Oil Country Tubular Goods From Argentina; Preliminary Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-357-403]

Oil Country Tubular Goods From Argentina; Preliminary Results of

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of preliminary results of countervailing duty

administrative review.

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

SUMMARY: The Department of Commerce (the Department) is conducting an

administrative review of the countervailing duty order on oil country

tubular goods (OCTG) from Argentina. For information on the net

subsidy, see the Preliminary Results of Review section of this notice.

If the final results remain the same as these preliminary results of

administrative review, we will instruct the U.S. Customs Service to

assess countervailing duties as indicated in the Preliminary Results of

Review section of this notice. Interested parties are invited to

comment on these preliminary results.

EFFECTIVE DATE: June 13, 1997.

FOR FURTHER INFORMATION CONTACT:

Richard Herring, Office of CVD/AD Enforcement VI, Import

Administration, International Trade Administration, U.S. Department of

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

20230; telephone: (202) 482-4149.

SUPPLEMENTARY INFORMATION:

Background

On November 27, 1984, the Department published in the Federal

Register (49 FR 46564) the countervailing duty order on oil country

tubular goods (OCTG) from Argentina. On November 5, 1992, the

Department published a notice of ``Opportunity to Request an

Administrative Review'' (57 FR 52758) of this countervailing duty

order. We received a timely request for review from the U.S. Steel

Group, a unit of USX Corporation.

We initiated the review, covering the period January 1, 1991

through December 31, 1991, on December 29, 1992 (57 FR 61873). The

review covers one producer/exporter, Siderca, which accounts for all

exports of the subject merchandise from Argentina, and 20 programs.

On September 17, 1993, the Department received allegations

regarding new subsidies from the petitioner in the concurrent 1991

administrative review of cold-rolled carbon steel flat-rolled products

from Argentina. After a careful review of the allegations, the

Department decided that sufficient information was provided regarding

alleged benefits provided under two new programs. These programs were

alleged tax concessions provided to the steel industry under the April

11, 1991 Steel Agreement signed between the Government of Argentina and

the Argentine steel industry, and preferential natural gas and

electricity rates also provided under the Steel Agreement. Although

these allegations were not made in this administrative review of OCTG,

the allegations did pertain to the steel industry in Argentina.

Therefore, the Department deemed it appropriate to seek information on

the two alleged programs in this administrative review of OCTG.

On January 1, 1995, the effective date of the Uruguay Round

Agreements Act of 1994 (the URAA), countervailing duty orders involving

World Trade Organization (WTO) signatories which had been issued

without an injury determination by the International Trade Commission

(ITC), became entitled to an ITC injury determination under section 753

of the URAA. The order on OCTG did not receive an ITC injury

investigation and Argentina was a member of the WTO. Therefore, we

determined that the countervailing duty order on the subject

merchandise was subject to section 753 of the URAA. See Countervailing

Duty Order; Opportunity to Request a Section 753 Injury Investigation,

60 FR 27963 (May 26, 1995). For the countervailing duty order on OCTG

from Argentina, the domestic interested parties exercised their right

under section 753(a) of the URAA to request an injury investigation.

The Ceramica Decision by the Court of Appeals for the Federal

Circuit

On September 6, 1995, the Court of Appeals for the Federal Circuit

in a case involving imports of Mexican ceramic tile, ruled that, absent

an injury determination by the ITC, the Department may not assess

countervailing duties under 19 U.S.C. 1303(a)(1) (1988, repealed 1994)

on entries of dutiable merchandise after April 23, 1985, the date

Mexico became ``a country under the Agreement.'' Ceramica Regiomontana

v. U.S., Court No. 95-1026 (Fed. Cir., Sept. 6, 1995) (Ceramica).

Argentina attained the status of ``a country under the Agreement''

on September 20, 1991. Therefore, in consideration of the Ceramica

decision, the Department, on April 2, 1996, initiated changed

circumstances administrative reviews of the countervailing duty orders

on Leather, Wool, OCTG, and Cold-Rolled Carbon Steel Flat-Rolled

Products (Cold-Rolled Steel) from Argentina, which were in effect when

Argentina became a country under the Agreement. See Initiation of

Changed Circumstances Countervailing Duty Administrative Reviews:

Leather from Argentina, Wool from Argentina, Oil Country Tubular Goods

from Argentina, and Cold Rolled Carbon Steel Flat Products from

Argentina (Changed Circumstances Reviews), 61 FR 14553 (April 2, 1996).

