where there were legitimate sales. Commerce stated that a legitimate sale ‘must involve unrelated parties, one of which must be privately owned.’ Given this focus, Commerce made no specific findings that the privatizations in the Brazil, Germany, Mexico, and United Kingdom certain steel CVD investigations were necessarily of arm’s-length transactions.

(Id.

at 2 (citations to the

General Issues Appendix

omitted)).

While making no specific assertion concerning whether AHMSA’s privatization was at arm’s length, Commerce does, however, contend that “the record reflects that the GOM sold AHMSA to the lower bidder in

*1270

terms of cash received.”

(Id.

at 3). Commerce explains that because the Mexican Government was concerned with production of quality steel for domestic use, the GOM’s bid valuation methodology valued post-privatization committed investment at 50% of the investment.

(Id.

at 3-4). As a result, “[t]he cash portion of the winning bid was lower than the cash amount offered by the losing bid.”

(Id.

at 4).

Discussion

The threshold issue this Court must determine is whether, if AHMSA was privatized, Commerce properly determined subsidies previously bestowed upon AHMSA continued to be eountervailable after AHMSA’s privatization. For the reasons that follow, the Court remands to Commerce to reconsider its determination in light of the Court’s analysis in this opinion.

Saarstahl, AG v. United States,

18 CIT -, 858 F.Supp. 187 (1994), this Court examined the issue of whether pre-privatization subsidies bestowed upon a government-owned corporation could be attributed to a purchaser after privatization through an arm’s-length transaction. This Court pointed to the non-punitive nature of the CVD laws’ legislative intent requiring Commerce to use reasonable methods of allocating the value of subsidies and to relate “the benefit of the commercial advantage to the recipient.”

Saarstahl,

18 CIT at -, 858 F.Supp. at 193 (quoting H.R.Rep. No. 317, 96th Cong., 1st Sess. 75 (1979) and citing S.Rep. No. 249, 96th Cong., 1st Sess. 85-86 (1979) U.S. Code Cong. & Admin.News 1979, pp. 381, 471-472 (Methods for allocating the value of non-recurring subsidy grants or loans must be “based on the

commercial and competitive benefit to the recipient as a result of the subsidy”)

(emphasis added)).

Accordingly, this Court concluded that a new owner who pays fair market value for a productive unit cannot be the “recipient” of a subsidy because the buyer has paid for all that it is to receive.

Id.

at-, 858 F.Supp. at 193. In other words, by paying fair market value for all it has received the new owner has not gained any recognizable

commercial or competitive benefit as a result of the transaction. Therefore, if Commerce were permitted to countervail a purchaser who has paid fair market value, Commerce’s actions would directly violate the overriding purpose of the CVD laws “to assess countervailing duties against those goods entering the U.S.

on an uneven playing field.” Id.

at -, 858 F.Supp. at 194 (emphasis added) (citing

British Steel Corp. v. United States,

9 CIT 85 , 95, 605 F.Supp. 286, 294 (1985) (further citations omitted)).

Further analysis of the CVD statutes supports this Court’s analysis in

Saarstahl

and gives the Court the opportunity to further articulate its reasoning and holding in

Saarstahl.

Precedent informs this Court that “if the statute is silent or ambiguous with respect to the specific issue, the ques

*1271

tion for the court is whether the agency’s answer is based on a permissible construction of the statute.”

Chevron U.S.A Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 837, 843 , 104 S.Ct. 2778, 2782 , 81 L.Ed.2d 694 (1984) (footnote omitted). In its review of the agency’s answer, “a court may reject an agency interpretation that contravenes clearly discernible legislative intent,” but “its role when that intent is not contravened is to determine whether the agency’s interpretation is ‘sufficiently reasonable.’”

Grupo Industrial Camesa v. United States,

18 CIT -, -, 853 F.Supp. 440, 442 (1994) (quoting

American Lamb Co. v. United States,

4 Fed.Cir. (T) 47, 54, 785 F.2d 994, 1001 (1986) (citations omitted)).

The statutory authority governing countervailing duties does not speak directly to privatization and the imposition of countervailing duties upon privatized corporations. In fact, congressional input is sorely lacking. Commerce has virtually no statutory framework under which to administer the CVD laws with respect to the complex and universally important issue of privatization.

However, as this Court discussed in

Saarstahl

and reiterates above, congressional intent concerning the overriding purpose of the CVD laws as a whole is clearly discernible. Commerce’s interpretation of the CVD statutes to allow the countervailing of pre-privatization subsidies bestowed upon government-owned corporations after any and all types of privatization transactions can result in punitive duties directly violative of that congressional purpose. Additionally, even if Commerce’s interpretation did not contravene clearly discernible legislative intent, for the reasons that follow, Commerce’s interpretation of what little statutory framework is relevant to privatization is unreasonable.

In 19 U.S.C. § 1677 , Congress defines “subsidy” in part as follows:

(A) In general

The term “subsidy” has the same meaning as the term “bounty or grant” as that term is used in section 1303 of this title, and includes, but is not limited to, the following:

(ii) The following domestic subsidies, if provided or required by government action to a specific enterprise or industry, or group of enterprises or industries, whether publicly or privately owned and whether paid or bestowed directly or indirectly on the manufacture, production, or export of any class or kind of merchandise:

(I) The provision of capital, loans, or loan guarantees on terms inconsistent with commercial considerations.

(II) The provision of goods or services at preferential rates.

(III) The grant of funds or forgiveness of debt to cover operating losses sustained by a specific industry.

(IV) The assumption of any costs or expenses of manufacture, production, or distribution.

19 U.S.C. § 1677 (5)(A) (1988).

In 19 U.S.C. § 1677 , Congress sets forth the following rule concerning subsidies:

(B) Special rule

In applying subparagraph (A), the administering authority, in each investigation, shall 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----

19 U.S.C. § 1677 (5)(B) (1988);

see also id.

at 13 (quoting Commerce’s statement in the

British Final Determination

that BS pic “is the corporate successor to British Steel Corporation”) (footnote omitted)). The Domestic Producers maintain that when all of British Steel’s property, rights, and liabilities were transferred to BS pic under the British Steel Act, BS pic “became the legal owner of [British Steel’s] assets, both tangible and intangible.”

(Id.

at 15). British Steel and BS pic “from the perspective of the British Government and in all significant commercial respects ...

were the same company.” (Id.).

To privatize the company now named BS pic, the company simply issued and sold shares.

(Id.

at 14, 16). Thus, “[t]he privatization reflected a change in the owners of the shares of British Steel pic only.”

(Id.

at 16 (emphasis omitted)).

The Domestic Producers take no position, however, on whether the transaction occurred at fair market value. The Domestic Producers claim that whether a privatization is effected at fair market value “is not relevant to the law, which does not concern itself with whether the new

shareholders

benefit as a result of the change in the subsidized company’s ownership.”

(Id.

at 3).

The Department of Commerce

The Department of Commerce’s contentions concerning the general issue of privatization as set forth in the

General Issues Appendix

and applied in the applicable de

*1282

terminations in the CVD series published in the

Federal Register

on July 9, 1993, are described above in the Court’s discussion of the

Mexican Final Determination.

With regard to the privatization of British Steel, Commerce maintains British Steel was privatized in 1988 through a public offering of shares. (Def.’s Br. in Opp’n to Mots, for J. on R. at 8 (stating that “British Steel plc ... became the corporate successor to British Steel Corporation ... when the British Government sold [British Steel] through a public offering of shares”);

see also id.

at 12 (“Dillinger submits that the Government perhaps misspoke when it included the German transaction among those about which it stated that no specific arm’s-length finding was made.”)).

Pursuant to

*1285

the transaction, Saarstahl was fully privatized and its new owner was DHS.

(Id.

at 12). While the Government of Saarland owned a 27.5% “non-controlling interest” in DHS, Commerce “found that the Government’s interest in the new entity had been acquired on commercially consistent terms, which were established by the independent accountants.”

(Id.).

Furthermore, the Foreign Producers argue, Commerce “has never suggested that, after the privatization, DHS, or Saarstahl, was the same entity as the privatized company while under Government ownership.”

(Id.

at 14).

The Department of Commerce

The Department of Commerce’s contentions concerning the general issue of privatization as set forth in the

General Issues Appendix

and applied in the applicable determinations in the CVD series published in the

Federal Register

on July 9, 1993, are described above in the Court’s discussion of the

Mexican Final Determination.

With regard to the corporate transaction relevant to the

German Final Determination,

Commerce maintains it properly applied its privatization methodology. Commerce contends that the transaction resulting in the formation of DHS was not an internal corporate restructuring, but instead resulted in an independent, joint-venture company. (Def.’s Br. in Opp’n to Mots, for J. on R. at 101, 103). Commerce maintains that under the April 1989 agreement, DHS became the holding company for both Saarstahl and Dillinger.

(Id.

at 103). Saarstahl was thus privatized when the Government of Saarland sold Saarstahl to DHS.

(Id.

at 104). Citing this Court’s decision in

Saarstahl,

Commerce contends the argument that privatization could not have occurred because the Government of Saarland still owned 27.5% of the purchaser, DHS, does not change the analysis.

(Id.).

Finally, Commerce contends it properly determined that countervailable benefits in the form of debt forgiveness were provided originally to Saarstahl, not DHS.

(Id.

at 106-07).

Commerce maintains, however, it made no specific finding regarding whether fair market value was paid in the transaction, or whether the transaction took place at arm’s length. (Def.’s Resp. to Ct.’s Questions at 2, 3). Commerce does reiterate its statement in the

German Final Determination

that “‘[t]he Government of Saarland contributed the assets of Saarstahl and DM 145.1 million in cash in return for 27.5 percent ownership of the holding company, DHS.’”

