Final Affirmative Countervailing Duty Determination: Certain Oil Country Tubular Goods (``OCTG'') From Austria

[Federal Register Volume 60, Number 124 (Wednesday, June 28, 1995)]

[Notices]

[Pages 33534-33539]

From the Federal Register Online via the Government Publishing Office [www.gpo.gov]

[FR Doc No: 95-15762]

[[Page 33533]]

_______________________________________________________________________

Part IV

Department of Commerce

_______________________________________________________________________

International Trade Administration

_______________________________________________________________________

Countervailing and Antidumping Notices; Oil Country Tubular Goods;

Notices

Federal Register / Vol. 60, No. 124 / Wednesday, June 28, 1995 /

Notices

[[Page 33534]]

DEPARTMENT OF COMMERCE

International Trade Administration

[C-433-806]

Final Affirmative Countervailing Duty Determination: Certain Oil

Country Tubular Goods (``OCTG'') From Austria

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: June 28, 1995.

FOR FURTHER INFORMATION CONTACT: Jennifer Yeske or Daniel Lessard,

Office of Countervailing Investigations, Import Administration, U.S.

Department of Commerce, Room 3099, 14th Street and Constitution Avenue,

NW., Washington, DC 20230; telephone (202) 482-0189 or 482-1778,

respectively.

Final Determination

The Department of Commerce (``the Department'') determines that

benefits which constitute subsidies within the meaning of section 701

of the Tariff Act of 1930, as amended (``the Act''), are being provided

to manufacturers, producers, or exporters in Austria of certain oil

country tubular goods (``OCTG''). For information on the estimated net

subsidy, please see the Suspension of Liquidation section of this

notice.

Case History

Since the publication of the notice of the preliminary

determination in the Federal Register (60 FR 4600, January 24, 1995),

the following events have occurred. On February 2, 1995, pursuant to a

request by Voest-Alpine Stahlrohr Kindberg (``Kindberg''), the

Department postponed the final determination in the companion

antidumping investigation (60 FR 6512) until not later than June 19,

1995. Because this investigation is aligned with the companion

antidumping investigation, we notified parties that the final

determination in this investigation would also be made no later than

June 19, 1995.

We conducted verification of the responses submitted by the

Government of Austria (``GOA'') and Voest-Alpine Stahlrohr Kindberg

(``Kindberg'') from February 27 through March 8, 1994. Both respondents

and petitioners submitted case and rebuttal briefs on May 23 and May

30, 1995, respectively. A hearing was not requested.

Scope of the Investigation

For purposes of this investigation, OCTG are hollow steel products

of circular cross-section, including oil well casing, tubing, and drill

pipe, of iron (other than cast iron) or steel (both carbon and alloy),

whether seamless or welded, whether or not conforming to American

Petroleum Institute (API) or non-API specifications, whether finished

or unfinished (including green tubes and limited service OCTG

products). This scope does not cover casing, tubing, or drill pipe

containing 10.5 percent or more of chromium. The OCTG subject to this

investigation are currently classified in the Harmonized Tariff

Schedule of the United States (HTSUS) under item numbers:

7304.20.10.10, 7304.20.10.20, 7304.20.10.30, 7304.20.10.40,

7304.20.10.50, 7304.20.10.60, 7304.20.10.80, 7304.20.20.10,

7304.20.20.20, 7304.20.20.30, 7304.20.20.40, 7304.20.20.50,

7304.20.20.60, 7304.20.20.80, 7304.20.30.10, 7304.20.30.20,

7304.20.30.30, 7304.20.30.40, 7304.20.30.50, 7304.20.30.60,

7304.20.30.80, 7304.20.40.10, 7304.20.40.20, 7304.20.40.30,

7304.20.40.40, 7304.20.40.50, 7304.20.40.60, 7304.20.40.80,

7304.20.50.15, 7304.20.50.30, 7304.20.50.45, 7304.20.50.60,

7304.20.50.75, 7304.20.60.15, 7304.20.60.30, 7304.20.60.45,

7304.20.60.60, 7304.20.60.75, 7304.20.70.00, 7304.20.80.30,

7304.20.80.45, 7304.20.80.60, 7305.20.20.00, 7305.20.40.00,

7305.20.60.00, 7305.20.80.00, 7306.20.10.30, 7306.20.10.90,

7306.20.20.00, 7306.20.30.00, 7306.20.40.00, 7306.20.60.10,

7306.20.60.50, 7306.20.80.10, and 7306.20.80.50.

