Preliminary Negative Countervailing Duty Determination: Certain Laminated Hardwood Trailer Flooring (``LHF'') From Canada

DEPARTMENT OF COMMERCE

International Trade Administration

[C-122-825]

Preliminary Negative Countervailing Duty Determination: Certain

Laminated Hardwood Trailer Flooring (``LHF'') From Canada

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: November 20, 1996.

FOR FURTHER INFORMATION CONTACT: David Boyland or Daniel Lessard,

Office 1, Group 1, Import Administration, U.S. Department of Commerce,

Room 3099, 14th Street and Constitution Avenue, N.W., Washington, D.C.

20230; telephone (202) 482-4198 or 482-1778, respectively.

Preliminary Determination

The Department preliminarily determines that countervailable

subsidies are not being provided to manufacturers, producers, or

exporters of LHF in Canada.

Case History

Since the publication of the notice of initiation in the Federal

Register (61 FR 15041 (April 4, 1996)), the following events have

occurred:

On April 8, 1996, we issued countervailing duty questionnaires to

the Government of Canada (``GOC''), the Government of Quebec (``GOQ''),

and the companies identified in the petition as exporters of LHF from

Canada concerning petitioner's allegations. We received responses to

our questionnaire on May 16, 1996. We issued supplemental

questionnaires to parties in May, July, and September for which

responses were received in June, July, August, and October.

On June 7, 1996, we inititiated an upstream subsidy investigation

and postponed the preliminary determination (61 FR 29077). We issued a

questionnaire relating to the upstream subsidy allegation to Nilus

Leclerc Inc. and Industries Leclerc Inc. (Leclerc) on June 12, 1996

(see, Related Party section, below). We received Leclerc's response on

June 27, 1996, with additional information submitted on July 11, 1996.

From August 5 through 7, 1996, we conducted verification of the

questionnaire responses relating to the upstream subsidy investigation.

Scope of Investigation

Based on information provided by U.S. Customs, the Department, for

purposes of clarification only, drafted proposed changes to the

original scope language (see May 7, 1996 memo to the file from

analyst). On May 9, 1996, petitioner submitted comments on the

Department's proposed changes. The scope of this investigation as

outlined below reflects the clarification.

The scope of this investigation consists of certain edge-glued

hardwood flooring made of oak, maple, or other hardwood lumber. Edge-

glued

[[Page 59080]]

hardwood flooring is customized for specific dimensions and is provided

to the consumer in ``kits,'' or pre-sorted bundles of component pieces

generally ranging in size from 6'' to 14''x48' to 57'x1'' to 1(\1/2\)''

for trailer flooring, from 6'' to 13''x12' to 28'x1(\1/8\)'' to 1(\1/

2\)'' for vans and truck bodies, from 9'' to 12(\1/2\)''x8' to

10'x1(\7/8\)'' to 2(\1/2\)'' for rail cars, and from 6'' to 14''x19' to

48'x1(\1/8\)'' to 1(\3/8\)'' for containers. The merchandise under

investigation is currently classified, in addition to various other

hardwood products, under subheading 4421.90.98.40 of the Harmonized

Tariff Schedule of the United States (HTSUS). Edge-glued hardwood

flooring is commonly referred to as ``laminated'' hardwood flooring by

buyers and sellers of subject merchandise. Edge-glued hardwood

flooring, however, is not a hardwood laminate for purposes of

classification under HTSUS 4412.14. Although the HTSUS subheading is

provided for convenience and Customs purposes, our written description

of the scope of this proceeding is dispositive.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930 (the ``Act''),

as amended by the Uruguay Round Agreements Act effective January 1,

1995. References to Countervailing Duties: Notice of Proposed

Rulemaking and Request for Public Comments, 54 FR 23366 (May 31, 1989)

(``Proposed Regulations''), which have been withdrawn, are provided

solely for further explanation of the Department's countervailing duty

practice.

Injury Test

Because Canada is a ``Subsidies Agreement Country'' within the

meaning of section 701(b) of the Act, the ITC is required to determine

whether imports of LHF from Canada materially injure, or threaten

material injury to, a U.S. industry. On May 9, 1996, the ITC published

its preliminary determination finding that there is a reasonable

indication that an industry in the United States is being materially

injured or threatened with material injury by reason of imports from

Canada of the subject merchandise (61 FR 21209).

