Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From the United Kingdom; Final Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-412-811]

Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From

the United Kingdom; Final Results of Countervailing Duty Administrative

Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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SUMMARY: On April 7, 1997, the Department of Commerce (the Department)

published in the Federal Register its preliminary results of

administrative review of the countervailing duty order on certain hot-

rolled lead and bismuth carbon steel products (lead bar) from the

United Kingdom for the period January 1, 1995 through December 31, 1995

(62 FR 16555). The Department has now completed this administrative

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

amended. For information on the net subsidy for each reviewed company,

and for all non-reviewed companies, please see the Final Results of

Review section of this notice. We will instruct the U.S. Customs

Service to assess countervailing duties as detailed in the Final

Results of Review section of this notice.

EFFECTIVE DATE: October 14, 1997.

FOR FURTHER INFORMATION CONTACT: Christopher Cassel or Suzanne King,

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)

482-2786.

SUPPLEMENTARY INFORMATION:

Background

Pursuant to 19 CFR 355.22(a), this review covers only those

producers or exporters of the subject merchandise for which a review

was specifically requested. Accordingly, this review covers British

Steel Engineering Steels Limited (BSES) (formerly United

[[Page 53307]]

Engineering Steels Limited (UES)), and British Steel plc (BS plc). This

review also covers the period January 1, 1995 through December 31,

1995.

Since the publication of the preliminary results on April 7, 1997

(62 FR 16555), the following events have occurred. We invited

interested parties to comment on the preliminary results. On May 7,

1997, case briefs were submitted by BSES, which exported lead bar to

the United States during the review period (respondent), and Inland

Steel Bar Company (petitioner). On May 14, 1997, rebuttal briefs were

submitted by petitioner and respondent. Pursuant to section 751(a)(3)

of the Tariff Act of 1930, we extended the due date for the final

results to no later than 180 days after the publication of the

preliminary results. See Certain Hot-Rolled Lead and Bismuth Carbon

Steel Products from the United Kingdom; Extension of Time Limit for

Countervailing Duty Administrative Review, 62 FR 39824 (July 24, 1997).

Applicable Statute

Unless otherwise indicated, all citations to the statute are

references to the provisions of the Tariff Act of 1930, as amended by

the Uruguay Round Agreements Act (URAA) effective January 1, 1995 (the

Act). The Department is conducting this administrative review in

accordance with section 751(a) of the Act. In addition, unless

otherwise indicated, all citations to the Department's regulations are

to the regulations as set forth at 19 CFR 355.1, et seq., as amended by

the interim regulations published in the Federal Register on May 11,

1995 (60 FR 25130).

Scope of the Review

Imports covered by this review are hot-rolled bars and rods of non-

alloy or other alloy steel, whether or not descaled, containing by

weight 0.03 percent or more of lead or 0.05 percent or more of bismuth,

in coils or cut lengths, and in numerous shapes and sizes. Excluded

from the scope of this review are other alloy steels (as defined by the

Harmonized Tariff Schedule of the United States (HTSUS) Chapter 72,

note 1 (f)), except steels classified as other alloy steels by reason

of containing by weight 0.4 percent or more of lead or 0.1 percent or

more of bismuth, tellurium, or selenium. Also excluded are semi-

finished steels and flat-rolled products. Most of the products covered

in this review are provided for under subheadings 7213.20.00.00 and

7214.30.00.00 of the HTSUS. Small quantities of these products may also

enter the United States under the following HTSUS subheadings:

7213.31.30.00, 60.00; 7213.39.00.30, 00.60, 00.90; 7214.40.00.10,

00.30, 00.50; 7214.50.00.10, 00.30, 00.50; 7214.60.00.10, 00.30, 00.50;

and 7228.30.80. Although the HTSUS subheadings are provided for

convenience and for Customs purposes, our written description of the

scope of this proceeding is dispositive.

Verification

As provided in section 782(i) of the Act, we verified information

submitted by the European Commission, the Government of the United

Kingdom, British Steel plc, and British Steel Engineering Steels. We

followed standard verification procedures, including meeting with

government and company officials and examining relevant accounting and

financial records and other original source documents. Our verification

results are outlined in the public versions of the verification reports

(on file in the Central Records Unit, Room B-099 of the Department of

Commerce).

Facts Available

Section 776(a)(2) of the Act requires the Department to use facts

available if ``an interested party or any other person * * * withholds

information that has been requested by the administering authority * *

* under this title.'' The facts on the record show that British Steel

plc received assistance during the period of review (POR) under the

European Union BRITE/EuRAM program. The facts also show that this

assistance was unreported in the questionnaire response,

notwithstanding a specific question on this program in the Department's

questionnaire. See the March 31, 1997, Memorandum for Acting Assistant

Secretary, Re: Facts Available for New Subsidies Discovered at

Verification (1995) (public document on file in the Central Records

Unit, Room B-099 of the Department of Commerce).

Section 776(b) of the Act permits the administering authority to

use an inference that is adverse to the interests of an interested

party if that party has ``failed to cooperate by not acting to the best

of its ability to comply with a request for information.'' Such an

adverse inference may include reliance on information derived from (1)

the petition, (2) a final determination in the investigation under this

title, (3) any previous review under section 751 or determination under

section 753 regarding the country under consideration, or (4) any other

information placed on the record. Because respondents were aware of the

requested information but did not comply with the Department's request

for such information, we find that respondents failed to cooperate by

not acting to the best of their ability to comply with the Department's

request. Therefore, we are using adverse inferences in accordance with

section 776(b) of the Act. The adverse inference is a finding that the

BRITE/EuRAM program is specific under section 771(5A) of the Act, and

that the amount of each grant received by BS plc constitutes a

financial contribution which benefits the recipient. As such, these

grants are countervailable. This finding conforms with the Department's

facts available determination in the Final Affirmative Countervailing

Duty Determination; Certain Pasta From Turkey, 61 FR 30366, 30367 (June

14, 1996).

Change in Ownership

I. Background and Analysis

On March 21, 1995, British Steel plc (BS plc) acquired all of

Guest, Keen & Nettlefolds' (GKN) shares in United Engineering Steels

(UES), the company which produced and exported the subject merchandise

to the United States during the original investigation. Thus, during

the POR, UES became a wholly-owned subsidiary of BS plc and was renamed

British Steel Engineering Steels (BSES).

Prior to this change in ownership, UES was a joint venture company

formed in 1986 by British Steel Corporation (BSC), a government-owned

company, and GKN. In return for shares in UES, BSC contributed a major

portion of its Special Steels Business, the productive unit which

produced the subject merchandise. GKN contributed its Brymbo Steel

Works and its forging business to the joint venture. BSC was privatized

in 1988 and now bears the name BS plc.

In the investigation of this case, the Department found that BSC

had received a number of untied subsidies prior to the 1986 transfer of

the Special Steels Business to UES. See Final Affirmative

Countervailing Duty Determination: Certain Hot-Rolled Lead and Bismuth

Carbon Steel Products From the United Kingdom, 58 FR 6237, 6243

(January 27, 1993) (Lead Bar). Further, the Department determined that

the sale to UES did not alter these previously bestowed subsidies, and

thus the portion of BSC's pre-1986 subsidies attributable to its

Special Steels Business transferred to UES. Lead Bar at 6240.

[[Page 53308]]

In this review, we determine that BS plc's acquisition of GKN's

shares in UES does not affect the countervailability of previously

bestowed subsidies which were assigned to UES. However, we also

determine that a portion of the purchase price paid by BS plc for UES

is attributable to its prior subsidies. Therefore, we are reducing the

amount of the subsidies that ``travel'' with UES to BS plc, taking into

account the allocation of subsidies to GKN, the former joint-owner of

UES. See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From

the United Kingdom; Preliminary Results of Countervailing Duty

Administrative Review, 62 FR 16555, 16556 (April 7, 1997) (Preliminary

Results).

To calculate the amount of UES's subsidies that travel to BS plc as

a result of the March 21, 1995, acquisition, we are applying the

methodology described in the ``Restructuring'' section of the General

Issues Appendix (GIA) appended to Final Countervailing Duty

Determination: Certain Steel Products from Austria, 58 FR 37217, 37268-

37269 (July 9, 1993) (Austrian Steel). This determination is in

accordance with our change-in-ownership findings in Final Affirmative

Countervailing Duty Determination; Certain Pasta From Italy, 61 FR

30288, 30289-30290 (June 14, 1996) (Certain Pasta From Italy), and with

our finding in the 1994 administrative review of this case, in which we

determined that ``[t]he URAA is not inconsistent with and does not

overturn the Department's General Issues Appendix methodology or its

findings in the Lead Bar Remand Determination.'' Certain Hot-Rolled

Lead and Bismuth Carbon Steel Products From the United Kingdom; Final

Results of Countervailing Duty Administrative Review, 61 FR 58377,

58379 (November 14, 1996) (1994 UK Bar Final).