After the publication of the preliminary determination, we found

that HTSUS item numbers 7304.20.10.00, 7304.20.20.00, 7304.20.30.00,

7304.20.40.00, 7304.20.50.10, 7304.20.50.50, 7304.20.60.10,

7304.20.60.50, and 7304.20.80.00 were no longer valid HTSUS item

numbers. Accordingly, these numbers have been deleted from the scope

definition.

Although the HTSUS subheadings are provided for convenience and

customs purposes, our written description of the scope of this

investigation is dispositive.

Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute and to the

Department's regulations are references to the provisions as they

existed on December 31, 1994. References to the Countervailing Duties:

Notice of Proposed Rulemaking and Request for Public Comments, 54 FR

23366 (May 31, 1989) (``Proposed Regulations''), which has been

withdrawn, are provided solely for further explanation of the

Department's CVD practice.

Injury Test

Because Austria is a ``country under the Agreement'' within the

meaning of section 701(b) of the Act, the U.S. International Trade

Commission (``ITC'') must determine whether imports of OCTG from

Austria materially injure, or threaten material injury to, a U.S.

industry. On August 24, 1994, the ITC published its preliminarily

determination that there is a reasonable indication that an industry in

the United States is being materially injured or threatened with

material injury by reasons of imports from Austria of the subject

merchandise (59 FR 43591, August 24, 1994).

Corporate History of Respondent Kindberg

Prior to 1987, the subject merchandise was produced in the steel

division of Voest-Alpine AG (``VAAG''), a large conglomerate which also

had engineering and finished products divisions. In 1987, VAAG

underwent a major restructuring and several new companies were formed

from the three major divisions of VAAG. The steel division was

incorporated as Voest-Alpine Stahl GmbH, Linz (``VA Linz''). Among VA

Linz's separately incorporated subsidiaries were Kindberg and Voest-

Alpine Stahl Donawitz GmbH (``Donawitz''). VAAG became a holding

company for VA Linz and its other former divisions.

In 1988, VAAG transferred its ownership interest in VA Linz to

Voest-Alpine Stahl AG (``VAS''). At the same time, Kindberg became a

subsidiary of Donawitz. Donawitz and other companies were owned by VAS,

which in turn was owned by VAAG.

In 1989, VAS and all other subholdings of VAAG were transferred to

Industrie und Beteiligungsverwaltung GmbH (``IBVG''). In 1990, IBVG, in

turn, was renamed Austrian Industries AG (``AI''). VAAG remained in

existence, but separate from IBVG and AI, holding only residual

liabilities and non-steel assets.

In 1991, as part of the reorganization of the long products

operations, Donawitz was split. The rail division remained with the

existing company (i.e., Donawitz), however, the name of the company was

changed to Voest-Alpine Schienen GmbH (``Schienen''). In addition to

producing rails, Schienen also became the holding company for Kindberg

and the other Donawitz subsidiaries. The metallurgical division of the

former Donawitz was incorporated as a new company and was

[[Page 33535]] named Voest-Alpine Stahl Donawitz (``Donawitz II'').

Equityworthiness

As discussed below, we have determined that the GOA provided equity

infusions, through the state-owned industry holding company,

Osterreichische Industrieholding-Aktiengesellschaft (``OIAG''), to VAAG

in the years 1983, 1984, and 1986, and to Kindberg in 1987. In order

for the Department to find an equity infusion countervailable, it must

be determined that the infusion is provided on terms inconsistent with

commercial considerations. Petitioners have alleged that VAAG and

Kindberg were unequityworthy in the years in which they received equity

infusions and that the equity infusions were, therefore, inconsistent

with commercial considerations. According to Sec. 355.44(e)(2) of the

Department's Proposed Regulations, for a company to be equityworthy it

must show the ability to generate a reasonable rate of return within a

reasonable period of time. A detailed equityworthiness analysis can be

found in the Department's Concurrence Memorandum dated June 19, 1995. A

summary of that analysis follows.

In the Final Affirmative Countervailing Duty Determination: Certain

Steel Products from Austria, 58 FR 37217 (July 9, 1993) (``Certain

Steel''), the Department found VAAG to be unequityworthy in the years

1978-84 and 1986. Respondents have not questioned this determination

and no additional information concerning that period has come to light.

Therefore, we determine VAAG to be unequityworthy during the period

1978-84, and for 1986.

