Final Affirmative Countervailing Duty Determination: Certain Stainless Steel Wire Rod From Italy

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-821]

Final Affirmative Countervailing Duty Determination: Certain

Stainless Steel Wire Rod From Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: July 29, 1998.

FOR FURTHER INFORMATION CONTACT: Kathleen Lockard or Eric B. Greynolds,

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.

Final Determination

The Department of Commerce (the Department) determines that

countervailable subsidies are being provided to producers and exporters

of certain stainless steel wire rod from Italy: Cogne Acciai Speciali

S.r.l., Acciaierie Valbruna S.r.l., and Acciaierie di Bolzano S.p.A.

For information on the estimated countervailing duty rates, please see

the ``Suspension of Liquidation'' section of this notice.

Case History

Since the publication of our preliminary determination in this

investigation on January 7, 1998 (63 FR 809), the following events have

occurred:

On January 21, 1998, and March 4, 1998, we issued supplemental

questionnaires to the Commission of the European Union (EU), Government

of Italy (GOI), Cogne Acciai Speciali S.r.l. (CAS), and Acciaierie

Valbruna S.r.l. (Valbruna) and Acciaierie di Bolzano S.p.A. (Bolzano),

(collectively referred to as Valbruna/Bolzano). We received responses

to these supplemental questionnaires between February 9, 1998, and

March 27, 1998. Respondents submitted additional information on April

9, 1998.

On March 5, 1998, the final determinations in the antidumping and

countervailing duty investigations were postponed until July 20, 1998

(63 FR 10831). We conducted verification of the countervailing duty

questionnaire responses from April 15 through May 13, 1998. On May 7,

1998, we terminated the suspension of liquidation of all entries of the

subject merchandise entered or withdrawn from warehouse for consumption

on or after that date. Petitioners and Respondents filed case briefs on

June 11, 1998, and rebuttal briefs on June 16, 1998.

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).

In addition, unless otherwise indicated, all citations to the

Department's regulations are to the current regulations codified at 19

CFR 351 and published in the Federal Register on May 19, 1997 (62 FR

27295).

Petitioners

The petition in this investigation was filed by AL Tech Specialty

Steel Corp.; Carpenter Technology Corp.; Republic Engineered Steels;

Talley Metals Technology, Inc.; and, United Steelworkers of America,

AFL-CIO/CLC (the Petitioners).

Scope of Investigation

For purposes of this investigation, certain stainless steel wire

rod (SSWR or subject merchandise) comprises products that are hot-

rolled or hot-rolled annealed and/or pickled and/or descaled rounds,

squares, octagons, hexagons or other shapes, in coils, that may also be

coated with a lubricant containing copper, lime or oxalate. SSWR is

made of alloy steels containing, by weight, 1.2 percent or less of

carbon and 10.5 percent or more of chromium, with or without other

elements. These products are manufactured only by hot-rolling or hot-

rolling, annealing, and/or pickling and/or descaling, and are normally

sold in coiled form, and are of solid cross-section. The majority of

SSWR sold in the United States is round in cross-sectional shape,

annealed and pickled, and later cold-finished into stainless steel wire

or small-diameter bar.

The most common size for such products is 5.5 millimeters or 0.217

inches in diameter, which represents the smallest size that normally is

produced on a rolling mill and is the size that most wire drawing

machines are set up to draw. The range of SSWR sizes normally sold in

the United States is between 0.20 inches and 1.312 inches in diameter.

Two stainless steel grades SF20T and K-M35FL are excluded from the

scope of the investigation. The percentages of chemical makeup for the

excluded grades are as follows:

SF20T

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

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

Carbon.................................... 0.05 max

Manganese................................. 2.00 max

Phosphorous............................... 0.05 max

Sulfur.................................... 0.15 max

Silicon................................... 1.00 max

Chromium.................................. 19.00/21.00

Molybdenum................................ 1.50/2.50

Lead...................................... added (0.10/0.30)

Tellurium................................. added (0.03 min)

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

K-M35FL

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

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

Carbon.................................... 0.015 max

Silicon................................... 0.70/1.00

Manganese................................. 0.40 max

Phosphorous............................... 0.04 max

Sulfur.................................... 0.03 max

Nickel.................................... 0.30 max

Chromium.................................. 12.50/14.00

Lead...................................... 0.10/0.30

Aluminum.................................. 0.20/0.35

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

The products under investigation are currently classifiable under

subheadings 7221.00.0005, 7221.00.0015, 7221.00.0030, 7221.00.0045, and

7221.00.0075 of the Harmonized Tariff Schedule of the United States

(HTSUS). Although the HTSUS subheadings are provided for convenience

and customs purposes, the written description of the scope of this

investigation is dispositive.

Injury Test

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

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

Commission (ITC) is required to determine whether imports of the

subject merchandise from Italy materially injure, or threaten material

injury to, a U.S. industry. On September 24, 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

Italy of the subject merchandise (62 FR 49994).

Period of Investigation

The period for which we are measuring subsidies (the ``POI'') is

calendar year 1996.

[[Page 40475]]

Corporate Histories

CAS

From 1984 to 1987, the subject merchandise was produced at the

Aosta facilities operating under Deltasider, a wholly-owned subsidiary

of Finsider S.p.A. (Finsider), the GOI-owned holding company for steel

producers. Finsider was, in turn, wholly-owned by Instituto per la

Ricostruzione Industriale (IRI) an agency of the GOI. In 1987, the GOI

reorganized the Finsider corporate groupings and created Deltacogne

S.p.A., as a subsidiary to Deltasider. The Aosta operations were

transferred to Deltacogne S.p.A.

In 1988, IRI created ILVA S.p.A. as the successor to Finsider; ILVA

was also wholly-owned by the IRI of the GOI, and was created to act as

both an operating company and a holding company for the government-

owned steel production operations. In 1989, Deltacogne S.p.A., the

producer of SSWR, was merged into ILVA S.p.A. In December 1989, the GOI

again reorganized its steel producing subsidiaries and created Cogne

S.r.l., a wholly-owned subsidiary of the ILVA Group, which held the

Aosta operations. Cogne S.r.l. was later named Cogne Acciai Speciali

S.p.A. (Cogne S.p.A.). From 1990 to 1992, Gruppo Falck S.p.A. (Falck),

a private company with holdings in steel and real estate, held 22.4

percent of Cogne S.p.A.''s stock (with the remaining and controlling

interest held by ILVA). Falck acquired the shares of Cogne S.p.A. by

exchanging an equal value of shares of its own subsidiary, Bolzano. By

the end of 1992, Falck's interest in Cogne S.p.A. was dissolved by

losses and Cogne S.p.A. was again wholly-owned by the ILVA Group.

In 1991, Robles S.r.l., a subsidiary of ILVA Gestioni Patrimoniali

(ILVA GP), another ILVA subsidiary, acquired the land and buildings,

i.e., the non-productive assets, of the Aosta facilities from Cogne

S.p.A. Robles S.r.l. was then acquired by Compagnie Monegasque de

Banque S.A. at the end of 1991. In 1992, Robles was reacquired by ILVA

GP according to the terms of its original sales contract (which

required ILVA GP to repurchase Robles if at the end of one year the new

owners had failed to sell the Aosta land and buildings). Cogne S.p.A.

then acquired the shares of Robles from ILVA GP. The name of Robles

S.r.l. was then changed to Cogne Acciai Speciali S.r.l. (CAS).

At this time, the GOI decided to privatize the Cogne operations. At

the end of 1992, the assets and some of the liabilities of Cogne S.p.A.

were assessed and contributed to CAS on December 31, 1992, in exchange

for shares equal to the net value of the capital contribution, 40

billion lire. From that date, CAS assumed the on-going operations of

the Cogne facility and Cogne S.p.A. entered into liquidation and became

Cogne S.p.A. in Liquidazione. The GOI offered CAS for sale through an

open bidding process. Three parties submitted complete offers for CAS.