(Id.

at 6 (citation omitted)). Commerce claims, however, to have “made no ... specific finding regarding the nature of Saarstahl either before or after privatization.”

(Id.

at 16).

Discussion

Saarstahl, AG v. United States,

18 CIT -, 858 F.Supp. 187 (1994), this Court held that the attribution of subsidies, consisting of the forgiveness of debt by the government and private banks, previously bestowed upon Saarstahl to DHS after DHS acquired Saarstahl in an arm’s-length transaction was unlawful.

Id.

at -, 858 F.Supp. at 191. As discussed above, this Court reasoned in

Saarstahl

that Saarstahl was privatized in an arm’s-length transaction in which DHS paid for all that it received.

Id.

at -, 858 F.Supp. at 192. DHS, therefore, did not realize any countervailable benefit and any countervailable duty assigned to it amounts to a penalty.

Id.

at -, 858 F.Supp. at 192-93.

This Court’s decision and analysis in

Saarstahl

is consistent with the analysis set forth in the Court’s present opinion. As discussed above, Commerce may only countervail a privatized company for pre-privatization subsidies if the privatized company is the same or partially the same entity that received those subsidies. Whether the privatized company is the entity that received the subsidy depends upon the nature of the privatization transaction undergone. If, for example, a company is privatized through a simple stock transfer carried out at arm’s-length for fair market value based upon com

*1286

mercial considerations, only the ownership interests in that corporation have changed; the corporation itself still exists and may continue to be countervailed. If, however, a government-owned company is privatized through a sale of that company’s several assets, Commerce cannot countervail the purchaser of those assets as long as the purchaser pays fair market value at arm’s length based upon commercial considerations. In that ease, Commerce cannot countervail for pre-privatization subsidies not only because the purchaser has paid for all which it is to receive, but also because the purchaser/transferee is not the same entity that received the subsidies. Commerce could, however, continue to countervail the transferor.

It appears from the

German Final Determination

Commerce found that Saarstahl was privatized in a transaction involving a sale of Saarstahl’s several assets: “The Government of Saarland

contributed the assets of Saarstahl

and DM 145.1 million in cash in return for 27.5 percent ownership of the holding company, DHS.”

German Final Determination,

58 Fed.Reg. at 37,320 (emphasis added). Commerce also appears to have determined that Saarstahl was the original recipient of the subsidies.

Id.

The Domestic Producers, however, characterize the transaction as a “reorganization” of Saarstahl followed by a sale of its shares. (Answers of AK Steel Corp.,

et al.,

to Ct.’s Questions at 7-8 (“Saarstahl was reorganized as DHS Dillinger Hütte Saarstahl____ The Government of Saarland acquired a 27.5 percent ownership interest in the enlarged DHS in exchange for a cash contribution of DM 145.1 million.”) (footnote omitted)). Domestic Producers also claim that, because the loan forgiveness occurred during the transaction and as a requirement of DHS’s creation, the benefit vested in DHS, not in Saarstahl.

See

Pls.’s J.Br. in Supp. of Mot. for J. on R. at 9, 11.

If in fact Commerce has interpreted the evidence to conclude that the loan forgiveness constituted a subsidy to Saarstahl and not to DHS, and that Saarstahl was privatized through a sale of its several assets, as long as those interpretations are supported by substantial evidence they will stand.

See, e.g., 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). However, other than setting forth the conclusory statements that “the debt forgiveness ... provided benefits to Saarstahl which were then passed through to DHS,” and “the Government of Saarland contributed the assets of Saarstahl,” Commerce does not appear to have explicated how it reached its determinations in the

German Final Determination. German Final Determination,

58 Fed.Reg. at 37,320.

In oral argument before this Court, Commerce informed the Court that the privatization of Saarstahl was at fair market value.

See

Tr. at 483 (“Other than Brazil and Mexico, for all the remaining countries the Commerce Department determined that the transactions were made at ... fair market value.”). Commerce also informed this Court during the course of the

Saarstahl

proceeding that the privatization of Saarstahl was an arm’s-length transaction.

Saarstahl,

18 CIT at -, 858 F.Supp. at 192 ((“In response to the Court’s question “was this an arm’s length transaction,” the government responded, “Yes, it was.”) (citing

Saarstahl

Tr. at 19)). Indeed, the very holding of

*1287

Saarstahl

was premised in substantial part upon the proposition that “Saarstahl was privatized in an arm’s length transaction.”

Id.

at-, 858 F.Supp. at 192. Commerce now informs this Court, however, that it did not in fact make such findings.

See, e.g.,

Def.’s Resp. to Ct.’s Questions at 2, 3, 13. Commerce also claims to have made no specific finding as to whether the privatized entity is the same entity as the company that received subsidies.

(Id.

at 16).

The Foreign Producers inform this Court in their response to this Court’s post-oral argument questions on privatization that Commerce has made a specific finding that the 1989 Transaction was at arm’s length. (Resp’ts’ Answers to Ct.’s Questions at 10). The Foreign Producers take the position that Commerce first made these findings in

Certain Hot Rolled Lead and Bismuth Carbon Steel Products from Germany,

58 Fed.Reg. 6233, 6234, 6235-37 (1993)

(Leaded Bar),

in which Commerce stated:

We believe that the equity infusion made by the Government of Saarland into DHS was on terms consistent with commercial considerations____ [W]e determine that the equity infusion made by the Government of Saarland into DHS was made on terms consistent with commercial considerations.

(Id.

at 10 (quoting

Leaded Bar,

58 Fed.Reg. at 6236)). The Foreign Producers maintain that this Court upheld Commerce’s “findings of an arm’s-length and fair market value transaction on appeal of the

Leaded Bar

determination.”

(Id.

(citing

Saarstahl,

18 CIT at -, 858 F.Supp. at 192-93)). Furthermore, they argue, Commerce has carried forward its determination into the instant ease and is defending its determination in this litigation.

(Id.

at 11).

It is the position of this Court that because Commerce has specifically informed this Court that:

Commerce made no specific findings that the privatizations in the Brazil, Germany, Mexico, and United Kingdom certain steel CVD investigations were necessarily of arm’s-length transactions^]

... Commerce made no specific finding regarding whether fair market value was paid[;]

..: On further review of the reeord, Commerce respectfully must correct the suggestion it initially made to the Court regarding whether Commerce had made a specific finding that a fair market value was paid in the privatization of Saarstahl. Commerce made no such specific finding[;]

... Commerce made no ... specific finding regarding the nature of Saarstahl either before or after privatization[;]

(Def.’s Resp. to Ct.’s Questions at 2, 3, 13, 16), the

German Final Determination

must be remanded so that Commerce may properly make these findings and report them to this Court with articulated reason and consistency.

Accordingly, the

German Final Determination

is remanded to Commerce. Specifically, Commerce is to report to this Court the following: (1) whether the privatization transaction at issue was effected at arm’s length, for fair market value, and based upon commercial considerations; (2) whether the transaction at issue involved a privatization or partial privatization; (3) the terms and substance of the transaction at issue, and whether the transaction involved a sale of an asset or several assets, or consisted entirely of a sale of shares; (4) whether, under the Court’s analysis, if a privatization or partial privatization took place, the privatized entity continues to be, for all intents and purposes, the same entity that received subsidies prior to the transaction; and (5) whether, under the Court’s analysis, Commerce may properly countervail DHS or any other party. Commerce is further directed to perform and report to this Court the following calculations: (1) Commerce will calculate any countervailing duties due, if any, by any transfer- or and transferee subsequent to a privatization; (2) if, under the Court’s analysis, Commerce determines that any privatized or partially privatized entity continues to be, for all intents and purposes, the same entity that received subsidies prior to the privatization transaction, Commerce will calculate any and all countervailing duties due on such surviv

*1288

ing entity; and (3) Commerce will calculate any and all countervailing duties due on account of any other type of privatization transaction involved. In its calculations Commerce shall, where applicable, make any corrections necessary on account of allocation and/or sales denominator adjustments occasioned by the respective remands on those issues.

Y. Motion for Summary Judgment Based on Issue Preclusion

Under

LTV Steel Co., Inc.

et al.

v. United States,

Consol.Court No. 93-09-00568-CVD, one of the consolidated cases under the Court’s scheduling order governing this joint proceeding, AG der Dillinger Hiittenwerke (Dillinger) has moved for summary judgment based on a claim of issue preclusion.

LTV Steel

involves an appeal from the administrative determination in

Certain Steel Products From, Germany,

58 Fed.Reg. 37,315 (Dep’t Comm.1993) (final determ.).

Dillinger contends that this Court’s decision in

Saarstahl, AG v. United States,

18 CIT -, 858 F.Supp. 187 (1994), warrants the granting of summary judgment in the present case. In

Saarstahl

this Court adjudicated on the merits the appeal of an administrative determination involving Dillinger’s former sister company, Saarstahl AG. Dillinger maintains that the administrative determination appealed in

Saarstahl

involved “virtually identical facts” as the administrative determination in the present ease. (Def. Intervenor’s Mot. for Summ.J. at 3). Dillinger claims the source of the subsidy and the countervailable event are the same in both final determinations, as well as the parties, and the time period. Dillinger also argues that the central issues in both appeals are identical.

(Id.

at 5). Accordingly, Dillinger argues this Court’s decision in

Saarstahl

should be applied in favor of Dillinger and its parent company DHS.

(Id.

at 8).