We further determine in this review that it is appropriate to

attribute the current benefit from BS plc's untied, nonrecurring

subsidies to BS plc's consolidated sales of domestically produced

merchandise, including the sales of BSES, for purposes of calculating

the countervailing duty rate for the subject merchandise. As a

consolidated, wholly-owned subsidiary of BS plc, BSES now benefits from

the remaining benefit stream of BS plc's untied nonrecurring subsidies.

See Preliminary Results, 62 FR at 16556.

II. Assignment of Countervailing Duty Rates

As noted above, the acquisition of UES did not take place until

March 21, 1995. Thus, until March 21, 1995, the subject merchandise was

produced and exported by the independent joint-venture company, UES.

Therefore, as discussed in the Department's Position under Comment 6,

below, we are assigning a separate countervailing duty assessment rate

for exports by UES for the period prior to BS plc's acquisition of

GKN's shares in UES. This period is January 1, 1995 through March 20,

1995. For the period March 21, 1995 through December 31, 1995, after

UES became a wholly-owned subsidiary of BS plc, we are assigning a

countervailing duty assessment rate for BS plc/BSES/UES that reflects

the attribution of BS plc's untied subsidies to its consolidated sales,

including sales by BSES (formerly UES). (See the Calculation

Methodology and Final Results of Review sections below.)

III. Calculation Methodology

As fully explained in the Preliminary Results, we have found it

appropriate to make two changes to the methodology used to calculate

the benefit from the nonrecurring subsidies. These changes involve (1)

the calculation of the net present value used in calculating the

subsidies which remain in subsequent periods after a change in

ownership and (2) the period of allocation for nonrecurring subsidies.

See Preliminary Results, 62 FR at 16557.

To determine the countervailing duty rate for the subject

merchandise for the period January 1, 1995 through March 20, 1995, we

used the methodology followed in prior segments of this proceeding with

the modifications identified above. Further, in calculating the

countervailing duty rate for the subject merchandise after March 21,

1995, we first determined BS plc's benefits in 1995, taking into

account all spin-offs of productive units (including the Special Steels

Business) and BSC's privatization in 1988. See Final Affirmative

Countervailing Duty Determination; Certain Steels Products from the

United Kingdom, 58 FR 37393 (July 9, 1993) (UK Steel). We then

calculated the amount of UES's subsidies that ``rejoined'' BS plc after

the March 21, 1995 acquisition, taking into account the reallocation of

subsidies to GKN. As indicated above, in determining both these

amounts, we followed the methodology outlined in the GIA. After adding

BS plc's and UES's benefits for each program, we then divided that

amount by BS plc's total consolidated sales of domestically produced

merchandise in 1995.

Analysis of Programs

Based upon the responses to our questionnaire, the results of

verification, and written comments from the interested parties we

determine the following:

I. Programs Conferring Subsidies

A. Programs Previously Determined To Confer Subsidies

The following programs were previously determined to bestow

subsidies upon BSC/BS plc and UES:

1. Equity Infusions

2. Regional Development Grant Program

3. National Loan Fund (NLF) Loan Cancellation

4. European Loan and Steel Community (ECSC) Article 54 Loans and

Interest Rebates

Our review of the record and our analysis of the comments submitted

by the interested parties, summarized below, has not led us to change

our findings from the preliminary results. Accordingly, the total net

subsidy for all of these programs for BS plc/BSES/UES is 7.35 percent

ad valorem for the period March 21, 1995 to December 31, 1995. The

total net subsidy for all of these programs for UES is 2.40 percent ad

valorem for the period January 1, 1995 through March 20, 1995.

B. New Programs Determined To Confer Subsidies

In the preliminary results, we found that the following new program

conferred countervailable benefits on the subject merchandise:

BRITE/EuRAM

Our analysis of the comments submitted by the interested parties,

summarized below, has not led us to change our findings from the

preliminary results. UES did not benefit from this program.

Accordingly, the net subsidies for this program for the period March

21, 1995 to December 31, 1995 are less than 0.005 percent ad valorem.

II. Programs Determined To Be Not Used

In the preliminary results, we found that the producers and/or

exporters of the subject merchandise subject to this review did not

apply for or receive benefits under the following programs during the

POR:

A. New Community Instrument Loans

B. ECSC Article 54 Loan Guarantees

C. NLF Loans

D. ECSC Conversion Loans

E. European Regional Development Fund Aid

F. Article 56 Rebates

G. Regional Selective Assistance

H. ECSC Article 56(b)(2) Redeployment Aid

I. Inner Urban Areas Act of 1978

J. LINK Initiative

[[Page 53309]]

K. Transportation Assistance

We did not receive any comments on these programs from the

interested parties, and our review of the record has not led us to

change our findings from the preliminary results.

III. Programs Determined To Be Terminated

In the preliminary results, we found the following program to be

terminated and that no residual benefits were being provided:

Transportation Assistance

We did not receive any comments on this program from the interested

parties, and our review of the record has not led us to change our

findings from the preliminary results.

Analysis of Comments

Comment 1: Petitioner maintains that the Department's subsidy

repayment methodology is inconsistent with the countervailing duty

statute, which requires that duties be imposed upon all subsidies paid

with respect to the production, manufacture or export of subject

merchandise. Petitioner asserts that the change in ownership of a

company conducted at fair market value does not offset the distortion

caused by the government's bestowal of the subsidy, and the production

of the merchandise continues to benefit from the subsidies. Therefore,

according to petitioner, there can be no repayment.

Petitioner further contends that the statute and the SAA require

the Department to determine the effect of a change in ownership on

previously conferred subsidies on a case-by-case basis after careful

consideration of the facts of each case. Petitioner interprets the SAA

as meaning that absent affirmative evidence of repayment, the change in

ownership of a company should not affect the benefit from prior

subsidies. Therefore, because the Department has not factually shown

that there was any repayment of subsidies to GKN as a result of BS

plc's acquisition of UES, petitioner argues that the repayment

methodology should not be applied in this case.

Moreover, petitioner argues that BS plc's purchase of GKN's shares

in UES was not a privatization, and therefore the repayment methodology

does not apply. This transaction, petitioner states, does not

materially differ from the sales of shares traded daily on the stock

market. Because the Department has never argued that repayment should

be calculated for such transactions, petitioner contends that repayment

should likewise not apply to the transaction between BS plc and GKN.

Petitioner claims that BSES is now in the same position as its

precursor, the Special Steels Business, although BSES is now an

incorporated subsidiary of BS plc instead of an unincorporated

division. Therefore, petitioner argues that the allocation of subsidies

should be the same as it was before the spin-off in 1985 and that all

of UES's subsidies should travel back to BS plc. According to

petitioner, the Department's recent Certain Pasta from Italy

determination does not affect this result, because the facts in that

case were significantly different. The pasta case involved several

producers that received subsidies prior to being purchased by other

producers, while the initial transaction is this case involved the

formation of a joint-venture company (UES) with a partner (GKN) which

had received no prior subsidies. Thus, the Department's repayment

methodology has not yet been applied in a situation where a spun-off

company is reacquired by its former parent.

Finally, petitioner asserts that the GIA methodology is not

appropriate in this situation. Although the GIA addresses corporate

restructuring, such as mergers, spin-offs, and acquisitions, it does

not address the reacquisition of a spun-off entity. Accordingly, all of

UES's subsidies should travel back to BS plc.

Respondent states that the Department's allocation of a portion of

UES's subsidies to GKN does not conflict with the countervailing duty

statute. With respect to the pre-URAA statute, respondent notes that

the U.S. Court of Appeals of the Federal Circuit found the Department's

credit methodology to be reasonable in Saarstahl AG v. United States,

78 F.3d 1539 (Fed. Cir. 1996) (Saarstahl). Respondent further argues

that this methodology is also consistent with the ``Changes in

Ownership'' provision of the URAA-amended statute, because this

provision does not preclude the Department from finding that changes in

ownership have particular effects, such as the repayment of subsidies.