The bid of GE. VAL. S.r.l., a privately-owned holding company, was

accepted by Cogne S.p.A. in Liquidazione. The CAS shares were

transferred to GE. VAL. based on two installment payments, one on the

date of the agreement (December 31, 1993) and one 18 months later. At

the end of 1995, Cogne S.p.A. in Liquidazione was merged into ILVA

S.p.A. in Liquidazione, which was subsequently merged into IRITECNA,

another IRI company in liquidation. In 1995, GE. VAL. S.r.l. was merged

into MEG S.A., another holding company of the same corporate family.

Since that time, CAS has been owned and controlled by MEG S.A.

Bolzano and Valbruna

From 1985 through 1990, Bolzano was a wholly-owned subsidiary of

Acciaierie e Ferriere Lomarde Falck, the main industrial company of

Falck which was a private corporate group with holdings in steel, real

estate, environmental technologies, and other sectors. In 1990, ILVA

acquired 44.8 percent of the stock in Bolzano. ILVA acquired the shares

of Bolzano by exchanging an equal value of shares of its own subsidiary

Cogne S.p.A. ILVA also acquired shares in other Gruppo Falck steel

companies. In 1993, ILVA's interest in Bolzano was completely dissolved

because of losses, and Falck again held virtually all of the shares in

Bolzano. Falck decided to sell Bolzano based on its company-wide

strategic decision to withdraw from the steel sector. Falck contacted

Valbruna as a potential buyer in late 1994. Subsequently, the parties

entered into negotiations for the transfer of Bolzano. Each party had

an independent evaluation done of the value of the firm. A third study

was done to reconcile the points of the first valuations that were in

dispute relating to the final net equity and cash flow of Bolzano for

purposes of finalizing the purchase price. Valbruna acquired 99.99

percent of the shares of Bolzano for this final price on August 31,

1995. Since then, the two companies have issued consolidated financial

statements.

Affiliated Parties

In the present investigation, there are affiliated parties (within

the meaning of section 771(33) of the Act) whose relationship may be

sufficient to warrant treatment as a single company. In the

countervailing duty questionnaire, consistent with our past practice,

the Department defined companies as related where one company owns 20

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

consolidated financial statements. See Final Affirmative Countervailing

Duty Determination: Certain Pasta (``Pasta'') From Italy, 61 FR 30287

(June 14, 1996) (Pasta from Italy). Valbruna owns 99.99 percent of

Bolzano. In the preliminary determination, we treated Valbruna and

Bolzano as a single company. Our review of the record and our findings

at verification have not led us to reconsider this determination.

Therefore, we have calculated a single countervailing duty rate for

these companies by dividing their combined subsidy benefits by their

consolidated total sales, or consolidated export sales, as appropriate.

Change in Ownership

In the 1993 investigations of Certain Steel Products, we developed

a methodology with respect to the treatment of non-recurring subsidies

received prior to the sale of a company. See Final Countervailing Duty

Determination; Certain Steel Products from Austria, et. al., 58 FR

37217 (July 9, 1993) (Certain Steel from Austria). This methodology was

set forth in the General Issues Appendix (GIA), attached to that

notice. The methodology was subsequently upheld by the Court of Appeals

for the Federal Circuit. See Saarstahl AG versus United States, 78 F.3d

1539 (Fed. Cir. 1996); British Steel plc versus United States, 127 F.3d

1471 (Fed. Cir. 1997).

Under the GIA methodology, we estimate the portion of the company's

purchase price which is attributable to prior subsidies. To make this

estimate, we divide the face value of the company's subsidies by the

company's net worth for each of the years corresponding to the

company's allocation period. We then take the simple average of these

ratios, which serves as a reasonable surrogate for the percentage that

subsidies constitute of the overall value, i.e., net worth, of the

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

the company to derive the portion of the purchase price that we

estimate to be a repayment of prior subsidies. Then, the benefit

streams of the prior subsidies are reduced by the ratio of the

repayment amount to the net present value of all remaining benefits at

the time of the change in ownership.

[[Page 40476]]

The methodology does not automatically treat all previously

bestowed subsidies as passing through to the purchaser, nor does it

automatically treat the subsidies as remaining with the seller or as

being extinguished as a result of the transaction. Instead the

methodology recognizes that a change in ownership has some impact on

previously bestowed subsidies and, through an analysis based on the

facts of each transaction, determines the extent to which the subsidies

pass through.

In the URAA, Congress clarified how the Department should approach

changes in ownership. Section 771(5)(F) of the Act states that:

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 administrating 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 Statement of Administrative Action accompanying the URAA,

reprinted in H.R. Doc. No. 103-316 (1994) (SAA) explains why Section

771(5)(F) was added to the statute. The SAA at page 928 states:

Section 771(5)(F) is being added to clarify that the sale of a

firm at arm's length does not automatically, and in all cases,

extinguish any prior subsidies conferred. Absent this clarification,

some might argue that all that would be required to eliminate any

countervailing duty liability would be to sell subsidized productive

assets to an unrelated party. Consequently, it is imperative that

the implementing bill correct such an extreme interpretation.

Consistent with the URAA and the SAA, the Department continues to

examine whether non-recurring subsidies benefit a company's production

after a change in ownership, even one accomplished at arm's length.

Accordingly, we continue to follow the methodology developed in the GIA

based on our determination that this methodology does not conflict with

the change in ownership provision of the URAA. As stated by the

Department, ``[t]he URAA is not inconsistent with and does not overturn

the Department's General Issues Appendix Methodology. * * *'' Certain

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

Kingdom; Final Results of Countervailing Duty Administrative Review, 61

FR 58377, 58379 (Nov. 14, 1996) (UK Lead Bar 94). We further clarified

in UK Lead Bar 94 that, ``[t]he language of Sec. 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.''

Id. at 58379. The Department has been applying the methodology set

forth in the GIA. See, e.g., Final Affirmative Countervailing Duty

Determination: Steel Wire Rod From Trinidad and Tobago, 62 FR 55003

(October 22, 1997) (Steel Wire Rod from Trinidad and Tobago) and Final

Affirmative Countervailing Duty Determination: Steel Wire Rod from

Canada, 62 FR 54972 (October 22, 1997) (Steel Wire Rod from Canada).

CAS and Valbruna/Bolzano claim that, because the changes in ownership

occurred through arm's length transactions, the previously bestowed

subsidies were extinguished. However, for reasons discussed below (see

the Department's Position on Comments 5 and 9 through 13), we find that

application of the GIA methodology is appropriate.

CAS

To calculate the amount of the previously bestowed subsidies that

passed through to CAS, we followed the GIA methodology described above.

We were unable to calculate the subsidies-to-net worth ratios used in

the privatization calculation for 1985 and 1986, because the net worth

information was not available for the Aosta operations alone.

Therefore, in accordance with section 776 of the Act, as facts

available, we used an average of the years available (1987 through

1992) in the privatization calculation. As described in the ``Corporate

Histories'' section above, ILVA ceased operations following the

privatization and/or liquidation of all of its subsidiaries, operating

units, and divisions. For untied non-recurring subsidies provided to

ILVA (and prior to 1989, ILVA's predecessor, Finsider), Cogne's former

parent company, we calculated the amount of these untied subsidies

attributable to Cogne by applying a ratio of the Aosta operation's

assets to its parent company's assets in the year of receipt of the

subsidy. When calculating the subsidies to net worth ratios used in the

privatization methodology described above, we included Cogne's share of

the untied subsidies in the calculation.

