Carbon Steel Wire Rod From Saudi Arabia; Final Results of Countervailing Duty Administrative Review and Revocation of Countervailing Duty Order

DEPARTMENT OF COMMERCE

International Trade Administration

[C-517-501]

Carbon Steel Wire Rod From Saudi Arabia; Final Results of

Countervailing Duty Administrative Review and Revocation of

Countervailing Duty Order

AGENCY: International Trade Administration/Import Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review and revocation of countervailing duty order.

-----------------------------------------------------------------------

SUMMARY: The Department of Commerce (the Department) has completed an

administrative review of the countervailing duty order on carbon steel

wire rod from Saudi Arabia. We determine the total bounty or grant to

be 0.18 percent ad valorem for the period January 1, 1991 through

December 31, 1991. In accordance with 19 CFR 355.7, any rate less than

0.50 percent ad valorem is de minimis. In addition, because the

requirements for revocation of the order have been met by the

Government of the Kingdom of Saudi Arabia and the sole producer of the

subject merchandise pursuant to 19 CFR 355.25(a)(2) and 355.25(b)(2),

the Department is revoking the countervailing duty order.

EFFECTIVE DATE: November 15, 1994.

FOR FURTHER INFORMATION CONTACT: Joe Kaesshaefer or Kelly Parkhill,

Office of Countervailing Compliance, International Trade

Administration, U.S. Department of Commerce, Washington, DC 20230;

telephone: (202) 482-2786.

SUPPLEMENTARY INFORMATION:

Background

On November 2, 1993, the Department published in the Federal

Register the preliminary results of its administrative review and

intent to revoke countervailing duty order on carbon steel wire rod

from Saudi Arabia (58 FR 58537). The Department has now completed this

administrative review in accordance with section 751 of the Tariff Act

of 1930, as amended (the Tariff Act).

Scope of Review

Imports covered by this review are shipments of Saudi carbon steel

wire rod. Carbon steel wire rod is a coiled, semi-finished, hot-rolled

carbon steel product of approximately round solid cross section, not

under 0.20 inch nor over 0.74 inch in diameter, tempered or not

tempered, treated or not treated, not manufactured or partly

manufactured, and valued over or under 4 cents per pound. Such

merchandise is classifiable under item numbers 7213.20.00, 7213.31.30,

7213.31.60, 7213.39.00, 7213.41.30, 7213.41.60, 7213.49.00 and

7213.50.00 of the Harmonized Tariff Schedule (HTS). The HTS item

numbers are provided for convenience and Customs purposes. The written

description remains dispositive.

The review period is January 1, 1991 through December 31, 1991.

This review involves one company, the Saudi Iron and Steel Company

(HADEED), and three programs: (1) Public Investment Fund (PIF) loan to

HADEED, (2) Saudi Basic Industries Corporation's (SABIC) transfer of

Steel Rolling Company (SULB) shares to HADEED, and (3) preferential

provision of equipment to HADEED. HADEED is the sole producer/exporter

of carbon steel wire rod in Saudi Arabia.

The Department's determination to revoke the countervailing duty

order is based on the following. First, in accordance with the

requirements of section 355.25(b)(2), the Government of the Kingdom of

Saudi Arabia has requested that the Department revoke the

countervailing duty order on carbon steel wire rod from Saudi Arabia.

Second, in accordance with the requirements of sections 355.25(b)(2)

and 355.22(a)(2), certifications executed by officials of HADEED and

the Government of the Kingdom of Saudi Arabia attest to the fact that

the producer/exporter has not received any net subsidy during the

January 1 through December 31, 1991 period of review. Third, in

accordance with the requirements of section 355.25(a)(2)(i) of the

Department's regulations, the Department has found the absence of net

subsidies based on administrative reviews conducted for each of the

past five consecutive years. Fourth, in accordance with the

requirements of section 355.25(b)(2), HADEED has certified that it will

neither apply for nor receive any net subsidy in the future.

Accordingly, the Department has found that the producer/exporter

covered by the order is not likely to apply for or receive any net

subsidy in the future from any program found countervailable or from

any other countervailable programs.

Analysis of Comments Received

We gave interested parties an opportunity to comment on the

preliminary results. We received comments from the respondent, HADEED,

and the petitioners.

