Acciali Speciali Terni S.P.A. v. United States

Slip Op. 02-51

U.S. COURT OF INTERNATIONAL TRADE

BEFORE: GREGORY W. CARMAN, CHIEF JUDGE

ACCIALI SPECIALI TERNI S.p.A., et al.,

Plaintiffs,

v.

UNITED STATES OF AMERICA,

Court No. 01-00051

Defendant,

and

ALLEGHENY LUDLUM CORP., et al.,

Defendant-Intervenors.

[In response to Plaintiffs’ motion for judgment upon the agency record under Rule 56.2, and in

consideration of Defendant’s and Defendant-Intervenors’ memoranda in opposition thereof,

Plaintiffs’ motion is denied. The Department of Commerce’s determination in Grain-Oriented

Electrical Steel From Italy; Final Results of Countervailing Duty Administrative Review, 66 Fed.

Reg. 2,885 (Dep’t Comm.) (January 12, 2001) is remanded.]

Hogan & Hartson L.L.P. (Lewis E. Leibowitz, Lynn G. Kamarck, H. Deen Kaplan) for Plaintiff.

Robert D. McCallum, Jr., Assistant Attorney General; David M. Cohen, Director, Commercial

Litigation Branch, Civil Division, United States Department of Justice; Lucius B. Lau, Assistant

Director, Commercial Litigation Branch, Civil Division, United States Department of Justice;

Brent M. McBurney, Attorney, Commercial Litigation Branch, Civil Division, United States

Department of Justice, Michele D. Lynch, Attorney, Office of the Chief Counsel for Import

Administration, United States Department of Commerce, Of Counsel, for Defendant.

Court No. 01-00051 Page 2

Collier Shannon Scott, PLLC (Eric R. McClafferty, Michael J. Coursey, Kathleen W. Cannon,

David A. Hartquist) for Defendant-Intervenors.

Dewey Ballantine L.L.P. (John A. Ragosta, John R. Magnus, Hui Yu) for Amici Curiae.

Dated: June 4, 2002

OPINION

CARMAN , CHIEF JUDGE: Plaintiffs contest certain aspects of the United States

Department of Commerce’s (the Department, or Commerce) determination in Grain-Oriented

Electrical Steel From Italy; Final Results of Countervailing Duty Administrative Review, 66 Fed.

Reg. 2,885 (Jan. 12, 2001) (Final Results). The Court has jurisdiction over this matter pursuant

to 28 U.S.C. § 1581(c).

The principal dispute revolves around whether the manufacturer/exporter of the subject

merchandise continued to receive countervailable subsidies after it was privatized by the

Government of Italy.

BACKGROUND

I. CORPORATE HISTORY OF AST

The complex corporate history of AST begins with Instituto per la Ricostruzione

Industriale (IRI), a holding company of the Government of Italy. IRI wholly owned Finsider

S.p.A. (Finsider), another holding company that controlled all state-owned steel companies in

Italy. Finsider’s main operating subsidiary was Terni Societa’ per l’Industria e l’Elettricita’

S.p.A. (Terni). In 1987, as part of a restructuring, Terni transferred its assets, including those for

electrical steel production, to a new company called Terni Acciai Speciali S.p.A. (TAS). Issues

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and Decision Memorandum: Final Results of Countervailing Duty Administrative Review:

Grain-Oriented Electrical Steel from Italy from Holly A. Kuga to Troy H. Cribb (Decision

Memorandum) at 2, Pl. Pub. App. Ex. 2 at 2.1 In 1988, as part of another restructuring, Finsider

and its main operating companies, including TAS, entered into liquidation and ILVA, S.p.A.

(ILVA) was formed. On January 1, 1989, the day ILVA became operational, part of TAS’s

liabilities and most of its assets were transferred to ILVA. See Final Affirmative Countervailing

Duty Determination: Grain-Oriented Electrical Steel From Italy, 59 Fed. Reg. 18,357, 18,358

(Apr. 18, 1994) (Electrical Steel). These included all assets associated with the production of

electrical steel. On April 1, 1990, TAS’s remaining assets and liabilities were transferred to

ILVA. Only certain non-operating assets remained with TAS. Id.

From 1989 through 1993, ILVA consisted of several operating divisions, including the

Specialty Steels Division located in Terni. ILVA was also majority owner of many separately

incorporated subsidiaries, together with which it constituted the ILVA Group. IRI continued to

own the ILVA Group. Id. In September 1993, IRI endorsed a plan to reorganize and privatize

the ILVA Group by forming two new companies. Accordingly, on December 31, 1993, the

Specialty Steels Division in Terni was separately incorporated by a demerger into Acciai Speciali

Terni S.r.l (AST S.r.l.) (producer of specialty steel) and ILVA Laminati Piani S.r.l. (ILP)

(producer of carbon steel flat products). The remainder of ILVA Group’s assets, its existing

1

The Issues and Decision Memorandum: Final Results of Countervailing Duty

Administrative Review: Grain-Oriented Electrical Steel from Italy from Holly A. Kuga to Troy

H. Cribb (Decision Memorandum) is included as part of Grain-Oriented Electrical Steel From

Italy; Final Results of Countervailing Duty Administrative Review, 66 Fed. Reg. 2,885 (Jan. 12,

2001) (Final Results). All page numbers for the Decision Memorandum are cited as paginated in

Plaintiff’s Public Appendix Exhibit 2.

Court No. 01-00051 Page 4

liabilities, and much of the redundant workforce were transferred to ILVA Residua. Decision

Memorandum at 2.

Initially, IRI owned all shares of AST S.r.l. Around the same time that IRI established

AST S.r.l. as a separate corporation, IRI made a public offering for its sale. To prepare for this

sale, IRI converted AST S.r.l. from a limited liability company (S.r.l.) to a stock company

(S.p.A.) on February 11, 1994. Id.

KAI, a privately-held holding company jointly owned by German steelmaker Krupp AG

Hoesch-Krupp and a consortium of private Italian companies called FAR Acciai S.r.l., agreed to

purchase AST S.p.A. It signed a purchase agreement with IRI on July 14, 1994. Id. The

European Commission approved the purchase agreement on December 21, 1994, and the shares

formally changed hands effective December 23, 1994. Id.