As discussed in the ``Corporate Histories'' section above, from

1990-1993, ILVA held a minority interest in Bolzano and Falck held a

minority interest in Cogne. However, as examined previously by the

Department, the exchange of shares involved no cash transactions. See

Final Affirmative Countervailing Duty Determinations: Certain Steel

Products from Italy, 58 FR 37327 (July 9, 1993) (Certain Steel from

Italy). Moreover, the Cogne and Bolzano share exchange involved an

equal value of shares in each company. At verification we were able to

confirm this finding with respect to Cogne and Bolzano. See

Verification Report of Cogne Acciai Speciali S.r.l. (CAS), dated June

1, 1998, public version on file in the Central Records Unit (CRU), room

B-099 of the main Commerce building (CAS Verification Report) and

Verification Report of Acciaierie di Bolzano Sp.A. and Acciaierie

Valbruna S.r.l., dated June 1, 1998, public version on file in the CRU

(Valbruna/Bolzano Verification Report). There were no cash or other

asset contributions involved in this stock swap. Therefore, we did not

attribute any portion of ILVA's untied subsidies to Bolzano or Falck's

untied subsidies to CAS.

Bolzano

To calculate the amount of the previously bestowed subsidies that

passed through to Bolzano from Falck, we followed the GIA methodology

which the Department has previously determined is applicable to

private-to-private changes in ownership to examine the reallocation of

subsidies. See, e.g., Pasta from Italy. When Falck sold Bolzano to

Valbruna in 1995, Falck was in the process of transferring or closing

all of its steel operations. For untied non-recurring subsidies

provided to Falck in the years prior to Bolzano's sale to Valbruna, we

calculated the amount of these untied subsidies attributable to Bolzano

by applying a ratio of Bolzano's assets to Falck's assets in the year

of receipt of the subsidy. When calculating the subsidy to net worth

ratios used in the methodology described above, we included Bolzano's

share of the untied subsidies in the calculation. Also, as described

above, we have not attributed any portion of ILVA's untied subsidies to

Bolzano during the period in which ILVA held a minority interest in

Bolzano.

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: In our

preliminary determination, we used as our benchmark the average long-

term interest rate available in Italy based upon a survey of 114

Italian banks reported by the Banca D'Italia, the Central Bank of

Italy. However, during verification, we learned that the Italian

Interbank Rate (ABI) is the most suitable benchmark for long-term

financing to Italian companies. Because the ABI represents a long-term

interest rate provided to a bank's most preferred customers with

established low-risk credit histories, for other customers

[[Page 40477]]

commercial banks typically add a spread ranging from 0.55 percent to 4

percent onto the rate depending on the company's financial health. In

years in which the companies under investigation were creditworthy, we

added the average of that spread onto the ABI to calculate a benchmark.

In years in which the companies under investigation were

uncreditworthy, we calculated the discount rates according to the

methodology described in the GIA. Specifically, we added to the ABI a

spread of 4 percent in order to reflect the highest commercial interest

rate available to companies in Italy. We then added to this rate a risk

premium equal to 12 percent of the ABI, the equivalent of a prime rate.

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

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

specific average useful life of assets in determining the allocation

period for non-recurring subsidies. See GIA, 58 FR at 37227. However,

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

(British Steel I), the U.S. Court of International Trade (the Court)

ruled against this allocation methodology. In accordance with the

Court's remand order, the Department calculated a company-specific

allocation period for non-recurring 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. See British

Steel plc v. United States, 929 F. Supp. 426, 439 (CIT 1996) (British

Steel II). Thus, we intend to determine the allocation period for non-

recurring subsidies using company-specific AUL data where reasonable

and practicable. See, e.g., Certain Cut-to-Length Carbon Steel Plate

from Sweden; Final Results of Countervailing Duty Administrative

Review, 62 FR 16551 (April 7, 1997).

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

decision in British Steel, and examined information submitted by the

Respondent companies as to their average useful life of assets.

Valbruna/Bolzano: In the preliminary determination, we calculated a

single weighted-average AUL for Valbruna and Bolzano. We received no

comments on this calculation and our review of the record has not led

us to reconsider this finding. Therefore, the AUL for Valbruna/Bolzano

is 12 years.

CAS: In the preliminary determination, we did not calculate an AUL

based on CAS's financial information because the calculation provided

by the company included several distortions related to the asset

valuation methodologies employed by the company and its use of

accelerated depreciation. Instead, in the preliminary determination, we

used the AUL calculated for Valbruna/Bolzano as the most appropriate

surrogate for CAS's AUL. CAS did not present any additional information

on its AUL calculation for our consideration for the final

determination.

In the preliminary determination, we discussed the GOI's tax

depreciation schedule for the steel sector in Italy as a possible

surrogate AUL for CAS. According to the GOI, the depreciation schedule

was based on information acquired from an industry survey conducted in

1988. We asked the GOI to provide the survey so we could determine

whether the depreciation schedule reflected the average useful life of

assets in the Italian steel industry. The GOI did not submit this

survey. Therefore, we are unable to determine whether the schedule

represents the AUL of assets in the Italian steel industry. As such, we

are continuing to use the Valbruna/Bolzano AUL of 12 years as a

surrogate for a CAS AUL for this final determination.

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

infusions, based on information available at that time. See GIA, 58 FR

at 37244.

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

(see Comment Section below) have not led us to change our finding in

the preliminary determination. Based on the Department's determination

in Final Affirmative Countervailing Duty Determination: Grain-Oriented

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

Steel from Italy), we continue to find ILVA's predecessors and ILVA

unequityworthy from 1985 through 1988 and from 1991 through 1992.

In measuring the benefit from a government equity infusion into an

unequityworthy company, the Department compares the price paid by the

government for the equity to a market benchmark, if such a benchmark

exists. In this case, a market benchmark does not exist so we used the

methodology described in the GIA, 58 FR at 37239. See also Steel Wire

Rod from Trinidad and Tobago, 62 FR at 55004. Following this

methodology, equity infusions made on terms inconsistent with the usual

practice of a private investor are treated as grants. Use of this

methodology 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 information available in that year.

Creditworthiness

When the Department examines whether a company is creditworthy, it

is essentially attempting to determine if the company in question could

obtain commercial financing at commonly available interest rates. See,

e.g., Final Affirmative Countervailing Duty Determinations: Certain

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

from France); Final Affirmative Countervailing Duty Determination:

Steel Wire Rod from Venezuela, 62 FR 55014 (Oct. 21, 1997).

ILVA's predecessors and ILVA were found to be uncreditworthy from

1985 through 1992 in Electrical Steel from Italy; no new information

has been presented in this investigation that would lead us to

reconsider this finding. Therefore, consistent with our past practice,

we continue to find ILVA's predecessors and ILVA uncreditworthy from

1985 through 1992. See, e.g., Final Affirmative Countervailing Duty

Determinations: Certain Steel Products from Brazil, 58 FR 37295, 37297

(July 9, 1993). Our examination of the financial data and ratios from

1990, 1991, and 1992 has led us to determine that ILVA was also

uncreditworthy in 1993. We did not examine CAS's creditworthiness in

1994 and 1995 because the company did not receive equity infusions,

grants, long-term loans, or loan guarantees in the years. Based on our

examination of the financial performance of CAS in 1993, 1994, and

1995, and our analysis of its financial ratios, we continue to find CAS

creditworthy in 1996.

With respect to Falck and Bolzano, we have examined the

creditworthiness of Falck in 1992 since one of the loans was

renegotiated in that year. To determine Falck's creditworthiness in

1992, we examined financial statistics for the prior three years.

Falck's financial ratios showed that the company was able to cover its

obligations. Further, Falck's debt-to-equity position was strong.

Therefore, we determine that Falck was creditworthy in 1992.