Comment 1: HADEED argues that recent developments in Commerce

practice warrant a reexamination of PIF linkage to the Saudi Industrial

Development Fund (SIDF). HADEED cites to a memorandum examining the

possibility of integral linkage of programs in the sixth administrative

review on Live Swine from Canada as the basis for its claim that the

Department has changed its practice with respect to integral linkage.

(See, Memorandum from CVD Team to Joseph A. Spetrini, Acting Assistant

Secretary for Import Administration (October 13, 1993), which is on

file in the Central Records Unit (Room B099 of the Main Commerce

Building) (Integral Linkage Memorandum).) As cited by HADEED,

The Department acknowledges that: ``if the multiple programs are

created at separate points in time, the Department has not required

that * * * an express statement that the programs are complementary

parts of an overarching governmental policy be made when the first

program is enacted.'' The Department stated further that it seeks

information showing ``an express intention to create multiple

programs, whether at the same time or separately,'' which are

designed to be ``complementary parts of an overarching governmental

policy directive.'' (Integral Linkage Memorandum at 4 as cited, with

emphasis added, by HADEED. Respondent's case brief at 3.)

HADEED concludes from this that the Integral Linkage Memorandum now

recognizes that: (1) linked programs need only be complementary, not

identical; (2) linked programs can be created at separate points in

time; and (3) explicit documentation of linkage is not required at the

time of the enactment of the first program. According to HADEED, this

recent development has eliminated two of the Department's three

previous barriers to finding that PIF and SIDF are integrally linked

and requires a reexamination of the record evidence on linkage as it

pertains to the inception of SIDF.

HADEED argues that the PIF loan program and the SIDF loan program

are ``integrally linked'' as defined in section 355.43(b)(6) of the

Department's proposed regulations; see Countervailing Duties; Notice of

Proposed Rulemaking and Request for Public Comments, 54 FR 23366 (May

31, 1989). Since PIF and the SIDF are integrally linked, they should be

considered together in determining whether loans provided by these two

entities are limited to a specific enterprise or industry, or group of

enterprises or industries. SIDF and PIF qualify for linkage under each

factor identified in the Department's proposed regulations. These

factors are (1) the administration of the programs, (2) evidence of a

government policy to treat industries equally, (3) the purposes of the

programs as stated in their enabling legislation, (4) the manner of

funding the programs, and (5) ``other factors.''

HADEED argues that the information on the record shows a Saudi

government policy to treat industries equally. PIF and SIDF provide

identical benefits--low-cost, long-term construction loans--on

identical terms to a wide variety of industries. PIF and SIDF are two

of five Specialized Credit Institutions that the Saudi government

created to develop and diversify the Saudi economy. The PIF and SIDF

share a common purpose as the only sources of low-cost financing for

the industrial and manufacturing sector. PIF loans are available to

companies with some government equity, and are suited for the types of

large projects that the Saudi government would be most likely to

undertake. SIDF loans, on the other hand, are available to companies

with some private Saudi ownership and are best suited for small and

medium-sized projects. Between them, the two programs address the

borrowing needs of the entire range of Saudi industries.

PIF and SIDF share a common purpose, based on statements in each

entity's enabling legislation. PIF was created ``to finance investment

in the productive projects of a commercial nature.'' Similarly, SIDF

was created ``to support industrial development in the private sector

of the Kingdom's economy.'' Both programs are aimed at financing

development in the Saudi industrial and manufacturing sector.

PIF and SIDF are administered in a comparable manner through SAMA

(the Saudi Central Bank) and the Ministry of Finance and National

Economy. Both PIF and SIDF are administered by boards of directors with

a common chairman, the Minister of Finance and National Economy, with

the remaining members drawn from SAMA and other Saudi government

agencies.

PIF and SIDF were originally funded through the Ministry of Finance

and National Economy. Currently, both programs are self-sufficient.

SAMA produces a consolidated balance sheet showing assets and

liabilities of PIF and SIDF jointly. All information regarding budget

allocations, disbursements and repayments of PIF and SIDF are published

as consolidated statements.