These reviews focused on the legal effect, if any, of Argentina's

status as a ``country under the Agreement,'' and whether the Department

has the authority to assess countervailing duties on these orders.

Because we had ongoing administrative reviews of the orders on OCTG and

Cold-Rolled Steel that covered review periods on or after September 20,

1991, we had to determine whether the Department had the authority to

assess countervailing duties on unliquidated entries of subject

merchandise occurring on or after September 20, 1991, when Argentina

became a ``country under the Agreement'' and before January 1, 1995,

that date that Argentina became a ``subsidies Agreement country''

within the meaning of section 701(b) of the URAA.

On April 29, 1997, the Department determined that it lacked the

authority to assess countervailing duties on entries of OCTG and Cold-

Rolled Steel from Argentina made on or after September 20, 1991 and

before January 1, 1995 (62 FR 24639; May 6, 1997). As a result we

terminated the pending administrative reviews of the countervailing

duty order on OCTG covering 1992, 1993, and 1994, as well as the

pending administrative reviews of the countervailing duty order on

Cold-Rolled Steel covering 1992 and 1993.

However, because the 1991 review covers a period before Argentina

became a ``country under the Agreement,'' we must continue the 1991

administrative review to determine the amount of countervailing duties

to be assessed on entries made between January 1, 1991 and September

19, 1991 (i.e., up to the date Argentina became ``a country under the

Agreement.'') Pursuant to the

[[Page 32308]]

Ceramica decision, entries of subject merchandise made on or after

September 20, 1991 will be liquidated without regard to countervailing

duties.

Applicable Statute

The Department is conducting this administrative review in

accordance with section 751(a) of the Tariff Act of 1930, as amended

(the Act). Unless otherwise indicated, all citations to the statute are

in reference to the provisions as they existed on December 31, 1994.

Scope of Review

Imports covered by this review are shipments of Argentine oil

country tubular goods. These products include finished and unfinished

oil country tubular goods, which are hollow steel products of circular

cross section intended for use in the drilling of oil or gas, and oil

well casing, tubing and drill pipe of carbon or alloy steel, whether

welded or seamless, manufactured to either American Petroleum Institute

(API) or proprietary specifications. During the review period this

merchandise was classifiable under item numbers 7304.20.20, 7304.20.40,

7304.20.50, 7304.20.60, 7304.20.70, 7304.20.80, 7304.39.00, 7304.51.50,

7304.59.60, 7304.59.80, 7304.90.70, 7305.20.40, 7305.20.60, 7305.20.80,

7305.31.40, 7305.31.60, 7305.39.10, 7305.39.50, 7305.90.10, 7305.90.50,

7306.20.20, 7306.20.30, 7306.20.40, 7306.20.60, 7306.20.80, 7306.30.50,

7306.50.50, 7306.60.70, and 7306.90.10 of the Harmonized Tariff

Schedule (HTS). The HTS numbers are provided for convenience and

Customs purposes. The written description of the scope remains

dispositive.

Verification

As provided in section 776 of the Act, we verified information

submitted by the Government of Argentina (GOA) and Siderca. We followed

standard verification procedures, including meeting with government and

company officials, examining relevant accounting and financial records

and other original source documents. Our verification results are

outlined 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).

Calculation Methodology for Assessment and Cash Deposit Purposes

Because Siderca accounts for virtually all exports of OCTG from

Argentina during the period of review, the subsidy rate calculated for

Siderca constitutes the country-wide rate.

Analysis of Programs

I. Programs Conferring Subsidies

A. Programs Previously Determined to Confer Subsidies

1. Government Counterguarantees

In 1986, Siderca began to receive funds from an Inter-American

Development Bank (IADB) loan. This loan was guaranteed by the Banco

Nacional de Desarollo (BANADE). In order to satisfy the IADB's lending

requirements, the GOA provided a counterguarantee to BANADE's

guarantee, which assured the IADB that the government would reimburse

BANADE if Siderca defaulted on the loan and BANADE was required to make

the payments. This counterguarantee was provided under the authority of

Law 16,432/61 (Article 48), which allows the GOA to back loans to

public and private enterprises if the monies will be used for projects

the government deems fundamental for the economic development of the

country. Because Siderca was able to acquire the counterguarantee, it

was able to negotiate a 50 percent reduction in the rate charged by

BANADE for the primary loan guarantee. This program was found

countervailable in the 1989 administrative review of this order (see

Oil Country Tubular Goods From Argentina, Final Results of

Countervailing Duty Administrative Review, 56 FR 64493 (December 10,

1991) (1989 OCTG Review)). No new information or evidence of changed

circumstances has been submitted in this proceeding to warrant

reconsideration of this program's countervailability.