With respect to the equityworthiness of Kindberg in 1987, we have

further examined the information provided regarding Kindberg's future

prospects. This information included a more detailed excerpt of the VA

Neu study than was available at the time of the preliminary

determination, OIAG Finance Concepts, and an internal operating

forecast performed by Kindberg. Although the forecasts show a trend

toward profitability, they fail to establish that Kindberg would

generate a reasonable rate of return in a reasonable period of time.

Therefore, we determine that the 1987 equity infusion into Kindberg was

inconsistent with commercial considerations. We also reaffirm our

preliminary determination, based on our analysis from Certain Steel,

that VAAG's poor performance prior to the restructuring supports a

finding that the 1987 infusion into Kindberg was inconsistent with

commercial considerations.

Allocation of Non-Recurring Benefits

We have determined that the subsidies received by Kindberg are

``non-recurring'' because the benefits are exceptional and the

recipient could not expect to receive them on an ongoing basis (see,

the General Issues Appendix to the Final Countervailing Duty

Determination: Certain Steel Products from Austria (``GIA''), 58 FR

37225, 37226 (July 9, 1993)). Consequently, as explained in Sec. 355.49

of the Proposed Regulations, we have allocated the benefits over a

period equal to the average useful life of assets in the industry.

A company-specific discount rate was not available for the

allocation. Therefore, we have used the bond rate designated as being

for ``Industry and other Austrian Issuers'' in the Austrian National

Bank's Annual Report. Although respondents reported an alternative

borrowing rate to be used as the discount rate, we verified that their

proposed rate reflected large government borrowings. Because we are

measuring the benefit to the recipient company, we prefer a commercial

benchmark. Therefore, we have rejected the rate dominated by government

borrowing and selected instead a rate which reflects what it costs

businesses to borrow.

Calculation of the Benefit

For purposes of this final determination, the period for which we

are measuring subsidies (the POI) is calendar year 1993. In determining

the benefits received under the various programs described below, we

used the following calculation methodology. We first calculated the

benefit attributable to the POI for each countervailable program, using

the methodologies described in each program section below. For each

program, we then divided the benefit attributable to Kindberg in the

POI by Kindberg's total sales revenue. Next, we added the benefits for

all programs to arrive at Kindberg's total subsidy rate. Because

Kindberg is the only respondent company in this investigation, this

rate is also the country-wide rate.

Based upon our analysis of the petition, responses to our

questionnaires, verifications and comments made by interested parties,

we determine the following:

A. Programs Determined To Be Countervailable

We determine that subsidies are being provided to manufacturers,

producers, or exporters in Austria of OCTG under the following

programs:

1. Equity Infusions to Voest-Alpine AG (VAAG): 1983, 1984 and 1986

The GOA provided equity infusions through OIAG to VAAG in 1983,

1984 and 1986, while VAAG owned the facilities which became Kindberg,

the producer of the subject merchandise. The 1983 and 1984 infusions

were given by OIAG pursuant to Law 589/1983. The 1986 equity infusion

was given as an advance payment for funds to be provided under Law 298/

1987 (the OIAG Financing Act). Law 589/1983 and Law 298/1987 provide

authority for disbursement of funds solely to companies of OIAG, of

which VAAG is one.

In Certain Steel, the Department determined these equity infusions

to be de jure specific. Respondents did not provide any information

disputing these findings in this proceeding. Moreover, since we have

determined that VAAG was unequityworthy in these years, we determine

that these infusions were provided to VAAG on terms inconsistent with

commercial considerations.

Respondents argue that subsidies received by VAAG prior to the 1987

restructuring are not appropriately attributable to Kindberg. However,

we have determined that these subsidies continue to benefit Kindberg's

production of OCTG, in accordance with restructuring methodology

discussed in the GIA, at 37265-8. (See Comment Two, below, for a

discussion of respondents' comments and the Department's position on

this matter.)

To calculate the portion of these subsidies to VAAG which is

attributable to Kindberg, we divided Kindberg's asset value on January

1, 1987, by VAAG's total asset value on December 31, 1986 (i.e., pre-

restructuring). This ratio best reflects the proportion of VAAG's total

1986 assets that became Kindberg in 1987.

We then applied this ratio to VAAG's subsidy amount to calculate

the portion of these infusions allocable to Kindberg. To calculate the

benefit for the POI, we treated each of the equity amounts as a grant

and allocated the benefits over a 15 year period beginning in the years

the equity was received by VAAG. Our treatment of equity as grants is

discussed in the GIA, at 37239. We then divided the benefit by total

sales of Kindberg during the POI. On this basis, we determine the net

subsidies for these equity infusions to be 1.37 percent ad valorem for

all manufacturers, producers, and exporters in Austria of OCTG.