Petitioner

The petition in this investigation was filed by the Ad Hoc

Committee on Laminated Hardwood Trailer Flooring, which is composed of

the Anderson-Tully Company, Havco Wood Products Inc., Industrial

Hardwoods Products Inc., Lewisohn Sales Company Inc., and Cloud

Corporation.

Period of Investigation (``POI'')

The period for which we are measuring subsidies is calendar year

1995.

Ontario Companies

We have preliminarily determined that three producers of the

subject merchandise have received zero or de minimis subsidies. Two

companies, Erie Flooring & Wood Products (Erie) and Industrial Hardwood

Products Ltd. (IHP) formally requested that they be excluded from any

potential countervailing duty order. The other company, Milner Rigsby

Co. (Milner) responded to our questionnaire.

IHP certified that the only subsidy it received during the POI was

consulting services pursuant to the Industrial Research Assistance

Program (IRAP). The GOC and Government of Ontario also certified that

this was the only benefit IHP received. Even assuming this assistance

constituted a countervailable subsidy, the benefit would be de minimis.

Erie certified that it received no countervailable subsidies. The

GOC and the Government of Ontario also certified this. In its

questionnaire response, Milner states that it did not receive benefits

during the POI.

The remainder of this notice deals exclusively with Leclerc.

Related Parties

In the present investigation, we have examined affiliated companies

(within the meaning of section 771(33) of the Act) whose relationship

may be sufficient to warrant treatment as a single company with a

single, combined countervailing duty rate. In the countervailing duty

questionnaire, consistent with our past practice, the Department

defined companies as sufficiently related where one company owns 20

percent or more of the other company, or where companies prepare

consolidated financial statements. The Department also stated that

companies may be considered sufficiently related where there are common

directors or one company performs services for the other company.

According to the questionnaire, where such companies produce the

subject merchandise or where such companies have engaged in certain

financial transactions with the company producing the subject

merchandise, the affiliated parties are required to respond to our

questionnaire.

Nilus Leclerc Inc. was identified in the petition as an exporter of

LHF from Canada. Nilus Leclerc Inc. is part of a consolidated group,

Groups Bois Leclerc. Nilus Leclerc Inc. and Industries Leclerc Inc. are

the only companies in the group directly engaged in the production of

LHF. Because of the extent of common ownership, we find it appropriate

to treat these two LHF producers as a single company (``Leclerc''). As

a consequence, we are calculating a single countervailing duty rate for

both companies by dividing their combined subsidies by their combined

sales.

In addition, certain separately incorporated companies in the group

received subsidies. Where those subsidies were tied to the production

of a corporation that is not directly involved in the production of

LHF, we have not included those subsidies in our calculations. Where

the subsidies were tied to the production of both LHF and other

merchandise, we included those subsidies in our calculations using the

sales of both products in the denominator of the ad valorem

calculations.

Creditworthiness

Petitioner has alleged that Leclerc was uncreditworthy during 1993,

1994, and 1995. In an October 8, 1996 memorandum, we declined to

initiate a creditworthiness investigation because Leclerc had not

experienced losses during the relevant period. Because requiring a

finding of prior losses before determining a company uncreditworthy may

mask situations where it is appropriate to apply an uncreditworthy

benchmark, we have proceeded to analyze Leclerc's creditworthiness

looking at the other factors described in 355.44(b)(6)(i) of the

Proposed Regulations.

Section 355.44(b)(6)(i) of the Proposed Regulations states that the

receipt of comparable long-term commercial loans shall normally

``constitute dispositive evidence that the firm is creditworthy.'' In

1993 and 1994, Leclerc received long-term commercial financing. For

purposes of the preliminary determination we consider this financing to

be comparable to the allegedly subsidized financing received by

Leclerc. In a November 1, 1996 submission, Leclerc reported that it

reached agreement in 1995 to receive comparable long-term commercial

financing. Although the Department intends to examine the 1995

agreement closely at verification to gain a more detailed understanding

of it, we have preliminarily determined that Leclerc was creditworthy

in 1993, 1994, and 1995 on the basis that it secured comparable

commercial financing in those years.

[[Page 59081]]

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: Leclerc reported

that it had secured long-term, variable-rate, Canadian dollar-

denominated loans during all relevant years. Therefore, we have used

these company-specific interest rates as the benchmark for the company

in those years. For those years in which Leclerc did not provide a

company-specific discount rate, we used the long-term corporate bond

rate in Canada as the discount rate.