Commerce does state in its response that “there is no dispute that the privatization transaction involved in

Saarstahl

is the same involved here.” (Def.’s Opp’n to Mot. for Summ.J. at 4). From the parties’ briefs in the joint proceeding addressed in this opinion as well as the

Federal Register

determination itself, however, the Court discerns that the issues sought to be precluded may be somewhat obfuscated. The transaction that resulted in DHS holding Dillinger and Saarstahl as subsidiaries was a complicated one not fully explained by Commerce.

See, e.g., German Final Determination,

58 Fed.Reg. at 37,320 (“The Government of Saarland contributed the assets of Saarstahl____ Usinor-Sacilor contributed its shares of Dillinger to DHS____”). This Court cannot discern from the

German Final Determination

or the parties’ briefs whether the issues to be determined are identical. The Court has issued general remand instructions on the issue of privatization. The remand will presumably yield clarifying results. Accordingly, Dillinger’s motion for summary judgment based on issue preclusion is denied.

Conclusion

After considering the arguments of all parties, the Court makes the following holdings on the issue of privatization: (1) Commerce’s privatization methodology as set forth in the

General Issues Appendix

appended to

Certain Steel Products from Austria,

58 Fed. Reg. 37,225 , 37,259-74 (Dep’t Comm.1993) (final determ.) and applied in

Certain Steel Products from Brazil,

58 Fed.Reg. 37,295 (Dep’t Comm.1993) (final determ.),

Certain Steel Products from Mexico,

58 Fed.Reg. 37,352 (Dep’t Comm.1993) (final determ.),

Certain Steel Products from the United Kingdom,

58 Fed.Reg. 37,393 (Dep’t Comm. 1993) (final determ.), and

Certain Steel Products from Germany,

58 Fed.Reg. 37,315 (Dep’t Comm.1993) (final determ.), to the extent it states pre-privatization subsidies bestowed upon government corporations continue to be countervailable after all types of privatization transactions and that purchasers of discrete assets of subsidized corporations at arm’s length for fair market value based upon commercial considerations may be attributed with subsidies previously received by the subsidized seller corporations, is unlawful; (2) Commerce’s determination in the

Mexican Final Determination,

insofar as it pertains to the application of Commerce’s privatization methodology, is remanded pur

*1289

suant to the instructions in this opinion and its accompanying order; (3) Commerce’s determination in the

Brazilian Final Determination,

insofar as it pertains to the application of Commerce’s privatization methodology, is remanded according to the instructions in this opinion and its accompanying order; (4) Commerce’s determination in the

British Final Determination,

insofar as it pertains to the application of Commerce’s privatization methodology, is remanded according to the instructions contained in this opinion and its accompanying order; (5) Commerce’s detei’mination in the

German Final Determination,

insofar as it pertains to Commerce’s application of its privatization methodology, is remanded according to the Court’s instructions in this opinion and its accompanying order; and (6) the motion of AG der Dillinger Hüttenwerke for summary judgment in

LTV Steel Co., Inc. et al. v. United States,

Consol.Court No. 93-09-00568-CVD, is denied in all respects.

Section Two: Allocation Methodology

Usinor Sacilor and Sollae (Usinor Sacilor) and British Steel pic (collectively “plaintiffs”) jointly move for partial judgment on 'the agency record pursuant to U.S. CIT R. 56.2 and for an order declaring that aspect of the

General Issues Appendix

appended to

Certain Steel Products from Austria,

58 Fed. Reg. 37,225 , 37,225-31 (Dep’t Comm.1993) (final determ.)

(General Issues Appendix

)

pertaining to the allocation methodology

employed by Commerce to amortize countervailable benefits as set forth in the

General Issues Appendix

and applied in the final countervailing duty determinations in

Certain Steel Products from France,

58 Fed. Reg. 37,304 (Dep’t Comm.1993) (final determ.)

(French Final

Determination)

and

Certain Steel Products from the United Kingdom,

58 Fed.Reg. 37,393 (Dep’t Comm. 1993) (final determ.)

(British Final Determination)

to be unsupported by substantial evidence on the record and not otherwise in accordance with law. Defendant, the Department of Commerce (Commerce), opposes plaintiffs’ motion and asserts Commerce’s determinations are based on substantial evidence on the administrative record and are otherwise in accordance with law. AK Steel Corporation, Bethlehem Steel Corporation, Geneva Steel, Gulf States Steel Incorporated of Alabama, Inland Steel Industries, Incorporated, Laclede Steel Company, LTV Steel Company, Incorporated, Lukéns Steel Company, National Steel Corporation, Sharon Steel Corporation, U.S. Steel Group a unit of USX Corporation, and WCI Steel, Incorporated (collectively “defendant-intervenors”) oppose plaintiffs’ motion and argue Commerce’s determinations are fully supported by substantial evidence and are not contrary to law.

Background

In allocating the economic benefits of nonrecurring subsidies, Commerce apportions the value of the subsidies over a number of years beginning with the year of receipt.

See

S.Rep. No. 249, 96th Cong., 1st Sess. 85-86 (1979),

reprinted in

1979 U.S.C.C.A.N. 381, 471 (“[I]n the case of nonrecurring subsidy grants or loans ... [reasonable methods of allocating the value of such subsidies over the production or exportation of the products benefiting from the subsidy must be used.”). The countervailing duty statute is silent, however, as to the methodology to be employed in allocating subsidy benefits. •

Commerce erected an allocation methodology using the Internal Revenue Service’s 1977 Class Life Asset Depreciation Range

*1290

System

(IRS tax tables) as a proxy.

General Issues Appendix,

58 Fed.Reg. at 37,227. As explained by Commerce,

Since 1982, it has been the Department’s practice to allocate benefits from nonrecurring subsidies, such as grants and equity, over the average useful life of renewable physical assets, as set out in the U.S. Internal Revenue Service’s Class Life Asset Depreciation Range System____ After careful consideration of the comments made by the interested parties, and our own internal examination of this policy, we have concluded that the allocation period traditionally used by the Department is the most reasonable. Furthermore, our use of the IRS tax tables ... is consistent with the Guidelines Adopted By The GATT Committee On Subsidies And Countervailing Measures: Guidelines on Amortization and Depreciation (GATT Doc. No SCM/64 of July 11, 1985).

Id.

In each of the investigations under review, Commerce “determined that the average useful life of renewable assets in the steel industry is 15 years, as set out in the IRS [tax] tables.”

Id.

at 37,230 . Thus, the agency found “the allocation period in these investigations is 15 years, which the Department considers to be reflective of the average useful life of assets in the steel industry.”

Id.

(citing 54 Fed.Reg. 23,366, 23,384 (Dep’t Comm.1989) (to be codified at 19 C.F.R. § 355.49 (b)(3)) (proposed May 31,1989)

(Proposed

Regulations)).

The nonrecurring grants at issue in the

French Final Determination

are the conversion of “loans with special characteristics” to common stock received by Usinor and Sacilor in the amount of French francs (FF) 13.8 billion in 1981 and FF12.6 billion in 1986.

French Final Determination,

58 Fed.Reg. at 37,307. Commerce determined Usinor Sacilor to be unequityworthy from 1978 through 1988 and therefore “consider[ed] the conversion of PACS to common stock in 1981 and 1986 to constitute equity infusions on terms inconsistent with commercial considerations.”

Id.

Usinor Sacilor’s conversion of “Fonds d’Intervention Sidérurgique” bonds to common stock in 1986 and 1988 were also construed as nonrecurring grants by Commerce.

Id.

Commerce’s treatment of Usinor Sacilor’s conversions of the FIS instruments paralleled the agency’s treatment of the company’s PACS conversions. Thus, because Commerce found Usinor Sacilor unequityworthy in 1986 and 1988, Commerce “considered] the conversion of FIS bonds to common stock in 1986 and 1988 to constitute equity infusions on terms inconsistent with commercial considerations.”

Id.

In the

British Final Determination,

Commerce determined British Steel Corporation (British Steel) was unequityworthy from 1977-78 through 1985-86.

British Final Determination,

58 Fed.Reg. at 37,395. Therefore, the equity infusions provided to British Steel by the U.K. Government between 1977-78 through 1985-86 were on terms inconsistent with commercial considerations.

Id.

In addition, the agency found British Steel wrote-off capital invested in the corporation by the U.K. Government under several Iron and Steel Acts in the amount of £3.0 billion in 1981, £1.0 billion in 1982, and £2.98 billion in 1988.

Id.

These equity infusions and debt write-offs constituted nonrecurring grants subject to the 15-year allocation period employed by Commerce.

Id.

at 37,396 .

Issue Presented

Whether Commerce’s use of a 15-year allocation period to amortize the benefits conferred by nonrecurring eountervailable subsidies is supported by substantial evidence on the record and is otherwise in accordance with law.

Contentions of the Parties

Plaintiffs

Plaintiffs first argue the 15-year allocation period is improper because it ignores that an infusion of fungible capital benefits a company’s overall operations and not only the acquisition of depreciable physical assets.

*1291

(Pis.’ Br. at 15). Plaintiffs contend Commerce must “allocate the benefits from a nonrecurring subsidy over a ‘reasonable period’ that reflects the duration of the ‘commercial and competitive benefit’ of the subsidy to the recipient.” (Pis.’ Br. at 5 (quoting S.Rep. No. 249, 96th Cong., 1st Sess. 85-86 (1979),

reprinted in

1979 U.S.C.C.A.N. 381,471-72)). Plaintiffs claim it is unreasonable to assume benefits extend through the life cycle of the steel industry’s depreciable physical assets and therefore, Commerce’s depreciable physical assets methodology is not a “reasonable proxy for the actual duration of the commercial and competitive benefits.”