According to respondent, the SAA provides the Department with further

authority to apply a general methodology to the specific facts of cases

involving changes in ownership.

Respondent also asserts that petitioner's argument that the record

must show evidence of repayment misses the point of the Department's

methodology, namely that ``the company's new owners are virtually

certain to repay at least a portion of the subsidy as part of the

purchase price.'' GIA, 58 FR at 37263.

With respect to petitioner's claim that the repayment methodology

does not apply to transactions between private shareholders, respondent

states that this is inconsistent with the Department's finding in

Certain Pasta From Italy, where the methodology was applied to such

transactions. According to respondent, the relevant fact here is not

whether the government received any repayment, but, rather, whether the

purchaser paid a price that reflected any past subsidies to the company

being acquired. Respondent further notes that petitioner's argument

that BSES is now in the same position as the Special Steels Business is

inconsistent with the Department's determination in the investigation

that UES and the Special Steels Business were separate entities.

Finally, respondent states that it is immaterial whether GKN received

any subsidies prior to the formation of UES, because the application of

the reallocation/repayment methodology does not depend on whether the

owner of a company has received any subsidies.

Department's Position: We disagree with petitioner. As we explained

in 1994 UK Bar Final, the language of section 771(5)(F) of the Act

gives the Department discretion to consider, on a case-by-case basis,

the impact of a change in ownership on the countervailability of past

subsidies. Rather than mandating that a subsidy automatically transfer

with a change-in-ownership transaction, as petitioner argues, the

language in the statute gives the Department flexibility in this area.

See 1994 UK Bar Final, 61 FR at 58380.

In this case, in accordance with the SAA, we have examined the

facts of BS plc's acquisition of UES, and we determine that the March

21, 1995, change in ownership does not render previously bestowed

subsidies attributable to UES no longer countervailable based on the

methodology explained in the ``Privatization'' section of the GIA. See

GIA 58 FR at 37262-37263. We also determine that a portion of the

purchase price paid for UES may be reflective of its prior subsidies.

Therefore, we have reduced the amount of the subsidies that ``travel''

with UES to BS plc, taking into account the allocation of subsidies to

GKN, the former joint-owner of UES. See the March 31, 1997 Memorandum

for Acting Assistant Secretary, Re: BS plc's March 1995 Acquisition of

UES (public document on file in the Central Records Unit, Room B-099 of

the Department of Commerce) (Acquisition Memo).

As for petitioner's argument that the repayment methodology should

not be applied because the Department has not factually shown that

subsidies have

[[Page 53310]]

been repaid to GKN, we agree with respondent that petitioner misses the

point of the Department's methodology. The Department has never

required factual proof of repayment. Rather, as we stated in the GIA,

``to the extent that a portion of the price paid for a privatized

company can be reasonably attributed to prior subsidies, that portion

of those subsidies will be extinguished.'' GIA, 58 FR at 37262-37263.

Furthermore, the Department has already examined the question of

whether the Department's change-in-ownership methodology can be applied

to a transaction between private parties. In the GIA, the Department

stated that the privatization methodology applies also to transactions

between private parties. The Department explained that ``[u]nder these

circumstances, the issue is not the repayment of subsidies, but rather

their allocation.'' GIA, 58 FR at 37264. Thus, the Department properly

applied the change-in-ownership methodology in this review.

Petitioner elevates form over substance by arguing that the GIA

methodology does not apply to BS plc's acquisition of GKN's shares in

UES because that acquisition somehow differs from the transactions

discussed in the GIA. The mere fact that the Department did not

elaborate on every type of potential change-in-ownership transaction in

the ``Privatization'' and ``Restructuring'' sections of the GIA does

not invalidate the application of these methodologies to transactions

such as the reacquisition of formerly-owned companies or productive

units. Furthermore, the fact that the unit producing the subject

merchandise has now returned to its former owner also does not affect

our determination that a portion of the purchase price paid by BS plc

for GKN's shares of UES reflects past subsidies.

Petitioner claims that BSES is now in the same position as the

Special Steels Business, and therefore, there is no reason to

reallocate subsidies to GKN. We disagree. In the original

investigation, we determined that the creation of UES was not simply a

corporate restructuring; rather, UES was a joint-venture company that

was a separate corporate entity independent from its parent companies.

See Certain Hot-Rolled Lead and Bismuth Carbon Steel Products From the

United Kingdom: Remand Determination (October 12, 1993) (public

document on file in the Central Records Unit, Room B-099 of the

Department of Commerce). Contrary to petitioner's assertion, the

Special Steels Business and BSES are distinguishable, because they are

distinct entities with different ownership structures. Therefore, our

finding in this review that a portion of the purchase price paid for

GKN's shares in UES is reallocated to the seller because it reflects

past subsidies is not in conflict with our change-in-ownership

methodology explained in the GIA or with our determination in Certain

Pasta from Italy.

Comment 2: According to petitioner, the Department correctly made

the adverse inference that the BRITE/EuRAM program is specific and that

the benefits received during the instant review are countervailable,

because the Department discovered at verification that assistance under

the BRITE/EuRAM program was provided to BS plc in 1995 and this

assistance was not reported by BS plc or the European Commission in

their questionnaire responses. However, petitioner contends that the

Department should not have accepted information at verification that BS

plc retained only a small portion of the BRITE/EuRAM assistance and

disbursed most of it to third parties involved in the research project.

Rather, the Department should have countervailed the full amount

received by BS plc.

Respondent asserts that the Department has discretion to determine

an appropriate adverse inference in response to an interested party's

oversight. Respondent also points out that information regarding

payments to third parties allowed BS plc to demonstrate the amount of

assistance which BS plc actually received.

Department's Position: After discovering at verification that BS

plc had received assistance under the BRITE/EuRAM program during the

POR, we informed the company that they could provide information

concerning the grant amounts and demonstrate whether the assistance was

tied to production of non-subject merchandise. See the October 21, 1996

Memorandum To Barbara E. Tillman, Re: Verification of the British Steel

plc Questionnaire Responses at 12 (public version on file in the

Central Records Unit, Room B-099 of the Department of Commerce). We

learned that BS plc received assistance under one BRITE/EuRAM contract

during the POR; BS plc was not able to establish that the assistance

under that program was tied to non-subject merchandise. We reviewed

program documents indicating that as the project coordinator for the

BRITE/EuRAM project in question, BS plc was required to provide most of

the BRITE/EuRAM money to third parties also involved in the research

project. Therefore, we appropriately countervailed only the amount of

funding actually received by BS plc for its portion of the project.

Comment 3: According to respondent, the Department incorrectly

determined in the Preliminary Results that BSES benefits from the

subsidies given to BS plc. Respondent asserts that the Department's

determination was based solely on the corporate relationship between

the parent company (BS plc) and its subsidiary (BSES). Respondent

claims to have reviewed the Department's practice and found no

administrative case precedents in which the Department has imposed

countervailing duties on a subsidiary solely on the basis of its

relationship to the parent company and certainly not when a subsidiary

was acquired after the subsidies were received. Respondent cites two

court decisions and a number of cases in support of its argument that

we have uniformly required other factors in addition to the corporate

relationship to support the attribution of subsidies from parent to

subsidiary, namely, that, (1) corporate machinations were used to evade

countervailing duties, (2) the parent received subsidies in order to

create the subsidiary, or (3) the parent served as a conduit for the

subsidies. These cases are discussed in the Department's Position on

the comment.

Respondent also argues that the GIA and Final Affirmative

Countervailing Duty Determinations: Certain Steel Products from

Germany, 58 FR 37315 (July 9, 1993) (German Steel), both cited in the

Preliminary Results, do not permit the automatic attribution of

subsidies from a parent company to its newly acquired subsidiary.

Respondent asserts that the GIA does not state that the Department

automatically treats the parent and its subsidiaries as one for the

purpose of attributing subsidies. Rather, respondent points out that

``the Department often treats the parent entity and its subsidiaries as

one when determining who ultimately benefits from a subsidy (emphasis

added).'' See GIA, 58 FR at 37262. According to respondent, this is

sometimes true because additional facts in those cases have permitted

the Department to attribute a parent company's subsidies to its

subsidiary. Respondent contends that German Steel and the cases cited

in the GIA, e.g., Final Affirmative Countervailing Duty Determination:

Brass Sheet and Strip from France, 52 FR 1218 (Brass Sheet and Strip

from France); Final Affirmative Countervailing Duty Determination:

Certain Stainless Steel Hollow Products from Sweden, 52 FR 5794

(February 26, 1987) (SSHP from Sweden); Armco, Inc. v. U.S., 733 F.