[[Page 33536]]

2. Grants Provided to VAAG: 1981-86

The GOA provided grants to VAAG through OIAG pursuant to Law 602/

1981, Law 589/1983, and Law 298/1987. In Certain Steel, the Department

found grants disbursed under Law 602/1981, Law 589/1983 and Law 298/

1987 to be provided specifically to the steel industry and, hence,

countervailable (58 FR 37221). Respondents have not challenged the

countervailability of these grants in this proceeding.

The grant received in 1981 was less than 0.50 percent of VAAG's

sales in that year. Hence, as explained in Sec. 355.44(a) of our

Proposed Regulations and the GIA, at 37217, we have expensed the grant

received in 1981 in that year. To calculate the benefit from the other

grants, we used the methodology described in Equity Infusions to VAAG:

1983-84, 1986 section, above. On this basis, we determine the net

subsidies under this program to be 3.68 percent ad valorem for all

manufacturers, producers, and exporters in Austria of OCTG.

3. Assumption of Losses at Restructuring by VAAG on Behalf of Kindberg

In Certain Steel, we determined that, in connection with the 1987

restructuring, VAAG retained all the losses carried forward on its

balance sheet and that no losses were assigned to its newly created

subsidiaries. VAAG later received funds from the GOA under Law 298/1987

to offset these losses. We found that VAAG's subsidiaries benefitted

because VAAG retained these losses when the company was restructured.

In the present investigation, petitioners allege that this assumption

of losses provided a countervailable subsidy to Kindberg, a subsidiary

of VAAG.

In our preliminary determination, respondents argued that the

assumption of losses did not provide a benefit to Kindberg because

Kindberg could have used such losses to reduce income-tax liabilities

in the future. We stated that this argument would be more closely

analyzed for our final determination.

At verification, we learned that Austrian Commercial Law and

Austrian Tax Law distinguish between two types of losses: tax losses

and commercial losses. Kindberg's tax losses were carried forward after

the restructuring and were used to offset income taxes in future years.

The losses which were retained by VAAG and countervailed in Certain

Steel, were commercial losses. All commercial losses were retained by

VAAG after the restructuring. Hence we conclude that the losses

retained by VAAG could not be used to reduce the future tax liabilities

of Kindberg.

Respondents now argue that these commercial losses were not

generated by Kindberg and, therefore, the assumption of losses by VAAG

does not benefit Kindberg. At verification, however, respondents were

unable to identify how the losses which remained on VAAG's books were

incurred. Moreover, Kindberg's auditor's report states that Kindberg

incurred significant commercial losses in 1985 and 1986. Hence, we find

no basis for concluding that the losses retained by VAAG should not be

attributed in part to Kindberg.

We concluded in Certain Steel that, ``if VAAG had assigned these

losses to its new companies, then each of the new companies would have

been in a * * * precarious financial position'' (Certain Steel, 37221).

Similarly, we determine that the assumption of losses provided a

benefit to Kindberg.

To calculate the benefit, we have treated the losses not

distributed to Kindberg as a grant received in 1987. Kindberg's share

of the losses was determined by reference to its asset value relative

to total VAAG assets. To allocate the benefit, we used the methodology

described in Equity Infusions to VAAG: 1983-84, 1986 section, above. On

this basis, we determine the net subsidies for this program to be 1.26

percent ad valorem for all manufacturers, producers, and exporters in

Austria of OCTG.

4. Equity Infusion to Kindberg: 1987

A direct equity infusion from OIAG to Kindberg was made on January

1, 1987, pursuant to Law 298/1987. As under Law 589/1983, funds under

Law 298/1987 were provided solely to the steel industry. Therefore, we

find this infusion to be specific. Moreover, since we have determined

that Kindberg was unequityworthy in 1987, this infusion was made on

terms inconsistent with commercial considerations. Thus, we determine

this infusion to be countervailable.

To calculate the benefit for the POI, we treated the equity amount

as a grant and allocated the benefit over 15 years. Because the equity

investment was made directly in Kindberg, and because Kindberg was

separately incorporated as of that year, the entire benefit has been

attributed to Kindberg. The portion allocated to the POI was divided by

total sales of Kindberg during the POI to determine the ad valorem

benefit. On this basis, we determine the net subsidies for this program

to be 5.13 percent ad valorem for all manufacturers, producers, and

exporters in Austria of OCTG.