(Id.

at 8). As plaintiffs explain, a “company’s operations necessarily require the allocation of capital to many other areas, the impact of which may be appropriately attributable to the year of expenditure or to a period of significantly shorter duration than the depreciation period for renewable physical assets.”

(Id.

at 9 (footnote omitted)). Plaintiffs assert Commerce cites to

“no empirical evidence

supporting its ‘industry life cycle’ concept____ Indeed, there is no mention whatsoever of supporting evidence in the record” establishing the reasonableness of the depreciable physical assets methodology.

(Id.

at 10-11;

see

Pis.’ Reply Br. at 8).

Second, plaintiffs argue Commerce itself has acknowledged the arbitrariness of the methodology because Commerce has “repeatedly and explicitly acknowledged in past cases that the average useful life of assets does not necessarily bear any relation to the economic benefit conferred by subsidy funds.” (Pis.’ Br. at 12;

see id.

at 13 (quoting

Certain Carbon Steel Products from Mexico,

49 Fed.Reg. 5142, 5150 (Dep’t Comm.1984) (prelim, determ.)

(Carbon Steel Products from Mexico); Cold-Rolled Steel Flat Products from Argentina,

49 Fed.Reg. 18,006, 18,018, 18,021 (Dep’t Comm.1984) (final determ.)

(Flat Products from Argentina))).

Plaintiffs emphasize Commerce’s earlier finding that “ ‘the average life of equipment is arguably no more accurate a measure than simply choosing a number.’ ”

(Id.

at 13 (quoting

Carbon Steel Products from Mexico,

49 Fed.Reg. at 5150)). Plaintiffs quote from

Flat Products from Argentina,

where Commerce stated:

[W]e recognize first that the physical assets are often a fairly small part of the costs of doing business, and second that even in highly capital intensive industries the benefit of funds received ... has no particular relationship to the life of the machinery____ We originally chose the average useful life of assets because we believed the benefits of a grant somehow had a life approximating the life of assets____ We now consider this belief wrong____

(Id.

at 12 (emphasis omitted) (quoting

Flat Products from Argentina,

49 Fed.Reg. at 18,018,18,021)). Because Commerce correctly recognized that physical assets are often a “small part of the costs of doing business,” plaintiffs contend Commerce cannot justify its allocation methodology which purports to “treat[ ] all such capital as if it were used to acquire depreciable physical assets.”

(Id.

at 15-16). This approach fails to

recognize

that capital “is used for a range of corporate purposes,

e.g.,

to cover cash losses, finance working capital needs (net receivables and inventory), finance research and development, and fund the closure of facilities.”

(Id.

at 15). Plaintiffs assert Commerce “must adopt a reasonable allocation approach that reflects the fact that an infusion of fungible capital provides a company with a financial benefit that flows to the company’s overall operations and funds all corporate purposes.”

(Id.

at 16).

Finally, plaintiffs allege the physical assets methodology was “unequivocally rejected by this Court eight years ago.”

(Id.

at 13 (citing

British Steel Corp. v. United States,

10 CIT 224 , 238, 632 F.Supp. 59, 69 (1986)

(British Steel

II))). In

British Steel II,

the Court found Commerce’s methodology to be unreasonable and not in accordance with the law and remanded for “further consideration of other ‘viable options’ that may more reasonably reflect the benefit of the subsidies in question.”

British Steel II, 10

CIT at 238, 632 F.Supp. at 69-71 ;

see also Ipsco, Inc. v. United States,

12 CIT 359 , 372, 687 F.Supp. 614, 625-26 (1988) (quoted in Pis.’ Br. at 13-14).

*1292

Defendant

Commerce advances several claims in support of its use of the 15-year allocation period. Commerce argues the allocation period conforms with the practice the agency has developed over the last ten years. Commerce recognizes the congressional mandate that “the allocation period must reasonably reflect ‘the commercial and competitive benefit to the recipient.’ ” (Def.’s Br. at 5 (quoting S.Rep. No. 249 at 85-86,

reprinted in

1979 U.S.C.C.A.N. at 381, 471-72)). Commerce contends, however, several reasonable options exist “that could form the basis for estimating the commercial and competitive benefits and none is clearly superior to the others.”

(Id.).

Commerce explains that “[a]fter careful consideration of the comments ... and our own internal examination of this policy, we have concluded that the allocation period ... is the most reasonable.”

General Issues Appendix,

58 Fed.Reg. at 37,227.

Commerce asserts it “bases its amortization methodology upon the average useful life of assets because, given that benefits can continue indefinitely, it is reasonable to assume that benefits extend at least throughout a single ‘life cycle’ within the industry.” (Def.’s Br. at 6 (footnote omitted)). Commerce analogizes “average life cycle” to “average life expectancy,” arguing the “average useful life of renewable assets is, in a sense, an average industrial life expectancy because ... ‘if the assets are not renewed, operations would cease.’ ”

(Id.

at 7 (citing

General Issues Appendix,

58 Fed.Reg. at 37,230)). The industry lifetime, Commerce continues, “is a finite period that enables Commerce reasonably to measure the impact of the subsidy.”

(Id.).

Commerce rejects plaintiffs’ assertion that the allocation methodology treats all grants as if they were used to acquire depreciable physical assets, stating it “reveals a fundamental error in plaintiffs’ perception of the methodology.”

(Id.

at 7 (citing Pis.’ Br. at 15)). Commerce’s use of the average useful life of assets as the basis for its allocation period is

not premised upon treating all non-recurring grants as if they were used to purchase physical assets____ [I]t is merely a means of reducing the indefinite to a finite period that can reasonably be used to measure the benefits of the grant over time— regardless of how the funds are used.

(Id.

at 8). Furthermore, Commerce notes that “amortizing benefits over the average useful life of assets has the added advantage of promoting consistency and predictability in the administration of the countervailing duty law.”

(Id.

at 11).

Defendant-intervenors

DefendanUntervenors contend the

British Steel

and

Ipsco

decisions do not prohibit Commerce from using the 15-year allocation period, but instead require that Commerce’s chosen allocation methodology satisfy two criteria: “(1) the allocation period must be reasonably related to the period of commercial and competitive benefit enjoyed by the recipient; and (2) the Department’s determination must relate to the record evidence.” (Def. Intervenors’ Br. at 11). Defendantintervenors argue Commerce’s application of its allocation methodology satisfies these criteria and is therefore supported by substantial evidence and is otherwise in accordance with law.

(Id.).

Additionally, defendant-intervenors contend the Court’s decision in

Ipsco, Inc. v. United States,

13 CIT 335 , 710 F.Supp. 1581 (1989)

(Ipsco III), rev’d in part on other grounds,

8 Fed.Cir. (T) 80, 899 F.2d 1192 (1990), upheld Commerce’s “use of an allocation methodology based on the average useful life of renewable physical assets” and therefore such a methodology is acceptable under the law.

(Id.

at 4-5;

see id.

at 11).

Defendant-intervenors also assert Commerce’s allocation methodology is “eminently reasonable, given the inherent limitations upon any methodology.”

(Id.

at 14). As defendant-intervenors explain,

[Bjecause it is impossible to know how long the benefits from a subsidy truly exist, it is reasonable to assume that they extend at least as long as if they were used to purchase physical assets. This approach satisfies the requirement enunciated by the Court, that [Commerce] relate any allocation period to the period over

*1293

which a subsidy recipient enjoys the benefits of the subsidy.

(Id.

(footnote omitted)). Because “[tjhere is no economic theory that would allow an identification of the actual period of subsidy benefits,” defendant-intervenors continue, Commerce’s approach “has identified the average useful life of assets as being a reasonable

estimate

of that period.”

(Id.

at 15). Therefore, defendant-intervenors argue Commerce’s methodology produces a “reasonable period related to the commercial and coihpetitive benefits of subsidies.”

(Id.).

Turning to the IRS tax tables upon which Commerce’s methodology is based, defendant-intervenors defend the use of the tables as “a reasonable measure of the useful life of assets in the steel industry.”

(Id.

at 17). Defendant-intervenors point out that the IRS tax tables are the result of “extensive and repeated research of the actual depreciation periods used within the steel industry” and have been “vigilantly scrutinized, studied, and updated” over the last 30 years.

(Id.

at 16 (footnotes omitted)). Specifically, defendant-intervenors cite two United States Department of Treasury studies

providing “information of record” that, defendant-intervenors contend, supports Commerce’s conclusion that “ ‘the IRS tax tables are an accurate representation of the experiences of U.S. steel producers.’”

(Id.

at 17 (quoting

General Issues Appendix,

58 Fed.Reg. at 37,230)).

Finally, defendant-intervenors contend Commerce’s allocation methodology is “reasonably related to the actual experience of the recipient of the subsidy,” citing calculations made by domestic producers demonstrating “British Steel used a depreciation period of between 19 and 21 years for plant machinery, equipment, and vehicles.”

(Id.

at 18-19 (citation omitted)). Drawing on information in Usinor-Sacilor’s 1986 annual report, defendant-intervenors note that “Usinor-Sacilor adopted a 15 year amortization period.”

(Id.

at 19 (footnote omitted)). This “evidence of record,” defendant-intervenors claim, .“establishes that [Commerce’s] methodology satisfies the criteria for an allocation methodology — that it be related to the actual benefit to the foreign recipient.”

(Id.

(footnote omitted)).

Discussion

It is unnecessary for this Court to belabor the various arguments advanced by Commerce and defendant-intervenors in support of Commerce’s methodology. The government has unsuccessfully advocated similar positions before the CIT on numerous occasions. Specifically, in

Ipsco, Inc. v. United States,

12 CIT 1128 , 701 F.Supp. 236 (1988)

(Ipsco II),

the Court rejected the government’s contentions regarding the reasonableness of Commerce’s methodology.