Neither Falck nor Bolzano received any equity infusions, long-term

loans, or loan guarantees in the other years in which the companies

were alleged to be uncreditworthy. Therefore, we have not examined the

creditworthiness of Falck in the years 1993-1994 nor of Bolzano in the

years 1995-1996.

[[Page 40478]]

I. Programs Determined To Be Countervailable

Programs of the Government of Italy

A. Equity Infusions to Finsider and ILVA

The GOI, through IRI, provided equity infusions to Finsider in 1985

and 1986. IRI also provided equity infusions to ILVA in 1991 and 1992.

We determine that these equity infusions provide a financial

contribution that confer a benefit under section 771(5)(E)(i) of the

Act, in the amount of each infusion because the GOI investments were

not consistent with the usual investment practices of private investors

(see discussion of ``Equityworthiness'' above). These equity infusions

are specific within the meaning of section 771(5A)(D) of the Act

because they were limited to Finsider and ILVA. Accordingly, we find

that the equity infusions to Finsider and ILVA are countervailable

subsidies within the meaning of section 771(5) of the Act.

We have treated these equity infusions as non-recurring grants

given in the year the infusion was received because each required a

separate authorization. As discussed below in the Department's Position

on Comment 10, consistent with the Department's past practice, we

consider these equity infusions to be untied subsidies, which benefit

all the production of Finsider and ILVA, respectively, including the

production of their subsidiaries. See, e.g., Steel Wire Rod from Canada

62 FR at 54977-79. Because both Finsider and ILVA were uncreditworthy

in the year of receipt, we applied a discount rate that included a risk

premium. Since CAS has been privatized, we followed the methodology

described in the ``Change in Ownership'' section above to determine the

amount of each equity infusion appropriately allocated to CAS after the

privatization. We then divided the benefit allocated to the POI by

CAS's total sales. Accordingly, we determine the countervailable

subsidy to be 6.97 percent ad valorem for CAS.

B. Pre-Privatization Assistance and Debt Forgiveness

As explained in the ``Corporate Histories'' section above, Cogne

S.p.A. acquired the shares of Robles S.r.l. and changed the company's

name to Cogne Acciai Speciali S.r.l. (CAS), in 1992. The purpose of

acquiring the company was to prepare for the privatization of the Aosta

factory. In the preliminary determination, we countervailed debt

forgiveness provided in connection with the privatization of CAS. Based

on the information collected after the preliminary determination, and

comments submitted by the parties, we have modified our approach to

this program, in part.

At the end of 1992, Cogne S.p.A. transferred most of the productive

assets of the Aosta facility to CAS through the capital contribution

procedure under Italian law. Under this procedure, Cogne S.p.A. had

assets (and liabilities) assessed under the oversight of the Italian

Court and contributed them to CAS in exchange for shares in CAS worth

exactly the net value of the contribution. CAS officials explained that

pursuant to the capital contribution, CAS received the liabilities

associated with the production process, while Cogne S.p.A. retained the

other liabilities which were mostly long-term. From that point, CAS

became the operating company and Cogne S.p.A. entered into liquidation.

Cogne S.p.A. retained some of the inventories, and minor productive

assets. CAS acquired the retained inventories and assets that Cogne

S.p.A. did not sell to third parties for their book value of 122

billion lire. Cogne S.p.A. also retained part of the workforce on its

payroll. On December 30, 1993, Cogne S.p.A. bought the land and

buildings from CAS for the book value of 79.6 billion lire. Cogne

S.p.A. then sold the land and buildings to the Regional Government in

1994 (see ``Valle d'Aosta Regional Assistance Associated with the Sale

of CAS'' below).

CAS was offered for sale pursuant to an open bidding process

designed to obtain the best purchase price for the company.

Negotiations for the sale progressed through 1993; GE. VAL. S.r.l.'s

final offer was accepted, and CAS was privatized effective January 1,

1994. As of December 31, 1993, ILVA S.p.A. issued a guarantee on behalf

of Cogne S.p.A. for the uncovered liabilities of the firm, and the

anticipated costs of the liquidation process, for 380 billion lire.

CAS was the first of the ILVA Group companies to be privatized. The

plans for the privatization preceded the formal liquidation plans

approved by the EU in the Commission's Decision of April 12, 1994, 94/

259/ECSC. That plan divided ILVA into three companies: ILVA Laminati

Piani, Acciai Speciali Terni, and ILVA in Liquidazione. The first two

companies, which included the primary production activities of ILVA

S.p.A., were eventually privatized. The latter company, ILVA in

Liquidazione, retained responsibility for all of the ILVA entities

which could not be sold to private parties. The EU approved some 10

trillion lire of state aid connected with the liquidation of ILVA in

Liquidazione and its subsidiaries. The estimated costs of the

liquidation, 10 trillion lire, covered all of the ILVA companies

including the subsidiaries. The costs associated with the liquidation

of Cogne S.p.A. were included in that total. See Verification Report of

the Government of Italy dated June 1, 1998, public document on file in

the CRU (GOI Verification Report).

In the preliminary determination, we examined the individual costs

associated with the liquidation of Cogne S.p.A., instead of focusing on

the total costs associated with privatization of the entire ILVA Group,

because of the complexity of this series of transactions. Thus, we

calculated the benefit of the debt coverage by subtracting the book

value of the land and buildings (that were sold to the Region within

the next year) from the total liabilities on Cogne S.p.A.'s books on

December 31, 1993. We followed this methodology in the preliminary

determination because it was clear that the company was able to recover

the value of the land and buildings, and we were unsure as to what

other assets on Cogne S.p.A.'s books could be recovered. CAS argued

that this methodology overstated the true amount of any debt coverage

because other assets were, in fact, used to offset liabilities (see

Comment 11, below). At verification, it was established that the amount

of Cogne S.p.A. debt for which ILVA bore responsibility as of December

31, 1993, was 253 billion lire, as evidenced by ILVA in Liquidazione's

1993 balance sheet. That figure includes the total net liabilities of

Cogne S.p.A. as of December 31, 1993, plus the provisions for risks,

and other costs associated with the liquidation of the company. Thus,

we determine that CAS received 253 billion lire of debt coverage and

assumption of losses in conjunction with its privatization.

The pre-privatization benefits are specific under section

771(5A)(D) of the Act because they were provided to CAS, in connection

with the full package provided exclusively to the state-owned steel

industry. With these pre-privatization benefits, the GOI through ILVA,

made a financial contribution under section 771(5)(D) that benefits the

recipient in the amount of the total liabilities and losses assumed. To

calculate the benefit, we treated the debt assumption as a grant to CAS

received in 1993. The grant is non-recurring because the pre-

privatization assistance was a one-time, extraordinary event. We

allocated the benefit over twelve years, applied a risk premium because

the company was uncreditworthy in the

[[Page 40479]]

year of receipt, and followed the methodology described in the ``Change

in Ownership'' section above. We then divided the benefit in the POI by

CAS's total sales. On this basis, we determine the countervailable

subsidy to be 14.77 percent ad valorem for CAS.

C. Capacity Reduction Payments Under Law 193/1984

Among the benefits provided by Law 193/1984 were payments to

companies in the private steel sector which achieved capacity

reductions consistent with an agreement by the European Coal and Steel

Community (ECSC). The Department previously found that this program

provides countervailable subsidies in the form of non-recurring grants

to the private steel sector. See Certain Steel from Italy, 58 FR at

37332-33. No new information or evidence of changed circumstances has

been submitted in this proceeding to warrant reconsideration of this

finding. Valbruna and Falck received payments for capacity reduction in

1985 and 1986 under Articles 2 and 4 of Law 193/1984. Article 2 grants

covered ECSC steel production while Article 4 grants covered non-ECSC

pipe and tube production.