Between 1995 and 1998, AST S.p.A. and its parent companies underwent several

restructurings and changes in ownership. At the end of the period of review, Krupp Thyssen

Stainless GmbH (part of the Krupp AG Hoesch-Krupp group) owned 90 percent of AST, and

Fintad Securities S.A., a private Italian company, owned 10 percent of AST S.p.A. Id.

Throughout much of this opinion, the Court will refer to AST in all its forms as AST.

For convenience, however, this Court will occasionally refer to AST either as Pre-Sale AST,

referring to AST in its pre-privatized forms, or as Post-Sale AST, referring to AST in its

privatized state.

II. PROCEDUR AL HISTORY

On July 7, 2000, the Department published the preliminary results of its administrative

review of the countervailing duty order on grain-oriented electrical steel for the period of review

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January 1, 1998 through December 31, 1998, covering the manufacturer/exporter AST. See

Grain-Oriented Electrical Steel From Italy; Preliminary Results of Countervailing Duty

Administrative Review and Extension of Time Limit for Final Results of Countervailing Duty

Administrative Review, 65 Fed. Reg. 41,950 (July 7, 2000) (Preliminary Results). In the

Preliminary Results, the Department invited interested parties to comment upon the impact that

Delverde, SRL v. United States, 202 F.3d 1360 (Fed. Cir. 2000) (Delverde III), issued by the

United States Court of Appeals for the Federal Circuit on February 2, 2000, could have upon the

Department’s privatization methodology. Preliminary Results, 65 Fed. Reg. at 41,951. The

Department received comments from petitioners and AST in their case and rebuttal briefs. The

Department also sent questionnaires soliciting further information from AST, the Government of

Italy, and the European Commission on September 28, 2000 and October 27, 2000. Final

Results, 66 Fed. Reg. at 2,885.

Concurrent to the above proceedings, AST challenged in this Court a separate final

determination by Commerce, Final Affirmative Countervailing Duty Determination; Stainless

Steel Plate in Coils From Italy, 64 Fed. Reg. 15,508 (Mar. 31, 1999) (Stainless Steel Plate in

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

Allegheny Ludlum Corp., et al., No. 99-06-00364, 2002 WL 342659 (CIT Feb. 1, 2002). On

August 14, 2000, the Honorable Evan J. Wallach remanded Stainless Steel Plate in Coils to the

Department to issue a determination consistent with Delverde III. On November 21, 2000, the

Department issued its interpretation of Delverde III and its revised change in ownership

methodology in Draft Results of Redetermination Pursuant to Court Remand, Acciai Speciali

Terni S.p.A. v. United States (Draft Redetermination).

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The next day, the Department placed the public version of the Draft Redetermination on

the record of the administrative review being challenged in this action and gave the parties an

opportunity to comment upon the change in ownership approach. In addition to submitting

comments on December 6, 2000, petitioners and AST participated in a public hearing held by the

Department on December 15, 2000. Final Results, 66 Fed. Reg. at 2,885.

On December 19, 2000, the Department issued the Final Results of Redetermination

Pursuant to Court Remand, Acciai Speciali Terni S.p.A. v. United States (Final

Redetermination). See Acciai Speciali Terni S.p.A. v. United States and Allegheny Ludlum

Corp., et al., 2002 WL 342659 at *3. Afterwards, it placed the Final Redetermination on the

record of the administrative review being challenged in this action.

On January 12, 2001, the Department issued the Final Results that Plaintiffs are

challenging in this action, calculating a net subsidy rate of 14.25 percent for the period of review.

66 Fed. Reg. at 2,886.

III. DELVERDE III

As stated above, the United States Court of Appeals for the Federal Circuit issued

Delverde III on February 2, 2000. Its central role in both the Department’s proceedings below

and the parties’ contentions before this Court necessitates a brief summary of the decision.

In Delverde III, Commerce conducted a countervailing duty investigation of the company

Delverde for the period of review 1994. In the course of the investigation, Commerce learned

that Delverde had paid fair market value (FMV) for corporate assets from a private company that

had received nonrecurring countervailable subsidies from the Government of Italy from 1983-

1991. See Delverde III, 202 F.3d at 1362. Commerce determined the concerned assets had a 12-

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year average useful life. It divided the subsidy by the average useful life to reach an allocation of

the subsidy for each of the twelve years. Because Commerce assumed a portion of the subsidies

passed through to Delverde when Delverde purchased the concerned assets, Commerce, after

making adjustments based on the purchase price, allocated a subsidy amount to Delverde for its

1994 period of review. Delverde argued before this Court that Commerce’s assumption that a

pro rata portion of the former owner’s nonrecurring subsidies “passed through” to Delverde was

erroneous and not in accordance with the Tariff Act of 1930, as amended by the Uruguay Round

Agreements Act. Id. at 1362-1363. After remanding to Commerce to consider the terms of the

sale to determine whether Delverde had indirectly received the former owner’s subsidies, this

Court affirmed Commerce’s determination. Delverde, SrL v. United States, 24 F. Supp. 2d 314,

317 (Ct. Int’l Trade 1998). Delverde timely appealed to the Federal Circuit.

The Federal Circuit found that in order to conclude a person received a subsidy, 19

U.S.C. § 1677(5)(B) clearly requires Commerce to “determine that a government provided that

person with both a financial contribution . . . and a benefit.” Delverde III, 202 F.3d at 1365

(emphasis in original). The Court next turned to the statute’s change of ownership provision,

which states:

A change in ownership of all or part of a foreign enterprise or the productive assets of a

foreign enterprise does not by itself require a determination by the administering authority

that a past countervailable subsidy received by the enterprise no longer continues to be

countervailable, even if the change in ownership is accomplished through an arm’s length

transaction.

19 U.S.C. § 1677(5)(F). The Court therefore found that although the statute prohibits the

automatic conclusion that a subsidy has “been extinguished solely by an arm’s length change of

ownership,” it also prohibits a per se rule that “a change in ownership always requires a

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determination that a past countervailable subsidy continues to be countervailable.” Delverde III,

202 F.3d. at 1366 (emphasis in original). The Court concluded: “[T]he statute does not

contemplate any exception to the requirement that Commerce determine that a government

provided both a financial contribution and benefit to a person . . . before charging it with receipt

of a subsidy . . . .” Id. The Federal Circuit held that Commerce’s methodology was inconsistent

with 19 U.S.C. § 1677(5) and therefore invalid because Commerce did not determine whether

Delverde received a financial contribution and benefit.