Ipsco II,

12 CIT at 1130-31, 701 F.Supp. at 238-39 . There the Court reasoned, “[e]ven assuming

arguendo

that ITA may adopt

any

allocation period which it determines to be ‘reasonable,’ it is unclear from the record why ITA believes that the IRS depreciation schedule for replaceable physical assets is a reasonably accurate indicator of economic reality in the light of plaintiffs’ verified financial records.”

Id.

at 1130, 701 F.Supp. at 238 (footnotes omitted). Likewise, in

Ipsco, Inc. v. United States,

12 CIT 359 , 687 F.Supp. 614 (1988)

(Ipsco I),

the Court rejected the government’s rationale that Commerce’s method produces consistency and predictability because such attributes do not “ensure the reasonableness of either the method, or the resulting period, in this or any other particular ease.”

Ipsco I,

12 CIT at 372, 687 F.Supp. at 625 . Moreover, in

British Steel Corp. v. United States,

10 CIT 224 , 632 F.Supp. 59 (1986)

(British Steel II),

the Court reached the conclusion that,

[L]inking the commercial and competitive benefit of the subsidies at issue to the 15-year average useful life of capital assets in the U.S. steel industry, while administratively convenient, is unreasonable and not in accord with Congressional intent that the benefits be allocated over a period of time reflecting

the commercial and com

*1294

petitive benefit of the subsidy to the recipient.

British Steel II,

10 CIT at 236, 632 F.Supp. at 68 .

Although the Court must accord substantial weight to Commerce’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), the Court must not defer to an agency interpretation “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, 685 , 88 L.Ed.2d 691 (1986). Simply put, “[t]he judiciary is the final authority on issues of statutory construction and must reject administrative constructions which are contrary to clear congressional intent.”

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc.,

467 U.S. 837 , 843 n. 9, 104 S.Ct. 2778 , 2781 n. 9, 81 L.Ed.2d 694 (1984).

The legislative history of the Trade Agreements Act of 1979 clearly sets forth Congress’ intent with respect to allocating benefits of subsidies over time:

There is a special problem in determining the gross subsidy with respect to a product in the case of nonrecurring subsidy grants or loans, such as those which aid an enterprise in acquiring capital equipment or a plant.

Reasonable methods of allocating the value of such subsidies over the production or exportation of the products benefiting from the subsidy must be used. In particular, a reasonable period based on the commercial and competitive benefit to the recipient as a result of the subsidy must be used.

For example, allocating a subsidy in equal increments over the anticipated 20-year useful life of capital equipment purchased with the aid of the subsidy would not be reasonable if the capital equipment gave the recipient of the subsidy an immediate significant competitive benefit compared to what would be the situation without the capital equipment and compared to the competitive benefit the equipment would likely provide in the later stages of its useful life.

S.Rep. No. 249, 96th Cong., 1st Sess. 85-86 (1979),

reprinted in

1979 U.S.C.C.A.N. 381, 471-72 (emphasis added). As the foregoing legislative history makes clear, Congress intended Commerce to amortize the value of subsidies a firm receives in a manner reflecting the actual “commercial and competitive benefit” of the subsidies to the firm.

Commerce’s failure to allocate subsidy benefits in the manner Congress intended underlies the Court’s previous holdings in the

Ipsco

and

British Steel

cases.

The CIT struck down Commerce’s use of the IRS

*1295

tables in those cases because nothing on the record demonstrated the IRS tables reflected “the commercial and competitive benefit to the recipient” as Congress intended. In

Ipsco II,

the Court noted “ITA has made no attempt to explain the figure it obtained from the IRS tables in relation to the facts of this case, so that the result might be said to reflect the economic reality of these particular plaintiffs.”

Ipsco II,

12 CIT at 1131, 701 F.Supp. at 239 . Similarly, the Court in

Ipsco I

concluded,

ITA has failed to provide a non-arbitrary basis for its decision to use a 15 year period that was derived from standardized IRS data on the useful life of equipment in the U.S. Steel industry, rather than a period that could be derived from verified information pertaining to the country and company under investigation in this case.

Ipsco I,

12 CIT at 372, 687 F.Supp. at 626 (footnote omitted). Likewise, in

British Steel II,

the Court underscored that the “ITA failed to adequately explain why a 15-year allocation period is reasonable based on the commercial and competitive benefit of the subsidies in questio to [the recipient firm].”

British Steel II,

10 CIT at 236, 632 F.Supp. at 68 ;

cf. Ipsco, Inc. v. United States,

13 CIT 335 , 336, 710 F.Supp. 1581, 1583 (1989)

(Ipsco III), rev’d in part on other grounds,

8 Fed.Cir. (T) 80, 899 F.2d 1192 (1990) (upholding an allocation methodology, different from the methodology at issue here, as supported by evidence on the record because it reflected “the economic useful life of all of Ipsco’s replaceable physical assets”).

The same deficiencies infect Commerce’s determinations in these cases. Little on the record suggests Commerce considered whether and to what extent the 15-year useful life period prescribed by the IRS tax tables and incorporated into the agency’s allocation methodology reflects the commercial and competitive benefits received by the firms under investigation as a result of nonrecurring grants and equity infusions.

Commerce correctly quotes

Ipsco

II’s holding that the “Department’s use of the 15-year period set out in the IRS table must be supported by substantial evidence in record.”

General Issues Appendix,

58 Fed.Reg. at 37,230 (citing

Ipsco II); see also

Memorandum from ITA Staff to Joseph A. Spetrini, Acting Assistant Secretary for Import Administration and Barbara R. Stafford, Deputy Assistant Secretary for Investigations,

The Appropriate Period Over Which to Allocate the Benefits from Nonrecurring Subsidies

9 (stamped May 17, 1993; dated May 21, 1993)

(ITA Allocation

Memo),

reprinted in

Pis.’ Br.App. Tab 3) (“From

IPSCO II

we know that the Department can continue to use the figures from the U.S. tax tables only if there is evidence in the record establishing that those tables are a ‘reasonable indicator of economic reality' for the respondents.”). Commerce fails, however, to abide by this stricture and fails to point to substantial evidence on the record to justify its methodology notwithstanding its claim that “[s]uch evidence exists in the record of these determinations.”

General Issues Appendix,

58 Fed.Reg. at 37,230.

The evidence cited by Commerce includes an explanation that the IRS tax tables employed in the allocation methodology are

based on a study of the U.S. steel industry____ [That] information can also be used as a reasonable estimate of the useful life of steel industry assets throughout the world____[b]ecause we have no reason to

*1296

believe, nor has any respondent claimed, that the general type of facilities and equipment used to produce steel in foreign countries is substantially different from that used in the United States, or that its useful life would be substantially different.

Id.

As additional evidence, Commerce notes this “conclusion is supported by information on the record in these investigations.”

Id.

The information on the record cited by Commerce, however, is cursory and fails to provide this Court with record evidence upon which Commerce’s allocation methodology may be upheld.

Ostensibly, the evidence to support the methodology is Commerce’s finding that “[a]nalysis of data on the depreciation of assets from the annual reports of several foreign companies currently under investigation demonstrates that 15 years is a reasonable estimate of the average useful life of. assets in the steel industry worldwide.”

Id.

(citing Memorandum from Joseph A. Spetrini, Acting Assistant Secretary for Import Administration to ITA Staff,

The Appropriate Period Over Which to Allocate the Benefits from Nonrecurring Subsidies

(stamped May 20, 1993)

(Spetrini Allocation

Memo),

reprinted in

Pis.’ Br.App. Tab 3).

Commerce fails to clarify, however, which annual reports it examined, how it analyzed the data contained therein, and how this examination led Commerce to conclude its methodology is reasonably based on record evidence and is tied to the commercial and competitive benefits enjoyed by the foreign producers under investigation.

During oral argument, the Court asked Commerce to identify “the attributes of the methodology ... showing the commercial and competitive advantage to the recipient.” (Tr. at 316). Commerce referred to a Department of Treasury study

of the “factors affecting prescribed capital cost, recovery allowance of steel industry equipment.”

(Id.

at 318). The Treasury study was one of several studies confirming the “accuracy of the IRS class life for steel industry assets.” (Petitioners’ General Issues Case Br. Before the Int’l Trade Admin. (Apr. 28, 1993),

reprinted in

Def.-Intervenors’ Br.App. Tab 1 at 30). At oral argument, Commerce argued the study

gives us a window on the industry. We can look in at the industry and say what is happening.

[A]mong several of the factors ... that were considered [in the study], were the historical retention periods, technical obsolescence, economic conditions, all ... of those factors are indicative of commercial

*1297

and competitive benefits ... which led to the conclusion ... regarding the fifteen-year life cycle.

And, consequently, there is support — there is support in the record.

(Id.

at 318-19).

Beyond this general statement, there appears to be little pertinent evidence on the record explaining how the IRS tax tables or the Department of Treasury Study provide substantial evidence demonstrating the allocation methodology comports with the “commercial and competitive benefit” of the subsidies to the foreign steel producers. Commerce appears to have recognized this weak link in the record evidence when it stated in an internal memorandum,

The 15 years in the tax table is based on a study of the U.S. industry to determine the actual AUL [actual useful life]____ If the steel industry uses essentially the same physical assets worldwide, then the 15-year AUL should be consistent worldwide. There is some evidence on the record to support that conclusion, and respondents have not challenged using the IRS’s 15-year AUL for subsidies used to purchase physical assets. Petitioners have done an analysis of annual report information for British Steel Corp. and for two of the largest German steel producers, which does appear to support the conclusion that 15 .years is the AUL of assets in the industry.