As we stated in the 1989 OCTG Review, the Department does not

consider loans provided by international lending institutions, such as

the IADB, to be countervailable under the U.S. countervailing duty law.

However, we do consider that government action taken in connection with

such loans is within the purview of the U.S. countervailing duty law.

By not charging Siderca a fee for the counterguarantee, despite the

fact that a fee is usually charged for a loan guarantee in Argentina,

the government took an action that was inconsistent with commercial

considerations. The Department further stated that the benefit from the

counterguarantee is not the difference between the interest rate on the

IADB loan and a commercial benchmark loan because this type of

methodology would be tantamount to countervailing the IADB loan itself.

We concluded in the 1989 OCTG Review that the commercial alternative to

Siderca would have been to pay the full amount for the guarantee fee

charged by BANADE.

To calculate the benefit under this program, we compared the amount

of fees Siderca would have paid for the BANADE loan guarantee absent

the GOA counterguarantee and subtracted from the amount the actual

amount of fees it did pay during the period of review. We then divided

the resultant amount by Siderca's total sales during 1991. On this

basis, we preliminarily determine the ad valorem subsidy to be 0.05

percent for the period of review.

2. Pre-shipment Export Financing

The Central Bank of Argentina provided pre-export financing through

a program known as OPRAC-1, as amended by Central Bank Resolution A-

1205. Under Resolution A-1205, OPRAC pre-export financing provided 180-

day loans with an additional 60 days for repayment. Under this program,

two types of pre-shipment export financing were available: ``internal

lines'' from Central Bank resources and ``external lines'' from foreign

banks. For ``external lines'' pre-shipment export financing, the

Central Bank provided a portion of the interest rate, usually three

percent, to the private banks as an incentive to extend these lines of

credit to exporters. Exporters negotiated the terms of this financing

directly with the commercial banks and the Central Bank would then

provide the three percent incentive payment to the bank. We found pre-

shipment export financing under OPRAC-1 countervailing in the 1987

administrative review of Certain Cold-Rolled Carbon Steel Flat-Rolled

Products From Argentina; Final Results of Countervailing Duty

Administrative Review, 56 FR 28527 (June 21, 1991) (1987 Cold-Rolled

Steel Review). No new information or evidence of changed circumstances

has been submitted to warrant reconsideration of this program's

countervailability.

Under this program, Siderca received pre-shipment export loans

under ``external lines'' of financing provided by commercial banks.

Under this financing program, commercial banks could reduce their

lending rates to exporters and keep the three percent interest rebates,

or the banks could maintain the commercial interest rates and pass on

the rebate from the Central Bank to the exporter. Siderca received

loans under this program from January 1, 1991 through March 8, 1991,

when the OPRAC program was suspended under Central Bank Communication

A-1807.

Siderca struck deals with the commercial banks stipulating that the

[[Page 32309]]

intervening commercial bank would pass the three percent rebate to

Siderca, while at the same time raising the nominal interest rate

charged to Siderca for the pre-shipment loan. Siderca would receive the

three percent rebate, in australes, several months after the term of

the loan. We verified that Siderca received pre-shipment export

financing tied to shipments to specific markets, including exports of

OCTG to the United States. Therefore, to calculate the benefit under

this program during period of review, we calculated the difference

between the commercial interest rates charged by the commercial banks

and the net interest rates paid by Siderca after taking into account

the three percent interest rebates. We then took the interest savings

received by Siderca on its pre-shipment export loans for OCTG exports

to the United States and divided that amount by the company's export

sales of OCTG to the United States. On this basis, we preliminarily

determine the ad valorem subsidy to be 0.18 percent for this program

during the period of review.