Supp. 1514 (CIT 1990)

[[Page 53311]]

(Armco); do not support the attribution of subsidies from a parent to a

subsidiary based only on the corporate relationship because each of

these cases involved additional factors.

Furthermore, respondent argues that the automatic attribution of

subsidies between a parent and a subsidiary would not be permitted

under the Department's proposed regulations. See Notice of Proposed

Rulemaking and Request for Public Comment, 62 FR 8817, 8845, 8855

(February 26, 1997) (Proposed Regulations). Respondent asserts that

under the proposed regulations, subsidies given to a parent company

will be allocated to the subsidiary's production only if they produce

the same product or if subsidies have been transferred from parent to

subsidiary. Therefore, because neither of these conditions exists,

according to respondent, the Preliminary Results are not consistent

with the Proposed Regulations.

Respondent concedes that the Department may attribute subsidies to

the production of a subsidiary which was part of the corporation when

subsidies were received because the parent's use of subsidy funds

benefits all operations. However, respondent argues that this reasoning

does not apply to BSES, because BSES was not a subsidiary of BS plc at

the time when BSC received subsidies. Therefore, respondent argues that

BS plc's acquisition of GKN's shares of UES should not cause the

Department to alter the way in which it determines the portion of BSC's

subsidies which benefit the production of leaded bar by BSES.

According to petitioner, Department practice and the facts of this

review support the attribution of BS plc's subsidies to BSES.

Petitioner argues that judicial decisions and administrative practice

give the Department great latitude to allocate a parent company's

subsidies to a subsidiary. Petitioner argues that over the past 15

years, the Department has always permitted the attribution of subsidies

from parent to subsidiaries, and actually has done so more and more

frequently, especially where a substantial degree of control is present

and business lines are related. According to petitioner, the Department

now presumes that in most cases ``subsidies to one corporation may also

benefit another corporation.'' Proposed Regulations, 62 FR at 8845.

Therefore, petitioner contends, respondent's examples of the

Department's refusal to allocate subsidies across corporate lines

reflect the Department's previous but not its current practice.

Petitioner cites Brass Sheet and Strip from France as an example of

when the parent's ownership and control of its subsidiary were just as

relevant to the Department's decision to attribute subsidies from

parent to subsidiary as the fact that the parent served as a conduit

for government funding. See Brass Sheet and Strip from France, 52 FR at

1218. Petitioner also cites SSHP from Sweden, where the parent's

ownership and control of the subsidiary, in addition to the strong

identity of interests between parent and subsidiary, led the Department

to conclude that the subsidiary benefitted from the parent's subsidies

and attribute those subsidies to the subsidiary. See SSHP from Sweden,

52 FR at 5798, 5800.

Petitioner further contends that three of the cases cited by

respondent, Final Affirmative Countervailing Duty Determination:

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

(November 17, 1986) (Operators for Jalousie and Awning Windows from El

Salvador); Final Negative Countervailing Duty Determination: Low-Fuming

Brazing Copper Rod and Wire from South Africa, 50 FR 31642 (August 5,

1985) (Copper Rod and Wire from South Africa); and Final Affirmative

Countervailing Duty Determination: Carbon Steel Structural Shapes from

Luxembourg, 47 FR 39364 (September 7, 1982) (Carbon Steel Structural

Shapes from Luxembourg), do not support respondent's position.

Petitioner points out that the Armco court noted that these cases did

not involve situations where the parent had exercised substantial

control over the operations of its wholly-owned subsidiary, and the

court distinguished these three cases from situations involving parent

companies and their wholly-owned subsidiaries. According to petitioner,

since BSES is a wholly-owned subsidiary of BS plc, cases involving

companies with different corporate relationships do not support

respondent's position.

Petitioner also argues that the three conditions underlying Armco

are relevant to the present case: the subsidiary is wholly-owned, the

parent has total control of the subsidiary, and the threat of

circumvention of countervailing duties exists. Therefore, Armco

supports the Department's determination to attribute untied subsidies

from BS plc to BSES.

Petitioner argues that subsequent decisions are consistent with

Armco in that the Department has attributed the parent's subsidies to

the subsidiary where there has been a strong identity of interests

between parent and subsidiary. By contrast, the Department has been

less likely to attribute parent company subsidies to the subsidiary

where the subsidiary is not wholly owned by the parent or where the

interests of parent and subsidiary diverge. Petitioner argues that in

Ferrosilicon from Venezuela, the Department did not attribute the

parent's subsidies to the subsidiary because the parent was a holding

company and its interests were different from those of its subsidiary.

See Final Affirmative Countervailing Duty Determination: Ferrosilicon

from Venezuela, 58 FR 27539, 27541 (May 10, 1993) (Ferrosilicon from

Venezuela). According to petitioners, in Certain Pasta from Italy, the

Department attributed subsidies to affiliates in cases where both

companies produced the subject merchandise, or where the affiliate

played ``an integral role'' in the production process, but did not

attribute subsidies when the affiliate did not produce the subject

merchandise. See 61 FR at 30308. According to petitioner, because BSES

is wholly owned and substantially controlled by BS plc and is engaged

in a similar line of business, BSES benefits from the remaining benefit

stream of BS plc's subsidies. Therefore, the Department has correctly

attributed BS plc's subsidies to BSES.

Petitioner further argues that respondent elevates form over

substance by arguing that BS plc's newly acquired subsidiary does not

benefit from BS plc's subsidies. Even though BSES is now an

incorporated subsidiary of BS plc, rather than the unincorporated

division it was in 1985, the situation in 1995 is not materially

different from the situation in 1985. Moreover, petitioner contends

that if the Department did not allocate BS plc's subsidies to its newly

acquired subsidiary even though it would have allocated them to the

subsidiary's predecessor, the Special Steels Business, an

unincorporated division, this would establish that corporate

manipulations can determine countervailing duty rates, which is counter

to the court's determination in Armco. According to petitioner, BC

plc's subsidies should be attributed to BSES because BS plc and UES

were closely associated prior to 1995 and are in the same line of

business, and BS plc has substantial control over BSES today.

According to petitioner, respondent's argument regarding the

Department's proposed countervailing duty regulations is based upon a

highly selective reading of the proposed rules. Petitioner points out

that the Proposed Regulations set forth general rules for the

attribution of subsidies and do not illustrate every possible scenario.

Department's Position: In the Preliminary Results, the Department

[[Page 53312]]

appropriately attributed the benefits from nonrecurring untied

subsidies received by BS plc that are allocable to the POR to that

company's domestically produced, consolidated sales, including the

sales of consolidated subsidiaries, such as BSES. This conforms with

our past practice and judicial precedent. Where the Department finds

that a company has received untied countervailable domestic subsidies,

the Department follows a general attribution principle: if a benefit is

not ``tied'' to specific merchandise produced by a company (or

corporation), then the benefit is attributed to that company's total

sales. The total sales that are reported on a company's financial

statements normally include its own sales plus the sales of its

consolidated subsidiaries. Thus, when a company is the parent of a

consolidated group, untied domestic subsidies are normally attributed

to the sales of the consolidated group of companies. This attribution

is appropriate because a parent company exercises control over the

capital structure and commercial activities of its consolidated

subsidiaries. Moreover, when providing loans and equity, it is

reasonable and prudent for lenders and investors to examine the

financial condition of not only the parent company but also its

significant subsidiaries because the subsidiaries are incorporated into

the balance sheet and income statement of the consolidated group. We

noted this general approach to attributing untied subsidies in the GIA,

where we stated that we ``generally allocate subsidies received by

parents over sales of their entire group of companies.'' 58 FR at

37262.

Contrary to respondent's assertion, the presence of additional

factors is not required for the Department to attribute untied parent-

company subsidies according to this general principle. For example, in

Belgian Steel, untied subsidies to Sidmar, the parent company, were

attributed to the ``total 1991 sales of the Sidmar Group.'' Final

Affirmative Countervailing Duty Determinations: Certain Steel Products

from Belgium, 58 FR 37293, 37282 (July 9, 1993) (Belgian Steel). In

Italian Steel, a subsidy determined to benefit all production

activities was ``allocated over Falck's total consolidated sales.''

