Final Affirmative Countervailing Duty Determination: Steel Wire Rod From Trinidad and Tobago

DEPARTMENT OF COMMERCE

International Trade Administration

[C-274-803]

Final Affirmative Countervailing Duty Determination: Steel Wire

Rod From Trinidad and Tobago

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: October 22, 1997.

FOR FURTHER INFORMATION CONTACT: Todd Hansen, Vincent Kane, or Sally

Hastings, Office of Antidumping/Countervailing Duty Enforcement, Group

I, Office 1, Import Administration, U.S. Department of Commerce, Room

1874, 14th Street and Constitution Avenue, N.W., Washington, D.C.

20230; telephone (202) 482-1276, 482-2815, or 482-3464, respectively.

Final Determination

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

countervailable subsidies are being provided to Caribbean Ispat Limited

(``CIL''), a producer and exporter of steel wire rod from Trinidad and

Tobago. For information on the estimated countervailing duty rates,

please see the Suspension of Liquidation section of this notice.

Petitioners

The petition in this investigation was filed by Connecticut Steel

Corp., Co-Steel Raritan, GS Industries, Inc., Keystone Steel & Wire

Co., North Star Steel Texas, Inc. and Northwestern Steel and Wire (the

petitioners), six U.S. producers of wire rod.

Case History

Since our preliminary determination on July 28, 1997 (62 FR 41927,

August 4, 1997), the following events have occurred:

We conducted verification in Trinidad and Tobago of the

questionnaire responses of the Government of Trinidad and Tobago

(``GOTT'') and of CIL from August 18 through August 26, 1997.

Petitioners and respondents filed case and rebuttal briefs on September

12 and September 17, 1997, respectively. A public hearing was held on

September 19, 1997. On September 16, 1997, the GOTT and the U.S.

Government initialed a proposed suspension agreement, whereby the GOTT

agreed not to provide any new or additional export subsidies on the

subject merchandise and to restrict the volume of direct and indirect

exports of subject merchandise to the United States. On October 14,

1997, the U.S. Government and the GOTT signed a suspension agreement

(see, Notice of Suspension of Countervailing Duty Investigation: Steel

Wire Rod from Trinidad and Tobago which is being published concurrently

with this notice). Based on a request from petitioners on October 14,

1997, the Department and the International Trade Commission (``ITC'')

are continuing this investigation in accordance with section 704(g) of

the Act. As such, this final determination is being issued pursuant to

section 704(g) of the Act.

Scope of Investigation

The products covered by this investigation are certain hot-rolled

carbon steel and alloy steel products, in coils, of approximately round

cross section, between 5.00 mm (0.20 inch) and 19.0 mm (0.75 inch),

inclusive, in solid cross-sectional diameter. Specifically excluded are

steel products possessing the above noted physical characteristics and

meeting the Harmonized Tariff Schedule of the United States (``HTSUS'')

definitions for (a) stainless steel; (b) tool steel; (c) high nickel

steel; (d) ball bearing steel; (e) free machining steel that contains

by

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

0.08 percent or more of sulfur, more than 0.4 percent of phosphorus,

more than 0.05 percent of selenium, and/or more than 0.01 percent of

tellurium; or (f) concrete reinforcing bars and rods.

The following products are also excluded from the scope of this

investigation:

Coiled products 5.50 mm or less in true diameter with an average

partial decarburization per coil of no more than 70 microns in depth,

no inclusions greater than 20 microns, containing by weight the

following: carbon greater than or equal to 0.68 percent; aluminum less

than or equal to 0.005 percent; phosphorous plus sulfur less than or

equal to 0.040 percent; maximum combined copper, nickel and chromium

content of 0.13 percent; and nitrogen less than or equal to 0.006

percent. This product is commonly referred to as ``Tire Cord Wire

Rod.''

Coiled products 7.9 to 18 mm in diameter, with a partial

decarburization of 75 microns or less in depth and seams no more than

75 microns in depth; containing 0.48 to 0.73 percent carbon by weight.

This product is commonly referred to as ``Valve Spring Quality Wire

Rod.''

The products under investigation are currently classifiable under

subheadings 7213.91.3000, 7213.91.4500, 7213.91.6000, 7213.99.0030,

7213.99.0090, 7227.20.0000, and 7227.90.6050 of the HTSUS. Although the

HTSUS subheadings are provided for convenience and customs purposes,

our written description of the scope of this investigation is

dispositive.

The Applicable Statute and Regulations

Unless otherwise indicated, all citations to the statute are

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

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

``Act''). All references to the Department's regulations at 19 CFR

355.34 refer to the edition of the Department's regulations published

April 1, 1997.

Injury Test

Because Trinidad and Tobago is a ``Subsidies Agreement Country''

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

determine whether imports of wire rod from Trinidad and Tobago

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

April 30, 1997, the ITC published its preliminary determination finding

that there is a reasonable indication that an industry in the United

States is being materially injured or threatened with material injury

by reason of imports from Trinidad and Tobago of the subject

merchandise (62 FR 23485).

Subsidies Valuation Information

Period of Investigation: The period for which we are measuring

subsidies (the ``POI'') is calendar year 1996.

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

information from the U.S. Internal Revenue Service (``IRS'') on the

industry-specific average useful life of assets in determining the

allocation period for nonrecurring subsidies. See General Issues

Appendix appended to Final Countervailing Duty Determination; Certain

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

(``General Issues Appendix''). However, in British Steel plc. v. United

States, 879 F. Supp. 1254 (CIT 1995) (``British Steel''), the U.S.

Court of International Trade (the ``Court'') ruled against this

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

Department calculated a company-specific allocation period for

nonrecurring subsidies based on the average useful life (``AUL'') of

non-renewable physical assets. This remand determination was affirmed

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

1996).

In this investigation, the Department has followed the Court's

decision in British Steel. Therefore, for purposes of this

determination, the Department has calculated a company-specific AUL.

Based on information provided by respondents, the Department has

determined that the appropriate allocation period for CIL is 15 years.

Equityworthiness: In analyzing whether a company is equityworthy,

the Department considers whether that company could have attracted

investment capital from a reasonable, private investor in the year of

the government equity infusion based on information available at that

time. In this regard, the Department has consistently stated that a key

factor for a company in attracting investment capital is its ability to

generate a reasonable return on investment within a reasonable period

of time.

In making an equityworthiness determination, the Department

examines the following factors, among others:

1. Current and past indicators of a firm's financial condition

calculated from that firm's financial statements and accounts;

2. Future financial prospects of the firm including market studies,

economic forecasts, and projects or loan appraisals;

3. Rates of return on equity in the three years prior to the

government equity infusion;

4. Equity investment in the firm by private investors; and

5. Prospects in world markets for the product under consideration.

In start-up situations and major expansion programs, where past

experience is of little use in assessing future performance, we

recognize that the factors considered and the relative weight placed on

such factors may differ from those used in the analysis of an

established enterprise.

For a more detailed discussion of the Department's equityworthiness

criteria see the General Issues Appendix at 37244 and Final Affirmative

Countervailing Duty Determinations: Certain Steel Products from France,

58 FR 37304 (July 9, 1993) (``Steel from France'').

In our preliminary determination, we determined that the Iron and

Steel Company of Trinidad and Tobago (``ISCOTT'') was unequityworthy

for the period 1986-1994. Additional information and documents gathered

at verification have given us cause to review our preliminary

determination. As discussed below, we determine that ISCOTT was

unequityworthy from June 13, 1984 to December 31, 1991. For a

discussion of this determination, see the section of this notice on

``Equity Infusions.''

Equity Methodology: In measuring the benefit from a government

equity infusion to an unequityworthy company, the Department compares

the price paid by the government for the equity to a market benchmark,

if such a benchmark exists. A market benchmark can be obtained, for

example, where the company's shares are publicly traded. (See, e.g.,

Final Affirmative Countervailing Duty Determinations: Certain Steel

Products from Spain, 58 FR 37374, 37376 (July 9, 1993).)

In this investigation, where a market benchmark does not exist, the

Department is following the methodology described in the General Issues

Appendix at 37239. Under this methodology, equity infusions made into

an unequityworthy firm are treated as grants. Using the grant

methodology for equity infusions into an unequityworthy company is

based on the premise that an unequityworthiness finding by the

Department is tantamount to saying that the company could not have

attracted investment capital from a reasonable investor in the infusion

year based on the available information.