Whether that limited analysis constitutes “substantial evidence” that the 15 years in the tax tables is equally representative of the AUL worldmde is a dose

call____ Additionally, an analysis of the data for the other countries may not support the 15 years,

which would probably render reliance on the tax tables indefensible.

ITA Allocation Memo

at 9-10,

reprinted in

Pis.’ Br.App. Tab 3 (emphasis added).

The Court notes further Commerce does not explain how its allocation methodology, in particular the use of the depreciation tables therein, reflects the commercial and competitive benefits of nonrecurring subsidies to other types of legitimate corporate commercial activity such as advertising, personnel management concerns, logistics of supplies, etc.

It is clear to this Court that the allocation methodology adopted by Commerce does not meet the test as set out in

British Steel II

to allocate subsidy benefits “over a period of time reflecting the commercial and competitive benefit of the subsidy to the recipient.”

British Steel II,

10 CIT at 236, 632 F.Supp. at 68 (emphasis omitted).

*1298

It is not the role nor function of this Court to prescribe to Commerce which allocation methodology it should employ so long as .the methodology applied is reasonable and conforms to Congress’ intent.

However, Commerce must provide a

clear statement of the evidence upon which the agency based its methodology as applied to each firm under investigation

and that statement must be supported by substantial evidence on the record and be otherwise in accordance with law.

See

19 U.S.C. § 1516a(b)(1)(B) (1988);

Alhambra Foundry v. United States,

9 CIT 632 , 636, 626 F.Supp. 402, 408 (1985) (“[A]ny methodology employed must reasonably accurately reflect factual information in the administrative record.”) (quoted in

British Steel II,

10 CIT at 235, 632 F.Supp. at 68 ). The Court recognizes the apparent difficulty in allocating subsidy benefits in a manner reflecting the commercial and competitive benefit to the recipient while simultaneously refraining from tracing the use or effect of subsidies.

See British Steel Corp. v. United States,

9 CIT 85 , 95-96, 605 F.Supp. 286, 294-95 (1985) (“[I]t is unnecessary to trace the use of such funds or to find such funds or to find that they are directly related to enhances product competitiveness.”) (citing

Michelin Tire Corp. v. United States,

4 CIT 252 , 255, 1982 WL 2251 (1982),

vacated on agreed statement of facts,

9 CIT 38 , 1985 WL 17682 (1985)). The Court observes that Commerce may find that after engaging in a case by case examination of the relevant commercial and competitive factors of the firms under investigation and making a clear pronouncement of those findings, the IRS tax tables as employed in the agency’s allocation methodology still may properly serve as a proxy in allocating subsidy benefits. The Court cautions, however, the agency must demonstrate that the tax tables, in conjunction with other factual evidence on the record, reflect the commercial and competitive advantage enjoyed by the firms receiving nonrecurring subsidies.

The Court holds Commerce has failed to allocate the benefits of the subsidies received by the firms under investigation in a manner reflecting the actual “commercial and competitive benefit” of the subsidies to the companies, thus the Court concludes the determinations conflict with Congress’ clearly expressed intent.

See

S.Rep. No. 249 at 85-86,

reprinted in

1979 U.S.C.C.A.N. at 381, 471-72. As a result, this Court also concludes Commerce’s use of a 15-year allocation period based solely on the IRS tax tables is “unsupported by substantial evidence on the record [and is] otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(1)(B). Accordingly, the Court holds the allocation methodology as set forth in the

General Issues Appendix to Certain Steel Products from Austria,

58 Fed.Reg. 37,225, 37,225-31 (Dep’t Comm.1993) (final determ.) to be unlawful.

Conclusion

The Court remands the general issue of the allocation methodology. Insofar as

Certain Steel Products from France,

58 Fed. Reg. 37,304 (Dep’t Comm.1993) (final determ.) is concerned, that determination is remanded to Commerce to reexamine the

*1299

allocation methodology as employed therein for a case by case examination of the relevant commercial and competitive factors of the firms under investigation occasioned by receipt of the nonrecurring subsidies at issue. After having examined such factors, Commerce is directed to determine if those factors, when examined with or without a proxy such as the IRS tax tables, lead to a method of allocating the benefits of nonrecurring subsidies that reasonably reflects the commercial and competitive advantages enjoyed by the firms receiving such subsidies.

Insofar as

Certain Steel Products from, the United Kingdom,

58 Fed.Reg. 37,393 (Dep’t Comm.1993) (final determ.)

(British Final Determination)

is concerned, if Commerce should find in its remand determination on the general issue of privatization that any party is liable for countervailing duties, Commerce is directed to reexamine the allocation methodology as applied to those parties against whom countervailing duties have been assessed for a case by case examination of the relevant commercial and competitive factors of the firms under Investigation occasioned by receipt of the nonrecurring subsidies. After having examined such factors, Commerce is directed to determine if those factors, when examined with or without a proxy such as the IRS tax tables, lead to a method of allocating the benefits of nonrecurring subsidies that reasonably reflects the commercial and competitive advantages enjoyed by the firms receiving such subsidies. Should Commerce find in its remand determination of the

British Final Determination

on the general issue of privatization that no parties are liable for countervailing duties, then the agency need not revisit the general issue of the allocation methodology.

Section Three: The Grant Methodology Plaintiffs Pohang Iron & Steel Company, Ltd. (POSCO), Usinas Siderúrgicas de Minas Gerais, S.A. (USIMINAS), Usinor Saeilor and Sollac (Usinor Saeilor) and plaintiff-intervenor Companhia Siderúrgica Nacional (CSN) (collectively “plaintiffs”) jointly move for partial judgment on the agency record pursuant to U.S.CIT R. 56.2 and for an order declaring that aspect of the

General Issues Appendix

appended to

Certain Steel Products from Austria,

58 Fed.Reg. 37,225, 37,-239-44 (Dep’t Comm.1993) (final determ.)

(General Issues Appendix

)

pertaining to the grant methodology employed by Commerce to countervail equity infusions into unequityworthy companies set forth in the

General Issues Appendix

and applied in the final countervailing duty determinations in

Certain Steel Products from Korea,

58 Fed. Reg. 37,338 (Dep’t Comm.1993) (final determ.)

(Korean Final Determination

Certain Steel Products from Brazil,

58 Fed.Reg. 37,295 (Dep’t Comm.1993) (final determ.)

(Brazilian Final Determination

and

Certain Steel Products from France,

58 Fed. Reg. 37,304 (Dep’t Comm.1993) (final determ.)

(French Final Determination

)

to be unsupported by substantial ‘ evidence on the record and not otherwise in accordance with law and to remand these determinations for new determinations in accordance with law. Defendant, the Department of Commerce (Commerce), opposes plaintiffs’ motion and asserts that Commerce’s determinations are based on substantial evidence on the record and are otherwise in accordance with law. AK Steel Corporation, Bethlehem Steel Corporation, Geneva Steel, Gulf States Steel Incorporated of Alabama, Inland Steel Industries, Incorporated, Laclede Steel Company, LTV Steel Company, Incorporated, Lukens Steel Company, National Steel Corporation, Sharon Steel Corporation, U.S. Steel Group a unit of USX Corporation, and WCI Steel, Incorporated (collectively “defendant

*1300

intervenors”) oppose plaintiffs’ motion and argue Commerce’s determinations are fully-supported by substantial evidence and are not contrary to law.

Background

The Rate of Return Shortfall Method

From 1982 to 1993 Commerce used the rate of return shortfall (RORS) methodology to- measure the eountervailable benefit received by an unequityworthy company that received an equity infusion.

Commerce employed RORS in those instances where a company under investigation did not have a market benchmark; that is, a publicly-traded price by which to measure the value of the company’s stock at the time of the government infusion.

General Issues Appendix,

58 Fed.Reg. at 37,239. Under the RORS methodology, Commerce

measures the benefit of equity investments in “unequityworthy” firms by comparing the national average rate of return on equity with the company’s rate of return on equity during each year of the allocation period. The difference in these amounts, the so-called rate of return shortfall ... is then multiplied by the amount of the equity investment to determine the countervailable benefit in the given year.

Certain Steel Products from France,

57 Fed.Reg. 57,785, 57,787 (Dep’t Comm.1992) (preliminary determ.)

(French Preliminary Determination)', see also

54 Fed.Reg. 23,366, 23,385 (Dep’t Comm.1989) (to be codified at 19 C.F.R. § 355.49 (e)(1)) (proposed May 31, 1989)

(Proposed Regulations)

(setting forth the RORS methodology).

The Grant Methodology

In the preliminary determinations of the final determinations under review, Commerce abandoned RORS and adopted the grant approach or grant methodology believing it to be “the most appropriate methodology to use in measuring the benefit from equity infusions made or provided on terms inconsistent with commercial considerations.”

General Issues Appendix,

58 Fed.Reg. at 37,239. Under the grant methodology, Commerce “treats equity infusions into unequityworthy companies as grants.”

Id.

at 37 ,-241.

In applying the grant methodology, the first step is for Commerce to determine if the company receiving the infusion is equity-worthy. If the company is equityworthy, Commerce does not consider the equity infusion eountervailable. If the company is unequityworthy, however, Commerce declares the equity infusion a eountervailable subsidy. In the second step of the grant methodology, Commerce calculates the benefit using a declining balance method and allocates equal portions of the equity infusion to the unequityworthy companies over a 15-year period. The methodology employs a discount rate to add to the amount the interest accrued in each year on the unallocated balance remaining from the previous year.