GIA, 58 FR at 37235. See also, Final Affirmative Countervailing Duty

Determination: Certain Hot Rolled Lead and Bismuth Carbon Steel

Products from France, 58 FR 6221, 6223 (January 27, 1993) (France

Bismuth); Final Affirmative Countervailing Duty Determination: Certain

Steel Products from France, 58 FR 37304 (July 9, 1993) (French Steel);

Final Affirmative Countervailing Duty Determination: Certain Steel

Products from Italy, 58 FR 37327 (July 9, 1993) (Italian Steel); and UK

Steel. As these cases illustrate, respondent's claim that the

Department has never attributed untied parent-company subsidies to its

consolidated subsidiaries solely on the basis of the corporate

relationship is incorrect.

Respondent concedes that attributing parent-company subsidies to

wholly-owned subsidiaries is appropriate in certain circumstances,

stating that under ``the Department's well-established practice of not

tracing the use of subsidy funds, the Department may presume that a

parent company uses subsidy funds to benefit its overall operations,

including its subsidiary operations.'' Respondent's May 7, 1997, Case

Brief at 18. However, respondent argues that this policy is apropos

only when the subsidiary ``is part of the corporation at the time the

subsidies are received * * * and continues to be a subsidiary through

the POI.'' See Respondent's May 7, 1997 Case Brief at 18. Therefore,

respondent claims that the Department should not attribute the current

benefit from BS plc's untied subsidies to BSES because BSES did not

become an incorporated subsidiary of BS plc until 1995, subsequent to

BS plc's receipt of the untied subsidies at issue. This argument

contradicts the very principle of not tracing the use of subsidy funds

beyond the point of bestowal with which respondent agrees.

The Department has never made a distinction between subsidiaries

acquired at the time when subsidies are bestowed and subsidiaries

acquired after subsidization, and respondent has not cited any

administrative or court precedent in support of this contention. In

cases where the Department found that untied domestic subsidies were

bestowed upon parent companies, prior to or during the period under

examination, the Department has attributed these untied subsidies to

the group's consolidated sales, without analyzing whether any of the

subsidiaries had been acquired after subsidization had occurred. See,

e.g., Belgian Steel, French Steel, Italian Steel, and UK Steel. In UK

Steel, BS plc did not argue that the Department should analyze whether

BS plc had acquired subsidiaries subsequent to receiving subsidies to

determine whether the sales of those newly acquired subsidiaries should

have been excluded from the denominator in calculating the subsidy

rate. On the contrary, BS plc claimed at the time that ``untied equity

infusions must be allocated to a company's total corporate output

[including foreign operations] and not just to specific products or

operations.'' GIA, 58 FR at 37236. BS plc further argued that this

``longstanding Departmental precedent applies to national and

multinational corporations alike.'' Id. (emphasis added).

If the Department were to make a distinction between subsidiaries

acquired at the time when subsidies are bestowed and subsidiaries

acquired after subsidization, the Department would be required to

abandon its ``well-established practice of not tracing the use of

subsidy funds'' and to determine whether and to what extent subsidies

``passed through'' to newly-acquired companies. Such an analysis would

also require a detailed examination of all changes in the structure of

the company or group of companies over the entire allocation period.

Further, the analysis required by respondent's distinction would assume

that ``untied'' subsidies become ``tied'' to only the assets of the

corporate group as it existed when the subsidy was bestowed. The

Department has never advocated nor pursued such a policy. As stated in

the GIA, ``nothing in the statute directs the Department to consider

the use to which subsidies are put or their effect on the recipient's

subsequent performance * * * nothing in the statute conditions

countervailability on the use or effect of a subsidy. Rather, the

statute requires the Department to countervail an allocated share of

the subsidies received by producers, regardless of their effect.'' 58

FR at 37260; see also British Steel v. United States, 879 F. Supp.

1254, 1298 (CIT 1995) (British Steel), appeals docketed, Nos. 96-1401

to -06 (Fed. Cir. June 21, 1996); British Steel Corp v. United States,

9 CIT 85, 95-96, 605 F. Supp. 286, 294-95 (1985) (``[I]t is unnecessary

to trace the use'' of funds), citing Michelin Tire Corp. v. United

States, 4 CIT 252, 255 (1982), vacated on agreed statement of facts, 9

CIT 38 (1985).

The Department also does not agree that the cases cited in the

Preliminary Results do not support the attribution of BS plc's

subsidies to consolidated sales of domestically produced merchandise.

As stated in the GIA, ``[w]e also generally allocate subsidies received

by parents over sales of their entire group of companies.'' GIA, 58 FR

at 37262. The cases cited in the GIA as examples of the Department's

past attribution practices do not represent an exhaustive list of all

of the different scenarios under which the Department has dealt with

the issue of attribution. Moreover, nothing in the GIA indicates that

the Department is required to determine

[[Page 53313]]

that there are factors in addition to the corporate relationship, such

as the pass-through of subsidies, in order for the Department to

attribute a parent company's untied subsidies to the parent company's

total consolidated domestically produced sales.

According to respondent, the CIT's determinations in Armco and

Aimcor, Alabama Silicon, Inc. v. United States 871 F. Supp. 447 (CIT

1994) (Aimcor) make clear the court's view that the Department should

not attribute subsidies from a parent company to the production of a

newly acquired subsidiary based solely on the corporate relationship.

Respondent's reliance on these cases is misplaced. Contrary to

respondent's views, we find that these cases do not undermine the

Department's general principle of attributing untied parent-company

subsidies to the parent company's consolidated sales.

As respondent correctly notes, the Armco court overturned the

Department's determination in Carbon Steel Wire Rod from Malaysia and

held that the parent company benefitted from the subsidies provided to

its wholly-owned subsidiary. See Final Affirmative Countervailing Duty

Determination and Countervailing Duty Order: Carbon Steel Wire Rod from

Malaysia, 53 FR 13303 (April 22, 1988) (Carbon Steel Wire Rod from

Malaysia). The Armco decision was based on several factors including

the court's concern that the parent and subsidiary could potentially

evade countervailing duties through intra-corporate machinations, the

relationship between the parent and subsidiary, and the parent's

extensive control over the subsidiary. See Armco, 733 F. Supp. at 1526.

We agree with the court and the respondent that the possibility of

circumvention can be a factor in the Department's attribution

decisions. We further note that according to BS plc's questionnaire

response in this review, BS plc did produce and sell the subject

merchandise during the period of review. See the June 11, 1996, BS plc

questionnaire response (public version on file in the Central Records

Unit of the Department of Commerce, Room B-099). Therefore, the

possibility of circumvention would exist if the Department did not

attribute BS plc's untied subsidies to BS plc's total sales.

Nevertheless, respondent's reliance on Armco for the proposition

that the Department must always find factors in addition to the

corporate relationship in order to attribute a parent company's untied

subsidies to the parent company's domestically produced, consolidated

sales is not supportable. Respondent emphasizes that the Armco court

supported the proposition that the bestowal of the subsidy on one

company does not automatically benefit another company merely because

the two are related. See Armco, 733 F. Supp. at 1521-1522. However,

this general proposition merely recognized the possibility that

different conclusions may be drawn from different scenarios involving

various kinds of subsidies, tied and untied, and companies of varying

degrees of relatedness. This proposition does not stand for

respondent's argument that the Department must always find factors in

addition to the corporate relationship in order to attribute a parent

company's untied subsidies to the parent company's domestically

produced, consolidated sales, and it does not undermine the

Department's attribution of BS plc's untied subsidies in this review.

Respondent also claims that the Armco court rejected the notion

that ``a subsidy, by its mere bestowal, necessarily affects every

corner of the corporate relationship.'' See Armco, 733 F. Supp. at

1525. However, in referring to this proposition, the Armco court

clarified that the scope of its holding was limited to the facts of the

case. We do not interpret Armco as stating that the Department is

required in all cases to find factors in addition to the corporate

relationship in order to attribute subsidies from one company to

another.