Creditworthiness: When the Department examines whether a

[[Page 55005]]

company is creditworthy, it is essentially attempting to determine if

the company in question could obtain commercial financing at commonly

available interest rates. If a company receives comparable long-term

financing from commercial sources, that company will normally be

considered creditworthy. In the absence of comparable commercial

borrowings, the Department examines the following factors, among

others, to determine whether a firm is creditworthy:

1. Current and past indicators of a firm's financial health

calculated from that firm's financial statements and accounts;

2. The firm's recent past and present ability to meet its costs and

fixed financial obligations with its cash flow; and

3. Future financial prospects of the firm including market studies,

economic forecasts, and projects or loan appraisals.

In start-up situations and major expansion programs, where past

experience is of little use in assessing future performance, we

recognize that the factors considered and the relative weight placed on

such factors may differ from those used in the analysis of an

established enterprise. For a more detailed discussion of the

Department's creditworthiness criteria, see, e.g., Steel from France at

37304, and Final Affirmative Countervailing Duty Determination; Certain

Steel Products from the United Kingdom, 58 FR 37393, 37395 (July 9,

1993) (``Certain Steel from the U.K.'').

In our preliminary determination, we determined that ISCOTT was

uncreditworthy for the period 1986-1994. Additional information and

documents gathered at verification have given us cause to review our

preliminary determination. As discussed below, we determine that ISCOTT

was uncreditworthy during the period June 13, 1984 to December 31,

1994. ISCOTT did not show a profit for any year during this period and

continued to rely upon support from the GOTT to meet fixed payments.

The company's gross profit ratio was consistently negative in each of

the years in which it had sales. Additionally, the company's operating

profit (net income before depreciation, amortization, interest and

financing charges) was consistently negative. The firm continued to

show an operating loss in each year it was in production, and was never

able to cover its variable costs.

Regarding the period prior to June 13, 1984, and after December 31,

1994, we did not examine ISCOTT's creditworthiness because ISCOTT did

not receive any countervailable loans, equity infusions, or

nonrecurring grants during those periods.

Discount Rates: We have calculated the long-term uncreditworthy

discount rates for the period 1984 through 1994, to be used in

calculating the countervailable benefit from nonrecurring grants and

equity infusions, using the same methodology described in our

preliminary determination. Specifically, consistent with our practice

(described in Final Affirmative Countervailing Duty Determination:

Grain-Oriented Electrical Steel from Italy, 59 FR 18357, 18358 (April

18, 1994) (``GOES'')), we took the highest prime term loan rate

available in Trinidad and Tobago in each year as listed in the Central

Bank of Trinidad and Tobago: Handbook of Key Economic Statistics and

added to this a risk premium of 12% of the median prime lending rate.

Privatization Methodology: In the General Issues Appendix at 37259,

we applied a new methodology with respect to the treatment of subsidies

received prior to the sale of a company (privatization).

Under this methodology, we estimate the portion of the purchase

price attributable to prior subsidies. We compute this by first

dividing the privatized company's subsidies by the company's net worth

for each year during the period beginning with the earliest point at

which nonrecurring subsidies would be attributable to the POI (in this

case 1982 for CIL) and ending one year prior to the privatization. We

then take the simple average of the ratios. The simple average of these

ratios of subsidies to net worth serves as a reasonable surrogate for

the percent that subsidies constitute of the overall value of the

company. Next, we multiply the average ratio by the purchase price to

derive the portion of the purchase price attributable to repayment of

prior subsidies. Finally, we reduce the benefit streams of the prior

subsidies by the ratio of the repayment amount to the net present value

of all remaining benefits at the time of privatization.

In the current investigation, we are analyzing the privatization of

ISCOTT in 1994.

Based upon our analysis of the petition and responses to our

questionnaires, we determine the following:

I. Programs Determined To Be Countervailable

A. Export Allowance Under Act No. 14

Under the provisions of Act No. 14 of 1976, as codified in Section

8(1) of the Corporation Tax Act, companies in Trinidad and Tobago with

export sales may deduct an export allowance in calculating their

corporate income tax. The allowance is equal to the ratio of export

sales over total sales multiplied by net income. Export sales to

certain Caricom countries are not eligible for the export allowance and

are excluded from the amount of export sales for purposes of

calculating the export allowance.

A countervailable subsidy exists within the meaning of section

771(5) of the Act where there is a financial contribution from the

government which confers a benefit and is specific within the meaning

of section 771(5A) of the Act.

We have determined that the export allowance is a countervailable

subsidy within the meaning of section 771(5) of the Act. The export

allowance provides a financial contribution because in granting it the

GOTT forgoes revenue that it is otherwise due. The export allowance is

specific, under section 771(5A)(B), because its receipt is contingent

upon export performance.

We verified that CIL made a deduction for the export allowance on

its 1995 income tax return, which was filed during the POI. Because the

export allowance is claimed and realized on an annual basis in the

course of filing the corporate income tax return, we have determined

that the benefit from this program is recurring. To calculate the

countervailable subsidy from the export allowance, we divided CIL's tax

savings during the POI by the total value of its export sales which

were eligible for the export allowance during the POI. On this basis,

we determine the countervailable subsidy from this program to be 3.72

percent ad valorem.

B. Equity Infusions

In 1978, ISCOTT and the GOTT entered into a Completion and Cash

Deficiency Agreement (``CCDA'') with several private commercial banks

in order to obtain a part of the financing needed for construction of

ISCOTT's plant. Under the terms of the CCDA, the GOTT was obligated to

provide certain equity financing toward completion of construction of

ISCOTT's plant, to cover loan payments to the extent not paid by

ISCOTT, and to provide cash as necessary to enable ISCOTT to meet its

current liabilities.

[[Page 55006]]

In Carbon Steel Wire Rod from Trinidad and Tobago: Final

Affirmative Countervailing Duty Determination and Countervailing Duty

Order, 49 FR 480 (January 4, 1984) (``Wire Rod I''), the Department

determined that payments or advances made by the GOTT to ISCOTT during

its start-up years were not countervailable. In making this

determination, the Department took into consideration the fact that it

is not unusual for a large, capital intensive project to have losses

during the start-up years, the fact that several independent studies

forecast a favorable outcome for ISCOTT, and the fact that ISCOTT

enjoyed several important natural advantages. On these bases, advances

to ISCOTT through April of 1983, the end of the original POI, were

found to be not countervailable.

Given the Department's decision in Wire Rod I that the GOTT's

initial decision to invest in ISCOTT and its additional investments

through the first quarter of 1983 were consistent with commercial

considerations, the issue presented in this investigation is whether

and at what point the GOTT ceased to behave as a reasonable private

investor. During the period from 1983 to 1989, a period of continuing

losses, ISCOTT and the GOTT commissioned several studies to determine

the financially preferable course of action for the company. The

information contained in these studies is business proprietary, and is

discussed further in a memorandum dated October 14, 1997, from Team to

Richard W. Moreland, Acting Deputy Assistant Secretary for AD/CVD

Enforcement (``Equity Memorandum''), a public version of which is

available in the public file for this investigation located in the

Central Records Unit, Department of Commerce, HCHB Room B-099 (``Public

File''). Based on information contained in the studies and our review

of the results of ISCOTT's operations over the period under

consideration, we determine that the GOTT's investments made after June

13, 1984, were no longer consistent with the practice of a reasonable

private investor. ISCOTT continued to be unable to cover its variable

costs, yet the GOTT continued to provide funding to ISCOTT. Despite

ISCOTT's continued losses and no reason to believe that under the

conditions in place at that time there was any hope of improvement, the

GOTT did not make further investment contingent upon actions that would

have been required by a reasonable private investor.

In 1988, P.T. Ispat Indo (``Ispat''), a company affiliated with

CIL, came forward and expressed an interest in leasing the plant. On

April 8, 1989, the GOTT and Ispat reached agreement on a 10-year lease

agreement with an option for Ispat to purchase the assets after five

years. The first few years of the lease were marked by the GOTT

learning to assume the role of a lessor and the management of CIL

working to become familiar with the operations of ISCOTT and to develop

relations with the former ISCOTT employees. Our review of internal

documents, financial projections and historical financial data indicate

that after December 31, 1991, the operations of the ISCOTT plant under

CIL and ISCOTT's financial condition improved such that we determine

that investments in ISCOTT after this date were consistent with the

practice of a reasonable private investor. See, Equity Memorandum for

further discussion of the information used in making this

determination.