B. Programs Determined not to Benefit the Subject Merchandise

We included in our investigation subsidies provided after 1987 to

VA Linz, VAAG and VAS based on petitioners' allegation that subsidies

to these companies benefitted Kindberg. Based on information provided

in the responses and our findings at verification, we determine that no

subsidies were being transmitted to Kindberg from its related

companies. Therefore, the following programs did not bestow a benefit

on Kindberg. For a discussion of the transmittal of subsidies, see the

Department's Concurrence Memorandum dated June 19, 1995.

1. 1987 Equity Infusion to VA Linz.

2. Post-Restructuring Equity Infusions to VAAG.

3. Post-Restructuring Grants to VAAG.

4. Post-Restructuring Grants to VAS.

C. Analysis of Upstream Subsidies

The petitioners have alleged that manufacturers, producers, or

exporters of OCTG in Austria receive benefits in the form of upstream

subsidies. Section 771A(a) of the Tariff Act of 1930, as amended (the

Act), defines upstream subsidies as follows:

The term ``upstream subsidy'' means any subsidy * * * by the

government of a country that:

(1) Is paid or bestowed by that government with respect to a

product (hereinafter referred to as an ``input product'') that is

used in the manufacture or production in that country of merchandise

which is the subject of a countervailing duty proceeding;

(2) In the judgment of the administering authority bestows a

competitive benefit on the merchandise; and

(3) Has a significant effect on the cost of manufacturing or

producing the merchandise.

Each of the three elements listed above must be satisfied in order for

the Department to find that an upstream subsidy exists. The absence of

any one element precludes the finding of an upstream subsidy. As

discussed below, respondents have shown that a competitive benefit does

not exist. Therefore, we have not addressed the first and third

criteria.

Competitive Benefit

In determining whether subsidies to the upstream supplier(s) confer

a competitive benefit within the meaning of section 771A(a)(2) on the

subject merchandise, section 771A(b) directs that:

* * * a competitive benefit has been bestowed when the price for the

input product * * * is lower than the price that the manufacturer or

producer of merchandise [[Page 33537]] which is the subject of a

countervailing duty proceeding would otherwise pay for the product

in obtaining it from another seller in an arms-length transaction.

The Proposed Regulations offer the following hierarchy of benchmarks

for determining whether a competitive benefit exists:

* * * In evaluating whether a competitive benefit exists pursuant to

paragraph (a)(2) of this section, the Secretary will determine

whether the price for the input product is lower than:

(1) The price which the producer of the merchandise otherwise

would pay for the input product, produced in the same country, in

obtaining it from another unsubsidized seller in an arm's length

transaction; or

(2) A world market price for the input product.

In this instance, there is not another supplier in Austria of the input

product, steel blooms. However, Kindberg does purchase the input

product from an unrelated foreign supplier. Therefore, we have used the

prices charged to Kindberg by the foreign supplier as the benchmark

world market price.

Because the foreign supplier's prices are delivered, we made an

upward adjustment to the domestic supplier's prices to account for the

cost of freight between Kindberg and that supplier. Based on our

comparison of these delivered prices for identical grades of steel

blooms, we found no competitive benefit was bestowed on Kindberg during

the POI. Therefore, we determine that Kindberg did not receive an

upstream subsidy.

Interested Party Comments

Comment One: Attribution of VAAG subsidies to Kindberg

Respondents argue that in British Steel plc v. United States, the

CIT established that ``a subsidy cannot be provided to a `productive

unit' or `travel' with it unless the `productive unit' is itself an

artificial person capable of receiving a subsidy.'' Prior to 1987,

Kindberg was not a separately incorporated company--Kindberg was not an

``artificial person.'' Therefore, respondents claim that subsidies

received by VAAG prior to 1987 could not ``travel'' with Kindberg after

the restructuring. Moreover, they argue that the requirements in

British Steel also preclude the Department from attributing losses

assumed at restructuring by VAAG to Kindberg because only subsidies

received directly by Kindberg after its incorporation are

countervailable.

Petitioners assert that British Steel is irrelevant to Kindberg

because it involved cases where subsidized state-owned companies were

privatized. However, in this investigation, the Austrian government

still owns 100% of Kindberg (i.e., Kindberg has not been privatized).

Petitioners note that two types of corporate restructuring were

identified in Certain Steel. Privatizations (i.e., mergers, spin-offs,

and acquisitions) were one type of corporate restructuring, while

internal corporate restructurings were the other type. The 1987 VAAG

restructuring was identified as an internal corporate restructuring.