Commerce summarized both the rationale and implementation of the grant methodology:

The key aspect of this approach is the Department’s interpretation of its equity-worthiness determination. Using the grant methodology for equity infusions into unequityworthy companies is based on the premise that an unequityworthiness finding by the Department is tantamount to saying that the company could not have attracted investment capital from a reason

*1301

able investor in the infusion year based on the available information. Thus, neither the benefit nor the equityworthiness determination should be reexamined

post hoc

since such information could not have been known to the investor at the time of the investment. Therefore, the grant methodology, when used for equity infusions into unequityworthy companies and for grants to all companies, should not be adjusted based on subsequent events (e.g., dividends, profits).

Id.

at 37,239 .

Equity Infusions in Brazil, France, and Korea

Commerce determined that the government of Brazil (GOB) made equity infusions into USIMINAS, Companhia Siderúrgica Paulista (COSIPA), and CSN in the following years: USIMINAS, 1980 through 1988; COSIPA, 1977 through 1989 and 1991; and CSN, 1977 through 1991.

Brazilian Final Determination,

58 Fed.Reg. at 37,298. Commerce then examined the three companies in the relevant years and determined that “the GOB’s equity infusions into USIMINAS between 1980-1988, into CSN between 1977-1991, and into COSIPA from 1977-1989 and in 1991, were made on terms inconsistent with commercial considerations, and thus countervailable.”

Id.

The Government of France’s (GOF) equity infusions relevant in this proceeding flow from a 1978 restructuring plan. One facet of the plan allowed bonds previously issued on behalf of the steel companies to be converted into prets a caraeteristiques speciales (PACS) or “loans with special characteristics.”

French Preliminary Determination,

57 Fed.Reg. at 57,788;

French Final Determination,

58 Fed.Reg. 37,306-07. The conversion process enabled the companies to trade in their former obligations on loans and bonds for new obligations based on the PACS.

French Final Determination,

58 Fed.Reg. at 37, 306-07.

Between 1978 and 1991, Usinor Sacilor and its predecessors used PACS to refinance debt on several occasions: “In 1978, Usinor and Sacilor converted 21.1 billion French francs (FF) of debt into PACS. From 1980 to 1981, Usinor and Sacilor issued FF8.1 billion of new PACS.”

Id.

at 37,307 . The companies later converted “PACS in the amount of FF13.8 billion, FF12.6 billion and FF2.8 billion ... into common stock in 1981, 1986 and 1991, respectively.”

Id.

Commerce determined PACS were debt and not equity when issued, but that Usinor Sacilor received benefits when the PACS were eventually converted to common stock.

Id.

Commerce’s treatment of the PACS conversions turned on Usinor Saeilor’s equity-worthiness at the time of the conversions. The agency determined Usinor Sacilor to be unequityworthy from 1978 through 1988 and therefore “eonsider[ed] the conversion of PACS to common stock in 1981 and 1986 to constitute equity infusions on terms inconsistent with commercial considerations.”

Id.

Because Usinor Sacilor was equityworthy in 1991, however, Commerce determined “the PACS-to-equity conversion in 1991 ... [was] consistent with commercial considerations.”

Id.

The second facet of the GOF’s debt restructuring plan relevant here is the “Fonds d’lntervention Siderurgique” or Steel Intervention Fund (FIS) created by the government in-1983. The FIS -worked in tandem with the 1981 Corrected Finance Law which authorized Usinor and Sacilor to issue convertible bonds.

French Preliminary Determination,

57 Fed.Reg. at 57,788. The companies “issued convertible bonds to the FIS, which, in turn, with the GOF’s guarantee, floated bonds to the public and to institutional investors.”

French Final Determination,

58 Fed.Reg. at 37,307. “In 1983, 1984, and 1985, Usinor and Sacilor issued convertible bonds to the FIS. These FIS bonds were converted to common stock in 1986 and 1988.”

Id.

*1302

In the

Korean Final Determination,

Commerce determined in 1978 and 1980 the Government of Korea (GOK), through the Ministry of Finance and the Korea Development Bank, provided equity infusions to POSCO on terms inconsistent with commercial considerations.

Korean Final Determination,

58 Fed.Reg. at 37,339. In a 1984 determination, Commerce determined POSCO was unequityworthy during 1978 and 1980.

Id.

(citing

Cold-Rolled Carbon Steel Flat Products from Korea,

49 Fed.Reg. 47,284, 47,286 (Dep’t Comm.1984) (final determ.)); Commerce stated in the

Korean Final Determination

that neither POSCO nor the GOK contested Commerce’s previous unequityworthiness determination and that Commerce found “no new information to repudiate this determination.”

Id.

Thus, because the 1978 and 1980 equity infusions from the GOK were made to POSCO when POSCO was unequityworthy, Commerce determined the infusions bestowed countervailable benefits on POSCO.

Id.

Issues Presented

Whether Commerce’s decision to abandon the rate of return shortfall methodology and whether its decision to adopt a grant methodology and its implementation of that grant methodology to measure the value of benefits of equity infusions into companies deemed to be unequityworthy is supported by substantial evidence on the record and is otherwise in accordance with law.

It is critical to be clear .what' is not being challenged here. The parties apparently agree the equityworthiness test is

not

under review in this proceeding.

That is, the question of whether Commerce properly determined that a company was unequityworthy during the period of investigation when equity infusions were made is not challenged here and consequently will not be reviewed.

Contentions of the Parties

Plaintiffs

Plaintiffs contend there are several infirmities in Commerce’s adoption of the grant methodology to value the benefits of equity infusions into unequityworthy companies and the agency’s concomitant decision to abandon the RORS methodology. Plaintiffs assert the grant methodology employed by Commerce “fails to measure the actual benefits associated with a government investments [sic] during the period of investigation” and “relies on a series of unstated assumptions that are unreasonable and otherwise unsupported by substantial evidence in the record.”

(Id.

at 3-4;

see also id.

at 25-33, 43-46). In addition, plaintiffs claim Commerce’s “decision to abandon [RORS] was based on perceived problems with the RORS methodology that do not withstand scrutiny. Specifically, none of the six concerns identified by [Commerce] warrants a rejection of the RORS methodology.”

(Id.

at 7 (footnote omitted);

see also id.

at 47-54; Pis.’ Reply Br. at 41-55).

Plaintiffs contend Commerce failed in its grant methodology to “properly identify the

*1303

nature of the benefit that an equity infusion may or may not bestow.” (Pis.’ Br. at 25). It is critical to identify the nature of the benefit, plaintiffs argue, because only then can Commerce “properly estimate[ ] the value of the particular subsidy” as required by law. (Id at 24;

see also id.

at 21 n. 38 (citing 19 U.S.C. §§ 1671 (a), 1671d(a); 19 C.F.R. § 355.20 )). By equating an equity infusion into an unequityworthy company with a grant, plaintiffs maintain, Commerce ignores the simple fact that, unlike receiving a grant, there is a cost to the firm issuing equity. As explained by plaintiffs:

[F]rom the standpoint of the company, one of the costs of selling equity to an investor is the obligation to operate its firm in such a way to generate a short- or long-term return ... on the equity investment....

In addition, in exchange for equity, the company conveys a claim on its assets to the investor. In connection with this claim, the company has a continuing obligation to preserve and or enhance the value of the investor’s claim on the assets.

(Id at 27). Thus, plaintiffs argue the financial benefit of an equity infusion can be calculated only by determining whether the recipient enjoys any relief from the financial costs or obligations flowing from receipt of an equity infusion, that is, the obligation to generate a return on the investor’s equity infusion and the obligation to enhance the value of the investor’s claim on the assets. By failing to examine whether the recipient is relieved of these obligations, plaintiffs argue, the grant methodology “necessarily overstates the benefits of an infusion except in the rare instance in which the investor does not receive any return on its investment, and in fact loses the full value of the investment.” (Id at 5).

Plaintiffs construe Commerce’s grant methodology as erecting an “irrebuttable presumption that an equity investment into an unequityworthy company never has a cost.” (Id at 30 (emphasis omitted)). This presumption prevents Commerce “from detecting and measuring the actual costs [of an equity purchase] during the POI” thereby rendering Commerce’s grant methodology “an unreasonable technique of valuing the benefit from an alleged subsidy.” (Id at 33). In addition, plaintiffs assert the grant methodology is flawed because it precludes an examination of post-infusion events thereby presuming “there is no conceivable manner in which the government and company could cure or diminish the value of the benefit bestowed by the original subsidy event.” (Id at 34 (footnote omitted)).

Coupled with its argument that the grant methodology employed by Commerce is unreasonable, plaintiffs assert the RORS methodology should be reinstated because it is a “reasonable methodology that has enabled [Commerce] to correctly value the benefits of equity infusions since 1982.” (Id at 46). Plaintiffs advance their support of RORS stating,

[T]he RORS methodology permits [Commerce] to distinguish between the benefits associated with a grant, and the continuing obligations that attach to an equity investment. Specifically, RORS enables [Commerce] to quantify the cost of that obligation during the POI, and compare that cost to a national average, to determine if the company benefited in any way during the POI.

(Id at 47).

Furthermore, plaintiffs challenge Commerce’s criticism of the RORS methodology as unjustified and not supported by the record. (Id at 47-54; Pis.’ Reply at 41-55). In effect, plaintiffs argue Commerce has failed to provide an adequate explanation of its departure from RORS and therefore the agency has abrogated its responsibility to “ ‘either conform itself to its prior decisions, or explain the reasons for its departure.’ ” (Pis.’ Br. at 47-48 (quoting

Hussey Copper, Ltd. v. United States,

17 CIT -, -, 834 F.Supp. 413, 418-19 (1993) (internal citation omitted))). Plaintiffs contend each of Commerce’s criticisms of RORS are unexplained, unnecessary, or unclear. (Id at 48-53). Because Commerce did not adequately explain its reason for abandoning RORS, plaintiff argues Commerce acted contrary to law.