Respondent's reliance on Aimcor for the proposition that the

Department may not impose duties on a company solely because it has

been acquired by a company that has received subsidies is also

misplaced. The facts in Aimcor are substantially different from those

in the instant review. In Aimcor, the plaintiff alleged that a

government-owned financial institution sold shares in Fesilven, the

producer of the subject merchandise, to Corporacion Venezolana Guayana

(CVG), a government-owned holding company, at less than eight percent

of their par value. According to the plaintiff, because of the

relationship between CVG and Fesilven, this transaction was a de facto

share redemption which resulted in a subsidy to Fesilven. However, the

court upheld the Department's determination that CVG and Fesilven could

not be considered one entity and therefore the transaction was not a

share redemption by Fesilven. Thus, the relationship between CVG and

Fesilven was the critical factor in determining whether CVG's purchase

of Fesilven's shares from a third party was a de facto share redemption

by Fesilven which could have resulted in the bestowal of a subsidy on

Fesilven. It is clear, therefore, that the issue in Aimcor was whether

a subsidy had been bestowed at all. The issue was not whether

countervailable subsidies that had been bestowed on a parent company

were attributable to a wholly-owned subsidiary.

Respondent mistakenly cites the Aimcor court for support without

first considering the particular facts at issue. For example,

respondent points out that in Aimcor, plaintiffs argued that Brass

Sheet and Strip from France required an automatic attribution of

subsidies, but the Aimcor court stated that ``Commerce does more than

simply look at the relationship between the parties. Instead, Brass

Sheet and Strip from France demonstrates Commerce's consistent,

statutorily mandated policy of tracing a bounty or grant to determine

whether it reached the merchandise before Commerce imposes a duty.''

Aimcor, 871 F. Supp. at 452. However, the issue in Brass Sheet and

Strip from France was whether a government-owned holding company had

bestowed a subsidy on a subsidiary, and the Aimcor court's statement

must therefore be interpreted in that context, because as indicated

above, the statute does not require the Department to trace the uses or

the effects of subsidies. Respondent also points to the court's

statement that a benefit to the parent corporation ``does not

necessarily make one of its assets, such as its subsidiary, more

valuable.'' Aimcor, 871 F. Supp. at 452. However, the court went on to

say that ``[a]bsent a showing that the subsidy reached the exported

merchandise, this court will not disturb Commerce's determination.''

Id. Thus, as reflected by the court's opinion, our determination in

Ferrosilicon from Venezuela dealt with the issue of whether a subsidy

had been conferred on Fesilven through a transaction involving the

government-owned holding company, which owned shares in Fesilven, and a

government-owned financial institution. It did not deal with the

attribution of previously bestowed untied parent company subsidies to a

wholly-owned subsidiary.

In addition to Armco and Aimcor, respondent identified a number of

other cases to support the proposition that the Department has

uniformly required factors in addition to the corporate relationship in

attributing a parent company's subsidies to a newly acquired

subsidiary. According to respondent, the Department has only attributed

a parent company's subsidies to a subsidiary when (1) corporate

machinations could be used to evade countervailing duties, (2) the

subsidies were provided to the parent to facilitate

[[Page 53314]]

the subsidiary's creation, or (3) the parent served as a conduit for

subsidies to the subsidiary. We have examined the cases cited by

respondent with respect to each factor, and we disagree with

respondent's overall interpretation of the Department's past practice.

With respect to the first and second factors, we agree with

respondent that in certain instances the Department's attribution

decisions were influenced by (1) the possibility that intra-corporate

machinations would be used to evade countervailing duties, or (2) the

fact that subsidies were provided by the parent to facilitate the

creation of a subsidiary. See e.g., Final Affirmative Countervailing

Duty Determinations: Carbon Steel Structural Shapes, Hot-Rolled Carbon

Steel Plate, and Hot-Rolled Carbon Steel Bar from the United Kingdom;

and Final Negative Countervailing Duty Determination: Cold-Formed

Carbon Steel Bar from the United Kingdom, 47 FR 39384 (September 7,

1982) (1982 UK Steel), Carbon Steel Wire Rod from Malaysia, Armco,

Belgian Steel, and SSHP from Sweden. See SSHP from Sweden, 52 FR at

5796. Nevertheless, the mere fact that we examined these factors does

not negate the Department's general attribution principle discussed

above, or require that these factors be present in all cases. We fail

to see how these cases establish that ``additional'' factors must

always be present for the Department to attribute untied parent-company

subsidies to the parent company's total sales, including the sales of

its consolidated subsidiaries.

The majority of the cases cited by respondent are concerned with

the third factor, i.e., that the parent company served as a conduit for

subsidies to the subsidiary. However, this argument implies that in

order to attribute untied nonrecurring domestic subsidies received by a

parent company to the parent company's consolidated sales of

domestically produced merchandise, the Department is required to

analyze whether subsidies have ``passed through'' the parent to its

subsidiary. This would amount to tracing the uses and effects of untied

subsidies, which respondent acknowledges the Department is not required

to do. Therefore, the Department is not required to conduct a ``pass-

through'' analysis. Moreover, as explained above, the Department's

general attribution practice supports the attribution of BS plc's

untied subsidies to BS plc's domestically produced, consolidated sales.

As such, we find that the cases cited by respondent in support of its

``pass-through'' proposition either can be distinguished from the fact

pattern in the instant review, or actually can be found to support the

Department's attribution approach in this case.

For example, respondent cites Grain-Oriented Electrical Steel from

Italy, in which the Department countervailed only the subsidies

``specifically provided to the producer of the subject merchandise.''

Final Affirmative Countervailing Duty Determination: Grain-Oriented

Electrical Steel from Italy, 59 FR 18357, 18365 (April 18, 1994)

(Grain-Oriented Electrical Steel from Italy). Nevertheless, respondent

fails to mention that the Department's approach was driven by the

unique circumstances of the case, in which the parent company was a

government-owned company which, prior to the period of investigation,

underwent a series of intricate restructurings during which debt was

forgiven by the Italian Government. In fact, the Department

acknowledged that there were two alternative approaches to addressing

the debt forgiveness associated with the restructurings: (1) ``To

analyze the restructuring of the entire Finsider group into ILVA and to

examine all subsidies provided to Finsider by IRI and the government of

Italy,'' or (2) ``measure the subsidies provided to the producer of the

subject merchandise.'' See Grain-Oriented Electrical Steel from Italy,

59 FR at 18366. The Department chose the second approach, given ``the

extremely complex restructuring which occurred at the Finsider group

level'' because it would allow the Department to ``more accurately

measure the benefits attributable to the producer of the subject

merchandise''. See Id.

Thus, Grain-Oriented Electrical Steel from Italy does not support

respondent's proposition that the Department always examines facts in

addition to the corporate relationship when attributing untied parent-

company subsidies to the parent company's total consolidated sales,

including sales of consolidated subsidiaries. Rather, in Grain-Oriented

Electrical Steel from Italy, the Department acknowledged the validity

of analyzing subsidies at the parent company level in order to

attribute them to the sales of the consolidated subsidiaries (59 FR at

18366), which supports the approach taken in the instant review.

In further support of its argument that in prior cases involving

subsidy attribution, parent companies have served as conduits for

subsidies to their subsidiaries, respondent cites a number of cases

that involve parent companies which were government-owned holding

companies. See, e.g., Final Affirmative Countervailing Duty

Determinations; Certain Steel Products from the Federal Republic of

Germany, 47 FR 39345 (September 7, 1982) (1982 German Steel); Certain

Carbon Steel Products from Brazil; Final Affirmative Countervailing

Duty Determinations, 49 FR 17988 (April 26, 1984) (Certain Carbon Steel

Products from Brazil); Brass Sheet and Strip from France, and Final

Affirmative Countervailing Duty Determinations: Certain Steel Products

from Spain, 58 FR 37374 (July 9, 1993) (Spanish Steel). In these cases,

the Department considered whether the government-owned holding company

acted as the government in bestowing subsidies to the affiliated

companies, i.e., the subsidiaries. For example, in Brass Sheet and

Strip from France, the parent company was an unequityworthy government-

owned holding company which received equity infusions from the

government and, in turn, provided equity infusions and other financial

assistance to its unequityworthy subsidiary, the producer of the

subject merchandise. The Department noted that since the parent was

merely a holding company, the funds which were provided to it by the

government benefitted its subsidiaries. See Brass Sheet and Strip from

France, 52 FR at 1220. Thus, the Department considered that the holding

company acted essentially as the government in bestowing the equity

infusions to the subsidiary. Therefore, in that case the Department

countervailed the benefit on the basis of the subsidiary's total sales.

Brass Sheet and Strip from France does not support respondent's

argument that the Department is required to analyze whether subsidies

provided to private or government-owned parent companies have ``passed

through'' to their subsidiaries. As demonstrated above, even in cases

involving government-owned companies, e.g., the 1993 steel

investigations, the Department's practice has been to attribute the

benefit from untied domestic subsidies provided to a parent company

based on its consolidated sales of domestically produced merchandise.