In our preliminary determination, we countervailed all closure aid

received by Valbruna. In the case of Falck, we did not countervail

assistance the company received under Article 4 in connection with its

pipe facility because in Certain Steel from Italy, the Department

determined that these grants were for restructuring of the pipe

facility.

However, at verification, GOI officials explained that the grants

Falck received under Article 4 were for the closure of its pipe

facility. As explained in the GIA, the Department considers grants

provided to shutdown part of a company's operations to benefit all

remaining production. GIA, 58 FR at 37270, citing British Steel Corp.

v. United States, 605 F. Supp. 286 (CIT 1985). See also Steel Wire Rod

from Canada, 62 FR at 54980. Therefore, we find all closure assistance

provided to Valbruna and Falck under Articles 2 and 4 of Law 193/1984

to be countervailable subsidies under section 771(5) of the Act.

To calculate the benefit attributable to Valbruna/Bolzano during

the POI from the grants to Falck, we first determined the amount of

Falck's grants attributable to Bolzano at the time the grants were

given, using the ratio of Bolzano's assets to Falck's assets. We then

allocated this amount over Valbruna/Bolzano's AUL to determine the

benefit in each year. Next, we determined the amount of the benefit

which remained with Bolzano after Bolzano was acquired by Valbruna in

1995, consistent with the methodology described in the ``Change in

Ownership'' section above. To calculate the benefit attributed to

Valbruna/Bolzano from the grants Valbruna received, we allocated the

grants over Valbruna/Bolzano's AUL to determine the benefit in each

year. We then summed the benefit amounts attributable to the POI from

Falck's and Valbruna's grants and divided the total benefit by

Valbruna/Bolzano's total sales. On this basis, we determine the

countervailable subsidy to be 0.14 percent ad valorem for Valbruna/

Bolzano.

D. Law 796/76 Exchange Rate Guarantees

Law 796/76 established a program to minimize the risk of exchange

rate fluctuations on foreign currency loans. All firms that had

contracted foreign currency loans from the ECSC or the Council of

Europe Resettlement Fund (CER) could apply to the Ministry of the

Treasury (MOT) to obtain an exchange rate guarantee. The MOT, through

the Ufficio Italiano di Cambi (UIC), calculated loan payments based on

the lira-foreign currency exchange rate in effect at the time the loan

was approved. The program established a floor and ceiling for exchange

rate fluctuations, limiting the maximum fluctuation a borrower would

face to two percent. If the lira depreciated against the foreign

currency, the UIC paid the difference between the ceiling rate and the

actual rate. If the lira appreciated against the foreign currency, the

UIC collected the difference between the floor rate and the actual

rate.

The Department previously found the steel industry to be a dominant

user of the exchange rate guarantees provided under Law 796/76, and on

this basis, determined that the program was specific, and therefore,

countervailable. See Seamless Pipe from Italy, 60 FR at 31996. No new

information or evidence of changed circumstances has been submitted in

this proceeding to warrant reconsideration of this finding. This

program provides a financial contribution that benefits the recipient

to the extent that the lira depreciates against the foreign currency

beyond the two percent band and provides a benefit in the amount of the

difference between the two percent ceiling rate and the actual exchange

rate.

We note that the program was terminated effective July 10, 1991, by

Decree Law 333/91. However, payments continue on loans that were

outstanding after that date. Bolzano was the only producer who used

this program, and it received payments in 1996 on loans outstanding

during the POI.

Once a loan is approved for exchange rate guarantees, payments are

automatic and made on a yearly basis throughout the life of the loan.

Therefore, we treat the payments as recurring grants. To calculate the

countervailable subsidy, we used our standard grant methodology for

recurring grants and expensed the benefits in the year of receipt. At

verification, we found that Bolzano paid a foreign exchange commission

fee to the UIC on each payment it received. We determine that this fee

qualifies as an ``. . . application fee, deposit, or similar payment

paid in order to qualify for, or to receive, the benefit of the

countervailable subsidy.'' See section 771(6)(A) of the Act. Thus, for

purposes of deriving the countervailable subsidy, we have added the

additional foreign exchange commission to the total amount Bolzano paid

under the Exchange Rate Guarantee program. We then divided the total

payments received in 1996 on the two loans by the value of Valbruna/

Bolzano's total sales in 1996. On this basis, we determine the

countervailable subsidy to be 0.08 percent ad valorem for Valbruna/

Bolzano.

E. Export Credit Financing Under Law 227/77

Under Law 227/77, the Mediocredito Centrale S.p.A. (Mediocredito),

a GOI-owned development bank, provides interest subsidies on export

credit financing. Under the program, the Mediocredito makes an interest

contribution to offset the cost of a supplier's or buyer's credit

financed by a commercial bank. The holder of the loan contract pays a

fixed, low-interest rate on export credits taken out through the

program with a commercial bank. The Mediocredito guarantees a specified

variable market rate, and pays the lender any shortfall between the

guaranteed market rate and the fixed rate provided to the borrower. If

the market rate falls below the rate provided to the borrower, the

Mediocredito receives the difference.

Valbruna used this program for a supply contract with its

affiliated U.S. subsidiary, Valmix Corporation, which entered into a

loan contract for purposes of importing merchandise manufactured by

Valbruna. The term of the loan was 18 months and during the course of

this financing arrangement, the Mediocredito made interest

contributions to Valmix's commercial lender.

In the preliminary determination, we found that this program

provides countervailable subsidies within the

[[Page 40480]]

meaning of section 771(5) of the Act. Our review of the record, our

findings at verification, and our analysis of the comments submitted by

the interested parties have led us to change, in part, our finding in

the preliminary determination. We stated that we would examine the

Respondents' claim that, because the interest contributions are

consistent with the OECD Arrangement on Guidelines for Officially

Supported Export Credits (OECD Guidelines), the program qualifies for

an exemption under Item (k) of the Illustrative List of Prohibited

Export Subsidies under Annex 1 of the WTO Agreement on Subsidies and

Countervailing Measures. Based on the record evidence, however, we find

that the OECD Guidelines do not apply to the Valmix loan because the

repayment terms of this loan are for 18 months and the OECD Guidelines

cover financing arrangements with repayment terms of a minimum of 24

months. Therefore, we need not consider Valbruna/Bolzano's arguments

with respect to Item (k). See, e.g., Final Affirmative Countervailing

Duty Determinations; Certain Carbon Steel Products from Austria, 50 FR

33369 (Aug. 19, 1985) (Carbon Steel Products from Austria). We continue

to find that the interest contributions provided on the Valmix loan

constitute a countervailable export subsidy under section 771(5) of the

Act.

In accordance with the Department's practice, we treat interest

contributions as reduced-interest rate loans if the borrower is aware

at the time the loans are undertaken that the interest contributions

will be received. See, e.g., Certain Steel from Italy, 58 FR at 37332.

In the preliminary determination, we treated the interest contributions

as grants because Valmix did not know at the time that the loan was

undertaken that it would receive the contributions. However, we learned

at verification that all parties were aware at the time that the loan

was contracted that Valmix would receive these contributions.

Therefore, we have changed our calculation of the benefit and have

instead treated the Law 227/77 export credit financing as a reduced-

interest rate loan. To calculate the benefit provided by this program,

we compared the amount that Valmix paid under the loan and the amount

Valmix would have paid on a commercial loan absent the interest

contributions. We divided the benefit during the POI by Valbruna/

Bolzano's total exports to the United States. On this basis, we

determine the countervailable subsidy to be 0.15 percent ad valorem for

Valbruna/Bolzano.