IV. FINAL DETERMINATION BY THE DEPARTM ENT OF COMMERCE

In its Final Results, Commerce stated the Federal Circuit in Delverde III had “rejected the

same change in ownership methodology that [was] applied in the Preliminary Results in the

instant review.” Decision Memorandum at 3. Specifically, Commerce noted Delverde III’s

holding that “the Tariff Act, as amended, does not allow Commerce to presume conclusively that

the subsidies granted to the former owner of Delverde’s corporate assets automatically ‘passed

through’ to Delverde following the sale. Rather, the Tariff Act requires that Commerce make

such a determination by examining the particular facts and circumstances of the sale and

determining whether Delverde directly or indirectly received both a financial contribution and

benefit from the government.” Id., quoting Delverde III, 202 F.3d at 1364. Accordingly,

Commerce applied a new two-step change in ownership approach to determine whether AST

directly or indirectly received both a financial contribution and benefit from the Government of

Italy. Decision Memorandum at 3. In its first step, Commerce examined whether AST “[was]

the same person as the one that received the subsidies.” Id. To make this determination,

Commerce analyzed four factors: (1) continuity of general business operations; (2) continuity of

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production facilities; (3) continuity of assets and liabilities; and (4) retention of personnel. Id.

The Department stated it would “generally consider the post-sale entity to be the same person as

the pre-sale entity if, based on the totality of the factors considered, [it] determine[d] that the

entity sold in the change-in-ownership transaction [could] be considered a continuous business

entity because it was operated in substantially the same manner before and after the change in

ownership.” Id. If the pre- and post-sale entities were considered to be the same person,

“nothing material [would have] changed since the original bestowal of the subsidy, so that the

statutory requirements for finding a subsidy [would be] satisfied with regard to that person.”

Final Redetermination at 7, Pl. Pub. App. Ex. 3 at 7. This Court will refer to this step in

Commerce’s analysis as the “Personhood Test.”

If the pre- and post-sale entities were two distinct persons, however, Commerce would

proceed to the second step of its analysis and consider “whether any subsidy had been bestowed

upon that producer/exporter as a result of the change-in-ownership transaction.” Id.

After analyzing the above four factors, Commerce determined that Post-Sale AST “is for

all intents and purposes the same person as that which existed prior to the privatization. Hence, .

. . [Post-Sale AST] received the financial contributions and benefits at issue in this review.”

Decision Memorandum at 4.

Commerce applied its Personhood Test to eight subsidy programs under review: (1)

equity infusions provided by the Government of Italy, through IRI, to TAS or ILVA between

1987 and 1992 (Decision Memorandum at 8); (2) debt forgiveness resulting from the 1988-1990

restructuring plan (Id. at 8-9); (3) debt forgiveness resulting from the 1993-1994 restructuring

plan (Id. at 9-11); (4) government interest contributions on AST’s outstanding loans financed by

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IRI bond issues (Id. at 11); (5) pre-privatization retirement benefits to qualified steel workers

under Italian Law 451/94 (Id. at 11-12); (6) exchange rate guarantees from the Italian Ministry of

Treasury for AST’s outstanding European Coal and Steel Community loans (Id. at 13-14); (7)

European Coal and Steel Community loan to AST under Article 54 of the 1951 European Coal

and Steel Community Treaty (Id. at 14-15); and (8) European Social Fund Objective 4 funding of

training for employees in companies undergoing restructuring (Id. at 15-16).

ANALYSIS

STANDARD OF REVIEW

In reviewing a challenge to Commerce’s final determination in a countervailing duty

administrative review, the Court will uphold Commerce’s determination unless it is

“unsupported by substantial evidence on the record, or otherwise not in accordance with law . . .

.” 19 U.S.C. § 1516a(b)(1)(B)(i) (2000).

Commerce’s factual determinations are supported by substantial evidence on the record if

“such relevant evidence as a reasonable mind might accept as adequate” supports its conclusion.

Matsushita Elec. Indus. Co., Ltd. v. United States, 750 F.2d 927, 933 (Fed. Cir. 1984) (quoting

Consol. Edison Co. v. NLRB, 305 U.S. 197, 229 (1938)).

Commerce’s interpretation of the countervailing duty statute is “in accordance with law”

if it comports with Congress’s intention on the precise question at issue. See Timex V.I., Inc. v.

United States, 157 F.3d 879, 881-882 (Fed. Cir. 1998). If Congress’s intention is not judicially

ascertainable, this Court must consider whether Commerce’s interpretation of the statute is

reasonable in light of the overall statutory scheme. See Chevron U.S.A. Inc. v. Natural Res. Def.

Council, Inc., 467 U.S. 837, 843 (1984).

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THE STATUTE

To ascertain whether Commerce’s determination is in accordance with law, this Court

first examines the law as set forth in the statute. For Commerce to assess countervailing duties,

Commerce must determine that a “government . . . or any public entity . . . is providing, directly

or indirectly, a countervailable subsidy with respect to the manufacture, production, or export of

a class or kind of merchandise imported, or sold (or likely to be sold) for importation, into the

United States . . . .” 19 U.S.C. §1671(a)(1).

A “countervailable subsidy” is described in 19 U.S.C. § 1677(5)(B) as one in which an

authority “provides a financial contribution . . . to a person and a benefit is thereby conferred.”

The statute defines “financial contribution” as

(i) the direct transfer of funds, such as grants, loans, and equity

infusions, or the potential direct transfer of funds or liabilities, such

as loan guarantees,

(ii) foregoing or not collecting revenue that is otherwise due, such

as granting tax credits or deductions from taxable income,

(iii) providing goods or services, other than general infrastructure,

or

(iv) purchasing goods.