We have determined that the GOTT equity infusions into ISCOTT

during the period from June 13, 1984 through December 31, 1991

constitute countervailable subsidies in accordance with section 771(5)

of the Act. We determine that these equity infusions confer a benefit

under 771(5)(E)(i) of the Act because these investments were not

consistent with the usual investment practice of private investors.

Also, they are specific within the meaning of section 771(5A) because

they were limited to one company, ISCOTT.

To calculate the benefit, we followed the ``Equity Methodology''

described above. The benefit allocated to the POI was adjusted

according to the ``Privatization Methodology'' described above. The

adjusted amount was divided by CIL's total sales of all products during

the POI. On this basis, we calculated a countervailable subsidy rate of

11.12 percent ad valorem.

C. Benefits Associated With the 1994 Sale of ISCOTT's Assets to CIL

In December 1994, CIL, the company created by Ispat to lease and

operate the plant, exercised the purchase option in the plant lease and

purchased the assets of ISCOTT. After the sale of its assets, ISCOTT

was nothing but a shell company with liabilities exceeding its assets.

CIL, on the other hand, had purchased most of ISCOTT's assets without

being burdened by ISCOTT's liabilities.

The liabilities remaining with ISCOTT after the sale of productive

assets to CIL had to be repaid, assumed, or forgiven. In 1995, the

National Gas Company of Trinidad and Tobago Limited (``NGC''), which

was owned by the GOTT, and the National Energy Corporation of Trinidad

and Tobago Limited (``NEC''), a wholly owned subsidiary of NGC, wrote

off loans owed to them by ISCOTT totaling TT $77,225,775. Similarly,

Trinidad and Tobago National Oil Company Limited (``TRINTOC''), also

owned by the GOTT, wrote off debts owed by ISCOTT totaling TT

$10,492,830 as bad debt. While no specific government act eliminated

this debt, CIL (and consequently the subject merchandise) received a

benefit as a result of this debt being left behind in ISCOTT.

We have determined that this debt forgiveness constitutes a

countervailable subsidy in accordance with section 771(5) of the Act

because it represents a direct transfer of funds. Also, it is specific

within the meaning of section 771(5A) because it was limited to one

company.

In this case, to calculate the benefit during the POI, we used our

standard grant methodology and applied an uncreditworthy discount rate.

The debt outstanding after the December 1994 sale of assets to CIL

(adjusted as described below) was treated as grants received at the

time of the sale of the assets.

After the 1994 sale of assets, certain non-operating assets (e.g.,

cash and accounts receivable) remained with ISCOTT. These assets were

used to fund repayment of ISCOTT's remaining accounts payable. In order

to account for the fact that certain assets, including cash, were left

behind in ISCOTT, we have subtracted this amount from the liabilities

outstanding after the 1994 sale of assets.

The benefit allocated to the POI was adjusted according to the

``Privatization Methodology'' described above. The adjusted amount was

divided by CIL's total sales of all products during the POI. On this

basis, we determine the net subsidy to be 1.17 percent ad valorem.

D. Provision of Electricity

According to section 771(5)(E) of the Act, the adequacy of

remuneration with respect to a government's provision of a good or

service

* * * shall be determined in relation to prevailing market

conditions for the good or service being provided or the goods being

purchased in the country which is subject to the investigation or

review. Prevailing market conditions include price, quality,

availability, marketability, transportation, and other conditions of

purchase or sale.

Particular problems can arise in applying this standard when the

government is the sole supplier of the good or service in the country

or within the area where the respondent is located. In this situation,

there may be no alternative market prices available in the country

(e.g., private prices,

[[Page 55007]]

competitively-bid prices, import prices, or other types of market

reference prices). Hence, it becomes necessary to examine other options

for determining whether the good has been provided for less than

adequate remuneration. This consideration of other options in no way

indicates a departure from our preference for relying on market

conditions in the relevant country, specifically market prices, when

determining whether a good or service is being provided at a price

which reflects adequate remuneration.

With respect to electricity, some of the options may be to examine

whether the government has followed a consistent rate making policy,

whether it has covered its costs, whether it has earned a reasonable

rate of return in setting its rates, and/or whether it applied market

principles in determining its rates. Such an approach is warranted

where it is only the government that provides electricity within a

country or where electricity cannot be sold across service

jurisdictions within a country and there are divergent consumption and

generation patterns within the service jurisdictions.

The Trinidad and Tobago Electric Commission (``TTEC''), which is

wholly-owned by the GOTT, is the sole supplier of electric power in

Trinidad and Tobago. For billing purposes, TTEC classifies electricity

consumers into one of the following categories: residential,

commercial, industrial, and street lighting. Industrial users are

further classified into one of four categories depending on the voltage

at which they take power and the size of the load taken. CIL is the

sole user in the very large load category taking its power at 132 kV

for loads over 25,000 KVA. Other large industrial users take power at

33 kV, 66 kV or 132 kV at loads from 230 Volts up to 25,000 KVA.

TTEC's rates and tariffs for the sale of electricity are set by the

Public Utilities Commission (``PUC''), an independent authority. In

setting electricity rates, the PUC takes into account cost of service

studies done by TTEC. These studies are submitted to the PUC, where

they are reviewed by teams of economists, statisticians, and auditors.

Public hearings are held and views expressed orally and in writing.

After considering all of the views and studies submitted, the PUC

issues detailed orders with the new rates and explanations of how they

were calculated. In establishing these rates, the PUC is required by

section 32 of its regulations to ensure that the new rates will cover

costs and expenses and allow for a return.

The electricity rates in effect during the POI were based on cost

of service studies for 1987 and 1991. Based on these studies and staff

audit reports, the PUC in 1992 issued Order Number 80 with the new

electricity rates and a lengthy explanation of the bases for these

rates. The order allowed for a specified return to TTEC on its sales of

electricity. In 1993 and 1994, the first two years following the order,

TTEC was profitable for the first time in years. However, TTEC had

large losses in 1995 and losses in 1996 of about half the 1995 losses.

As noted above, TTEC is the only supplier in Trinidad and Tobago of

electricity. Consequently, there are no competitively-set, private

benchmark prices in Trinidad and Tobago to use in determining whether

TTEC is receiving adequate remuneration within the meaning of section

771(5)(E) of the Act. Lacking such benchmarks, the only bases we have

for determining what constitutes adequate remuneration are TTEC's costs

and revenues.

Despite PUC's mandate to set rates that will cover the costs of

providing electricity plus an adequate return, past history indicates

that this directive has seldom been met. In addition, evidence in the

cost of service studies, including the most recent cost of service

study prepared in 1997, indicates that TTEC did not receive adequate

remuneration on its sales of electricity to CIL. This evidence is

proprietary and is discussed in the October 14, 1997 proprietary

memorandum entitled Adequate Remuneration for Electricity.

Consequently, we determine that the GOTT is bestowing a benefit on CIL

through TTEC's provision of electricity. We further determine that this

benefit is specific because CIL is the only user in its customer

category and, hence, the only company paying fees and tariffs at that

rate.

Adequacy of remuneration is a new statutory provision which

replaced ``preferentiality'' as the standard for determining whether

the government's provision of a good or service constitutes a

countervailable subsidy. The Department has had no experience

administering section 771(5)(E) and Congress has provided no guidance

as to how the Department should interpret this provision. This case and

the other concurrent wire rod cases, mark the first instances in which

we are applying the new standard. We anticipate that our policy in this

area will continue to be refined as we address similar issues in the

future.

We calculated the benefit for electricity by comparing CIL's actual

electricity rate in 1996 with the rate that would have yielded an

adequate return to TTEC, as calculated in its 1996 cost of service

study. (We used the cost of service study to calculate the benefit as

there was no suitable market-based benchmarks for electricity in

Trinidad and Tobago.) We divided the total shortfall based on CIL's POI

electricity consumption by CIL's total sales of all products during the

POI. On this basis, we calculated a countervailable subsidy rate of

1.46 percent ad valorem.