Allocation Period: In the past, the Department has relied upon

information from the U.S. Internal Revenue Service on the industry-

specific average useful life of assets to determine the allocation

period for nonrecurring subsidies. See General Issues Appendix appended

to Final Affirmative Countervailing Duty Determination; Certain Steel

Products from Austria (58 FR 37217, 37226; July 9, 1993) (General

Issues Appendix). However, in British Steel plc. v. United States, 879

F. Supp. 1254 (CIT 1995) (British Steel), the U.S. Court of

International Trade (the Court) ruled against this allocation

methodology. In accordance with the Court's remand order, the

Department calculated a company-specific allocation period for

nonrecurring subsidies based on the average useful life (AUL) of non-

renewable physical assets. This remand determination was affirmed by

the Court on June 4, 1996. British Steel, 929 F. Supp. 426, 439 (CIT

1996).

The Department has decided to acquiesce to the Court's decision

and, as such, we intend to determine the allocation period for

nonrecurring subsidies using company-specific AUL data where reasonable

and practicable. In this case, the Department has preliminarily

determined that it is reasonable and practicable to allocate all

nonrecurring subsidies received prior to or during the POI using

Leclerc's AUL of 18 years.

Based upon our analysis of the petition and the responses to our

questionnaires, we determine the following:

I. Analysis of Direct Subsidies

A. Programs Preliminarily Determined to Be Countervailable

1. Canada-Quebec Subsidiary Agreement on Industrial Development

This Subsidiary Agreement, which spans five years, was jointly

funded by the GOC and GOQ on March 27, 1992. Under this agreement, the

GOC and GOQ established a program to improve the competitiveness and

vitality of the Quebec economy by providing financial assistance to

companies for major industrial projects. The following four types of

activities are eligible for contributions: (1) capital investment

projects, (2) product or process development projects involving a major

investment or leading to a capital investment, (3) studies required to

assess the feasibility of an investment project, and (4) municipal

infrastructure required for a major capital investment project. Leclerc

received a long-term interest-free loan under this program.

We analyzed whether the program is specific ``in law or in fact,''

within the meaning of section 771(5A) of the Act. Funds paid out by the

GOC under this program are limited to companies in a particular region

of Canada (i.e., the Province of Quebec) and, hence, regionally

specific under section 771(5A)(D)(iv) of the Act. Because the interest-

free loan provided to Leclerc was financed entirely by the GOC, we

preliminarily determine that the total amount of assistance is

regionally specific.

We also preliminarily determine that the loan received by Leclerc

constitutes a countervailable subsidy within the meaning of section

771(5) of the Act. It is a direct transfer of funds from the GOC

providing a benefit in the amount of the difference between the

benchmark interest rate and the zero interest rate paid by Leclerc.

To calculate the countervailable subsidy for Leclerc, we used as

the benchmark the interest rate on a variable-rate, long-term loan

taken out in 1995 by Leclerc because the company had not taken out

either a fixed-rate, long-term loan or a fixed-rate debt obligation in

that year. Thus, we followed our variable-rate, long-term loan

methodology to calculate the benefit conferred on Leclerc. We then

divided the benefit attributable to the POI by Leclerc's LHF sales in

the POI. On this basis, we determine the countervailable subsidy for

this program to be 0.07 percent ad valorem for Leclerc.

2. Industrial and Regional Development Program (IRDP)

The IRDP was created by the Industrial and Regional Development Act

and Regulations in 1983 and was administered by the Canadian Department

of Regional Industrial Expansion. It was terminated on June 30, 1988.

No new applications for IRDP projects were accepted after that date.

The goals of IRDP were to achieve economic development in all regions

of Canada, promote economic development in those regions in which

opportunities for productive employment are exceptionally inadequate,

and improve the overall economy in Canada. To accomplish these

objectives, financial support in the form of grants, contributions and

loans were provided to companies for four major purposes: (1)

establishing, expanding, modernizing production; (2) promoting the

marketing of products or services; (3) developing new or improved

products or production processes, or carrying on research in respect

thereof; and (4) restructuring so as to continue on a commercially

viable basis.