19 U.S.C. § 1677(5)(D). The statute also details the meaning of “benefit conferred:”

A benefit shall normally be treated as conferred where there is a

benefit to the recipient, including–

(i) in the case of an equity infusion, if the investment decision is

inconsistent with the usual investment practice of private investors,

including the practice regarding the provision of risk capital, in the

country in which the equity infusion is made,

(ii) in the case of a loan, if there is a difference between the amount

the recipient of the loan pays on the loan and the amount the

recipient would pay on a comparable commercial loan that the

recipient could actually obtain on the market,

(iii) in the case of a loan guarantee, if there is a difference, after

adjusting for any difference in guarantee fees, between the amount

the recipient of the guarantee pays on the guaranteed loan and the

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amount the recipient would pay for a comparable commercial loan

if there were no guarantee by the authority, and

(iv) in the case where goods or services are provided, if such goods

or services are provided for less than adequate remuneration, and

in the case where goods are purchased, if such goods are purchased

for more than adequate remuneration.

19 U.S.C. § 1677(5)(E).

Finally, a countervailable domestic subsidy must be specific to an enterprise or industry.

See 19 U.S.C. § 1677(5)(A), and (5A)(D).

ISSUES

I. Commerce’s two-step methodology for determining whether Post-Sale AST continues

to receive indirect or direct subsidies granted Pre-Sale AST is supported by substantial

evidence on the record or otherwise in accordance with law.

This Court finds Commerce’s two-step methodology to be supported by substantial

evidence on the record or otherwise in accordance with law for three reasons: First, Commerce’s

methodology conforms with the statutory requirements for finding a subsidy countervailable;

second, Commerce’s methodology is consistent with Delverde III; third, Commerce’s

methodology is reasonable and therefore within the discretion entrusted it by Congress to

determine whether the privatization of a government-owned firm has eliminated any previously

conferred countervailable subsidies.

First, Commerce’s two-step methodology is in keeping with the statute’s clear

requirement that certain elements be satisfied in order for Commerce to impose countervailing

duties. As the Federal Circuit found in Delverde III, “[T]he statute does not contemplate any

exception to the requirement that Commerce determine that a government provided both a

financial contribution and benefit to a person, either directly or indirectly . . . , before charging it

with receipt of a subsidy . . . .” Delverde III, 202 F.3d at 1366. Commerce complied with these

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statutory requirements and found each of the subsidy programs described above to be

countervailable.

The issue before this Court is whether Commerce properly determined that the subsidy

programs found countervailable with respect to Pre-Sale AST remained countervailable with

respect to Post-Sale AST in 1998. The statute provides minimal guidance in this situation,

stating only that

[a] change in ownership of all or part of a foreign enterprise or the productive assets of a

foreign enterprise does not by itself require a determination by the administering authority

that a past countervailable subsidy received by the enterprise no longer continues to be

countervailable, even if the change in ownership is accomplished through an arm’s length

transaction.

19 U.S.C. § 1677(5)(F). The statute does not require that Commerce make a second financial

contribution and benefit determination if the entity that originally received the subsidy is the

same one being reviewed after privatization. Such a determination would only be redundant.

Therefore, Commerce’s two-step methodology is in accordance with the statute.

Second, Commerce’s two-step methodology is consistent with Delverde III. In Delverde

III, the Federal Circuit held that the statute prohibits a per se rule for determining whether a

subsidy continues to be countervailable to a new owner following a change in ownership.

Delverde III, 202 F.3d at 1366, 1368. Instead, the Court stated that the Tariff Act of 1930

requires Commerce to examine the particular facts and circumstances of the sale in order to

determine whether the subsidies granted to the former owner of an entity’s corporate assets pass

through to the new owner following the sale. Delverde III, 202 F.3d at 1364. Delverde III

stresses the need to determine whether subsidies continue to be countervailable to the new owner.

In response to Delverde III, Commerce first determined whether Post-Sale AST was the

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same person as Pre-Sale AST, the original subsidy recipient. Finding them to be the same,

Commerce considered the statutory requirements for finding a subsidy to have been met and

therefore continued to impose countervailing duties against AST. Commerce’s analysis does not

result in an automatic assessment of countervailing duties against a new owner of the shares of

AST. In this case, Commerce is assessing duties against AST, not against KAI or any of the

subsequent owners of AST’s stock. A subsidy recipient is usually distinguishable from an owner

of shares of the subsidy recipient’s stock.2

A sale of 100 percent of a corporation’s shares demonstrates this distinction. Commerce

has stated that “a simple sale of shares . . . is the type of case that would most readily reveal no

change in the legal person.” Final Redetermination at 9-10, Pl. Pub. App. Ex. 3, at 9-10. This is

because a stock purchase changes the identity of the shareholders who own the original subsidy

recipient, but it does not affect the identity of the corporate entity itself. Therefore, absent

evidence that the subsidy has been extinguished, the subsidy merely continues to reside in the

corporation that is now owned by new shareholders. See e.g., British Steel v. United States, 879

F. Supp. 1254, 1273 (Ct. Int’l Trade 1995), aff’d in part, rev’d in part on other grounds by LTV

Steel, Inc. v. United States, 174 F.3d 1359 (Fed. Cir. 1999) (discussing hypothetical in which a

subsidy does not travel after a change in shareholders of a corporation but remains with the

2

The Court distinguishes its analysis from the analyses found in Allegheny Ludlum Corp.

v. United States, 182 F. Supp. 2d 1357 (Ct. Int’l Trade 2002), GTS Industries S.A. v. United

States, 182 F. Supp. 2d 1369 (Ct. Int’l Trade 2002), Acciai Speciali Terni S.p.A. and Acciai

Speciali Terni USA v. United States and Allegheny Ludlum Corp., et al., No. 99-06-00364, 2002

WL 342659 (Ct. Int’l Trade Feb. 1, 2002), and ILVA Lamiere E Tubi S.R.L., et. al., No. 00-03-

00127, 2002 WL 484675 (Ct. Int’l Trade Mar. 29, 2002). In those cases, a key consideration was

whether the new owner received the benefit of the financial contribution. In this case, the Court

focuses upon whether the original subsidy recipient, being the same person before and after the

change of ownership, continues to receive the subsidy benefit.

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corporation that continues to exist).

A sale of only several corporate assets presents a different scenario. There it could be

argued that the new owner has stepped into the shoes of the subsidy recipient, requiring a new

determination of financial contribution and benefit. However, Commerce’s four-factor analysis

allows it to identify substance over form of the transaction. If the commercial reality is a shared

identity between pre- and post-privatization entity, Commerce may presume the subsidy remains

with the post-privatization entity absent evidence to the contrary.