According to HADEED, other factors integrally linking PIF and SIDF

include the fact that there are no de jure limitations on the types of

industries eligible to receive loans under either fund. The lending

practices and histories of both funds are similar. The maximum loan

amount is SR 500 million for PIF and SR 400 million for SIDF. The

maximum loan period for both PIF and SIDF is 15 years. The PIF requires

Saudi government equity participation in a project in order to obtain

funds. Similarly, SIDF requires at least 25 percent equity contribution

from private Saudi sources in order to obtain funds.

Thus, in light of the factors described above, HADEED argues that

the Department has a compelling case for finding integral linkage

between PIF and SIDF. The programs are part of the same overall

government lending policy, they are intended to be complementary and to

achieve the same purpose, they are administered and funded through the

same governmental agency, and they provide similar benefits to the same

sector of the Saudi economy. Based on a finding of integral linkage,

the Department should consider PIF and SIDF programs together and find

that they are not specifically provided and therefore not

countervailable.

The petitioner argues that the Department has rejected respondent's

argument regarding integral linkage in the previous three reviews (see

Final Results of Countervailing Duty Administrative Review; Carbon

Steel Wire Rod from Saudi Arabia, 56 FR 26652, June 10, 1991; and,

Final Results of Countervailing Duty Administrative Reviews; Carbon

Steel Wire Rod from Saudi Arabia, 56 FR 48158, September 24, 1991). The

unique aspects of the PIF program cannot be hidden by lumping it

together with other Saudi government financing programs such as SIDF,

which were established for other reasons. Nothing the Saudi government

does in providing other loans through separate programs detracts from

PIF's specificity.

Department's Position: HADEED's arguments regarding integral

linkage have been addressed and rejected in three previous reviews (see

Final Results of Countervailing Duty Administrative Review; Carbon

Steel Wire Rod from Saudi Arabia, 56 FR 26652, June 10, 1991; and,

Final Results of Countervailing Duty Administrative Reviews; Carbon

Steel Wire Rod from Saudi Arabia, 56 FR 48158, September 24, 1991).

Further, a full reading of the Integral Linkage Memorandum and the

Department's previous decisions on integral linkage in this case

clearly indicates that: (1) the Department's practice with respect to

integral linkage has not changed; and (2) a re-examination of the

Department's decision with respect to PIF's linkage to SIDF is not

warranted.

Contrary to HADEED's assertion, the fact that linked programs need

only be complementary is not a recent change in Departmental practice.

The Department has never based its PIF linkage decision on the fact

that PIF and SIDF are not identical. As stated in the 1988, 1989 and

1990 administrative reviews, ``Documented information on the inception

of the programs that explicitly ties PIF and SIDF as complementary

parts of an overarching governmental policy directive has not been

presented by the respondent [despite the Department's repeated

requests.''] (Bracketed portion from the 1990 administrative review

only.) Final Results of Countervailing Duty Administrative Reviews;

Carbon Steel Wire Rod from Saudi Arabia, 56 FR 48160, September 24,

1991 and Final Results of Countervailing Duty Administrative Reviews;

Carbon Steel Wire Rod from Saudi Arabia, 57 FR 8304, March 9, 1992.

Furthermore, HADEED completely misrepresents the Department when it

states that the Department previously ``recognized'' that PIF and SIDF

are complementary.1

---------------------------------------------------------------------------

1The sentence from which HADEED draws its conclusion that the

Department has already determined that PIF and SIDF are

complementary reads as follows, ``It may be that, in principle and

practice, the respective roles of PIF and SIDF have evolved to

complement and overlap each other.'' Final Results of Countervailing

Duty Administrative Reviews; Carbon Steel Wire Rod from Saudi

Arabia, 56 FR 48160, September 24, 1991 (emphasis added). This

sentence is at the beginning of the paragraph that concludes that

respondents have failed to provide the necessary factual information

that PIF and SIDF were ``complementary parts of an overarching

policy directive.'' Id.