II. Programs Determined to Be Not Countervailable

A. Import Duty Concessions under Section 56 of the Customs Act

Section 56 of the Customs Act of 1983 provides for full or partial

relief from import duties on certain machinery, equipment, and raw

materials used in an approved industry. The approved industries that

may benefit from this relief are listed in the Third Schedule to

Section 56. In all, 76 industries are eligible to qualify for relief

under Section 56.

Companies in these industries that are seeking import duty

concessions apply by letter to the Tourism and Industries Development

Company, which reviews the application and forwards it with a

recommendation to the Ministry of Trade and Industry. If the Ministry

of Trade and Industry approves the application, the applicant receives

a Duty Relief License, which specifies the particular items for which

import duty concessions have been authorized. CIL received import duty

exemptions under Section 56 of the Customs Act during the POI.

In its June 30, 1997, supplemental response, the GOTT provided a

breakdown by industry of the number of licenses issued during the first

six months of the POI. During the POI, the Ministry of Trade and

Industry issued a large number of licenses to a wide cross-section of

industries. Some of the licenses were new issuances and others were

renewals of licenses previously issued. The breakdown of licenses by

industry indicated that the recipients of the exemption were not

limited to a specific industry or group of industries. The breakdown

also indicated that the steel industry was not a predominant user of

the subsidy nor did it receive a disproportionate share of benefits

under this program. For these reasons, we determine that import duty

concessions under Section 56 of the Customs Act are not limited to a

specific industry or group of industries and, hence, are not

countervailable.

[[Page 55008]]

B. Point Lisas Industrial Estate Lease

As noted above in the Provision of Electricity section of this

notice, particular problems can arise in applying the standard for

adequate remuneration when the government is the sole supplier of the

good or service in the country or within the area where the respondent

is located. With respect to the leasing of land, some of the options to

consider in determining whether the good has been provided for less

than adequate remuneration may be to examine whether the government has

covered its costs, whether it has earned a reasonable rate of return,

and/or whether it applied market principles in determining its prices.

In the instant case, we have found no alternative market reference

prices to use in determining whether the government has provided

(leased) the land for less than adequate remuneration. As such, we have

examined whether the government's price was determined according to the

same market factors that a private lessor would use in setting lease

rates for a tenant.

The Point Lisas Industrial Port Development Company (``PLIPDECO'')

owns and operates Point Lisas Industrial Estate. Prior to 1994,

PLIPDECO was 98 percent government-owned. Since then, PLIPDECO's issued

share capital has been held 43 percent by the government, eight percent

by Caroni Limited, a wholly-owned government entity, and 49 percent by

2,500 individual and corporate shareholders whose shares are publicly

traded on the Trinidad and Tobago Stock Exchange. We were unable to

find any privately-owned industrial estates in Trinidad and Tobago to

provide competitively-set, private, benchmark rates to determine the

adequacy of PLIPDECO's lease rates.

ISCOTT, the predecessor company to CIL, entered into a 30-year

lease contract for a site at Point Lisas in 1983, retroactive to 1978.

The 1983 lease rate was revised in 1988. In 1989, the site was

subleased to CIL at the revised rental fee. In 1994, ISCOTT and

PLIPDECO signed a novation of the lease whereby ISCOTT's name was

replaced on the lease by CIL's. During the POI, CIL paid the 1988

revised rental fee for the site.

Under section 771(5) of the Act, in order for a subsidy to be

countervailable it must, inter alia, confer a benefit. In the case of

goods or services, a benefit is normally conferred if the goods or

services are provided for less than adequate remuneration. The adequacy

of remuneration is determined in relation to prevailing market

conditions for the good or service provided in the country of

exportation.

In establishing lease rates for sites in the industrial estate,

PLIPDECO uses a standard schedule of lease rates as a starting point

for negotiating with prospective tenants. The standard lease rates

reflect PLIPDECO's evaluation of the market value of land in the

estate. Individual rates are negotiated based on a variety of factors,

such as the size of the lot, the type of lease, the type of business,

the attractiveness of the tenant, and the date on which the lease

contract was signed. Because rates are negotiated individually with

each tenant, the rate paid by CIL (and other tenants) is specific.

The site leased by ISCOTT in 1983 and now occupied by CIL is the

largest site in the Point Lisas Industrial Estate with an overall area

that is considerably more than double the size of the next largest

site. After CIL's site and the next largest, the size of the remaining

sites drops significantly. At verification, we examined leases of other

sites in the estate and found only one site with a 30-year lease that

was signed contemporaneously with CIL's lease. The remaining leases

examined had terms of 99 years, or 30-year leases that were signed much

later than CIL's. The method of calculating the lease rate on a 99-year

lease is fundamentally different from the calculation on a 30-year

lease, because tenants with 99-year leases effectively purchased the

land at the start of the lease, making only token annual lease payments

thereafter.

Tenants with 30-year leases make substantial annual lease payments

throughout the lease but no large initial payment. Therefore, we

decided not to compare a 99-year lease rate to CIL's 30-year lease

rate. Eliminating the 99-year leases left only one lease with a site

that was somewhat comparable in size to CIL's site. CIL's lease fee per

square meter was in line with the lease fee for the next most

comparable site.

Aside from the lease contract on the next most comparable site, we

have no other readily available benchmark or guideline to determine

whether the lease rate paid by CIL provides adequate remuneration to

PLIPDECO. The standard lease cannot serve as an appropriate benchmark

because it is used as the starting point for negotiations. All of the

leases examined at verification had rates below the standard rate.

Aside from the next largest site, the leases for other sites in the

estate were also found to be unsuitable. The disparity in both the

sizes of these leases and the years in which they were signed when

compared with CIL's site and lease rendered their use inappropriate.

Further, we found no privately owned industrial estates in Trinidad and

Tobago. Therefore, in addition to a direct comparison of CIL's lease

rate with that of the next most similar site, we also considered other

factors in determining whether PLIPDECO received adequate remuneration.

PLIPDECO considered ISCOTT to be the anchor tenant in the estate

because it was the first company to locate in the estate, and because

of its size and its role as the first steel producer in Trinidad and

Tobago. Further, ISCOTT's annual lease payments provided a considerable

cash flow to PLIPDECO, especially in the early years of the estate when

PLIPDECO was in need of funds for continued development. In addition,

ISCOTT was expected to draw other companies into the estate. As we

found at verification, PLIPDECO's expectations that ISCOTT would draw

other companies into the estate were, in fact, realized. Although a

precise dollar value cannot be placed on these factors, PLIPDECO took

them into consideration when establishing ISCOTT's lease rate. That

PLIPDECO took these factors into consideration is an indication that

its negotiations were intended to assure adequate remuneration on its

lease to CIL.

During the years for which we have information, 1992 through 1995,

PLIPDECO has been consistently profitable. In addition, PLIPDECO's

successful public stock offering of 49 percent of its shares in 1994

demonstrates that investors viewed the company as a good investment.

All of these facts support our determination that PLIPDECO is a

company that has succeeded in achieving adequate remuneration in its

dealings with CIL and with other tenants in the estate. Therefore, we

determine that CIL's lease rates have provided adequate remuneration

for its site in the Point Lisas Industrial Estate.

C. Provision of Natural Gas

As noted above in the Provision of Electricity section of this

notice, particular problems can arise in applying the standard for

adequate remuneration when the government is the sole supplier of the

good or service in the country or within the area where the respondent

is located. With respect to the provision of natural gas, some of the

options may be to examine whether the government has covered its costs,

whether it has earned a reasonable rate of return, and/or whether it

applied market principles in determining its prices. In the instant

case, we have found no alternative market reference

[[Page 55009]]

prices to use in determining whether the government has provided

natural gas for less than adequate remuneration. As such, we have

examined whether the government earned a reasonable rate of return and

whether the government applied market principles in determining its

prices.

NGC is the sole supplier of natural gas to industrial and

commercial users in Trinidad and Tobago. NGC provides gas pursuant to

individual contracts with each of its customers. Natural gas prices to

small consumers are fixed prices with an annual escalator. Prices to

large consumers are negotiated individually based on annual volume,

contract duration, payment terms, use made of the gas, any take or pay

requirement in the contract, NGC's liability for damages, and whether

new pipeline is required. Prices must be approved by NGC's Board of

Directors. Although NGC is 100 percent government-owned, the GOTT

indicates that none of the current members of the board is a government

official nor do any government laws or regulations regulate the pricing

of natural gas.