Plaintiffs have the responsibility to demonstrate that the benefits from prior subsidies

have been extinguished, either through the change of ownership or otherwise. The change of

ownership provision at 19 U.S.C. § 1677(5)(F) does not require Commerce to conduct a second

benefit determination. Rather, it addresses the sufficiency of the subsidy recipient’s evidence

that a subsidy is no longer countervailable. It states that “[a] change in ownership . . . does not by

itself require a determination by the administering authority that a past countervailable subsidy . .

. no longer continues to be countervailable, even if the change in ownership is accomplished

through an arm’s length transaction.” 19 U.S.C. § 1677(5)(F) (emphasis added). Commerce is

not required to conduct a second benefit investigation once it determines that the original subsidy

recipient remains the same following a change of ownership.

Plaintiffs point to no record evidence that the benefits from the subsidy programs have

been extinguished. Plaintiffs argue that Delverde III requires Commerce to make a benefit

determination whenever there has been a fundamental change in ownership and that the benefit

determination must turn upon whether Fair Market Value (FMV) was paid for the company.

Plaintiffs contend that such a determination would reveal that neither AST nor its current owner

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received benefits because the buyers paid FMV arrived at through arm’s length negotiations after

an open and competitive bidding process. They assert that the bidding process resulted in a

higher purchase price than the seller’s independent consultants had originally projected.

Nowhere in Plaintiffs’ briefs do they point to evidence on the record that the FMV, although

higher than originally projected, was in any way affected by AST’s countervailing duty liability.

The mere payment of more or less for the purchase of shares of stock would seem to have no

impact by itself upon the amount of countervailable duty liability any more than such payment

would have on the amount of a mortgage liability that was the responsibility of AST. It would

simply mean the purchaser of stock paid more or less for its shares. Such payment by itself

would not extinguish liabilities to third parties.

Finally, Commerce’s two-step methodology is reasonable and therefore within the

discretion entrusted it by Congress to determine whether the privatization of a government-

owned firm has eliminated any previously conferred countervailable subsidies. The statute, its

legislative history, and Delverde III do not indicate the method by which Commerce is to make

this determination. However, the Statement of Administrative Action states:

The issue of the privatization of a state-owned firm can be extremely complex and

multifaceted. While it is the Administration’s intent that Commerce retain the

discretion to determine whether, and to what extent, the privatization of a

government-owned firm eliminates any previously conferred countervailable

subsidies, Commerce must exercise this discretion carefully through its

consideration of the facts of each case and its determination of the appropriate

methodology to be applied.

Uruguay Round Agreements Act, Statement of Administrative Action, H.R. REP. NO . 103-826, at

928 (1994), reprinted in 1994 U.S.C.C.A.N. 4040, 4241. The Court in Delverde III also noted

that the statute’s change of ownership provision “does not direct Commerce to use any particular

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methodology for determining the existence of a subsidy in a change of ownership situation.”

Therefore, this Court accords deference to Commerce’s decision to make as its first step a

determination of whether the pre- and post-privatization entities share the same identity.

In this case, Commerce acted within its discretion when it looked to principles of

corporate successorship for guidance. It is reasonable to consider criteria developed in the

corporate context for determining whether a company that has undergone a change in ownership

carries on substantially the same business after the change in ownership and therefore remains

responsible for previously incurred liabilities. Final Redetermination at 9-11, Pl. Pub. App. Ex.

3, at 9-11.

II. Commerce’s decision to compare Pre-Sale AST to KAI-owned Post-Sale AST for

purposes of its Personhood Test is supported by substantial evidence or otherwise in

accordance with law.

Plaintiffs argue that in applying the Personhood Test, Commerce should have compared

Post-Sale AST to ILVA as a whole rather than to Pre-Sale AST. This Court finds Commerce

properly chose to compare Pre- and Post-Sale AST because “[a]ll of the subsidies that were

bestowed on the predecessor operations of AST continued to benefit the business that was

separately incorporated as AST as part of the 1993 ILVA demerger.” Final Redetermination at

17, Pl. Pub. App. Ex. 3, at 17. Pre-Sale AST existed as a separate corporate entity prior to its

1994 privatization, and a reasonable mind could accept this as relevant evidence that Pre-Sale

AST is the appropriate entity with which to compare Post-Sale AST.

Although Commerce described the demerger as a non-event in the Decision

Memorandum, it did so to emphasize there had been no ultimate change in ownership of AST

after the demerger. The Government of Italy, through its holding company IRI, continued to own

Court No. 01-00051 Page 18

AST before the demerger and until AST’s privatization. Id.

III. Commerce’s determination that Pre- and Post-Sale AST are the same entity is not

supported by substantial evidence on the record or otherwise in accordance with law.

Commerce cites evidence on the record, developed through the application of the four

factors, to support its conclusion that Pre- and Post-Sale AST are the same entity:

(1) Continuity of General Business Operations: Commerce found record

evidence to indicate that AST production base and products remained the

same after privatization. In addition, IRI expected to obtain a higher sale

price by selling AST as an operating entity rather than auctioning its

individual assets. Decision Memorandum at 3, citing AST October 20,

2000 Questionnaire Response at 6. Finally, AST held itself out as a

continuation of the previous enterprise by operating under the same name,

AST, and by maintaining its access to the markets and customers that KAI

had found desirable before purchasing AST. Decision Memorandum at 3-

4, citing AST October 20, 2000 Questionnaire Response at 41.

(2) Continuity of Production Facilities: AST’s principal specialty steel production

facilities remained located in Terni. Decision Memorandum at 4.

(3) Continuity of Assets and Liabilities: Commerce found that all of AST’s corporate

assets were taken over by KAI and that Pre-Sale AST’s liabilities were transferred

through the privatization intact. Id. citing Government of Italy November 14,

2000 Questionnaire Response at 3.

(4) Retention of Personnel: Commerce found that KAI intended to maintain

the AST workforce in place after privatization. The IMI Report,

commissioned by the Government of Italy to value AST, highlighted

continuity in AST’s personnel. Decision Memorandum at 4, citing AST

October 20, 2000 Questionnaire Response at 15. Ultimately, Commerce

found nothing in the record indicating a substantial change in AST’s

workforce as a result of the privatization. Final Redetermination at 22, Pl.

Pub. App. Ex. 3, at 22.