---------------------------------------------------------------------------

It is also clear that the Integral Linkage Memorandum did not

change the Department's practice with respect to a supposed timing

requirement for the creation of linked programs. The Department never

based its PIF linkage decision on the fact that PIF and SIDF were not

created simultaneously. Rather, ``the fact that these programs were

founded separately, three years apart, suggests (without other

documented information) that the programs were not conceived as parts

of a single program.'' Final Results of Countervailing Duty

Administrative Reviews; Carbon Steel Wire Rod from Saudi Arabia, 56 FR

48160, September 24, 1991 (emphasis added). That the Integral Linkage

Memorandum follows the same standard can be clearly discerned from the

following discussion preceding the Department's determination that the

Tripartite Program is not integrally linked to the other three

programs:

Therefore, as we explained in Carbon Steel Wire Rod (57 FR at

8304), in order to prevail on a claim of integral linkage, the

claimant should be able to point to a clear undisputed statement in

the enabling legislation or some other authoritative source

indicating an express intention to create multiple programs, whether

at the same time or separately, which are designed to be

``complementary parts of an overarching governmental policy

directive.'' * * * For instance, it is easy to state that the

purpose of two separate programs is the same. * * * However, absent

an objective indication by the government of why it created two (or

more) programs instead of one, it is very difficult if not

impossible to conclude that the government actually intended to have

the programs complement one another. Similarly, if the government's

policy is truly to treat the industries covered by the various

programs equally, it is reasonable to expect the government to have

made this intention clear. Integral Linkage Memorandum at 4

(emphasis added).

Finally, with respect to HADEED's claim that the Department has

changed its practice and no longer requires explicit documentation

demonstrating linkage at the inception of the first program, an

examination of the cited passage clearly shows that the passage is

describing a long-standing Departmental practice rather than a recent

change in practice.\2\ The Department has not based its previous PIF

linkage determinations solely on the lack of documentation linking PIF

and SIDF at the inception of PIF. Rather, HADEED has consistently

failed to present documented information at the inception of either PIF

or SIDF that explicitly ties the two programs as complementary parts of

an overarching governmental policy directive. It is the lack of the

type of documentation indicated in the above passage from the Integral

Linkage Memorandum (i.e., ``a clear undisputed statement in the

enabling legislation or some other authoritative source indicating an

express intention to create multiple programs. * * *''), that has led

the Department to consistently find that PIF and SIDF are not

integrally linked.

---------------------------------------------------------------------------

\2\If the multiple programs are created at separate points in

time, the Department has not required that such an express statement

be made when the first program is enacted.

---------------------------------------------------------------------------

Finally, it is the Department's practice as set forth in section

355.43(b)(6) of the Department's proposed regulations to consider,

among other factors, the following in determining whether two programs

are integrally linked: ``the administration of the programs, evidence

of a government policy to treat industries equally, the purposes of the

programs as stated in their enabling legislation, and the manner of

funding the programs.'' The Department has interpreted the second

factor in a strict manner, so as to conform our interpretation of

``integral linkage'' to the purpose of the specificity test as a whole.

The specificity test was designed to avoid carrying the countervailing

duty law to absurd results by countervailing public highways and

bridges, i.e., programs, which clearly benefit the economy at large, as

opposed to identifiable and specific segments of the economy. See,

e.g., Carlisle Tire and Rubber Co., v. United States, 564 F. Supp. 834,

838 (Court of International Trade, 1983). ``Integral linkage'' should

not be interpreted to create a loophole which would allow de facto

specific subsidy programs benefitting only particular segments of the

economy to escape the imposition of countervailing duties.

Permitting respondent governments to loosely connect two or more

programs which were otherwise designed to serve different purposes

would create the type of loophole the Department seeks to avoid. See

Final Results of Countervailing Duty Administrative Review; Live Swine

from Canada, 59 FR 12246 (March 16, 1994). Moreover, the creation of

such a loophole would be contrary to the intent of Congress. S. Rep.

No. 71, 100th Congress, First Session 123 (June 12, 1987). Congress

stated that the Department should avoid taking an ``overly narrow'' or

``overly restrictive'' view of its authority to determine specificity.

Thus, the Department has required documented information from the

inception of one or the other of the programs that explicitly ties PIF

and SIDF as complementary parts of an overarching governmental policy

directive. See Carbon Steel Wire Rod from Saudi Arabia; Final Results

of Countervailing Duty Administrative Review, 57 FR 8304 (March 9,

1992). Information of this nature has not been provided by respondent;

therefore there is no information on the record that would tie SIDF and

PIF at the inception of one or the other. We have thus considered each

program separately.