See, e.g., Belgian Steel, French Steel, Italian Steel, and UK Steel.

Respondent also cited Final Affirmative Countervailing Duty

Determination: Oil Country Tubular Goods from Korea, 49 FR 35836

(September 12, 1984); Bicycle Tires and Tubes from Korea; Final Results

of Administrative Review of Countervailing Duty Order, 48 FR 32205

(July 14, 1983); and Copper Rod and Wire from South Africa as cases in

which the Department analyzed subsidy ``pass through.'' Nevertheless,

these cases can be distinguished from the instant review because

subsidy

[[Page 53315]]

bestowal, rather than subsidy attribution, was the key issue. Moreover,

Bicycle Tires and Copper Rod from South Africa dealt with the issue of

whether a privately-owned company had provided a subsidy to one of its

related companies. In those cases, we stated that absent evidence of

government involvement we would not examine whether a transaction

between related private parties constituted a subsidy. In the instant

case, we have already determined that the government of the United

Kingdom bestowed untied nonrecurring subsidies on BSC/BS plc. The

matter at issue here is whether the current benefit from those

previously bestowed subsidies which have been allocated over time is

attributable to only BS plc's operations or to its consolidated

operations. As such, Bicycle Tires and Copper Rod from South Africa do

not support respondent's contention.

In another example, respondent asserts that in Austrian Steel, the

Department found that VAAG, a government-owned company, provided a

subsidy to its new subsidiaries by not requiring them to assume a

portion of its prior losses. However, Austrian Steel is distinguishable

from the instant review. As part of a restructuring of a production

company into a holding company, the newly-created holding company

carried forward losses on its balance sheet, but did not assign a

proportionate share of those losses to its newly-created subsidiaries.

The Department determined that the holding company provided a subsidy

to its subsidiaries by assuming losses that should have been assigned

to the subsidiaries. See Austrian Steel, 58 FR at 37221. Thus, this

aspect of Austrian Steel concerned the government-owned holding

company's bestowal of a subsidy on its subsidiaries. This was not an

issue of whether untied nonrecurring subsidies to a parent company

benefit its consolidated sales.

Several of the cases cited by respondent in support of its pass-

through argument can be distinguished from UK Lead Bar due to the

nature of the corporate relationships and the fact that attribution of

untied parent-company subsidies was not an issue. Operators for

Jalousie and Awning Windows from El Salvador involved two private

companies which had the same parent company. The subsidy in question

was an income tax exemption from export earnings, and the law did not

permit any transfer of these exemptions from the recipient to the other

company, which had a different status under the Export Promotion Law.

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

at 41519 (1986). Thus, this was not a parent/subsidiary issue. The

subsidies received by one company were not attributed to the other

company, because the companies operated as distinct entities and had

different status under the tax law. Respondent's example from Certain

Pasta From Italy also involves two private companies with a common

parent. Furthermore, the subsidies in that case were either subsidies

to a privately-owned affiliated supplier or the subsidies were

otherwise tied. Accordingly, the subsidies and the relationships in

these cases are distinguishable from the instant review.

Respondent also cites Carbon Steel Structural Shapes from

Luxembourg where the Department treated the parent company and its

subsidiary separately because benefits were provided separately and

``are not allowed to pass through.'' Carbon Steel Structural Shapes

from Luxembourg, 47 FR at 39365 (1982). Nevertheless, a key

distinguishing factor is that Carbon Steel Structural Shapes from

Luxembourg involved a parent company and a 40 percent-owned subsidiary,

and the two companies had separate financial structures, i.e., the

subsidiary was not consolidated with the parent company. See Carbon

Steel Structural Shapes from Luxembourg, 47 FR at 39365 (1982).

Even, assuming arguendo, that the Department were required to make

a finding that the allocated benefit from untied subsidies to a parent

company ``pass through'' to a subsidiary, the information on the record

of this review would be sufficient to warrant the inclusion of BSES's

sales in calculating the subsidy benefit from BS plc's untied

subsidies. The Department's verification established that BS plc

exercises considerable control over its consolidated subsidiary BSES.

As the sole owner of BSES, BS plc has the authority to make all major

decisions for BSES, including any decision to invest in BSES, change

its operations, or close it down. Furthermore, BS plc performs a number

of services, and even acts as a banker, for BSES and its other

consolidated subsidiaries. See the October 21, 1996, Memorandum to

Barbara E. Tillman, Re: Verification of the BS plc Questionnaire

Responses in the 1995 Administrative Review of the Countervailing Duty

Order on Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from

the United Kingdom at 3-5 (public version on file in the Central

Records Unit, Room B-099 of the Department of Commerce.)

With respect to respondent's and petitioner's comments on the

proposed countervailing duty regulations, we note that these have not

yet been finalized, and thus, are not controlling in this review.

Comment 4: Respondent states that the Department will over-

countervail BS plc's subsidies in the 1995 and subsequent reviews as a

result of changing the allocation period for nonrecurring subsidies

from 15 to 18 years. Respondent points out that the Department has

recognized that double-counting subsidy benefits is ``inconsistent with

both the statute and the subsidies code.'' See, e.g., Certain Castor

Oil Products from Brazil; Final Results of Review of Countervailing

Duty Order, 49 FR 9921 (1984), Unprocessed Float Glass from Mexico;

Suspension of Countervailing Duty Investigation, 49 FR 7264 (1984), and

General Agreement on Tariffs and Trade 1994, Art. VI(3). In recognition

of the problem of over-or-under-countervailing subsidy benefits when

transitioning to company-specific allocation periods, the Department

adopted a policy of using the allocation period first assigned to a

subsidy countervailed in earlier proceedings. According to respondent,

because the mandate against over-countervailing subsidies is a

statutory matter and not one of administrative discretion, as the

Department has recognized, the Department must adhere to the 15-year

amortization methodology which it previously adopted in countervailing

subsidies received by UES.

According to petitioner, the 18-year allocation period is

consistent with BS plc's corporate practice and all determinations

involving BS plc. Changing the allocation period from 15 to 18 years

enables the Department to countervail at the proper rate. Petitioner

points out that the Department does not have the option of acceding to

respondent's request to continue with a 15-year allocation period for

BSES, because the CIT decided that the statute requires company-

specific allocation periods based on the average useful life of assets

and approved an 18 year allocation period for British Steel. See

British Steel plc v. United States, 879 F. Supp. 1254 (CIT 1995)

(British Steel). Petitioner points out that British Steel's successful

appeal of the Department's 15-year allocation period led to the

establishment of an 18-year allocation period in the first place.

According to petitioner, respondent's allegation that the

Department's methodology results in ``double-counting'' of subsidies is

misleading because only a minor amount of double-counting occurs when

the allocation period is lengthened after the subsidies

[[Page 53316]]

have already been calculated in previous reviews. Overall, BS plc is

charged more over the longer allocation period mainly due to an

increase in interest charges. Petitioner suggests that the minor amount

of double-counting can be corrected if the Department requests a remand

of its original determination and adopts an 18-year allocation period

for the entire period of the investigation and all administrative

reviews, i.e., from 1992 forward.

Department's Position: The position adopted by the Department on

the allocation period for BS plc's/BSES's subsidies is discussed in

detail in the Preliminary Results and the March 31, 1997 Memorandum for

Acting Assistant Secretary, Re: Allocation Period for Nonrecurring

Subsidies (Allocation Memorandum) (public document on file in the

Central Records Unit, Room B-099 of the Department of Commerce). In

this review, we are determining that it is appropriate, due to the

unique circumstances of this case, to change the allocation period for

the subsidies which were previously bestowed on BSC/BS plc and which

were attributable to UES/BSES, even though all of these subsidies were

bestowed prior to the period of review and had established allocation

periods in prior proceedings. See UK Steel, 58 FR 37396. The

Department's acquiescence to the CIT's decision in British Steel

resulted in different allocation periods between the UK Steel and UK

Lead Bar proceedings (18 years versus 15 years). Significant

inconsistencies would result from different allocation periods for the

same subsidies in two proceedings involving the same company.

Therefore, in this review, we have applied the company-specific 18-year

allocation period to all nonrecurring subsidies in order to maintain a

consistent allocation period across the UK Steel and UK Lead Bar

proceedings, as well as the different segments of UK Lead Bar.