Commerce determined, based upon the totality of the factors considered, that Post-Sale

AST was operated in substantially the same manner after the change in ownership as it was prior

to its sale. The Court finds that substantial evidence on the record supports Commerce’s

determinations that there were continuity of general business operations and production facilities

Court No. 01-00051 Page 19

and retention of personnel between Pre- and Post-Sale AST. The Court notes, however, that

Commerce’s analysis of the third factor could lead to the conclusion that no continuity of assets

and liabilities remained between Pre- and Post-Sale AST; rather, KAI, in a possible capacity as a

separate purchaser, could have become legally responsible for all of AST’s assets and liabilities.

Defense counsel at oral argument appeared to disavow such a conclusion. Because Commerce’s

wording is unclear, the Court remands to Commerce to clarify whether KAI, in a capacity as a

separate purchaser, became legally responsible for all of AST’s assets and liabilities or explain if

Post-Sale AST continued to have responsibility for all of Pre-Sale AST’s assets and liabilities. If

Commerce determines that KAI became legally responsible for all of AST’s assets and liabilities,

this Court orders Commerce to discuss whether substantial evidence supports its conclusion that

Pre- and Post-Sale AST are the same entity.

IV. Commerce’s two-step methodology for determining whether Post-Sale AST continues

to receive indirect or direct subsidies granted Pre-Sale AST is not inconsistent with the

World Trade Organization Appellate Body’s ruling in UK Leaded Bar.

Plaintiffs claim this Court should construe the countervailing duty statute in accordance

with United States–Imposition of Countervailing Duties on Certain Hot-Rolled Lead and

Bismuth Carbon Steel Products Originating in the United Kingdom, WT/DS138/AB/R, Report

of the Appellate Body (May 10, 2000) (UK Leaded Bar). In UK Leaded Bar, the World Trade

Organization Appellate Body upheld the Dispute Settlement Panel’s finding that, under the

specific circumstances of the case, financial contributions bestowed upon a state-owned company

between 1977 and 1986 could not be deemed to confer a benefit upon subsequent corporations

that paid FMV to the state-owned company for its “productive assets, goodwill, etc.” UK Leaded

Bar at Paragraph 68. The WTO Appellate Body, however, specifically limited its finding to the

Court No. 01-00051 Page 20

particular circumstances of UK Leaded Bar. UK Leaded Bar at Paragraphs 74, 75(b) and (c).

This Court does not therefore find it necessary to consider whether it must construe U.S.

countervailing duty law in accordance with UK Leaded Bar. This case is limited by its facts,

although this Court finds the methodology employed by Commerce to be supported by

substantial evidence on the record or otherwise in accordance with law. The Court’s holding in

this case is not at variance with UK Leaded Bar. The cases are clearly distinguishable. In both

instances the tribunals have examined unique facts presented and have based their decisions upon

those unique facts. Commerce will be obliged in the future to examine facts presented on a case-

by-case basis as it applies its methodology to its determinations.

V. Commerce properly applied the use of facts otherwise available and adverse inferences

regarding pre-privatization asset spin-offs from ILVA and post-privatization sales of

shares.

Plaintiffs argue that even if Commerce lawfully applied its Personhood Test, it unlawfully

imposed an incorrect subsidy by failing to attribute a portion of the subsidies to pre-privatization

spin-offs from ILVA and post-privatization sales of shares. Defendant asserts Commerce

properly resorted to use of facts otherwise available and adverse inferences in determining that

the pre-privatization asset spin-offs and post-privatization sales of shares had no effect upon

AST’s subsidy benefits.

Commerce may make a determination on the basis of facts available if an interested party

“withholds information that has been requested by the administering authority” or “significantly

impedes” a countervailing duty review. 19 U.S.C. § 1677e(a)(2)(A), (C). In addition,

Commerce may resort to adverse inferences if “an interested party has failed to cooperate by not

acting to the best of its ability to comply with a request for information from the administering

Court No. 01-00051 Page 21

authority.” 19 U.S.C. § 1677e(b). Because AST failed to provide requested information

regarding pre-privatization spin-offs and post-privatization sales of shares, Commerce found the

information on the record to be too incomplete to serve as a reliable basis for determining

whether the entities sold in the transactions were the same entities that benefitted from subsidies

prior to their sale. See Decision Memorandum at 7.

In Commerce’s October 16, 2000 remand supplemental questionnaire to the Government

of Italy, Commerce stated: “The purpose of this remand is to re-examine our change-in-

ownership methodology in light of, inter alia, Delverde. We therefore reiterate our request for

complete remand questionnaire responses with regard to all of the changes in ownership. If we

determine that this information is necessary to our remand determination and it is [sic] not been

provided, we may resort to facts otherwise available, including assumptions that are adverse to

the respondent’s interests.” Final Redetermination at 36, citing Government of Italy October 16,

2000 Remand Supplemental Questionnaire at 3.

AST and the Government of Italy failed to provide the requested information. Instead,

AST argued it was irrelevant to Commerce’s treatment of AST’s privatization and, together with

the Government of Italy and the European Commission, “respectfully request[ed] that the

Department explain how such information [was] pertinent to the proper scope” of the

determination. Decision Memorandum at 7, quoting AST October 19, 2000 Supplemental

Questionnaire Response at 29. In Commerce’s October 27, 2000 supplemental questionnaire,

Commerce noted the parties’ deficient responses and reiterated its request, but AST and the

Government of Italy failed to correct the deficiencies. Decision Memorandum at 7. Based upon

the parties’ affirmative refusals to provide the requested information, Commerce determined that

Court No. 01-00051 Page 22

AST and the Government of Italy had failed to cooperate. This Court finds, therefore, that

Commerce properly resorted to the use of facts otherwise available and adverse inferences.

Because the information on the record was too incomplete to serve as a reliable basis for

determining whether the entities sold in the transactions were the same entities that benefitted

from subsidies prior to the sale, Commerce properly applied the adverse inference that, once

sold, the pre-1993 asset spin-offs did not constitute the same entity as ILVA and that the subsidy

benefits therefore remained within ILVA’s divisions. Commerce also properly applied the

adverse inference that the post-privatization sales of shares did not affect the subsidy benefits to

AST.

VI. Commerce’s decision not to attribute a portion of the privatization purchase price to

the repayment of prior subsidies is supported by substantial evidence on the record or

otherwise in accordance with law.