Comment 2: The respondent contends that it is unreasonable for the

Department to demand any more factual proof of integral linkage than

that which HADEED has provided. All known existing evidence has been

presented. For reasons relating primarily to the nature of record-

keeping during the early stages of Saudi Arabia's industrialization

process, better evidence appears not to exist. The Department is not

justified in treating evidence of linkage at inception as a criterion

for finding integral linkage. Such a criterion is not even explicitly

listed in the Department's proposed regulation. Furthermore, the

Department's insistence on proof of such additional factors violates

prescribed rules of procedure by using factors purporting to be

guidance as a final rule determining substantive rights. The Court of

International Trade has held that the Department must follow the

minimal ``notice and comment'' procedures embodied in the

Administrative Procedures Act (APA) before promulgating final rules.

Ipsco, Inc. v. United States, 687 F. Supp. 614, (Court of International

Trade, 1988).

Department's Position: With regard to the question of ``integral

linkage,'' the Department has consistently focused its attention on the

relationship between the programs in question and ``an overall

government policy or national development plan.'' See Final Results of

Countervailing Duty Administrative Reviews; Carbon Steel Wire Rod from

Saudi Arabia, 56 FR 48158, September 24, 1991. This interpretation was

clearly stated in the Final Affirmative Countervailing Duty

Determination; Certain Fresh Cut Flowers from the Netherlands (52 FR

3301, February 3, 1987) wherein the Department would not find integral

linkage because ``the government was unable to document the inclusion

of [the programs] as part of an overall national energy program * * *''

Id. at 3309.

In requiring that this relationship be explicit at the inception of

one or the other of the programs, the Department violates no statutory

or regulatory provision. Even if one turns to the Department's proposed

regulations, the decision herein is fully supported. Section

355.43(b)(6) of the proposed regulations tells us that when deciding an

integral linkage question the Secretary will examine ``evidence of a

government policy to treat industries equally.'' This broad instruction

is included on a list that explicitly advises parties that the

Department will consider the factors on the list together with ``other

factors.'' Thus, it is within the Department's discretion to elaborate

on each factor listed in the proposed regulation. This is precisely

what the Department has done with the second factor listed in the

proposed regulation.

Comment 3: HADEED argues that, contrary to the Department's

preliminary results, PIF loans are not limited to a specific group of

enterprises, and therefore, they are not countervailable. HADEED

contends that the Department's preliminary determination that the Saudi

government, through PIF, provides loans to ``a specific enterprise or

industry or group of enterprises or industries'' within the meaning of

19 U.S.C. 1677(5)(B), is incorrect. The basis for the Department's

determination is the erroneous assumption that only six companies have

effectively benefited from the program. In reality, 24 companies in a

wide variety of industries have received PIF financing. The 18

companies that are at least 50 percent-owned by either SABIC or

Petromin (government-owned corporations) should be treated as separate

entities. The Department has, in effect, found that there is an

intercorporate transfer of benefits based solely on corporate

relationships with SABIC or Petromin. Such an application of the

specificity test based on a commonality of shareholders is without

precedent and contravenes the Department's established policy not to

assume automatic transfer of benefits based on related party status.

Respondents cite the following cases in defense of their argument:

Industrial Phosphoric Acid from Israel, 52 FR 25447 (July 7, 1987);

Operators for Jalousie and Awning Windows from El Salvador, 51 FR 41516

(November 17, 1986); Low-Fuming Brazing Copper Rod and Wire from New

Zealand, 50 FR 31638 (August 5, 1985); and Carbon Steel Structural

Shapes from Luxembourg, 47 FR 39364 (September 7, 1982).

The petitioner contends that PIF provides benefits almost

exclusively to the projects undertaken by a few companies with

controlling government ownership and therefore constitute a specific

group of enterprises in Saudi Arabia.

Department's Position: We disagree with respondent. We have

considered and rejected respondent's argument in the original

investigation, and in the subsequent three reviews (see Final

Affirmative Countervailing Duty Determination and Countervailing Duty

Order; Carbon Steel Wire Rod from Saudi Arabia, 51 FR 4206, February 3,

1986; Final Results of Countervailing Duty Administrative Review;

Carbon Steel Wire Rod from Saudi Arabia, 56 FR 26652, June 10, 1991;

and, Final Results of Countervailing Duty Administrative Reviews;

Carbon Steel Wire Rod from Saudi Arabia, 56 FR 48158, September 24,

1991, respectively). We determined that the loan in question was part

of a de facto specific program, and respondent has presented no new

evidence that would disturb this conclusion (other than that pertaining

to ``integral linkage'').