F. Law 451/94 Early Retirement Benefits

Law 451/94 authorized early retirement packages for steel workers

for the years 1994 through 1996. The law entitled men of 50 years of

age and women of 47 years of age with at least 15 years of pension

contributions to retire early. Employees of Bolzano used the measures

in all three years of the program. Bolzano is the only company subject

to this investigation that had workers retire under Law 451/94 during

or before the POI. In the preliminary determination, we found this

program to be not countervailable. Our review of the record, our

findings at verification, and our analysis of the comments submitted by

the interested parties have led us to change our finding from the

preliminary determination.

In the preliminary determination, we found early retirement

benefits under Law 451/94 non-countervailable because the program did

not relieve Bolzano of a normal obligation to its workers. Further, to

the extent that the company did have costs associated with employees

leaving through other means, those costs were lower than the ones faced

by the company under this early retirement measure. At verification,

information about this program was clarified. We learned that large

companies in Italy cannot simply layoff workers without using one of

the specially-designated programs for that purpose. The most comparable

program to Law 451/94 is the extraordinary Cassa Integrazione Guadagni

(CIG), which is used by companies in a wide variety of industries. The

CIG program was found non-countervailable in Electrical Steel from

Italy.

During verification, we found that under the extraordinary CIG,

companies must continue to pay a small percentage of the employee's

salary and set aside the mandatory severance contributions under

Article 2120 of the Italian Civil Code. Under Law 451/94, the company

incurs no additional costs. Thus, when we compared the costs associated

with Law 451/94 to the costs associated with the extraordinary CIG, we

found that companies would incur higher costs under the extraordinary

CIG.

On this basis, we determine that Law 451/94 provides a financial

contribution to the steel industry under Section 771(5)(D)(i) of the

Act, and it confers a benefit to the recipient in the amount of costs

covered by the GOI that the company would normally incur. Law 451/94 is

specific under 771(5A)(D) because early retirement benefits under this

program are limited, by law, to the steel industry. Accordingly, we

find early retirement benefits provided under Law 451/94 to be

countervailable subsidies under 771(5) of the Act.

Consistent with the Department's practice, we have treated payments

under Law 451/94 as recurring grants expensed in the year of receipt.

See GIA, 58 FR at 37226. To calculate the benefit conferred to Bolzano,

we calculated the costs Valbruna/Bolzano would have incurred during the

POI under the extraordinary CIG program and compared that to what the

company paid under the Law 451/94 early retirement program. We divided

this amount by Valbruna/Bolzano's total sales. On this basis, we

determine the countervailable subsidy for this program to be 0.04

percent ad valorem for Valbruna/Bolzano.

Programs of the Regional Governments

A. Valle d'Aosta Regional Assistance Associated with the Sale of CAS

As discussed in the preliminary determination, when CAS was

privatized, the land and buildings were sold to the Autonomous Region

of Valle d'Aosta which now leases back the facility to the new owners

of CAS. The framework for this triangular transaction among ILVA, CAS,

and the Region was established through the protocols of agreement

signed November 19, 1993. The Region, through its wholly-owned

financing corporation, Finaosta S.p.A., agreed to (1) purchase the

land, including the hydroelectric facilities owned by ILVA Centrali

Elettriche S.p.A. (ICE) for 150 billion lire, in five annual

installments, (2) to construct a waste plant, (3) to cover the costs of

environmental reclamation on the land, up to 32 billion lire, and (4)

to supply electricity directly to CAS from the ICE plants. In exchange,

ILVA agreed to transfer CAS to a private party by December 31, 1993,

with a restructuring fund. The purchaser of CAS's shares agreed to (1)

vacate and abandon areas of the property not used in production

activity; and, (2) to guarantee positions for 800 employees after the

privatization.

Because of the complex nature of these transactions, which included

different elements that were alleged to provide subsidies to CAS, we

have analyzed each element separately as detailed below.

1. Purchase of the Cogne Industrial 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

the government acquisition of goods, in this case land and buildings, a

benefit is conferred if the goods are purchased for

[[Page 40481]]

more than adequate remuneration. Problems can arise in applying this

standard when the government is the sole purchaser of the good in the

country or within the area where the respondent is located. In these

situations, there may be no alternative market prices available in the

country. Hence, we must examine other options when determining whether

the good has been purchased for more 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 purchased at a price which reflects adequate remuneration.

See, e.g., Final Affirmative Countervailing Duty Determination: Steel

Wire Rod from Germany, 62 FR 54990, 54994 (Oct. 22, 1997) (German Wire

Rod).

As discussed in the preliminary determination, because there were

no comparable sales of commercial real estate or other appropriate

benchmark prices, we examined the purchase price to determine whether

it was market-based. We found that the Region based its price upon a

detailed, independent appraisal of the value of the site, but further

discounted the price from the appraisal based on the fact that the land

was occupied and that it had some environmental problems. Based on this

analysis, we concluded that the Region did not purchase the Cogne

industrial site for more than adequate remuneration. No evidence has

been presented to warrant a change from this finding from the

preliminary determination. Therefore, we find that the Region of Valle

d'Aosta's purchase of the Cogne industrial site does not constitute a

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

2. Lease of Cogne Industrial 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

government provision 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 normally determined in

relation to local prevailing market conditions as defined by section

771(5)(E) of the Act to include, ``* * * price, quality, availability,

marketability, transportation, and other conditions of purchase or

sale.'' Problems can arise in applying this standard when the

government is the sole supplier of the good or service in the area, in

which case there may be no alternative market prices. In this case, we

must examine other options for determining whether the good has been

provided for less than adequate remuneration. Where the government

leases land, the Department has recognized several options for

examining whether a countervailable benefit is provided through the

relevant leasing arrangement. These options include examining,

``whether the government has covered its costs, whether it has earned a

reasonable rate of return in setting its rates and whether it applied

market principles in determining its prices.'' German Wire Rod, 62 FR

at 54994. This consideration of other options in no way indicates a

departure from our preference for relying on market conditions in the

relevant country, when determining whether a good or service is being

provided at a price which reflects adequate remuneration.

After the purchase of the land and buildings, Struttura Valle

d'Aosta S.r.l. (Structure), a company wholly-owned by the Region,

assumed the lease that had been between Cogne S.p.A. and CAS for the

use of the site until a new lease could be negotiated. In 1996,

Structure and CAS entered into a thirty-year lease for the facility

which produces subject merchandise. The new lease implements the

commitments set forth in the protocols of agreement: the facility is

leased to CAS; CAS undertakes all maintenance on the facility

(including extraordinary maintenance); and CAS commits to vacate

approximately 50 percent of the property in favor of the Region. The

lease was also designed to provide for the stable employment of 800

employees at the facility.

In the preliminary determination, we found that there was no

appropriate transaction benchmark for evaluating the adequacy of

remuneration in the lease. Therefore, we compared the Region's rate of

return in the lease to that which would be provided in a private

transaction for the long-term use of assets, using the average interest

rate on treasury bonds as reported by the Banca d'Italia. However, we

stated that for the final determination we would revisit this

methodology: (1) to gather the information necessary in order to

amortize the depreciation of the buildings subject to the lease; (2) to

determine whether payments for extraordinary maintenance should be

considered part of the lease; (3) to make an adjustment to the

benchmark to account for extraordinary maintenance if appropriate; and

(4) to determine whether there was a non-governmental interest rate

that would be a more appropriate benchmark.

We have reconsidered these issues in light of the information

gathered at verification and comments from the interested parties,

summarized below. The record evidence indicates that the average rate

of return on leased commercial property in Italy is 5.7 percent. See

``Discussions with company officials from Gabetti per L'impressa, Banca

di Roma and Reconta Ernst & Young,'' dated June 3, 1998, on file in the

CRU (Commercial Experts Report). We have used this rate of return as

the benchmark in evaluating the adequacy of remuneration in the lease.