Under this program, Canada's 260 census districts were classified

into one of four tiers on the basis of the economic development of the

region. The most economically disadvantaged regions were included in

Tier IV; the most advanced regions were classified as Tier I.

Those districts classified as Tiers III and IV were authorized to

receive the highest share of assistance under IRDP (as a percentage of

assistance per approved project); those in Tiers I and II received the

lowest. For example, a grant toward the eligible costs of modernizing

or significantly increasing the production of companies in Tiers I and

II could not exceed 17.5 percent of the capital costs of the project,

while in Tiers III and IV grants could cover up to 25 percent of

eligible costs.

Nilus Leclerc Inc. was located in a Tier III district when it

received three grants under this program. We have preliminarily

determined that the grants received by Leclerc constitute a

countervailable subsidy within the meaning of section 771(5) of the

Act. The grants are direct transfers of funds from the GOC and confer a

benefit in the amount of the portion of the grant that is in excess of

the most favorable, nonspecific level of benefits (i.e., Tiers I and

II). Also, IRDP grants are regionally specific within the meaning of

section 771(5A) of the Act because the preferential levels of benefits

(i.e., contributions to Tiers III and IV) are limited to companies in

particular regions of Canada.

We have treated these grants as ``non-recurring'' grants based on

the analysis set forth in the Allocation section of the General Issues

Appendix in Final Affirmative Countervailing Duty Determination:

Certain Steel Products from Austria (58 FR 37217, 37226, July 9, 1993).

In accordance with our past practice, we have allocated those grants

which exceeded 0.5 percent of a company's sales in the year of receipt

over time.

To calculate the countervailable subsidy, we used our standard

grant

[[Page 59082]]

methodology. For those grants which were tied to the production of both

LHF and residential flooring, we divided the benefit attributable to

the POI by the total sales of Leclerc and Planchers Leclerc (the

company in the Leclerc group that produces residential flooring) during

the same period. Otherwise, for those grants which benefited only the

production of LHF, we divided the benefit attributable to the POI by

Leclerc's LHF sales during the same period. On this basis, we determine

the countervailable subsidy for this program to be 0.04 percent ad

valorem for Leclerc.

3. Societe de Developpement industriel du Quebec (SDI): Expansion and

Modernization program and ``Programme d'appui a la reprise'' (PREP)

Program

Leclerc obtained loans under SDI's Expansion and Modernization

program and loan guarantees under SDI's PREP program. These loans and

loan guarantees were part of a larger package of commercial and

government financing used to increase Leclerc's productive capacity.

Firms in Quebec can participate in Expansion and Modernization and PREP

by meeting a requirement that ``the project for which financing is

requested is aimed at markets outside Quebec.'' An alternative

requirement for receiving assistance is that the market in Quebec is

inadequately served by businesses in Quebec and that the supported

production is expected to replace imported goods into Quebec. Under

either requirement, the market for the products to be supported must

have an expected growth rate that is above the average for the

manufacturing sector in Canada. In addition to these requirements,

which are contained in the regulations governing Expansion and

Modernization and PREP, the GOQ has stated that commercial financing

must accompany the SDI loans in all cases. Also, certain general

requirements must be met regarding the length of the project and the

financial structure of the company involved.

With respect to whether this program can be considered an export

subsidy, section 771(5A)(B) of the Act states that an export subsidy is

``a subsidy that is, in law or in fact, contingent upon export

performance, alone or as one of two or more conditions.'' Article

3.1(a) and note 4 of the Agreement on Subsidies and Countervailing

Measures clarifies that the ``in fact'' standard ``is met when the

facts demonstrate that the granting of a subsidy, without having been

made legally contingent upon export performance, is in fact tied to

actual or anticipated exportation or export earnings . . . However, t

he mere fact that a subsidy is accorded to enterprises which export

shall not for that reason alone be considered to be an export subsidy

within the meaning of this provision.''

We recognize that the projects for which Leclerc sought financing

were largely aimed at the U.S. market in the sense that the company

expected to sell most of its increased production to the United States.

However, there is no evidence to support a finding that Leclerc's

receipt of the loans and guarantees was contingent upon or tied to

actual or anticipated exportation to the United States. Although the

granting authority was aware of the anticipated destination of the

output, this fact alone does not render the program a de facto export

subsidy. Specifically, we do not believe that the assistance awarded

Leclerc was contingent upon the company exporting outside of Canada.