Petitioners note that an internal restructuring does not constitute a

sale for purposes of evaluating the extent to which subsidies passed

through to a new entity. Therefore, they assert that none of the issues

addressed in British Steel are relevant.

DOC Position

Respondents' reliance on British Steel PLC v. United States, Slip

Op. 95-17 (CIT February 9, 1995) is misplaced. First, British Steel is

not a final decision of the CIT, and no decision has been made

regarding whether any issue contained in that opinion should be

appealed. Therefore, the Department is not bound by that opinion.

Further, even if British Steel were a final decision, the issues

contained in the opinion which relate to privatization are inapposite

in this case. The entire British Steel opinion is premised on an actual

privatization of a company, i.e., a sale of all or part of the

government's interest. In this case, Kindberg has not been privatized.

Although the immediate parent of Kindberg changed through the

restructuring, the ultimate equity owner was and remains the GOA. The

British Steel opinion did not address a situation in which a company

was restructured, but there was no sale of the government's interest.

Comment Two: Allocation Time-Period

Respondents argue that allocating benefits from nonrecurring grants

and equity infusions over fifteen years, based on the IRS tables,

contravenes established judicial precedent, as well as congressional

intent. They state that a recent CIT decision (i.e., British Steel plc

v. the United States) held that this allocation methodology, used in

Certain Steel, was contrary to law. Respondents argue that the

Department should employ an allocation methodology which reasonably

reflects the relevant commercial and competitive advantages enjoyed by

Kindberg. Specifically, the Department should allocate benefits using

the 3, 5, and 10-year schedules of depreciation found in Kindberg's

balance sheet and statement of profit and loss.

Petitioners claim that the the CIT did not find that the

Department's allocation methodology was unlawful per se. The court's

specific concern was that the Department had not adequately explained

how the IRS tables reflected the benefit from subsidies used for

purposes other than the purchase of physical assets. The court

recognized that, after engaging in an examination of the firms under

investigation, the Department might still find that the IRS tables

could serve as a proxy for allocating subsidy benefits.

Petitioners argue that Kindberg has not provided sufficient

evidence that fifteen years does not reflect the benefit to Kindberg

from non-recurring subsidies. Petitioners note that Kindberg did not

provide cites for the 3, 5, and 10 year depreciation schedules.

Moreover, Kindberg did not explain the relevance of these depreciation

schedules, nor did it identify the assets that are subject to the

depreciation schedules. Given the lack of contrary evidence in the

record, the Department should determine that the 15-year allocation

period reasonably represents the benefit to Kindberg from non-recurring

subsidies.

DOC Position

As noted previously, respondents' reliance on British Steel PLC v.

United States, Slip Op. 95-17 (CIT February 9, 1995) is misplaced.

British Steel is not a final decision of the CIT, and no decision has

been made regarding whether any issue contained in that opinion should

be appealed. Therefore, the Department is not bound by that opinion.

Furthermore, renewable physical assets are essential to the

continuation of a company's productive activity, which in turn affects

the commercial and competitive position of a company. Therefore, the

Department has determined that the average useful life of renewable

physical assests is an appropriate measure of the commercial and

competitive benefits from non-recurring subsidies (see, GIA, at 37227).

Comment Three: Assumption of Losses

Respondents argue that the evidence on record does not support the

Department's preliminary finding that VAAG's assumption of losses

provided a countervailable subsidy to Kindberg. According to

respondents, it was determined at verification that the losses which

remained on VAAG's books after the restructuring were incurred by other

units of Voest-Alpine. Respondents claim that ``absent substantial

evidence on the record attributing VAAG's losses to Kindberg,

[[Page 33538]] the Department's final determination should not result

in a net subsidy calculation for these fictive benefits.''

According to petitioners, the Department was told at verification

that the majority of the losses in question were incurred by divisions

other than Kindberg, and that Kindberg's portion would therefore be

small. Petitioners note that respondents were unable to document or

even to determine the actual amount of the losses which were

attributable to Kindberg. Petitioners further argue that, had any of

VAAG's losses been allocated to Kindberg, the newly formed company

would have required additional capital in order to avoid insolvency.

They conclude that at least some of the losses assumed by VAAG may have

been incurred by Kindberg and should, therefore, have been allocated to

Kindberg. The assumption of those losses provided a countervailable

subsidy to Kindberg.