3. Rebate of Indirect Taxes (Reembolso/Reintegro)

The Reembolso program provides a cumulative tax rebate paid upon

export and is calculated as a percentage of the f.o.b. invoice price of

the exported merchandise. The Department will find that the entire

amount of any such rebate is countervailable unless the following

conditions are met: (1) The program operates for the purpose of

rebating prior stage cumulative indirect taxes and/or import charges;

(2) the government accurately ascertained the level of the rebate; and

(3) the government reexamines its schedules periodically to reflect the

amount of actual indirect taxes and/or import charges paid. In prior

investigations and administrative reviews of the Argentina Reembolso

program, the Department determined that these conditions have been met,

and, as such, the entire amount of the rebate has not been

countervailed (see, e.g., Cold Rolled Carbon Steel Flat-Rolled Products

from Argentina, Final Results of Countervailing Duty Administrative

Review (56 FR 28527; June 21, 1991); Oil Country Tubular Goods from

Argentina, Final results of Countervailing Duty Administrative Review

(56 FR 64493; December 10, 1991).

However, once a rebate program meets this threshold, the Department

must still determine in each case whether there is an overrebate; that

is, the Department must still analyze whether the rebate exceeds the

total amount of indirect taxes and import duties borne by inputs that

are physically incorporated into the exported product. If the rebate

exceeds the amount of allowable indirect taxes and import duties on

physically incorporated inputs, the Department will find a

countervailable benefit equal to the difference between the Reembolso

rebate rate and the allowable rate determined by the Department (i.e.,

the overrebate).

To determine whether there was an overrebate during the review

period, the Department requested the GOA to provide information on any

changes to the Reembolso program for OCTG. We verified that the

Reembolso program continue to be governed by Decree 1555/86, which

modified the program and set precise guidelines to implement the refund

of indirect taxes and import charges. This decree established three

broad rebate levels covering all products and industry sectors. The

rates for levels I, II, and III were 10 percent, 12.5 percent, and 15

percent respectively. The rebate rate for OCTG was at level II at 12.5

percent.

In April 1989, the GOA suspended cash payments of rebates under the

Reembolso program. Pursuant to the Emergency Economic Law dated

September 25, 1989 (Law 23,697), the suspension of cash payments was

continued for an additional 180 days. Rebates accrued during the

suspension period were paid in export credit bonds. On March 4, 1990,

the entire program was suspended for 90 days by Decree 435/90. Decree

1930/90 suspended payments of the reembolso for an additional 12-month

period. Decree 612/91 issued April 10, 1991, reinstated cash payments

under the program, but reduced the rates of reimbursement by 33 percent

for all products. Therefore, the rebate for OCTG was reduced from 12.5

to 8.3 percent.

In May 1991, Decree 1011/91 was issued. This decree changed the

legal structure of the program. Decree 1011/91 changed the rebate

system to cover only the reimbursements of indirect local taxes and

does not cover import duties, except reimbursement of duties paid on

imported products which are re-exported. Decree 1011/91 also set the

reembolso rate as that in Decree 612/91. Therefore, during the period

of review, rebates were suspended from January through April 10, 1991,

and the rebate rate applicable to OCTG exports was 8.3 percent for the

rest of the review period.

To determine whether there were overrebates under this program in

1991, we calculated the allowable tax incidence for the subject

merchandise for that period. This calculation of the allowable tax

incidence was based on a 1991 tax incidence study. We made adjustments

in our calculation of the allowable tax incidence for items we

determined not to be physically incorporated into the exported OCTG. We

then compared this calculation of the allowable tax incidence to the

Reembolso rebate of 8.3 percent received on OCTG exports. Based on this

comparison, we found that the rebate of taxes did not exceed the total

amount of allowable cumulative indirect taxes and/or import charges

paid on physically incorporated inputs, and prior stage indirect taxes

levied on the exported product at the final stage of production.

Therefore, we preliminarily determine that there was no benefit from

this program during the review period.

B. New Program Preliminarily Found to Confer Subsidies Preferential

Electricity Tariff Rates

Until April 1991, the tariff rates for electricity were set by the

government. On April 17, 1991, the GOA published Decree 634/91 which

provided for the deregulation of the electricity industry in Argentina.