Indeed, Leclerc could have qualified for assistance by ``exporting'' to

another province in Canada. Therefore, we have preliminarily determined

that the loans and guarantees given under the Export and Modernization

and PREP programs are not export subsidies.

The situation we are addressing here can be contrasted with other

situations that might give rise to possible de facto export subsidies.

For example, a loan program might be structured to require repayment in

U.S. dollars rather than local currency. If currency restrictions make

it impossible to obtain U.S. dollars in that country except through

exportation, then the requirement to repay the loan in U.S. dollars

could lead to the finding of a de facto export subsidy.

We intend to review the Export and Modernization and PREP programs

closely at verification. In particular, we will examine the bases upon

which the granting authority approved assistance to Leclerc. If the

prospect of future exports outside of Canada--beyond a normal

commercial analysis of whether a viable market, domestic or export,

existed for the anticipated production--was one of the bases for

granting assistance, we will likely find these programs to be export

subsidies in the final determination.

While we do not consider Expansion and Modernization and PREP to be

export subsidies for purposes of the preliminary determination, we have

considered whether these programs may be specific domestic subsidies

within the meaning of Section 771(5A)(D)(i) of the Act. (For our

analysis of PREP, please see the section entitled Programs

Preliminarily Determined To Be Not Countervailable.)

Expansion and Modernization program

Loans under the Expansion and Modernization program can be provided

to companies involved in: manufacturing, recycling, computer services,

software or software package design and publishing, contaminated soils

remediation, the operation of a research laboratory, and the production

of technical services for clients outside of Quebec. The regulations

for this program further indicate that businesses in other categories

may be considered ``in exceptional cases.'' The assistance may be used

to cover the following types of expenditures: (1) capital investments;

(2) the purchase and introduction of a new technology; (3) the

acquisition of information production or management equipment; (4)

investments for project-related training; and (5) other training

investments related to project start-up. Based on our review of the

eligibility criteria, we preliminarily determine that the program is

not de jure specific.

Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de

facto specific if one or more of the following factors exists: (1) the

number of enterprises, industries or groups thereof which use a subsidy

is limited; 2) there is predominant use of a subsidy by an enterprise,

industry, or group; (3) there is disproportionate use of a subsidy by

an enterprise, industry, or group; or (4) the manner in which the

authority providing a subsidy has exercised discretion indicates that

an enterprise or industry is favored over others.

During the period 1990 through 1995, assistance under this program

was distributed to a large number and wide variety of users. Therefore,

the program is not limited based on the number of users. During this

same period, the level of financing obtained by the wood products

industry and by Leclerc varied. In 1993, 1994, and 1995, the wood

products industry was consistently among the largest beneficiaries

under the program. Leclerc's share of financing as a percentage of

total authorized financing was also large relative to the shares

received by other users. Taking these two findings together, we

preliminarily determine that the assistance received by Leclerc was

disproportionate in 1993, 1994, and 1995 and, therefore, the subsidy is

specific.

In order to calculate the benefit from long-term variable rate

loans, the Department normally calculates the difference during the POI

between the amount of interest paid on the

[[Page 59083]]

subsidized loan and the amount of interest that would have been paid

using a benchmark interest rate that reflects what the company would

pay to obtain a comparable commercial loan. In this case, the loans

given under the Expansion and Modernization program include premia and

stock options. In addition, the SDI loans have variable repayment

schedules. In order to account for the value of the premia and the

variable repayment schedule, we have estimated a repayment schedule for

the SDI loan and compared the amount Leclerc would repay under that

schedule with the amount Leclerc would repay under a comparable

commercial loan. For purposes of the preliminary determination, we have

not determined the value of the stock option. We note, however, that we

are considering methods to do so for the final determination.

We next determined the grant equivalent of these loans, i.e., the

present value of the difference between what would be paid under the

commercial loan and the SDI loan, using the discount rates described in

the Subsidies Valuation Information section above. If the grant

equivalent calculated under this methodology was less than .5 percent

of Leclerc's sales of subject merchandise, the benefit was expensed. If

the grant equivalent was greater than .5 percent, we allocated the

benefit over the life of the benchmark loan using the grant allocation

formula outlined in section 355.49 (b)(4)(3) of the Department's

Proposed Regulation. We used the life of the benchmark loan as the

allocation period because of the variable repayment schedule on the SDI

loans. We would, however, welcome comments on the appropriate

allocation period for our final determination. The benefit allocated to

the POI was then divided by Leclerc's total sales of subject

merchandise during the POI. Using this methodology, we determine the

countervailable subsidy from the Expansion and Modernization program to

be 0.20 percent ad valorem.