DOC Position

We agree with petitioners. At verification, VAAG officials

explained that the amount of VAAG's losses attributable to Kindberg is

not determinable. While we did see evidence that substantial losses

were incurred by other divisions of VAAG prior to the restructuring, it

does not follow that no losses were created by Kindberg. Moreover, an

excerpt from Kindberg's 1987 auditor's report notes that Kindberg

incurred operating losses in the amounts of AS 781 million in 1985 and

AS 289 million in 1986. Thus, the evidence on the record indicates that

Kindberg incurred losses prior to 1987.

Comment Four: 1987 Equityworthiness of Kindberg

Respondents assert that the Department should not rely solely on

the past financial performance of VAAG in determining whether Kindberg

was equityworthy in 1987. The Department's determination should take

into consideration Kindberg's expected future performance--as outlined

in the VA Neu study, the FGG reports, and Kindberg's operating

forecasts. Respondents claim that these sources all predicted

profitability within three years of the date of incorporation.

Furthermore, respondents argue that the company's performance both

prior to and after its effective incorporation date should be

considered. With respect to Kindberg's actual performance, respondents

note that as early as the third quarter of 1987, Kindberg's performance

showed marked improvement over 1986. Therefore, even before Kindberg's

equity infusion was provided, future financial prospects for the firm

had improved significantly. Moreover, they state that Kindberg's

performance continued to improve during 1988 and 1989 and that by 1990,

Kindberg was operating at a profit. They contend that at the time of

the equity infusion, a reasonable private investor would have

recognized that Kindberg was capable of generating a sizable return on

investment in a reasonable amount of time.

Petitioners claim that the Department's stated policy in the GIA is

to place greater reliance on past indicators than on studies of future

expected performance. The starting point of the Department's analysis,

therefore, should be a review of VAAG's past performance--which would

lead to a finding that Kindberg was unequityworthy in 1987.

With respect to the VA Neu Study, petitioners argue that the

information is inadequate to establish whether Kindberg was

equityworthy. They argue that the Department cannot properly analyze

the study because respondents only submitted excerpts containing

general discussions of possible cost savings.

Additionally, petitioners assert that Kindberg's predicted

profitability does not establish that the company would generate a

reasonable rate of return within a reasonable time--particularly in

light of the substantial losses that Kindberg was expected to incur

prior to achieving profitability.

Finally, petitioners stress that the Department does not consider

the actual performance of the company subsequent to the receipt of an

equity infusion. Kindberg's actual performance after 1987 is irrelevant

for purposes of an equityworthiness determination because such

information would not have been available to a private investor at that

time.

DOC Position

We agree with respondents that the Department should not rely

solely on the past financial performance of VAAG to determine whether

the 1987 equity infusion in Kindberg was consistent with commercial

considerations. As stated in the GIA, as 37244, in circumstances such

as a restructuring it may be appropriate to place greater weight on

certain factors (such as future prospects), than others (past

performance). Hence, the Department has examined closely the expected

results of the restructuring for Kindberg. At the same time, we

reaffirm our earlier conclusion as to VAAG's performance.

We also disagree with petitioners that the information provided by

respondents regarding future prospects is inadequate. While the VA Neu

study by itself might not be sufficient, largely because it was

internally generated and because it was undertaken for different

purposes, we have not relied solely on that study. In addition, we have

relied on the estimates provided in conjunction with the FGG's

``oversight'' activities in the restructuring. Although the FGG is part

of the Austrian Finance Ministry, there is no indication that it did

not operate independently in its assessments of the restructuring

process.

We do, however, agree with petitioners that these forecasts do not

provide a basis for concluding that the GOA would receive a reasonable

return within a reasonable amount of time. Heavy losses were predicted

for the early years and the best year showed only that the company

would break even (or possibly return a small profit). Although these

estimates showed a trend toward profitability, they also showed a

negative net return over the time horizon they covered.

We also agree with petitioners that Kindberg's actual performance

after the equity infusion is irrelevant to this determination. Our

examination focuses on what the investor could have expected to receive

at the time the investment was made.

Comment Five: Amount of the 1987 Equity Infusion

Petitioners argue that the Department should find the total amount

of equity received by Kindberg in 1987 (i.e., both the direct infusion

from OIAG and the initial equity contribution by VAAG) to be a

countervailable subsidy.

DOC Position

The equity on Kindberg's opening balance sheet for 1987 was

composed of initial start-up capital provided by VAAG, an increase in

VAAG's equity position due to a revaluation of the assets contributed

by VAAG to Kindberg, and the 1987 equity infusion by OIAG. VAAG was

later reimbursed by OIAG for its initial equity contribution.