The price paid by CIL for natural gas during the POI was

established in a January 1, 1989 contract between ISCOTT and NGC that

ISCOTT assigned to CIL on April 28, 1989. Average price data submitted

by the GOTT for large industrial users of natural gas indicate that the

price paid by CIL during the POI was in line with the average price

paid by large industrial users overall.

At verification, NGC officials explained that the company operates

on a strictly commercial basis, purchasing natural gas at the lowest

prices it can negotiate and selling and distributing the gas at prices

that assure the company's profitability. The years for which we have

information on NGC's profitability, 1992 to 1995, demonstrate that the

company has been consistently profitable.

Clearly, in its contract negotiations and its overall operations,

NGC has demonstrated that it realizes an adequate return on its sales

and distribution of natural gas to CIL and its other customers. For

this reason, we have determined that the prices paid by CIL, which are

in line with those paid by other large consumers, provide adequate

remuneration to NGC for the natural gas supplied to CIL. Therefore, we

have determined that NGC's provision of natural gas to CIL is not a

countervailable subsidy under section 771(5) of the Act.

IV. Programs Determined To Be Not Used

A. Export Promotion Allowance

B. Corporate Tax Exemption

V. Program Determined Not To Exist

A. Loan Guarantee From the Trinidad and Tobago Electricity Commission

By 1988, ISCOTT had accumulated TT $19,086,000 in unpaid

electricity bills owed to TTEC. To manage this debt, TTEC obtained a

loan from the Royal Bank of Trinidad and Tobago which enabled TTEC to

more readily carry the receivable due from ISCOTT. By 1991, ISCOTT

extinguished its debt to TTEC.

At no time during this period did TTEC provide a guarantee to

ISCOTT which enabled ISCOTT to secure a loan to settle the outstanding

balance on its account. The financing obtained by TTEC from the Royal

Bank benefitted TTEC rather than ISCOTT because it allowed TTEC to have

immediate use of funds that otherwise would not have been available to

it. On this basis, we determine that TTEC did not provide a loan

guarantee to ISCOTT for purposes of securing a loan to settle the

outstanding balance owed to TTEC. Therefore, we determine that this

program did not exist.

Interested Party Comments

Comment 1: Treatment of shareholder advances: Petitioners claim

that GOTT advances to ISCOTT should be treated as grants rather than as

equity. In petitioners' view, these advances had none of the

characteristics of debt or equity, such as provisions for repayment,

dividends, or any additional claim on funds in the event of

liquidation. Petitioners cite to Certain Hot Rolled Lead and Bismuth

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

(``Leaded Bar from France''), where the Department treated shareholder

advances as grants because no shares were distributed when the advances

were made, despite the fact that shares were issued at a later date.

Petitioners point out that the GOTT received no shares at the time of

its advances to ISCOTT.

Respondents claim that the advances should be treated as equity.

Respondents note that ISCOTT's annual reports consistently state that

it was the practice for advances to be capitalized as equity, and that

in fact, ISCOTT issued shares for nearly all advances through 1987. In

addition, according to respondents, the CCDA states that pending the

issuance of any shares, any payment from the GOTT shall constitute

paid-up share capital. Respondents further note that Wire Rod I, the

Department characterized GOTT funding as equity contributions.

Respondents cite to Certain Steel from the U.K. at 37395, where the

Department stated that despite the fact that the U.K. government did

not receive any additional ownership, such as stock or additional

rights, in return for the capital provided to BSC under Section 18(1)

since it already owned 100 percent of the company, such advances to BSC

were treated as equity.

Department's Position: We agree with respondents and have continued

to treat advances from the GOTT as equity at the time of receipt. In

Certain Steel from the U.K., as in this case, requests for funding from

the government were examined on a case-by-case basis. This treatment is

consistent with our treatment of advances in Wire Rod I and our

preliminary determination in this proceeding. Further, similar to

Certain Steel from the U.K., ISCOTT issued additional shares to the

GOTT on several occasions to reduce the balance of the shareholder

advances, whereas in Leaded Bar from France there was no understanding

that shareholder advances were to be converted to equity, and

conversion occurred only as part of a government-sponsored debt

restructuring.

Comment 2: Equityworthiness: Petitioners claim that if the

Department treats the stockholder advances as equity, ISCOTT's

financial statements and information gathered at verification

demonstrate that ISCOTT was unequityworthy after March 1983, and the

Department should view the provision of equity as inconsistent with the

practice of a reasonable private investor. Petitioners note that ISCOTT

had losses in every year from 1982 through 1994. Petitioners argue that

ISCOTT's inability to cover its variable costs while operating the

steel plant demonstrates that the company should have been shut down.

Petitioners urge the Department to follow its practice of placing

greater reliance on past indicators rather than on flawed studies

projecting dubious future expectations, which respondents have pointed

to as evidence of ISCOTT's equityworthiness. Petitioners cite to the

1983 Report of the Committee Appointed by Cabinet to Consider the

Future of ISCOTT (``Committee Report''), where under any of the options

considered, ISCOTT was projected to show a loss, as further evidence

that ISCOTT was unequityworthy.

Respondents claim that the financial ratios in this case must be

interpreted in the context of a start-up enterprise.

[[Page 55010]]

Respondents contend that a venture capitalist would recognize that a

start-up enterprise will incur losses for several years. Second,

respondents point out that while the Committee Report cited by

petitioners predicted an overall loss over the next five years, the

trend was decidedly positive, with increasing profits projected for the

last two years included in the study, 1986 and 1987.

Department's Position: We agree with petitioners, in part. At some

point, a reasonable private investor would have come to question

ISCOTT's continued inability to achieve forecasted operating results,

and would have made future funding contingent on timely, fundamental

changes in the company's operations, shutting down the plant, or

privatizing ISCOTT. As discussed above in the Equity Infusions section

of this notice, we are including advances from the GOTT to ISCOTT

during the period June 13, 1984 through December 31, 1991, in our

calculation of CIL's countervailable subsidy rate.

Comment 3: Loan guarantees under the CCDA: Respondents claim that

the GOTT's principal and interest payments on ISCOTT's behalf made

pursuant to loan guarantees under the CCDA are not countervailable. In

the 1984 final, the Department found that the GOTT's loan guarantees

under the CCDA were on terms consistent with commercial considerations.

Therefore, payments which the GOTT made on these loans pursuant to the

guarantees should also be considered consistent with commercial

considerations. In Carbon Steel Wire Rod from Saudi Arabia, 51 FR 4206

(February 3, 1986), the Department determined that funding in 1983 made

pursuant to a prior agreement, which was on terms consistent with

commercial considerations, was not countervailable, even though funds

provided pursuant to a new investment decision in 1983 were

countervailable because the company was no longer equityworthy.

Similarly, in Final Affirmative Countervailing Duty Determination:

Certain Corrosion resistant Carbon Steel Flat Products from New

Zealand, 58 FR 37366, 37368 (July 9, 1993), the Department confirmed

that a government's payment of loans under a guarantee agreement is not

countervailable if the underlying guarantee was commercially

reasonable.

Respondents also seek to clarify that even if the GOTT had

liquidated ISCOTT, the GOTT could not have avoided its payment

obligations. As of 1983, all funding under the loans covered by the

CCDA had been drawn down, and were subject to guarantees by the GOTT.

Petitioners argue that when the Department determined in 1984 that

the GOTT's decision to enter into the CCDA was rational, it was not at

that time determining that any and all future payments under the CCDA

would necessarily be consistent with the private investor standard.

Petitioners contend that if the GOTT had acted as a reasonable private

investor, it would have shut ISCOTT down and stopped the financial

hemorrhaging. Instead, petitioners argue, both ISCOTT and the GOTT were

too preoccupied with non-commercial considerations to consider the

reasonable course of action.