B. Programs Preliminarily Determined to Be Not Countervailable

1. Export Development Corporation (EDC)

The EDC was established by the Export Development Act in 1969 to

support and develop Canada's export trade. One of its services is the

provision of insurance to exporters of Canadian goods. The insurance

policies protect exporters against losses due to non-payment relating

to commercial and political risks. Nilus Leclerc Inc. and Industries

Leclerc Inc. purchased export credit insurance from the EDC during the

POI which covered sales of the subject merchandise. No claims were made

or payouts received by Leclerc during this period.

The Department's standard methodology for examining government

export credit insurance programs (as outlined in section 355.44(d) of

the Proposed Regulations) is to determine whether the premium rates

charged by the government entity are adequate to cover the long-term

operating costs and losses of the program. Under this approach, the

Department analyzes the financial results of the department responsible

for administering the program during the POI and the four previous

years. According to EDC Annual Reports, the EDC and the EDC's insurance

program, in particular, have reported profits during each of the years

from 1991 to 1995.

Given that the premium rates charged by the EDC have been more than

adequate to cover the operating costs and losses of its export

insurance program, we preliminarily determine that this program does

not confer a countervailable subsidy.

2. Hydro-Quebec Electrotechnology Implementation Program

The Electrotechnology Implementation Assistance Program is

administered by Hydro-Quebec, a public utility wholly-owned by the GOQ.

The program was first available in 1985 and has been implemented in

three phases, the most recent of which has been extended until December

31, 1996. Phases I and II of this program were designed to reduce

dependence on fossil fuels by increasing the consumption of

hydroelectric power. Phase III was created to promote research and

development on more efficient uses of energy and to contribute toward

industrial development in Quebec. It is primarily intended for Quebec

industries seeking to improve their overall productivity. To be

eligible for this program, the company must: (1) be subject to

electricity rates G, G-9, M or L and (2) consume electrical power to

manufacture, assemble, or process merchandise, or to extract raw

materials.

With respect to the grants received by Leclerc under this program,

we analyzed whether the program is specific ``in law or in fact,''

within the meaning of section 771(5A)(D) (i) and (iii). Based on our

review of the eligibility criteria, we preliminarily determine that

this program is not de jure specific.

Section 771(5A)(D)(iii) of the Act provides that a subsidy is de

facto specific if one or more of the following factors exists: (1) the

number of enterprises, industries or groups thereof which use a subsidy

is limited; (2) there is predominant use of a subsidy by an enterprise,

industry, or group; (3) there is disproportionate use of a subsidy by

an enterprise, industry, or group; or (4) the manner in which the

authority providing a subsidy has exercised discretion indicates that

an enterprise or industry is favored over others.

Regarding de facto specificity, during the period 1985 through

1992, assistance under this program was distributed over a large number

and wide variety of users, representing a wide cross-section of the

Quebec economy. Thus, the program is not specific based on the number

of users. We also examined evidence regarding the usage of the program

to determine whether Leclerc or the wood products industry was a

predominant user or received disproportionately large amounts of the

subsidies. We preliminarily determine that neither Leclerc nor the wood

products industry received a dominant or disproportionate share of the

benefits distributed under this program. As explained in the Statement

of Administrative Action (SAA) (H.R. Doc. No. 316, Vol. 1, 103d Cong.,

2d Session (1994) at 931), where the number of users is large and there

is no dominant or disproportionate use of the program by Leclerc, we do

not reach the issue of whether administrators of the program exercised

discretion in awarding benefits. Therefore, we preliminarily determine

that this program is not specific and has not conferred countervailable

subsidies on Leclerc.

3. Decentralized Fund for Job Creation Program (DFJC) of the Societe

Quebecoise de Developpement de la Main-d'Oeuvre (SQDM)

The Decentralized Fund for Job Creation Program (DFJC) was created

by the Societe Quebecoise de Developpement de la Main-d'Oeuvre (SQDM),

an agency of the GOQ, in 1994 for the purpose of increasing employment

and reducing public expenditures for the unemployed. By providing a

one-time cash grant to qualifying enterprises, the program aims to

induce private enterprises to develop projects to hire the unemployed.