We based this determination on the fact that there were three

holding companies, SABIC, Petromin, and Saudia Airlines, which had 50

percent or more ownership in virtually all of the PIF loan recipients.

The Court of International Trade examined this analysis as it pertained

to the original investigation of the subject merchandise, and held that

the Department ``reasonably applied the specificity test,'' and that

the determination was in accordance with law. See Saudi Iron and Steel

Co. v. United States, 675 F. Supp. 1362 (Court of International Trade

1987).

Comment 4: Petitioners contend that the Department's use of a

composite benchmark incorporating a short-term interest rate is

incorrect. In calculating the benchmark, the Department relied on the

erroneous assumption that HADEED could have obtained the SIDF's maximum

loan limit of fifty percent of the project's total cost. In fact, the

maximum amount HADEED could have obtained from SIDF was SR 400 million,

significantly less than fifty percent of the project's total cost.

Department's Position: We disagree. We have considered and rejected

this argument in a previous review. The Department has previously found

that the SIDF, in fact, often loaned combined amounts greater than the

``cap'' to a single company. We concluded that it was reasonable to

include more than SR 400 million in the benchmark. See Final Results of

Countervailing Duty Administrative Review; Carbon Steel Wire Rod from

Saudi Arabia, 56 FR 26652 (June 10, 1991). Our methodology remains

unchanged from the original investigation. Since the PIF loan covered

60 percent of HADEED's total project costs, for our benchmark we

assumed that HADEED could have financed 50 percent of its total project

costs with a SIDF loan (the maximum eligibility for a company with at

least 50 percent Saudi ownership) and the remaining 10 percent of

project costs with a Saudi commercial bank loan. The commercial bank

portion of the benchmark was based on the average Saudi Interbank

Offering Rate (SIBOR) for 1990, plus the normal one percent spread that

is common for commercial borrowing from private Saudi banks.

Final Results of Review

After reviewing all of the comments received, we determine the

total bounty or grant to be 0.18 percent ad valorem for the period

January 1, 1991 through December 31, 1991. In accordance with 19 CFR

355.7, any rate less than 0.50 percent ad valorem is de minimis.

Therefore, the Department will instruct the Customs Service to

liquidate, without regard to countervailing duties, all shipments of

this merchandise exported on or after January 1, 1991 and exported on

or before December 31, 1991; in addition, the Department will instruct

the Customs Service to refund with interest any deposits of estimated

duties on such entries.

We have determined that the Government of the Kingdom of Saudi

Arabia has met the requirements for revocation of the countervailing

duty order pursuant to 19 CFR 355.25(a)(2) and 19 CFR 355.25(b)(2).

Based upon certifications by HADEED and the Government of the Kingdom

of Saudi Arabia, as well as the Department's administrative

determinations, we have determined that HADEED, the only producer of

the subject merchandise, has not applied for or received any net

subsidy for five consecutive years. In addition, HADEED has certified

that it will not apply for or receive any net subsidy under a program

deemed by the Department to be countervailable. We therefore determine

that there is no likelihood that this company will apply for or receive

any net subsidy in the future. Accordingly, we are revoking the

countervailing duty order. The Department will instruct the Customs

Service to terminate suspension of liquidation on entries of the

subject merchandise and to liquidate, without regard to countervailing

duties, such merchandise exported on or after January 1, 1992, the

first day after the period reviewed herein. We will also instruct the

Customs Service to refund any deposits of estimated duties on such

entries.

Administrative Protective Order (APO)

This notice serves as the only reminder to parties subject to APO

of their responsibilities concerning the return or destruction of

proprietary information disclosed under APO in accordance with 19 CFR

353.34(d). Failure to comply is a violation of the APO.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)), and 19 CFR 355.22

and 19 CFR 355.25.

Dated: October 27, 1994.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 94-28184 Filed 11-14-94; 8:45 am]

BILLING CODE 3510-DS-P