This Decree created two market levels for electricity in Argentina, the

wholesale market and the retail market. The wholesale market was

comprised of the producers, generators, and distributors of electricity

as well as the large individual consumers of electricity. Under Decree

634, the producers and generators would sell electricity through a

central dispatch agency. The distributors would then purchase the

electricity from this central dispatch agency for delivery to the

individual consumer. In order to encourage competition within the

wholesale market, a large individual consumer could negotiate a

contract with any utility company within the country.

Although large consumers could negotiate contracts for electricity

in the wholesale market, the tariff rates charged to individual

consumers in the retail market were still set by the government.

However, the GOA also took steps to reduce tariff rates in the retail

market. On March 27, 1991, the Ministry of Economy published Resolution

194/91 which set new reduced tariff rates for electricity in the retail

market in Argentina. These rates applied to residential, commercial and

industrial consumers in the retail market for electricity purchased

from nationally-owned utility companies.

During the review period, Siderca's price for electricity was set

by two different contracts. From January 1, 1991 through March 31,

1991, Siderca's electricity rates were set in a contract

[[Page 32310]]

signed with Direccion de Energia de Buenos Aires (DEBA), a branch of

the Ministry of Works and Public Utilities of the Province of Buenos

Aires. After this contract was signed in 1990, DEBA was split into two

entities, Empresa Social de Energia de Buenos Aires (ESEBA), which was

responsible for providing electricity to the Province of Buenos Aires

and for setting the tariff rates, and DEBA, which was responsible for

approving ESEBA's tariff rates.

In April 1991, because of the amount of electricity consumed by

Siderca, it qualified as a ``large consumer'' in the wholesale market

under Decree 634/91. Therefore, Siderca was eligible to have its tariff

rate for electricity determined by negotiations with utility companies.

Siderca negotiated and signed an individual contract with ESEBA for the

provision of electricity. The effective date of this contract was April

1, 1991. The rates set by the ESEBA contract applied for the rest of

the period of review. Because Siderca's electricity rate during the

period of review was not set by a published tariff schedule but by

individual contracts signed with each utility company, we must

determine whether the electricity rates paid by Siderca under the DEBA

and ESEBA contracts were preferential.

Prior to the effective date of April 1, 1991 for the ESEBA

contract, Siderca's price for electricity was determined by a contract

which was signed between Siderca and DEBA. Under the DEBA contract, the

price of 70 percent of Siderca's monthly electricity consumption was

set by the published tariff rates, while the remaining portion was set

by the price in the contract. This pricing scheme was provided by DEBA

to other companies in the Province of Buenos Aires in contracts

identical to the one signed with Siderca. The DEBA contract was signed

on July 12, 1990, and remained in effect until March 31, 1991.

Although individually tailored company contracts with government-

owned utility companies are, by definition, specific under section

771(5)(A) of the Act, we must examine the issue of specificity with

respect to the DEBA contract because the DEBA contract did not provide

an individually-tailored company-specific rate like the rate provided

in the ESEBA contract. Instead, the DEBA contract provided the same

electricity rate to all the companies which signed a contract identical

to the one signed between Siderca and DEBA. Therefore, we must examine

the group of companies which signed identical contracts to determine

whether the DEBA contract is specific under section 771(5)(A) of the

Act.

During our examination of the DEBA contracts at verification, we

found that only a very small number of companies had a contract

identical to the one signed between Siderca and DEBA (see verification

report (public version) at page 17). Therefore, we preliminarily

determine that the DEBA contract is specific under section 771(5)(A) of

the Act. To determine whether the rates under the DEBA contract were

preferential, we compared the rates of electricity in the DEBA contract

to the rates in the published tariff schedule for large users. Based

upon this comparison, we find that the rates in the DEBA contract are

preferential. Therefore, we preliminarily determine that the

electricity rates provided to Siderca under the DEBA contract are

countervailable.

To calculate the benefit under this program, we calculated the

difference between the price of electricity Siderca would have paid

based on the published tariff schedule and the price of electricity the

company actually paid under the DEBA contract. We then divided the

difference by Siderca's total sales in 1991 and calculated an ad

valorem subsidy rate of 0.26 percent for the period of review. We next

had to examine whether the ESEBA contract was countervailable.