The GOQ reported that all commercial enterprises, except retail

businesses, all nonprofit incorporated entities, and local and regional

municipalities, are eligible for the grants. The criteria for selection

include: (1) the number and type of jobs created; (2) whether the

project is consistent with regional

[[Page 59084]]

objectives; (3) whether the project is likely to be self-supporting in

a reasonable period of time; and (4) whether financing from other

sources is available.

With respect to the grants received by Leclerc under this program,

we analyzed whether the program is specific ``in law or in fact,''

within the meaning of section 771(5A)(D) (i) and (iii). Based on our

review of the eligibility criteria, we preliminarily determine that

this program is not de jure specific. Regarding de facto specificity,

during the period of February 1994 to March 1996, assistance under the

program was distributed to many sectors representing virtually every

industry and commercial sector found in Quebec. On this basis, we

preliminarily conclude that the program is not specific based on the

number of users.

We also examined evidence regarding the usage of the program and

found that neither Leclerc nor the wood products industry was a

dominant or disproportionate user of this program. Because the number

of users is large and there is no dominant or disproportionate use of

the program by producers under investigation, we do not reach the issue

of whether administrators of the program exercised discretion in

awarding benefits. Thus, we preliminarily determine that this program

is not specific and has not conferred a countervailable subsidy on

Leclerc.

4. Societe de placement dans l'enterprise quebecoise (SPEQ)

The SPEQ program is administered by the SDI to encourage equity

investments into Quebec companies. It provides a tax incentive for

owners of business investment companies to make equity investments in

eligible, small-to-medium sized Quebec companies.

With respect to assistance received by Leclerc under this program,

we analyzed whether the program is specific ``in law or in fact,''

within the meaning of section 771(5A)(D) (i) and (iii). Any enterprise

which has gross assets of less than $25 million or net shareholders''

equity equal to or less than $10 million, and which has engaged in

manufacturing, recycling, tourism, research and development,

environmental, exporting, cinematography production, ``industriel

culture,'' or aquaculture/incubator activities is eligible to apply for

assistance under this program. Based on our review of the eligibility

criteria, we preliminarily determine that this program is not de jure

specific. Regarding de facto specificity, during 1988 through 1993,

assistance under this program was distributed over a large number and

wide variety of users, representing a wide cross-section of the Quebec

economy. Thus, the program is not specific based on the number of

users.

We also examined evidence regarding the usage of the program and

determined that neither Leclerc nor the wood products industry was a

dominant or disproportionate user of this program. Therefore, we do not

reach the issue of whether administrators of the program exercised

discretion in awarding benefits. Thus, we preliminarily determine that

this program is not specific and has not conferred a countervailable

subsidy on Leclerc.

5. Societe de Developpement Industriel du Quebec (SDI): ``Programme

d'appui a la reprise'' (PREP) Program

PREP was a temporary program under which SDI provided loan

guarantees on commercial bank loans. The program was active between

1992 and 1995 and was designed to assist small-to-medium sized firms in

Quebec experiencing liquidity problems as a result of the recession of

the early 1990s. Among other things, PREP financing was provided for

production expansion.

The GOQ has stated that the same general eligibility criteria apply

to PREP and Expansion and Modernization. Therefore, consistent with our

analysis of the Expansion and Modernization program, we preliminarily

determine that assistance under PREP is not de jure specific.

Regarding de facto specificity, the companies that obtained loan

guarantees under PREP represented a large number of different

industries. Based on the broad mix of industries using the program,

PREP is not limited in terms of the number of users.

We also examined evidence regarding the usage of the program and

determined that neither Leclerc nor the wood products industry was a

dominant or disproportionate user of this program. Therefore, we do not

reach the issue of whether administrators of the program exercised

discretion in awarding benefits. Thus, we preliminarily determine that

this program is not specific and has not conferred countervailable

subsidies on Leclerc.