Plaintiffs contend Commerce should have applied its pre-Delverde III approach of

attributing a portion of the privatization purchase price to the repayment of prior subsidies. This

argument was rejected by Delverde III. See Delverde III, 202 F.3d at 1367. Therefore, this

Court finds Commerce’s decision not to apply its pre-Delverde III approach of attributing a

portion of the privatization purchase price to the repayment of prior subsidies to be supported by

substantial evidence or otherwise in accordance with law.

VII. Commerce’s treatment of the 1993 spinoff of AST is supported by substantial evidence

on the record or otherwise in accordance with law.

Commerce found that as of December 31, 1993, ILVA Residua was “essentially a shell

company with liabilities far exceeding assets.” Decision Memorandum at 9. The majority of

ILVA’s debt had been placed in ILVA Residua rather than proportionately allocated to the spun-

off entities AST and ILP. Id. at 10. In such a situation, it is Commerce’s “practice to allocate

Court No. 01-00051 Page 23

otherwise untied liabilities remaining in a shell corporation to the new, viable operations that had

been removed from the predecessor company.” Decision Memorandum at 30. Commerce’s

determination that AST received a benefit through debt forgiveness at the time of the spinoff is

therefore supported by substantial evidence.

In valuing the benefit that AST received, Commerce analyzed the creditworthiness of

ILVA as a whole. See Decision Memorandum at 33. Commerce found that ILVA, of which

AST was a part, benefitted from the Government of Italy’s ultimate assumption of the losses of

the units originally comprising ILVA. Id. AST’s debt forgiveness occurred at the moment of its

incorporation; Commerce reasoned that it would be illogical to base its creditworthiness on

AST’s future prospects after the debt forgiveness had been granted because the debt forgiveness

itself would have an impact upon private, commercial lenders’ decisions of whether to lend funds

to AST. Id., citing Stainless Steel Plate in Coils, 64 Fed. Reg. at 15,524. Therefore substantial

evidence supports Commerce’s decision to focus upon ILVA’s creditworthiness and not to focus

upon AST’s creditworthiness.

Plaintiffs argue the figure arrived at for the amount of debt forgiven did not account for

cash received in sales of viable assets. However, the countervailing duty statute requires

Commerce to calculate subsidies upon the basis of the benefit to the recipient rather than upon

the cost to the government. See 19 U.S.C. § 1677(5)(E). At the time of the spinoff, AST

benefitted to the extent it did not assume a proportional share of ILVA’s liabilities. Decision

Memorandum at 31. Therefore, Commerce properly considered the benefit to AST rather than

the ultimate cost to the Government of Italy in conducting its countervailing duty calculations.

This Court finds Commerce’s calculation of the amount of debt forgiven by the Government of

Court No. 01-00051 Page 24

Italy to be supported by substantial evidence on the record or otherwise in accordance with law.

VIII. Commerce’s determinations regarding program-specific issues are supported by

substantial evidence on the record or otherwise in accordance with law.

In addition to disputing Commerce’s privatization analysis, Plaintiffs contend Commerce

erred in determining that certain subsidies were countervailable. This Court finds that

Commerce’s determinations regarding these program-specific issues, set forth below in

subsections A - D, are supported by substantial evidence on the record or otherwise in

accordance with law.

A. Commerce’s finding that the European Social Fund Objective 4 funding is a

countervailable subsidy is supported by substantial evidence on the record and

otherwise in accordance with law.3

The European Social Fund, operated by the European Commission, provided assistance to

AST during the period of review through Objective 4, which funds training for employees in

companies undergoing restructuring. Commerce determined that the training programs provided

a countervailable benefit to AST because the programs relieved it of a training obligation it

would otherwise have incurred. Commerce stated that no new information or evidence of

changed circumstances had been submitted to reconsideration of its previous finding that this

program is countervailable. Decision Memorandum at 15.

Plaintiffs contend there is no basis for Commerce’s determination that the European

Social Fund Objective 4 funding is specific and therefore countervailable. However, Commerce

found that despite its requests for information on the use of Objective 4 funds by the European

3

The Court notes that the parties have characterized the European Social Fund Objective

4 funding program as a post-privatization program. See Letter from Hogan & Hartson L.L.P. (on

behalf of all parties) to United States Court of International Trade (May 23, 2001), at 3.

Court No. 01-00051 Page 25

Community and the Government of Italy, the Government of Italy, the European Union, and AST

provided no new information or evidence of changed circumstances in this review to warrant

reconsideration of Commerce’s finding in this case. Decision Memorandum at 34. They did not

demonstrate any efforts to obtain the information or offer any alternatives. Id. Therefore,

Commerce’s use of an adverse inference to find de facto specificity with respect to this program

is supported by substantial evidence on the record or otherwise in accordance with law.

B. Commerce’s determination that the European Coal and Steel Community is an

authority that has provided a financial contribution pursuant to 19 U.S.C. §

1677(5)(B) is supported by substantial evidence on the record or otherwise in

accordance with law.4

Under Article 54 of the 1951 European Coal and Steel Community Treaty, eligible

companies can receive loans for up to 50 percent of the cost of an industrial investment project.

The companies apply directly to the European Commission, which administers the European

Coal and Steel Community. Once loan approval has been granted, the European Coal and Steel

Community borrows funds at commercial rates which it then lends to steel companies at a

slightly higher rate to cover administrative costs. Commerce has previously found Article 54

loans to be specific countervailable subsidies, and it stated that no new information or evidence

of changed circumstances had been submitted in this proceeding to warrant reconsideration of its

finding. Decision Memorandum at 14.

During the period of review, AST had one such outstanding loan, contracted in 1978. In

1987, the interest rate on this loan was reduced even though ILVA was not creditworthy.

4

The Court notes that the parties have characterized the European Coal and Steel

Community Article 54 loan program as a post-privatization program. See Letter from Hogan &

Hartson L.L.P. (on behalf of all parties) to United States Court of International Trade (May 23,

2001), at 3.

Court No. 01-00051 Page 26

Therefore, Commerce treated the loan as if it were contracted in 1987 and calculated the benefit

AST received by comparing the interest amount it should have paid at the benchmark interest

rate for uncreditworthy companies to the amount AST actually paid during the period of review.

Id. at 15.