An individually tailored contract with a government-owned utility

company is by definition specific under section 771(5)(A) of the Act;

however, in order for the contract to be countervailable, the rates

provided under the contract must be preferential. The preferentiality

of individual electricity contracts was an issue in the Final

Affirmative Countervailing Duty Determinations: Pure Magnesium and

Alloy Magnesium from Canada, 57 FR 30946 (July 13, 1992), and in the

Final Results of Changed Circumstances Administrative Reviews: Pure

Magnesium and Alloy Magnesium from Canada). Magnesium from Canada

described the Department's approach to evaluating whether electricity

is being provided on preferential terms.

The first step the Department takes in analyzing the potential

preferential provision of electricity is to compare the price charged

in the contract with the applicable rate on the utility company's non-

specific rate schedule. If the amount of electricity purchased by the

company is so great that the rate schedule is not applicable, the

Department will examine whether the price charged in the contract is

consistent with the utility company's standard pricing mechanism. If

the rate charged is consistent with the utility company's standard

pricing mechanism, and the company under investigation or review is, in

all other respects, treated no differently than other industries which

purchase comparable amounts of electricity, then there would be no

apparent basis to find the contract preferential.

In Magnesium from Canada, the utility company's published tariff

schedule did not provide rates for electricity consumers the size of

Norsk Hydro Canada Inc. (NHCI), the respondent in that investigation.

Therefore, in determining whether NHCI's contract was preferential, the

Department had to examine the utility company's standard pricing

mechanism. However, in the instant review, we do not need to examine

the utility company's standard pricing mechanism because the published

tariff rates are applicable to all large users regardless of the amount

of electricity consumed by the individual large user. Therefore, we

have analyzed the Siderca contract with ESEBA by comparing the price

charged with an applicable tariff rate schedule.

As previously stated, Decree 634/91 started the deregulation of the

electricity market in Argentina. Under this decree, large consumers,

such as Siderca, were free to negotiate individual electricity

contracts with any utility company in the country. While the GOA was

allowing large consumers to negotiate contracts in the wholesale

electricity market, the GOA also reduced the published tariff rates for

electricity with the publication of the Ministry of Economy's

Resolution 194/91. Resolution 194/91 set the tariff rates for all

nationally-owned utility companies in the country. However, these new

rates were not applicable to ESEBA because ESEBA was a provincially-

owned utility company.

Although Resolution 194/91 for national tariff rates did not apply

to ESEBA, these rates were available to Siderca because under Decree

634/91 it could sign a contract for electricity with any nationally-

owned utility company in Argentina. Therefore, to determine whether the

Siderca contract with ESEBA provided a preferential rate for

electricity to Siderca, we compared the electricity rate provided in

the ESEBA contract to the published tariff rates in Resolution 194/91

which were in effect during the same time as the ESEBA contract. Based

on this comparison, we find that the rates in the ESEBA contract are

equal to or higher than the published national tariff rates in

Resolution 194/91. Therefore, we preliminarily determine that the

contract Siderca signed with ESEBA did not provide electricity at

preferential

[[Page 32311]]

rates to Siderca and, thus, is not counterviable.

However, we note that this contract expired in 1992, and another

contract between Siderca and ESEBA was subsequently negotiated and

signed in September 1992, outside the period of review. Because the

rates negotiated in the 1992 contract were lower than the rates in the

contract in effect during 1991, we will have to reexamine this program

in any subsequent administrative review of this order.

II. Program Preliminarily Found Not to Confer Subsidies

Preferential Natural Gas Tariffs

According to the GOA, at the end of 1990, Argentina was emerging

from an extended period of hyperinflation. The GOA believed that

deregulating and privatizing the large, state-owned utility companies

would lead to price stability by introducing competition in the market.

The beginning of this deregulation can be found with the passage of

Decree 633. Also, within this context, the GOA entered into sectoral

agreements with Argentine industries in order to secure commitments

from industries that they would hold down prices charged to their

customers in order to stabilize the inflation rate within the economy.

In exchange for this commitment, the GOA committed itself to broad-

based economic reforms, including the maintenance of stable energy

prices.

In early 1991, the GOA began the first steps towards deregulating

the natural gas market in Argentina. Until April 1991, the GOA set and

regulated the tariff rates for natural gas in the country. Prices for

natural gas could not deviate from those prices set by the Economy

Minister. In April 1991, with the enactment of Decree 633, two separate

markets for natural gas were created. The first market was the

wholesale market which covered transactions between producers and

distributors as well as between producers and large users of natural

gas. The other market created by Decree 633 was the retail market which

covered sales to residential and commercial consumers. Under Decree

633, companies in the wholesale market were permitted to engage in

negotiations and to enter into individual contracts for natural gas.