As an average, this rate reflects different terms, lengths, and

locations of lease contracts throughout Italy. This rate better

reflects commercial practices in Italy than does the rate used in the

preliminary determination. That rate was based on treasury bonds and

would require a number of complicated and highly speculative

adjustments to reflect a representative rate for leasing commercial

property. Thus, in our view, the 5.7 percent rate is a more reliable

and representative rate to use in examining whether the facility is

being leased for less than adequate remuneration.

In applying the 5.7 percent rate, we have determined that no

adjustments to this rate are warranted for either depreciation or

extraordinary maintenance payments. First, we verified that the

buildings covered by the lease are very old. Given the age of the

structures, we have not adjusted the rate upward to reflect the

depreciation of the structures because the likely useful life remaining

would be relatively short.

Second, the record evidence demonstrates that although the Italian

Civil Code obliges the landlord to pay for extraordinary maintenance,

this obligation may be borne by the lessee if specified in the lease.

In particular, we learned at verification that long-term leases often

oblige the lessee to bear responsibility for these costs because of the

long-term costs involved. The CAS lease is for a period of 30 years,

the maximum allowed under Italian law. Thus, the terms of this

particular contract are such that a commercial landlord would most

likely have assigned this obligation to the tenant. Further, the

obligation would be factored into the negotiation for the lease rate.

To the extent that CAS may face an additional financial obligation not

incurred by other parties because of extraordinary maintenance, it is

balanced by the fact that CAS's lease term is much longer than the

norm.

[[Page 40482]]

Therefore, the average rate of return is an appropriate benchmark

without any adjustments for these terms.

In order to determine whether the Regional government receives

adequate remuneration under the CAS lease, we compared the amount paid

by CAS during the POI to the amount that would have been paid using 5.7

percent as the average rate of return. Based on this comparison, we

found that the Region is not receiving an adequate rate of return on

the lease, and therefore, we determine that the facility has been

leased for less than adequate remuneration. Through this lease, the

Autonomous Region of Valle d'Aosta made a financial contribution to CAS

within the meaning of section 771(5)(D)(iii) of the Act, equal to the

difference between what would have been paid annually in a lease

established in accordance with market conditions and what CAS actually

paid. The lease is specific within the meaning of section 771(5)(D) of

the Act, because the lease is limited to CAS. Therefore, we determine

that the CAS industrial lease provides a countervailable subsidy within

the meaning of section 771(5) of the Act.

To calculate the benefit, we determined the difference between the

amount that would have been paid during the POI if the lease rate had

been determined with reference to market conditions and the amount

actually paid. We divided the amount by CAS's total sales in 1996. On

this basis, we determine the countervailable subsidy to be 0.23 percent

ad valorem for CAS.

3. Provision of Electricity

In the preliminary determination, we found that this program does

not exist because the Region is not permitted to supply electricity

directly to CAS through the planned electricity consortium and because

CAS purchases electricity from ENEL, the state monopoly, in accordance

with standard provisions applied to other commercial electricity users

in Italy. Our review of the record, our findings at verification, and

our analysis of the comments submitted by the interested parties have

not led us to modify our finding from the preliminary determination.

Therefore, we continue to find that this program does not exist.

However, in the event this investigation results in a countervailing

duty order, we will continue to review this allegation in any

subsequent administrative review to determine whether changes in the

Italian law allow for direct purchase of electricity from entities

other than ENEL. Continued examination of this program in subsequent

reviews is necessary because the protocol agreements specify that the

Region will supply electricity to CAS.

4. Waste Plant

In the preliminary determination, we found that this program does

not yet exist because the Region has not yet started construction of

the waste plant. Thus, CAS is not benefitting from the provision of

waste disposal services that the Region will provide once the plant is

in operation. Our review of the record, our findings at verification,

and our analysis of the comments submitted by the interested parties

have not led us to modify our finding from the preliminary

determination. However, in the event this investigation results in a

countervailing duty order we will continue to review this allegation in

any subsequent administrative review to determine whether a benefit

will have been provided to CAS through the provision of waste disposal

services for less than adequate remuneration.

5. Loans Provided to CAS to Transfer Its Property

In the protocols of agreement of November 1993, the Region agreed

to provide financing through Finaosta S.p.A. for the costs involved

with the transfer of the CAS property off the portion of the site not

subject to the lease. The Region plans to develop facilities for small

and medium-sized enterprises on this portion of the site after the

environmental reclamation of the land is complete. The provision of up

to 25 billion lire in reduced interest rate financing to CAS was

authorized under Regional Law 37 of August 30, 1995.

The provision of these loans was evaluated by the EU under its

state aid rules. In a June 15, 1995, decision, the EU determined that

the loan was not aid, but instead an indemnity to CAS. The EU concluded

that because the Region had unilaterally terminated part of CAS's lease

(the Cogne S.p.A.-CAS lease which included the property to be vacated),

the loans represented compensation for the costs associated with the

termination. However, as detailed in the preliminary determination, our

analysis revealed other important facts related to this deal. CAS and

the Region agreed in the protocols of agreement that CAS would vacate

50 percent of the land. The protocols of agreement predate the Cogne

S.p.A.-CAS lease. As such, we found in the preliminary determination

that the loans provide countervailable subsidies to CAS within the

meaning of section 771(5) of the Act. Our review of the record and

comments summarized below have not led us to change this finding. See

Department's Position on Comment 16.

The Region's financing company, Finaosta, provided this financing

in three separate loan agreements over 1996 and 1997 with the interest

rate set at 50 percent of the Rendistato rate, a variable rate. Under

the terms of each loan contract, a deferred six-month payback schedule

was established. In the preliminary determination, we stated that these

loans had an eighteen-month interest-free grace period. At

verification, we discovered that, in fact, interest payments were

required during the first eighteen months of each loan. We have

modified our calculation accordingly. We compared the interest payments

made by CAS during the POI to the interest that would have been paid

under the benchmark loan during the POI, using the benchmark rate

discussed in the ``Subsidies Valuation Information'' section above. We

divided the benefit by the 1996 total sales of CAS. On this basis, we

determine the countervailable subsidy to be 0.19 percent ad valorem for

CAS.

B. Valle d'Aosta Regional Law 64/92

Law 64/92 of the Autonomous Region of Valle d'Aosta provides

funding to cover up to 30 percent of the cost of installing

environmentally-friendly industrial plants in the province. Any firm in

Valle d'Aosta may apply to the Regional Industry, Craft, and Energy

Department (ICED) to have part of its costs covered for a specific

environmentally-friendly project. Each project requires a separate

application which is evaluated by a technical committee appointed by

the ICED for this purpose. Each project must be approved by the

technical committee in order to be funded, up to 30 percent of the

total costs. These grants provide a financial contribution within the

meaning of section 771(5)(D)(i) of the Act and provide a benefit to the

recipient in the amount of the grant.

Law 64/92 is not de jure specific because the enacting legislation

does not explicitly limit eligibility to an enterprise or industry or

group thereof. We examined data on the provision of assistance under

this program to determine whether the law meets the criteria for de

facto specificity under section 771(5A)(D)(iii) of the Act. Since the

inception of the program only nine companies have been approved for

benefits. While this alone would be sufficient for a finding of de

facto specificity because there are only a few companies in a few

industries that have received assistance under this program, we also

examined data on the value of

[[Page 40483]]

grants given to these firms. CAS and one other firm received close to

two-thirds of the total assistance awarded, with each firm receiving

approximately one-third of the total. Thus, CAS received a

disproportionate share of the total assistance under this program.

Accordingly, we find Law 64/92 to be de facto specific within the

meaning of section 771(5A)(D)(iii) of the Act. Therefore, we determine

that Law 64/92 provides a countervailable subsidy within the meaning of

section 771(5) of the Act.