Plaintiffs argue that because the European Coal and Steel Community does not convey

government funds to borrowers, the loans do not constitute a financial contribution provided by a

public entity as required by 19 U.S.C. § 1677(5)(B). In response, Commerce has stated that “we

see no requirement in the [Subsidies and Countervailing Measures] Agreement nor the Act that

the financial contribution must be funded in a particular manner.” Id. at 35. Plaintiffs have not

directed this Court’s attention to any statutory requirement that a financial contribution involve

the expenditure of public funds.

Commerce has stated that the European Coal and Steel Community “is part of the

European Union, which undeniably is a particular form of governmental body.” Stainless Steel

Plate in Coils, 64 Fed. Reg. at 15,529. Commerce, citing 19 U.S.C. § 1677(5)(D)(i), has also

stated that “a financial contribution includes the direct transfer of funds, such as the provision of

loans.” Decision Memorandum at 35. This Court therefore finds Commerce’s determination that

the European Coal and Steel Community is an authority that has provided a financial

contribution pursuant to 19 U.S.C. § 1677(5)(B) is supported by substantial evidence on the

record or otherwise in accordance with law.

Court No. 01-00051 Page 27

C. Commerce’s determination that Law 451/94 retirement benefits to retirees are

countervailable is supported by substantial evidence on the record or otherwise

in accordance with law.5

When AST and ILP were spun off in preparation for their privatization, much of ILVA’s

redundant workforce was placed in ILVA Residua. Decision Memorandum at 2. Under Law

451/94, qualified steel workers applying for benefits in 1994, 1995, and 1996 could receive early

retirement packages.

Commerce had previously found this program to be specific and stated that at the time of

negotiating the terms of the lay-offs, ILVA, the labor ministry, and the unions knew the

government would ultimately make contributions to worker benefits. See Decision

Memorandum at 12. In keeping with past practice, therefore, Commerce treated half of the

amount paid by the government as a financial contribution benefitting ILVA. Id. Plaintiffs claim

Law 451/94 retirement benefits to retirees are not countervailable because AST had no de jure or

de facto obligation to retain the workers who chose to retire early. In its Decision Memorandum,

Commerce cites to its past finding of countervailability of Law 451/94 retirement benefits. See

Decision Memorandum at 12, citing Stainless Steel Plate in Coils, 64 Fed. Reg. at 15,514.

There, Commerce recognized that the entities spun-off from ILVA would be required to enter

into negotiations with the unions before laying off workers. See Stainless Steel Plate in Coils, 64

Fed. Reg. at 15,514-15. It also pointed to statements by Government of Italy officials at

verification indicating labor unrest, strikes, and lawsuits would result from failure to negotiate a

separation package. Id. Plaintiffs provided no new information or evidence of changed

5

The Court notes that the parties have characterized the Law 451/94 retirement benefits

program as a post-privatization program. See Letter from Hogan & Hartson L.L.P. (on behalf of

all parties) to United States Court of International Trade (May 23, 2001), at 3.

Court No. 01-00051 Page 28

circumstances to Commerce to warrant a reconsideration of its finding that AST was relieved of

having to assume a respective portion of the redundant workers placed in ILVA. Decision

Memorandum at 12. Therefore, Commerce’s determination that Law 451/94 retirement benefits

to retirees are countervailable is supported by substantial evidence on the record or otherwise in

accordance with law.

D. Commerce’s determination that the 1988 Finsider payment to ILVA is

countervailable is supported by substantial evidence on the record or otherwise

in accordance with law.

Plaintiffs argue that Finsider’s payment to ILVA in September of 1988 was not

countervailable because it was not tied to subject merchandise. Commerce, however, considers

equity infusions as untied subsidies benefitting the recipient company’s total consolidated sales.

See Countervailing Duties, Final Rule, 63 Fed. Reg. 65,348, 65,400 (Nov. 25, 1998). Plaintiffs

have not demonstrated that the benefits of the equity infusion were tied to non-steel activities.

See Decision Memorandum at 37, citing Stainless Steel Plate in Coils, 64 Fed. Reg. at 15,527.

This Court therefore finds Commerce’s determination that the 1988 Finsider payment to ILVA is

countervailable is supported by substantial evidence on the record or otherwise in accordance

with law.

Court No. 01-00051 Page 29

CONCLUSION

Upon consideration of Plaintiffs’ motion for judgment upon the agency record under Rule

56.2, Defendant’s and Defendant-Intervenors’ memoranda in opposition thereto, and other

pertinent papers, Plaintiffs’ motion is denied. The Department of Commerce’s determination in

Final Results is remanded to Commerce to explain whether it has determined that KAI, in a

capacity as a separate purchaser, became legally responsible for all of AST’s assets and liabilities

or explain if Post-Sale AST continued to have responsibility for all of Pre-Sale AST’s assets and

liabilities.

If Commerce has determined that KAI became legally responsible for all of AST’s assets

and liabilities, Commerce is directed to explain whether substantial evidence on the record

supports its conclusion that continuity of assets and liabilities remained between Pre- and Post-

Sale AST. If Commerce determines that substantial evidence does not support the conclusion

that continuity of assets and liabilities remained between Pre- and Post-Sale AST, Commerce is

directed to explain whether substantial evidence on the record supports its determination that

Pre- and Post-Sale AST are the same entity.

If Commerce determines that substantial evidence on the record does not support its

determination that Pre- and Post-Sale AST are the same entity, Commerce is directed to explain

whether Post-Sale AST received benefits from the countervailable subsidies made to Pre-Sale

AST. If Commerce determines that Post-Sale AST did not receive benefits from the

countervailable subsidies made to Pre-Sale AST, Commerce is directed to explain which of the

eight subsidy programs listed in this opinion are not countervailable against Post-Sale AST and

why they are not countervailable against Post-Sale AST.

Court No. 01-00051 Page 30

Commerce is directed to file its redetermination with the Clerk of this Court no later than

the close of business on Monday, June 24, 2002; any responses by Plaintiffs must be filed with

the Clerk of this Court no later than the close of business on Monday, July 1, 2002; any rebuttal

comments by Defendant and Defendant-Intervenors must be filed with the Clerk of this Court no

later than the close of business on Monday, July 8, 2002.

______________________________

Gregory W. Carman

Chief Judge

Dated: June 4, 2002

New York, New York