For the period January 1, 1991 through March 31, 1991, the rates

for natural gas paid by Siderca were set through the issuance of tariff

schedules. Gas del Estado (GdE) was the sole provider of natural gas

through this period. After March 31, 1991, Siderca no longer had its

natural gas rates set by tariff resolutions. With the deregulation of

the natural gas market under Decree 633, large consumers in the

wholesale market could negotiate contracts for natural gas. Siderca,

being one of the largest consumers of natural gas in the country, was

one of the first industrial consumers to negotiate a separate contract

for natural gas.

Because Siderca was a large consumer for natural gas, it qualified

as a consumer in the wholesale market. On June 28, 1991, Siderca

entered into a requirements contract with GdE, which was made

retroactive to April 1, 1991, and remained in effect throughout 1991,

the period of review. Under the contract arrangement, Siderca would

purchase natural as from a privately-owned company, TECPETROL, and then

Siderca would pay GdE for transportation of the natural gas from

TECPETROL. Under the contract, there were two different rates for

transportation, one rate for the winter and another rate for the rest

of the year. If TECPETROL could not supply enough gas to meet all of

Siderca's requirements, then, under GdE contract, Siderca would

purchase natural gas from GdE to make up the shortfall, at a specified

contract rate plus a commission.

The GdE contract provided rates for both the transportation of

natural gas and for the supply of natural gas. Therefore, we must

determine whether a countervailable benefit was provided to Siderca

either in the form of preferential transportation rates or preferential

natural gas rates. In order for a non-export program to be

countervailable it must meet both the test for specificity and

preferentiality. Specificity requires that the program be limited to an

enterprise or industry or group of enterprises or industries under

section 771(5)(b) of the Act. Because an individually negotiated

contract price with a government-owned utility is, by definition,

specific to the individual negotiating the contract, we must examine

whether the transportation and tariff rate for natural gas provided to

Siderca under the GdE contract are preferential to determine whether

this program is countervailable. If these rates are not preferential,

then the program is not countervailable. If the rates are preferential,

then the program is countervailable.

To determine whether a government has provided a good or service,

such as natural gas, at preferential rates, the Department generally

measures that rate against a nonspecific tariff rate against a

nonspecific tariff rate charged to other users of that good or service

by the government, or to rates charged for an identical good or service

from a private provider. However, in prior cases involving the

provision of natural gas or electricity, we have stated that the tariff

schedule rate is not necessarily the appropriate benchmark to determine

whether a contracted rate is preferential. See, e.g., Magnesium from

Canada. We stated in Magnesium from Canada that if the amount of

electricity purchased by a company is so great that the rate schedule

is not applicable, we will examine whether the rate charged in a

contract is preferential by determining whether the rate is consistent

with the utility company's standard pricing mechanism. If the rate

charged in a contract is consistent with the standard pricing mechanism

used by the utility company to set its tariff rates, then the contract

rate is not preferential. Therefore, under the practice set forth in

Magnesium from Canada, if the contract price is set in a manner

consistent with the utility company's standard pricing mechanism for

setting tariffs, then the contract rate does not provide a

countervailable benefit.

Two years prior to our verification, GdE was privatized. In 1992,

two private transporters and eight private distributors purchased the

assets of GdE. After its privatization, the cost structure studies used

by GdE to propose its tariff rate schedules were destroyed or thrown

away. Therefore, we are unable to determine whether GdE used its

standard pricing methodology to negotiate its rates and tariffs with

companies in the wholesale market. However, the Department may

determine whether the provision of a good or service is preferential by

comparing the price charged by the government to a price charged by

private sellers to buyers in the market for an identical good or

service.

Therefore, in order to determine whether the price charged to

Siderca for natural gas under the GdE contract is preferential, we

compared that price to the price of natural gas charged to Siderca from

private companies. In 1991, after the enactment of Decree 633, Siderca

also entered into a contract to purchase natural gas from a private

producer, TECPETROL. We compared the price of natural gas charged to

Siderca from TECPETROL to the price of natural gas charged to Siderca

by GdE. Based on this comparison, we determine that the price of

natural gas charged by GdE was not preferential and, thus, not

countervailable during the review period.