Department's Position: We disagree with respondents that the GOTT

was inexorably committed to make continued payments on ISCOTT's behalf

as a result of the loan guarantees contained in the CCDA. Had the

GOTT's actions been consistent with those of a reasonable private

investor, as a controlling shareholder in ISCOTT, the GOTT would have

sought to minimize losses. Shutting down the plant would have been less

expensive than continuing to operate the plant in such a manner that no

projection was ever achieved and variable costs were never covered by

revenues. The GOTT constructed the ISCOTT plant because it had studies

indicating the plant was a viable investment. When CIL leased the

ISCOTT plant, it demonstrated that ISCOTT was viable. The GOTT could

have pursued less costly alternatives than continued funding of

ISCOTT's operations with no requirement that timely and demonstrable

actions, including consideration of shutting down the plant, be taken

to reduce or eliminate the amount needed to fulfill all of its

obligations under the CCDA.

Comment 4: Countervailability of cash deficiency payments under the

CCDA: Respondents claim that the CCDA imposed a further legal

obligation on the GOTT that was distinct from its commitment to meet

ISCOTT's CCDA debt service obligations. Specifically, the CCDA required

the GOTT to provide funds to ISCOTT to cover any other cash deficiency,

such as an operating loss. Respondents argue that both external and

internal studies demonstrate that GOTT's decisions to cover these cash

deficiencies were consistent with those of a reasonable private

investor.

Petitioners reply that the Department's prior determination that

the GOTT's decision to enter into the CCDA was rational has no bearing

on whether or not subsequent decisions to fund money-losing operations

was rational. Petitioners contend that the rationality of guarantee

payments must be evaluated anew each time, and that the GOTT should

have realized that shutting down the ISCOTT plant would have been the

least cost available alternative.

Department's Position: We agree with petitioners that our 1984

decision regarding the CCDA did not give the GOTT license to provide

continued funding to ISCOTT immune from potential countervailability

under U.S. law. A reasonable private investor acting on a guarantee

would pursue the least-cost alternative, and would ensure that the

amount of funding under such a guarantee is truly necessary. We are not

persuaded that the GOTT's actions were consistent with those of a

reasonable private investor, as discussed above in the Equity Infusions

section of this notice.

Comment 5: Post-lease funding of ISCOTT: Respondents claim that

after ISCOTT's assets were leased to CIL in May 1989, any funds

provided to ISCOTT by the GOTT did not provide a subsidy to CIL's 1996

production. Respondents note that CIL has always been a separate and

distinct company, with no ownership interest in, or other affiliation

with, ISCOTT. Therefore, according to respondents, there is no basis

for attribution of ISCOTT's subsidies to CIL. Respondents note that as

discussed in Final Affirmative Countervailing Duty Determination;

Certain Hot Rolled Lead and Bismuth Carbon Steel Products from the

United Kingdom, 58 FR 6237 (January 27, 1993) (``Leaded Bar from the

U.K.''), the Department did not attribute any subsidies received by BSC

after it had spun off its Special Steels Division into a joint venture,

United Engineering Steels Limited (``UES''). In that case the

Department did not attribute any subsidies received by BSC after the

spin off to the joint venture, stating that there was ``no evidence of

any mechanisms for passing through subsidies from British Steel plc to

UES (e.g., cash infusions) after the formation of the joint venture.

Therefore we determine that any benefits received by BSC after the

formation of the joint venture do not pass through to UES.''

Respondents contend that, similarly, in this case there is no evidence

that subsidies received by ISCOTT after CIL took control of the steel-

making facilities continued to benefit CIL.

Respondents further contend that any past subsidies found to have

been received by ISCOTT cannot be found to have conferred a benefit on

CIL's production of wire rod in 1996, as required by section 771(5)(E)

of the Act. Respondent's argue that CIL never received any of the

advances provided to ISCOTT, and note that CIL remained

[[Page 55011]]

a completely separate company from ISCOTT after purchasing ISCOTT's

plant in an arm's length transaction. Respondents argue that the

Department did not articulate how CIL received a benefit from financial

contributions to ISCOTT, as required by the Subsidies and

Countervailing Measures Agreement.

Petitioners claim that the Department has consistently found that

past subsidies are not extinguished by an arm's length sale of a

company that had received the subsidies. Petitioners cite to 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) (``Leaded Bar from the U.K. Review''),

where the Department found that a portion of the subsidies traveled

with BSC's Special Steel Business assets when, in 1986, the government-

owned BSC exchanged its Special Steels Business for shares in UES.

Petitioners note that In Final Affirmative Countervailing Duty

Determination: Certain Pasta from Italy, 61 FR 30288, (June 14, 1996)

(``Pasta from Italy''), the Department made a similar finding.

Petitioners contend that in these cases, the Department views subsidy

payments to a company as a benefit to the entire company and all of its

productive assets, and, for this reason, the sale of the company or a

part of it does not extinguish the prior subsidies. Section 771(5)(F)

of the Act makes it very clear that the Department has the discretion

to find prior subsidies countervailable despite an arm's length sale of

company or assets.

Department's Position: We disagree with respondents, and have

allocated a portion of the nonrecurring subsidies received by ISCOTT

prior to the sale of the steel plant to CIL. In Leaded Bar from the

U.K., the Department found that subsidies received by BSC after the

spin-off did not pass through to UES. We note that in this case the

sale of ISCOTT's assets to CIL occurred after the lease period,

providing a mechanism for pass-through of subsidies received by ISCOTT

to CIL. Consistent with the Department's past practice in Pasta from

Italy and several pre-URAA cases, we determine that a portion of the

subsidies received by ISCOTT, including subsidies received during the

lease period, traveled with the assets sold to CIL.

Comment 6: Repayment of subsidies upon sale of assets: Petitioners

claim that the sale of ISCOTT's assets at a fair value did not offset

the distortion caused by the GOTT's original bestowal of subsidies.

Moreover, according to petitioners, the countervailing duty statute

establishes a presumption that a change in ownership of the productive

assets of a foreign enterprise does not render past countervailable

subsidies non-countervailable. Petitioners contend that once subsidies

are allocated to a productive unit, they should travel with that unit

upon sale or privatization. Therefore, petitioners argue that the

Department should not recognize a partial repayment of the subsidy

benefit stream at the time ISCOTT assets were sold.

Department's position: We disagree with petitioners and have

continued to allocate a portion of the sales price of ISCOTT's assets

to the previously bestowed subsidies. This is consistent with the URAA

and the Department's past practice (see, e.g., Leaded Bar from the U.K.

Review). Section 771(5)(F) of the Act reads:

Change in Ownership.--A change in ownership of all or part of a

foreign enterprise or the productive assets of a foreign enterprise

does not by itself require a determination by the administering

authority that a past countervailable subsidy received by the

enterprise no longer continues to be countervailable, even if the

change in ownership is accomplished through an arm's length

transaction.

The language of section 771(5)(F) of the Act purposely leaves

discretion to the Department with regard to the impact of a change in

ownership on the countervailability of past subsidies. Rather than

mandating that a subsidy automatically transfer with a productive unit

that is sold, as petitioners argue, the language in the statute clearly

gives the Department flexibility in this area. Specifically, the

Department is left with the discretion to determine, on a case-by-case

basis, the impact of a change in ownership on the countervailability of

past subsidies. Moreover, the SAA states that ``Commerce retain[s] the

discretion to determine whether, and to what extent, the privatization

of a government-owned firm eliminates any previously conferred

countervailable subsidies* * *'' SAA at 928.

In this case, we have determined that when ISCOTT's assets were

sold, a portion of the sales price reflected past subsidies. To account

for that, we treated a portion of the sales price as repaying those

past subsidies to the GOTT.

Comment 7: Calculation of amount of subsidies remaining with the

seller of a productive unit: Respondents argue that the Department's

methodology for calculating the amount of subsidies that pass through

in a change of ownership transaction is inconsistent with the rest of

the Department's practice with regard to nonrecurring subsidies because

the Department does not provide for any amortization when calculating

the percentage of the purchase price that is attributable to past

subsidies. Respondents claim that if the Department continues to

conclude that subsidies may survive privatization, it must revise its

methodology for calculating the percentage of the purchase price that

is attributed to previously bestowed subsidies to take into account the

fact that subsidies received prior to privatization must be amortized

from the time of receipt until the time of privatization. Respondents

propose that the Department determine the amount of the purchase price

attributable to previously bestowed subsidies as the ratio of the

amount of subsidies remaining in the company to the company's net worth

at the time of privatization.