Since the countervailing duty rate in earlier segments of the

proceeding was based on a certain allocation period and resulting

benefit stream, redefining the allocation period in this segment of the

proceeding entails the creation of a new benefit stream for the

original grant amount. The Department recognizes that this practice may

lead to an increase (or decrease) in the subsidy rate calculated. Thus,

applying an 18-year allocation period in this review to nonrecurring

subsidies which had been calculated based on 15-year periods in prior

segments of the proceeding could possibly lead to a larger total

countervailable benefit for the subsidies spun off with the creation of

UES and rejoining BS plc's subsidies with BS plc's acquisition of GKN's

shares of UES. However, because the UK Lead Bar investigation and

subsequent reviews of the order up to the instant review are currently

subject to judicial review, no actual countervailing duties have been

collected from any of the review periods in which the 15-year

allocation period was applied. Thus, the issue of whether there would

be an over-countervailing or double-counting of the subsidy is moot

because the change to 18-years can be dealt with in the pending

litigation.

Comment 5: Respondent contends that the Department's ``gamma

methodology'' understates the portion of subsidies which should have

been considered repaid to the government in connection with the

privatization of BS plc in 1988 because of the assumption that a

subsidy given in one year is considered non-subsidy capital in the

following year. Respondent claims that according to the Department's

methodology, only a portion of the capital of unprofitable, heavily

subsidized companies would be attributed to subsidies. As an example,

respondent states that even though BSC allegedly received subsidies

from 1977/1978 to 1985/1986 of more than six times its total capital at

fiscal year end 1978, the Department attributed only 46 percent of

BSC's capital to subsidies at the end of 1987/1988.

Respondent proposes an alternative methodology for calculating the

gamma based on the idea that a firm's capital is comprised of subsidy

funds and non-subsidy funds at the time of sale. In the alternative

methodology, the proportion of the firm's capital which would be

attributable to subsidies at the time of the firm's sale is represented

by the ratio of all subsidy capital to all capital from all sources

during the time period in which subsidies were examined.

According to petitioner, the only appropriate change to the gamma

would be its elimination, but if the Department continues to assume

that a portion of the purchase price of a subsidized state-owned

company represents the repayment of subsidies, the Department's

existing gamma methodology is the most reasonable valuation of

repayment.

According to petitioner, respondent's argument that the

Department's methodology distorts the percentage of capital

attributable to subsidies is misplaced, because the administrative

practice of disregarding the effects of subsidies on financial

performance in creditworthiness and equityworthiness analysis requires

the assumption that a subsidy given in one year becomes non-subsidy

capital in the following year. Petitioner cites Saarstahl AG v. United

States 78 F.3d 1539, 1543 (Fed. Cir. 1996), North American Free Trade

Agreement Implementation Act, S. Rep. No. 189, 103d Cong. 1st Sess. 4

(1993), and the Proposed Regulations to demonstrate that Congress and

the courts have long discouraged the practice of determining the actual

impact of subsidies on the company's capital structure.

Petitioner argues that even if the Department's methodology

resulted in the respondent's alleged distortions, respondent's

alternative methodology would result in greater errors, because it

provides an inaccurate measure of how subsidies affect capital

formation by ignoring the company's ability to fund improvements from

positive cash flow or profitability. Finally, petitioner asserts that

respondent's methodology does not account for inflation, which would

cause early capital investments to be worth more than later ones in

constant currency terms. According to petitioner, the Department's

existing gamma methodology avoids the problem of inflation by comparing

subsidies to capital only in the year of receipt.

Department's Position: We disagree with respondent's proposal,

which would require the Department to analyze the effects of subsidies

on a company's financial structure. Such an exercise is not only highly

speculative, it is also inconsistent with the Department's statutory

mandate. See GIA, 58 FR at 37260; see also British Steel, 879 F. Supp.

at 1298. Respondent's assumption that the opening balance of capital

represents unsubsidized capital would not be realistic for companies

which have received subsidies from the time they were established. In

addition, it is not clear what ``non-subsidy capital infusions''

represent, particularly with respect to unequityworthy government-owned

companies. We also agree with petitioner that respondent's methodology

is inaccurate to the extent that it does not appear to include profits

as a significant non-subsidy source of funds.

Comment 6: Respondent notes that BS plc acquired GKN's shares of

UES on March 21, 1995 and that the Department based the Preliminary

Results on that event. Nevertheless, it is not apparent how entries

involving merchandise exported from the United Kingdom prior to the

March 21, 1995 acquisition could have been affected by the transaction,

according to respondent.

Department's Position: We agree. Pursuant to the change in

ownership section of the Act (771(5)(F)), we have taken the unique

circumstances of the change in ownership of United

[[Page 53317]]

Engineering Steels into consideration for purposes of determining the

net subsidies attributable to the merchandise subject to this review

period. Accordingly, we are assigning two net subsidy rates for the

POR: one for UES which will apply to exports prior to March 21, 1995,

and one for BS plc/BSES/UES which will apply to exports on or after

March 21, 1995.

Final Results of Review

In accordance with 19 CFR 355.22(c)(7)(ii), we calculated an

individual subsidy rate for each producer/exporter subject to this

administrative review. As explained in the ``Change in Ownership''

section of the notice, above, we have calculated two net subsidy rates

for the merchandise subject to this period of review: one for UES which

will apply for that part of the review period prior to the change in

ownership of UES, and one for BS plc/BSES/UES which will apply for that

part of the review period on and after the change in ownership when UES

became a consolidated subsidiary of BS plc. Thus, the net subsidy for

UES is 2.40 percent ad valorem for the period January 1, 1995 through

March 20, 1995, and the net subsidy for British Steel plc/British Steel

Engineering Steels/United Engineering Steels (BS plc/BSES/UES) is 7.35

percent ad valorem for the period March 21, 1995 through December 31,

1995.

We will instruct the U.S. Customs Service (Customs) to assess

countervailing duties as indicated above. The Department will also

instruct Customs to collect cash deposits of estimated countervailing

duties in the percentage detailed above (for BS plc/BSES/UES) of the

f.o.b. invoice price on all shipments of the subject merchandise from

reviewed companies, entered, or withdrawn from warehouse, for

consumption on or after the date of publication of the final results of

this review.

Because the URAA replaced the general rule in favor of a country-

wide rate with a general rule in favor of individual rates for

investigated and reviewed companies, the procedures for establishing

countervailing duty rates, including those for non-reviewed companies,

are now essentially the same as those in antidumping cases, except as

provided for in Sec. 777A(e)(2)(B) of the Act. The requested review

will normally cover only those companies specifically named. See 19 CFR

355.22(a). Pursuant to 19 CFR 355.22(g), for all companies for which a

review was not requested, duties must be assessed at the cash deposit

rate, and cash deposits must continue to be collected at the rate

previously ordered. As such, the countervailing duty cash deposit rate

applicable to a company can no longer change, except pursuant to a

request for a review of that company. See Federal-Mogul Corporation and

The Torrington Company v. United States, 822 F. Supp. 782 (CIT 1993),

and Floral Trade Council v. United States, 822 F. Supp. 766 (CIT 1993)

(interpreting 19 CFR 353.22(e), the antidumping regulation on automatic

assessment, which is identical to 19 CFR 355.22(g)). Therefore, the

cash deposit rates for all companies except those covered by this

review will be unchanged by the results of this review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies at the most recent company-specific or country-

wide rate applicable to the company. Accordingly, the cash deposit

rates that will be applied to non-reviewed companies covered by this

order are those established in the most recently completed

administrative proceeding, conducted pursuant to the statutory

provisions that were in effect prior to the URAA amendments. See

Certain Hot-Rolled Lead and Bismuth Carbon Steel Products from the

United Kingdom; Final Results of Countervailing Duty Administrative

Review, 61 FR 58377 (November 14, 1996). These rates shall apply to all

non-reviewed companies until a review of a company assigned these rates

is requested. In addition, for the period January 1, 1995 through

December 31, 1995, the assessment rates applicable to all non-reviewed

companies covered by this order are the cash deposit rates in effect at

the time of entry.

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

APO in accordance with 19 CFR 355.34(d). Timely written notification of

return/destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

regulations and the terms of an APO is a sanctionable violation.

This administrative review and notice are in accordance with

section 751(a)(1) of the Act (19 U.S.C. 1675(a)(1)).

Dated: October 6, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-27148 Filed 10-10-97; 8:45 am]

BILLING CODE 3510-DS-P