We next had to determine whether the transportation rates for

natural gas specified in the GdE contract were preferential. During

1991, there were no

[[Page 32312]]

private transporters of natural gas in Argentina. GdE was the sole

transporter of natural gas in the country. In addition, there were no

separate transportation rates for natural gas in the country until

after 1992. During our review period, the published tariff rates for

natural gas included the cost for the natural gas, its transportation,

and its distribution.

Therefore, because there were no separate rates for transportation

in Argentina during the period of review, to determine whether the

transportation rates for natural gas charged to Siderca under the GdE

contract were preferential, we compared those prices to the

transportation cost study conducted by an independent consulting firm,

Stone & Webster. Stone & Webster were technical advisors to the GOA in

the privatization of GdE.

This Stone & Webster cost study detailed the cost of transporting

natural gas from the gas fields to Siderca's plant. We compared the

transportation cost detailed in the Stone & Webster study to the price

negotiated in the GdE contract. Based upon this comparison, we

determined that the price charged to Siderca for transportation of

natural gas under the GdE contract was much higher than the gas

company's costs and provided a large profit for GdE. Therefore, we

preliminarily determine that the transportation rates charged to

Siderca in the GdE contract were not preferential, and thus not

countervailable, during the review period.

III. Programs Preliminary Found Not To Be Used

We examined the following programs and preliminary find that the

producers and/or exporters of the subject merchandise did not apply for

or receive benefits under these programs during the period of review:

Medium- and Long-Term Loans

Capital Grants

Income and Capital Tax Exemptions

Government Trade Promotion Programs

Exemption from Stamp Taxes Under Decree 186/74

Incentives for Trade (Stamp Tax Exemption Under Decree

716)

Incentive for Export

Export Financing Under OPRAC 1, Circular RF-21

Pre-Financing of Exports Under Circular RF-153

Loan Guarantees

Post-Export Financing Under OPRAC 1-9

Debt Forgiveness

Tax Deduction Under Decree 173/85

IV. Program Preliminarily Found Not to Exist

Tax Concessions for the Steel Industry

Petitioners alleged that under Paragraph 8 of the April 11, 1991

Steel Agreement between the GOA and Argentine steel producers that the

GOA provides the steel industry with tax concessions. According to the

response of the GOA, Paragraph 8 of the Steel Agreement does not

provide tax concessions to the steel industry but merely states that

the industry's Reembolso level will be studied taking into account the

tax incidence of steel producers. For information on the Reembolso/

Reintegro program, see the program ``Rebate of Indirect Taxes,'' above.

Therefore, we preliminarily determine that there were no new tax

concessions provided to the steel industry under the Steel Agreement.

Preliminary Results of Review

For the period January 1, 1991 through December 31, 1991, we

preliminarily determine the net subsidy to be 0.49 percent ad valorem.

If the final results of this review remain the same as these

preliminary results, the Department intends to instruct the U.S.

Customs Service to assess countervailing duties of 0.49 percent ad

valorem on entries of the subject merchandise covered by this

administrative review for the period January 1, 1991 through September

19, 1991, and to liquidate all entries made on or after September 20,

1991 through December 31, 1991, without regard to countervailing

duties.

Parties to the proceeding may request disclosure of the calculation

methodology and interested parties may request a hearing not later than

10 days after the date of publication of this notice. Interested

parties may submit written arguments in case briefs on these

preliminary results within 30 days of the date of publication. Rebuttal

briefs, limited to arguments raised in case briefs, may be submitted

seven days after the time limit for filing the case brief. Parties who

submit argument in this proceeding are requested to submit with the

argument (1) a statement of the issue and (2) a brief summary of the

argument. Any hearing, if requested, will be held seven days after the

scheduled date for submission of rebuttal briefs. Copies of case briefs

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 355.38(e).

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

later than 10 days after the representative's client or employer

becomes a party to the proceeding, but in no event later than the date

the case briefs, under section 355.38(c), are due.

The Department will publish the final results of this

administrative review including the results of its analysis of issues

raised in any case or rebuttal brief or at a hearing.

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.

Dated: June 4, 1997.

Robert S. LaRussa,

Acting Assistant Secretary for Import Administration.

[FR Doc. 97-15607 Filed 6-12-97; 8:45 am]

BILLING CODE 3510-DS-M