Petitioners claim the ratio calculated under the Department's

current methodology, commonly referred to as ``gamma,'' is intended to

measure the share of the purchase price attributable to past subsidies,

not the value of past subsidies at the time of privatization.

Petitioners argue that the methodology proposed by respondents will

yield anomalous results. Petitioners claim that the sale of a thinly-

capitalized, heavily-subsidized company would result in 100 percent of

the purchase price being allocated to previously bestowed subsidies,

while all of the assets of the company benefitted from the past

subsidies. According to petitioners, a similarly situated company with

equity financing instead of debt would have a small amount of the

purchase price allocated to previously bestowed subsidies using

respondents' proposed methodology.

Department's position: In accordance with our past practice and

policy, we have continued to calculate the portion of the purchase

price attributable to past subsidies using historical subsidy and net

worth data (see, e.g., General Issues Appendix at 37263). Because this

methodology relies on several years' data, as opposed to data from just

a single year, it offers a more reliable representation of the

contribution that subsidies have made to the net worth of the

productive unit being sold. We take into account the amortization of

previously bestowed subsidies in our pass-through calculation as we

apply gamma to the amount of the remaining, unamortized countervailable

subsidy benefits to calculate the amount that remains with the seller.

Comment 8: Benefits associated with the 1994 sale of ISCOTT's

assets to CIL: Respondents claim that the write-off of

[[Page 55012]]

ISCOTT's debts after the sale of the plant to CIL is not a

countervailable subsidy to CIL. Typically, companies acquiring the

assets of other companies do not also acquire the debt of these

companies. In contrast, when companies acquire the stock of other

companies, they would normally be expected to assume the debt of the

acquired company. Respondents argue that the Department incorrectly

relied on GOES as precedent, because the circumstances in that case

were very different from the circumstances in the case of ISCOTT.

Respondents note that in GOES, the Government of Italy liquidated

Finsider and its main operating companies in 1988 and assembled the

group's most productive assets into a new operating company, ILVA

S.p.A. Respondents argue that the movement of assets and liabilities

between two government-owned companies, as was the case in GOES, is

very different from the arm's length nature of the sale of ISCOTT's

assets to CIL. Respondents claim that the purchase price paid in an

arm's length transaction, such as the sale of ISCOTT's assets to CIL,

reflects the fact that the purchaser is not also assuming the

liabilities of the seller.

Petitioners claim that the Department has precedent for its

decision to countervail loans to ISCOTT, which were not transferred to

CIL when CIL purchased ISCOTT's assets. Petitioners note that in Final

Affirmative Countervailing Duty Determination; Certain Steel Products

from Austria, 58 FR 37217, 37221 (July 9, 1993), the Department found

that losses incurred by a government-owned steelmaker, which were not

transferred to new companies upon their purchase of the steelmaker's

assets, conferred a subsidy to the new companies. Department's

Position: We have continued to treat the amount of ISCOTT's remaining

liabilities in excess of the amount of remaining assets after the sale

of ISCOTT's assets to CIL as a subsidy to ISCOTT at the time of the

sale. In Leaded Bar from the U.K., we explained why we allocate

subsidies to productive units, stating:

In the end, a ``bubble'' of subsidies would remain with a

virtually empty corporate shell which would not be affected by any

countervailing duties because it did not produce or export the

countervailed merchandise to the United States.

Here, the ``empty corporate shell'' was ISCOTT, with no productive

operations, no source of future earnings, and debts exceeding its

assets. Under such circumstances, it was inevitable that ISCOTT would

be unable to pay the balance owing on the notes payable, and, in fact,

the notes were forgiven by the lenders in 1995. When a government funds

an entity through loans which are later forgiven, the Department

includes in its calculation of the countervailing duty rate for that

entity an amount for debt forgiveness. In this situation, we determine

that the debt forgiveness, which for all intents and purposes occurred

at the time of the sale of ISCOTT's assets, is a countervailable

subsidy.

While the purchase price may have been lower if CIL had assumed the

responsibility for the notes payable in the purchase transaction, the

result would be that less of any pre-existing subsidies would be

repaid.

Comment 9: Calculation of net present value of unamortized

subsidies: Petitioners claim that the Department appears to have

improperly discounted the 1994 subsidy amount in calculating the net

present value of subsidies to which the gamma calculation is applied.

Respondents claim that because the Department begins allocating

subsidies in the year of receipt, the net present value amount for the

1994 subsidies should reflect one year of amortization.

Department's Position: We agree with petitioners that our

preliminary calculation of the net present value of previously bestowed

subsidies was not consistent with the Department's past practice in

this regard, and we have corrected this error in our final

calculations.

Comment 10: Amortization of nonrecurring subsidies: Respondents

claim that in amortizing advances to ISCOTT, the Department began

amortizing in the year after the year of receipt, without allocating

any amount to the year of receipt.

Department's Position: We agree with respondents and have corrected

our calculations.

Comment 11: Adequacy of remuneration for electricity: Respondents

claim that CIL does not benefit from the provision of electricity for

less than adequate remuneration because Section 32 of the PUC's

regulations requires the Commission to set rates that will cover costs

and earn a reasonable profit. In 1992, when setting the electricity

rates in effect during the POI, the PUC set rates for each customer

class based on cost of service studies for 1987 and 1991. These rates

were calculated to cover costs and expenses plus yield a reasonable

return. In addition, they were published rates that applied to all

customers within each of the rate classes.

Further, respondents argue that the electricity rates set by the

PUC in 1992 provided adequate remuneration because the PUC made upward

adjustments to the rates that had been proposed by TTEC. For example,

the PUC adopted a flat rate structure rather than the declining block

structure. As high volume users, CIL and other large industrial users

paid more under the flat rate structure than they would have under the

declining block structure. The declining block structure would have

allowed for a rate reduction as usage increased over the billing

period.

Petitioners claim that TTEC did not receive adequate remuneration

during the POI, nor did it receive an adequate return in two of the

four preceding years, despite the assertions by PUC and TTEC officials

that the utility is expected to cover costs and expenses and show a

return. Further, TTEC intends to file a cost of service study based on

1996 operating costs and request a rate increase. Petitioners argue

that this demonstrates that TTEC's current revenues are not adequate to

cover costs. Petitioners urge the Department to calculate CIL's benefit

from its electricity rates as a recurring grant valued as the

difference between CIL's payment at the current rate and the amount it

would pay if it were in the next largest rate class on which a profit

was realized.

Department's Position: We agree with petitioners that CIL's rate

did not provide adequate remuneration. Although the PUC's regulations

may require it to set rates that cover costs plus a return, history

demonstrates that the PUC has seldom achieved this. The rates in place

in the year preceding the POI and during the POI resulted in losses for

TTEC. Although a different rate structure such as declining block rates

might have led to other results, particularly for CIL, we have no basis

to depart from the structure that was actually adopted by the PUC.

We disagree, however, with the calculation methodology proposed by

petitioners. Instead, we have relied upon the most recent cost of

service study by TTEC which establishes a rate for CIL that will cover

the cost of supplying electricity to CIL plus a reasonable return. This

provides a better measure of adequate remuneration for a very large

customer like CIL than applying the rate for smaller customers, as

proposed by petitioners.

Comment 12: Adequacy of remuneration for lease: Petitioners claim

that CIL's lease rate is less than the standard lease rate. In Wire Rod

I (at 482), the Department found this lease rate to result in a subsidy

of 2.246 percent. Further, the record in this investigation has

information on only

[[Page 55013]]

four other leases. This limited information does not allow for a

meaningful comparison with the lease rate paid by CIL. Even these four

leases, however, suggest that CIL's lease does not provide adequate

remuneration. For these reasons, CIL's lease rate should be found

countervailable.

Respondents maintain that the rate CIL pays for its 105.7 hectares

provides adequate remuneration to PLIPDECO. At verification, the

Department attempted to find a suitable benchmark for CIL's lease and

found only two companies with 30-year leases on sites of 10 hectares or

more. Other companies with sites of 10 hectares or more had 99-year

leases. These 99-year leases are structured much differently and cannot

be compared to a 30-year lease. Of the two sites with 30-year leases,

the first was the second largest site in the estate, and the lease for

the property was signed at about the same time as CIL's. The second was

a small site with a lease signed years after CIL's lease. Comparing the

most comparable lease to CIL's reveals that CIL was paying a higher

rate.