C. Programs Preliminarily Determined To Be Not Used

The following programs were not used:

1. Capital Gains Exemptions

2. Investment Tax Credits

3. Performance Security Services through the Export Development

Corporation

4. Program for Export Market Development

5. Working Capital for Growth from BDBC

6. St. Lawrence Environmental Technology Development Program (ETDP)

7. Canada-Quebec Subsidiary Agreement on the Economic Development of

Quebec

8. Quebec Stumpage Program

9. Programs Provided by the Industrial Development Corporation (SDI)

Article 7 Assistance

Export Assistance Program

Business Financing Program

Research and Innovation Activities Program

10. Export Promotion Assistance Program (APEX)

11. Private Forest Development Program (PFDP)

D. Program for Which Additional Information Is Required

On November 1, 1996, the GOQ submitted information regarding a

program operated by SQDM entitled Program for the Development of Human

Resources. This information was received too late to be taken into

account for purposes of this preliminary determination.

II. Analysis of Upstream Subsidies

The petitioner alleged that Leclerc receives upstream subsidies

through its purchase of lumber from suppliers which harvest stumpage

from Quebec's public forest (``allegedly subsidized'' suppliers).

Section 771A(a) of 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, we preliminarily determine that a competitive benefit

is not bestowed on Leclerc through its purchases of

[[Page 59085]]

allegedly subsidized lumber. 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

producer of 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 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 Department's 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, Leclerc purchases the input product, lumber, from

numerous unsubsidized, unrelated suppliers in Canada. Therefore, we

have used the prices charged to Leclerc by these suppliers as the

benchmark.

We compared the prices paid by Leclerc to its ``allegedly

subsidized'' suppliers with the prices paid to unsubsidized suppliers

on a product-by-product and aggregate basis (see, October 10 and

November 6, 1996, Memoranda from Team to Susan H. Kuhbach, Acting

Deputy Assistant Secretary). Based on our comparison of these prices,

we found that the price of allegedly subsidized lumber was generally

equal to or exceeded the price of unsubsidized lumber. Therefore, we

preliminarily determine that Leclerc did not receive an upstream

subsidy.

Summary

The total estimated preliminary net countervailable subsidy rate

for Leclerc is 0.31 percent, which is de minimis. As noted above, the

rates for IHP, Erie and Milner are either zero or de minimis.

Therefore, we preliminarily determine that countervailable subsidies

are not being provided to manufacturers, producers, or exporters of LHF

in Canada.

Verification

In accordance with section 782(i) of the Act, we will verify the

information submitted by respondents prior to making our final

determination.

Critical Circumstances

The petitioner alleged that critical circumstances exist with

respect to imports of subject merchandise. Because we have reached a

negative preliminary determination, this issue is moot.

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

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

ITC all non-privileged 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 an administrative protective order, without the written consent

of the Deputy Assistant Secretary, Import Administration.

If our final determination is affirmative, the ITC will make its

final determination within 45 days after the Department makes its final

determination.

Public Comment

In accordance with 19 CFR 355.38, we will hold a public hearing, if

requested, to afford interested parties an opportunity to comment on

this preliminary determination. The hearing will be held on January 3,

1997, at the U.S. Department of Commerce, Room 3708, 14th Street and

Constitution Avenue, N.W., Washington, D.C. 20230. Individuals who wish

to request a hearing must submit a written request within 10 days of

the publication of this notice in the Federal Register to the Assistant

Secretary for Import Administration, U.S. Department of Commerce, Room

B099, 14th Street and Constitution Avenue, N.W., Washington, DC 20230.

Parties should confirm by telephone the time, date, and place of the

hearing 48 hours before the scheduled time.

Requests for a public hearing should contain: (1) the party's name,

address, and telephone number; (2) the number of participants; (3) the

reason for attending; and (4) a list of the issues to be discussed. In

addition, 10 copies of the business proprietary version and five copies

of the nonproprietary version of the case briefs must be submitted to

the Assistant Secretary no later than December 17, 1996. Ten copies of

the business proprietary version and five copies of the nonproprietary

version of the rebuttal briefs must be submitted to the Assistant

Secretary no later than December 23, 1996. An interested party may make

an affirmative presentation only on arguments included in that party's

case or rebuttal briefs. Written arguments should be submitted in

accordance with 19 CFR 355.38 and will be considered if received within

the time limits specified above. This determination is published

pursuant to section 703(f) of the Act.

Dated: November 12, 1996.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 96-29661 Filed 11-19-96; 8:45 am]

BILLING CODE 3510-DS-P