Plaintiffs conclude by asserting that even if Commerce’s grant methodology is sustained, it must be revised to account for the offsetting costs of certain post-infusion events in-

*1304

eluding “the return of capital to the government through a privatization, the issuance of dividends, and the retention of retained earnings.”

(Id.

at 54). As construed by plaintiffs, one effect of privatization is that it “eliminate[s] any financial benefit to the company associated with the government’s claim on that equity.”

(Id.

at 55). The grant methodology must therefore be revised to “accommodate this elimination of the alleged benefit through privatization.”

(Id.).

Similarly, because plaintiffs argue dividend payments “reduce or eliminate the benefit from the government’s equity infusions,” the grant methodology should be adjusted to count these “dividend payments as payments against the remaining eountervailable balance from the equity infusions.”

(Id.

at 55, 62). Finally, plaintiffs contend retained earnings should be treated similarly and “be netted against any gross benefit calculated using [Commerce’s] grant methodology.”

(Id.

at 64).

Defendant

Commerce argues it has statutory authority to levy countervailing duties against merchandise exported to the United States from a country whose government has bestowed a subsidy in the form of the ‘“provision of capital ... on terms inconsistent with commercial considerations.” (Def.’s Br. at 6-7 (quoting 19 U.S.C. § 1677 (5)(A)(ii)(I) (1988))). Commerce asserts an equity infusion into an unequityworthy company provides capital on terms inconsistent with commercial considerations and therefore such an infusion is eountervailable. Because the statute is silent on the manner in which Commerce is to calculate the benefit from equity infusions, Commerce contends it properly exercised its discretion by adopting a grant measurement of equity infusions into unequityworthy companies.

the determinations under review, Commerce rejected the RORS methodology because it found the methodology deficient and unable to accurately measure the benefit of equity investments in unequityworthy firms.

(Id.

at 9-11). The crux of Commerce’s rationale for rejecting the RORS methodology is that an equity investment in an unequityworthy company is tantamount to a grant and should be valued as a grant.

(Id.

at 18). As explained by the agency,

[A]n unequityworthiness finding by Commerce means that the firm could not have attracted capital from a reasonable investor at that time, based on the information then available. “If a company cannot attract capital, then equity for all purposes is a grant.” The most appropriate method to measure the benefit to the recipient firm which it derives from the equity infusion is the grant approach, because it corresponds with the meaning of unequityworthiness—

i.e.,

a reasonable private investor could not expect a reasonable rate of return at the time of the government’s equity infusion.

(Id.

(quoting Memorandum from The Equity Issues Team to Joseph A. Spetrini, Acting Assistant Secretary for Import Administration and Barbara R. Stafford, Deputy Assistant Secretary for Investigations,

Options for Calculating the Benefit from Equity Infusions into Unequityworthy Companies 8

(stamped May 18, 1993)

(ITA Equity Infusions

Memo),

reprinted in

Def.’s App. Tab 2 and citing

General Issues Appendix,

58 Fed. Reg. at 37,241)).

Commerce shifted from RORS to the grant methodology because it identified at least six flaws in RORS.

General Issues Appendix,

at 37,240-41. Commerce found these were not “minor flaws,” but rather were fundamental to the RORS methodology and could not be “rectified without abandoning the RORS methodology outright.”

Id.

at 37,241. The identification of these flaws in the RORS method as well as other factors

led Com

*1305

merce to adopt the grant methodology in these determinations. (Def.’s Br. at 33-42).

Finally, Commerce rejects plaintiffs’ arguments that the grant methodology, if sustained by the Court, should be revised to account for post-infusion events.'

(Id.

at 42-47). As stated by Commerce, the focus should not be on events subsequent to the original equity infusion, but rather “Commerce must focus upon the benefit to the recipient at the time the subsidy is conferred.”

(Id.

at 43).

Defendant-intervenors

Defendant-intervenors assert plaintiffs have failed to carry their burden of showing Commerce’s grant methodology to be unsupported by substantial evidence or otherwise not in accordance with law. (Def.-Intervenors’ Br. at 10). Defendant-intervenors contend plaintiffs raise “irrelevant matters” including a defense of the RORS methodology as preferable to the grant methodology.

(Id.).

The question of which method is “more reasonable” is not before the Court, defendant-intervenors argue, and furthermore is not dispositive as to the validity of the grant methodology.

(Id.

at 11 (citing

Wheatland Tube Corp. v. United States,

17 CIT -, -, 841 F.Supp. 1222, 1234 (1993);

Matsushita Elec. Indus. Co. v. United States,

3 Fed.Cir. (T) 44, 54-55, 750 F.2d 927, 936 (1984); and

Vitro Flex, S.A. v. United States,

13 CIT 430 , 447, 714 F.Supp. 1229, 1242-43 (1989));

see also id.

at 24-25). To sustain Commerce’s grant methodology, defendant-intervenors contend, the Court need only find the methodology “reflects a ‘permissible’ interpretation of the statutory phrases, ‘inconsistent with commercial considerations’ and ‘net subsidy.’ ”

(Id.

at 11-12 (citing 19 U.S.C. §§ 1677 (5)(A)(ii)(I), 1671, 1677(6) (1988))).

Defendant-intervenors argue the proper measurement of a subsidy benefit is the benefit to the recipient; if there is no difference between a grant and an equity infusion into an unequityworthy company, “it is reasonable to use the same measurement methodology for both.”

(Id.

at 14 (footnote omitted)). Defendant-intervenors suggest there is no material difference, from the perspective of an unequityworthy company, between receiving an equity infusion or a grant.

(Id.

at 14, 32-40). In both instances, the company receives infusions from the government that otherwise would be unavailable from private investors.

(Id.

at 14-15).

Furthermore, according to defendant-intervenors, “the company incurs no new obligations as a result of that [equity] infusion, but rather continues to owe all of its (enhanced) earnings to its owners ... exactly as it would in the case of a grant of equal magnitude.”

(Id.

at 15;

see id.

at 15-18, 33-37 ).

Defendanh-Intervenors contend Commerce has “adequately explained its methodological choice” and therefore the grant methodology is “due all of the deference of any agency adopted methodology.”

(Id.

at 19). Defendant-intervenors claim the grant approach was fully litigated when Commerce first adopted the grant methodology and abandoned RORS in a previous final determination.

(Id.

at 22 (quoting

Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the United Kingdom,

58 Fed.Reg. 6237, 6241 (Dep’t Comm.1993) (final determ.)

(Hot Rolled Lead from U.K.))).

Notwithstanding

Hot Rolled Lead from U.K,

defendant-intervenors argue the lengthy procedural steps taken by Commerce in applying the grant methodology to the determinations under review coupled with Commerce’s comprehensive discussion and analysis in the

General Issues Appendix,

“more than satisfies the ‘reasonable clarity' standard of

SCM Corp.

*1306

and the ‘reasoned justification’ standard of Rust.”

(Id.

at 24 (quoting

SCM Corp. v. United States,

84 Cust.Ct. 227 , 232, 487 F.Supp. 96, 100 (1980) (internal quotations omitted);

Rust v. Sullivan,

500 U.S. 173, 187 , 111 S.Ct. 1759, 1769 , 114 L.Ed.2d 233 (1991))).

Defendant-intervenors further reject plaintiffs’ arguments that equity investments impose certain costs on the recipient that should be netted from the subsidy benefit. Plaintiffs’ contention that dividends and retained earnings should be treated as subsidy offsets, defendant-intervenors argue, is prohibited by 19 U.S.C. § 1677 (6) (1988), which contains an exclusive list of permitted subsidy offsets. Defendant-Intervenors maintain Commerce correctly determined the benefit from an equity subsidy is the “full amount of the equity provided, and that ‘no earnings of the company in subsequent years should be used to offset the benefit.’”

(Id.

at 30-31 (quoting

Certain Steel Products from Austria,

57 Fed.Reg. 57,781, 57,783 (Dep’t Comm.1992) (prelim, determ, and alignment of final determs.) and citing

General Issues Appendix,

58 Fed.Reg. at 37,239)). To hold otherwise, defendant-intervenors suggest, would “run afoul of the prohibition on

post hoc

analysis” of a subsidy’s effects as established by statute, legislative history, agency practice, and decisional law.

(Id.

at 31 (citing S.Rep. No. 189,103d Cong., 1st Sess., 42-43 (1993);

Saarstahl, AG. v. United States,

18 CIT -, -, 858 F.Supp. 187, 193 (1994);

British Steel Corp. v. United States,

9 CIT 85 , 95-96, 605 F.Supp. 286, 294-95 (1985))).

Finally, defendant-intervenors agree with Commerce that the RORS methodology is hopelessly flawed and reject plaintiffs’ arguments for an alternative methodology as legally irrelevant.

(Id.

at 43^19;

see also id.

at 10-12).

Discussion

The Court’s review of Commerce’s grant methodology can be separated into two interconnected inquiries. First, did Commerce err in its abandonment of the RORS methodology.

See Hussey Copper, Ltd. v. United States,

17 CIT -, -, 834 F.Supp. 413, 418 (1993) (“It is ‘a general rule that an agency must either conform itself to its prior decisions or explain ... its departure.’ ”) (quoting

Citrosuco Paulista, S.A. v. United States,

12 CIT 1196 , 1209, 704 F.Supp. 1075, 1088 (1988)). Second, is the application and impl

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.