Department's Position: PLIPDECO officials informed us at

verification that the standard lease rate is used as a starting point

for negotiation and indicated that only very small sites would pay this

rate. The lease rates of the four leases examined during verification

were all less than the standard rate. Therefore, we concluded that the

standard rate was not used as the lease rate in all cases and was not

an appropriate benchmark for CIL's lease rate.

Moreover, neither the GOTT nor PLIPDECO limited the verification

team's access to leases during verification. The team selected the

leases to be reviewed on the basis of their similarity to CIL's lease.

First, the team selected leases with sites of 10 hectares or more. Of

these, only two had leases with the same 30-year term as CIL's. The

others were 99-year leases. The team then selected two leases with

sites of less than 10 hectares to review the lease terms on these

smaller sites. Because CIL's site was 105.7 hectares, the team did not

make further selections from the leases with sites under 10 hectares.

Although we did find that the 1983 lease conferred a subsidy in

Wire Rod I, we note that CIL's lease rate increased significantly in

1988. In addition, the Department used the standard lease rate as its

benchmark in Wire Rod I. However, as discussed above, our review in

this proceeding showed that several leases had rates below the standard

rate. Therefore, we have concluded that the standard rate is not an

appropriate benchmark.

Comment 13: Export allowance program: Respondents argue that in

computing the subsidy attributable to the export allowance program

(``EAP'') for the POI, the Department should use CIL's income tax

return for fiscal year 1996 rather than CIL's 1995 income tax return.

In respondents' view, this would be consistent with the Department's

established cash flow methodology as described in the Countervailing

Duties: Notice of Proposed Rulemaking and Request for Public Comments,

54 FR 23366, 23384 (May 31, 1989) (``1989 Proposed Regulations'') at

section 355.48(a). Under that policy, the Department will ordinarily

deem a countervailable benefit to be received at the time that there is

a cash flow effect on the firm receiving the benefit. Respondents

assert that CIL experienced the cash flow effect of the EAP throughout

1996, when CIL paid its quarterly installments of the Business Levy.

Respondents also argue that use of the 1995 tax return distorts the

countervailable subsidy by attributing to CIL the export allowance

benefit earned in 1995, when both exports and total sales were greater

than in 1996. Respondents contend that the Department's regulations

give it the discretion to use the 1996 tax return and that the

Department should use that discretion to avoid this distortion.

Petitioners agree with the Department's approach used in the

preliminary determination and urge the Department to continue using the

benefits reported in the 1995 tax return which was filed during the POI

in calculating the amount of benefit received by CIL. Petitioners state

that this approach is consistent with the Department's prior

determinations and policy as well as section 351.508(2)(b) of the

Proposed Countervailing Duty Regulations, 62 FR 8818, 8880 (February

26, 1997) (``1997 Proposed Regulations''). Petitioners also cite

section 355.48(b)(4) of the 1989 Proposed Regulations, which states

that in the case of a direct tax benefit a firm can normally calculate

the amount of the benefit when the firm files its tax return.

Petitioners argue that CIL realized the benefit on October 29, 1996,

the date when it filed its 1995 tax return, and that CIL did not

realize benefits on its 1996 exports until it filed its 1996 tax return

on August 25, 1997, after the POI. Petitioners dismiss respondents'

arguments about cash flow methodology and estimated tax payment as

meritless. Petitioners assert that CIL only claimed benefits from the

export allowance when it filed its corporate tax return. Moreover,

petitioners state that the filing of the formal income tax return is

the earliest date upon which the Department can determine whether the

EAP had been used.

Department's Position: We agree with petitioners that CIL received

the benefit of the tax savings attributable to the EAP when it filed

its corporate tax return. Consequently, we have continued to value this

benefit based on the tax return filed during the POI.

In Trinidad and Tobago, a company pays either the corporation tax

or Business Levy, whichever is higher. The corporation tax is

calculated on the company's profits, and the Business Levy is

calculated as a straight percentage of gross sales or receipts.

The Department's long-established practice in treating income tax

benefits has been to recognize the benefit of income tax programs at

the time the income tax return is actually filed, usually in the year

following the tax year for which the benefit is claimed (see, e.g.,

Final Affirmative Countervailing Duty Determination: Iron Ore Pellets

from Brazil, 51 FR 21961, 21967 (June 17, 1986)). It is at that time

that the recipient normally realizes a difference in cash flow between

the income tax paid with the benefit of the program and the tax that

would have been paid absent the program. Even when companies make

estimated quarterly income tax payments during the tax year, the

Department has delayed recognition of the benefit until the tax return

is filed and the amount of the benefit is definitively established.

In this case, CIL acknowledges that the 1996 EAP was not claimed

until it filed its 1996 tax return in 1997. Nevertheless, CIL claims

that because of the export allowance, it does not pay the corporate

income tax. Instead, because it must pay the higher of the Business

Levy or the corporate income tax, CIL typically pays the Business Levy.

Moreover, because CIL makes quarterly deposits of its estimated

Business Levy, the company claims the cash flow effect of the EAP

occurs when these quarterly deposits are made.

Although we agree that CIL has typically paid the Business Levy

rather than the corporate income tax as a result of the EAP, we do not

agree that this should lead us to countervail the benefits arising from

the EAP as if they were connected with the Business Levy.

First, CIL will only be certain that it will pay the Business Levy

when the income tax is computed and the export allowance is claimed.

Second, the amount of the benefit is not calculable prior to the filing

of the corporate tax

[[Page 55014]]

return. An income tax benefit can potentially have numerous cash flow

effects. The Department's practice is to single out the cash flow

effect most directly associated with the tax benefit; in this case, the

actual savings which arise when the taxes are due.

Verification

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

information used in making our final determination. We followed

standard verification procedures, including meeting with government and

company officials, and examination of relevant accounting records and

original source documents. Our verification results are outlined in

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

Public File for this investigation.

Suspension of Liquidation

In accordance with section 703(d)(1)(A)(i) of the Act, we have

calculated an ad valorem subsidy rate of 17.47 percent for CIL, the one

company under investigation. We are also applying CIL's rate to any

companies not investigated or any new companies exporting the subject

merchandise.

We have concluded a suspension agreement with the GOTT which

eliminates the injurious effects of imports from Trinidad and Tobago

(see, Notice of Suspension of Investigation: Steel Wire Rod from

Trinidad and Tobago being published concurrently with this notice). As

indicated in the notice announcing the suspension agreement, pursuant

to section 704(h)(3) of the Act, we are directing the U.S. Customs

Service to continue suspension of liquidation. This suspension will

terminate 20 days after publication of the suspension agreement or, if

a review is requested pursuant to section 704(h)(1) of the Act, at the

completion of that review. Pursuant to section 704(f)(2)(B) of the Act,

however, we are not applying the final determination rate to entries of

subject merchandise from Trinidad and Tobago; rather, we have adjusted

the rate to zero to reflect the effect of the agreement.

ITC Notification

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

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

ITC all non-privileged and nonproprietary information relating to this

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

business proprietary information in our files, provided the ITC

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

under an administrative protective order, without the written consent

of the Acting Deputy Assistant Secretary for AD/CVD Enforcement, Import

Administration.

If the ITC's injury determination is negative, the suspension

agreement will have no force or effect, this investigation will be

terminated, and the Department will instruct the U.S. Customs Service

to refund or cancel all securities posted (see, section 704(f)(3)(A) of

the Act). If the ITC's injury determination is affirmative, the

Department will not issue a countervailing duty order as long as the

suspension agreement remains in force, and the Department will instruct

the U.S. Customs Service to refund or cancel all securities posted

(see, section 704(f)(3)(B) of the Act). This notice is issued pursuant

to section 704(g) of the Act.

Return or Destruction of Proprietary Information

This notice serves as the only reminder to parties subject to

Administrative Protective Order (APO) of their responsibility

concerning the return or destruction of proprietary information

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

comply is a violation of the APO.

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

Act.

Dated: October 14, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 97-27984 Filed 10-21-97; 8:45 am]

BILLING CODE 3510-DS-P