In Certain Steel, the Department concluded that VAAG's

contributions of equity capital to its newly formed subsidiaries in

1987 did not constitute countervailable equity infusions. Rather, VAAG

merely distributed its pre-existing assets and liabilities to its

subsidiaries. Because the method used to allocate assets and

liabilities to the new subsidiaries was reasonable, the Department

found that no countervailable benefit was conferred in this action. The

initial equity received by Kindberg was part of that

[[Page 33539]] redistribution of VAAG's assets. Therefore, consistent

with Certain Steel, we have found that the assets provided by VAAG to

Kindberg are not a subsidy. However, as discussed above, the losses

retained by VAAG did give rise to a subsidy to Kindberg.

Comment Six: Bayou Steel Corporation (``BSC'')

Respondents assert that the Department should not countervail the

equity infusions and grants received by VAAG in 1983 and 1984 because

these funds were used to cover losses incurred by BSC in the United

States. Moreover, because BSC was sold in 1986, Kindberg cannot be

receiving any benefits from those funds.

Petitioners argue that in Certain Steel, the Department found that

the funds in question were provided to cover VAAG's worldwide losses,

including those associated with Bayou Steel. Therefore, the subsidies

are attributable to all of VAAG, including Kindberg.

DOC Position

We agree with petitioner. In Certain Steel, we determined that

these funds were provided to cover VAAG's worldwide losses. Respondents

have not provided information that these funds were intended solely to

benefit BSC (see GIA, at 37236). With respect to the sale of BSC, we

have applied the spin off methodology applied in the Certain Steel

cases. A portion of the subsidies received by VAAG would have been

allocated to BSC at the time of its sale, but the payment VAAG received

for BSC was sufficiently large that all of the subsidies reverted to

VAAG. Hence, these subsidies continue to be, in part, attributable to

Kindberg.

Verification

In accordance with section 776(b) of the Act, we verified the

information used in making our final determination. We followed

standard verification procedures, including meeting with government and

company officials, and examination of relevant accounting records and

original source documents. Our verification results are outlined in

detail in the public versions of the verification reports, which are on

file in the Central Records Unit (Room B-099 of the Main Commerce

Building).

Suspension of Liquidation

In accordance with our affirmative preliminary determination, we

instructed the U.S. Customs Service to suspend liquidation of all

entries of OCTG from Austria, which were entered or withdrawn from

warehouse for consumption, on or after January 24, 1995, the date our

preliminary determination was published in the Federal Register.

Under Article 5, paragraph 3 of the GATT Subsidies Code,

provisional measures cannot be imposed for more than 120 days without

final affirmative determinations of subsidization and injury.

Therefore, we instructed the U.S. Customs Service to discontinue

suspension of liquidation on the subject merchandise beginning May 24,

1995, but to continue suspension of liquidation of all entries, or

withdrawals from warehouse, for consumption of the subject merchandise

entered from January 24 through May 23, 1995. We will reinstate

suspension of liquidation under section 703(d) of the Act, if the ITC

issues a final affirmative injury determination, and will require a

cash deposit of estimated countervailing duties for such entries of

merchandise in the amount indicated below.

OCTG

Country-Wide Ad Valorem Rate: 11.44 percent

ITC Notification

In accordance with section 705(c) of the Act, we will notify the

ITC of our determination. In addition, we are making available to the

ITC all nonprivileged and nonproprietary information relating to this

investigation. We will allow the ITC access to all privileged and

business proprietary information in our files, provided the ITC

confirms that it will not disclose such information, either publicly or

under administrative protective order, without the written consent of

the Deputy Assistant Secretary for Investigations, Import

Administration.

If the ITC determines that material injury, or threat of material

injury, does not exist, these proceedings will be terminated and all

estimated duties deposited or securities posted as a result of the

suspension of liquidation will be refunded or cancelled. If, however,

the ITC determines that such injury does exist, we will issue a

countervailing duty order directing Customs officers to assess

countervailing duties on OCTG from Austria.

Return or Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (APO) of their responsibility

concerning the return or destruction of proprietary information

disclosed under APO in accordance with 19 CFR 355.34(d). Failure to

comply is a violation of the APO.

This determination is published pursuant to section 705(d) of the

Act and 19 CFR 355.20(a)(4).

Dated: June 19, 1995.

Susan G. Esserman,

Assistant Secretary for Import Administration.

[FR Doc. 95-15762 Filed 6-27-95; 8:45 am]

BILLING CODE 3510-DS-P