Since applicants must submit a separate application for each

project, we are treating the grants received under the program as non-

recurring. See GIA, 58 FR at 37226. CAS received three grants under the

program, two in 1995 and one in 1996. The total of the grants received

in each year did not exceed 0.5 percent of sales in the relevant year

so we have expensed the full amount of each grant in the year of

receipt. To calculate the countervailable subsidy, we divided the total

amount of the 1996 grant by the value of CAS's total sales. On this

basis, we determine the countervailable subsidy to be 0.02 percent ad

valorem for CAS.

C. Valle d'Aosta Regional Law 12/87

Law 12/87 of the Autonomous Region of Valle d'Aosta funds the

promotion of commercial activities of local firms in other regions of

Italy, and abroad. Companies apply to ICED for funding up to 30 percent

of the costs of promotional activities in Italy (up to 10 million lire)

and 40 percent of the costs of promotional activities abroad (up to 15

million lire). CAS submitted three applications for funding under this

program. The region approved and funded two of the proposals, both in

1996: a grant of 15 million lire for participation in the Singapore

Wire and Cable Fair and a grant of 12.7 million lire for participation

in the Dusseldorf Wire Fair. Law 12/87 provides a financial

contribution within the meaning of section 771(5)(D)(i) of the Act, and

provides a benefit to the recipient in the amount of the grant.

The Department has recognized that general export promotion

programs, programs which provide only general information services

including ``image'' events do not constitute countervailable subsidies.

See, e.g., Fresh Cut Flowers from Mexico, 49 FR 15007, 15008 (April 16,

1984) and Final Negative Countervailing Duty Determination: Fresh

Atlantic Salmon from Chile, 63 FR 31437, 31441 (June 9, 1998) (Chilean

Salmon). However, where such activities promoted a specific product, or

provided financial assistance to a firm for transportation and/or

marketing expenses, we have found the programs to constitute

countervailable subsidies. See, e.g., Final Affirmative Countervailing

Duty Determination; Certain Fresh Atlantic Groundfish from Canada, 51

FR 10041, 10067 (March 24, 1986) (Groundfish from Canada); Chilean

Salmon, 63 FR at 31440. CAS received direct contributions from the

Region of Valle d'Aosta to cover costs associated with participation in

these trade shows including transportation, lodging, and marketing

expenses. Because the financial assistance under this law was provided

to CAS for the promotion of its exports, we find that the assistance to

CAS constitutes an export subsidy within the meaning of section

771(5A)(B) of the Act.

We find that the grants received under this program are non-

recurring because they are exceptional rather than on-going and require

separate applications and approvals. See GIA, 58 FR at 37226. However,

because the grants did not exceed 0.5 percent of CAS's total exports in

the year provided (i.e., the POI), we allocated the entire amount of

the grants to the year of receipt. We divided the total amount of the

two grants by the value of CAS's total exports during the POI. On this

basis, we determine the countervailable subsidy to be 0.01 percent ad

valorem for CAS.

D. Province of Bolzano Assistance: Purchase and Leaseback of Bolzano

Industrial Site

As discussed in the preliminary determination, when Falck sold

Bolzano to Valbruna, it sold the Bolzano land and buildings to the

Autonomous Province of Bolzano which now leases the facility back to

Valbruna/Bolzano. The Province bought two pieces of property, the

``Stabilimento Sede,'' which was owned by Bolzano, and the

``Stabilimento Erre,'' owned by Immobiliare Toce S.r.l., a subsidiary

of Falck with real estate holdings. The purchase price for both

portions was established by the Provincial Cadastral Office. The

purchase was authorized under Provincial Council Resolution 850 of

February 20, 1995, and was made on July 31, 1995. Valbruna entered into

concurrent negotiations with the Province for a long-term lease of the

Bolzano industrial site.

Because of the complex nature of these transactions, which included

different elements that were alleged to provide subsidies to Bolzano,

we have analyzed each element separately as detailed below.

1. Purchase of Bolzano Industrial Site

Where the government purchases a good, the Department analyzes

whether the good was purchased for more than adequate remuneration and

therefore confers a benefit. Our standard with respect to the

government's purchase of goods is discussed in the ``Purchase of the

Cogne Industrial Site'' above. As with our analysis of the Cogne land

transaction, there are no private purchases of industrial sites

comparable to the Bolzano property that are representative of the

prevailing market conditions by which to assess the adequacy of

remuneration for the purchase of the Bolzano industrial site. However,

there is information on the record of this investigation that can be

used to determine the adequacy of remuneration of the Bolzano

industrial site.

In order to analyze whether the purchase of the Bolzano industrial

site was made for more than adequate remuneration, it is important to

understand the transactions underlying the purchase, and subsequent

leasing, of the Bolzano industrial site. The purchase of the industrial

site was part of a complicated process of transactions conducted by

three parties: The Province of Bolzano, Falck, and Valbruna. The

Province of Bolzano was interested in purchasing industrial land within

its borders and in maintaining employment. Falck was seeking to exit

the steel industry and was considering closing the Bolzano site.

Valbruna was interested in increasing its steel operations. Therefore,

while Falck was negotiating with the Province for the sale of the

Bolzano industrial site, Falck was negotiating with Valbruna for the

purchase of the Bolzano company. Concurrently, the Province and Bolzano

were negotiating for the lease of the land and buildings of the

industrial site. As a result of these negotiations, a share purchase

agreement, land sale agreement, and lease agreement finalized these

transactions on July 31, 1995. The transactions among the three parties

are interrelated. The purchase of the industrial site by the Province

of Bolzano is closely linked to the leasing arrangement between

Valbruna and the Province.

The price paid by the Province of Bolzano for the land was based

upon the estimate undertaken by the Provincial Cadastral Office. As

stated above, there were no purchases of industrial sites comparable to

the Bolzano site that could be used to assess the adequacy of

remuneration of that purchase price. However, we verified that Valbruna

had agreed to pay the same price as that

[[Page 40484]]

negotiated between Falck and the Province if those negotiations for the

sale of the land fell through. In the preliminary determination, we

concluded that Valbruna's agreement to purchase the site for the same

price indicated that the price paid by the Province was determined in

reference to market conditions. Therefore, we concluded that the

purchase of the land by the Province of Bolzano was not made for more

than adequate remuneration. Our review of the record, findings at

verification and review of comments summarized below (see the

Department's Position on Comment 1) have not led us to reconsider our

finding. Therefore, we find that this program does not constitute a

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

2. Lease of Bolzano Industrial Site

In the case of government provision of goods or services, the

Department analyzes whether the good or service was provided for less

than adequate remuneration and therefore confers a benefit. Our

standard with respect to the government's sale of goods is discussed in

the ``Lease of the Cogne Industrial Site'' section above. When the

government is the sole supplier of the good or service in the area and

there may be no alternative market price, it becomes necessary to

examine other options for determining whether the good has been

provided for less than adequate remuneration. The Department has

recognized several options with respect to the leasing of land, ``to

examine whether the government has covered its costs, whether it has

earned a reasonable rate of return in setting its rates and whether it

applied market principles in determining its prices.'' See, e.g.,

German Wire Rod at 54994. This consideration of other options in no way

indicates a departure from our preference for relying on market

conditions in the relevant country, when determining whether a good or

service is being provided at a price which reflects adequate

remuneration.

The terms of the Province of Bolzano-Valbruna lease are as follows.

The lease contract signed July 31, 1995, provides for a thirty year

term. Valbruna pays the Province of Bolzano rent in six-month

installments. Valbruna undertakes all maintenance on the facility

(including extraordinary maintenance). The lease was also designed to

provide for the stable employment of 650 employees at the facility.

In the preliminary determination, we found that there was no

transaction that could be used as an appropriate benchmark for

evaluating the adequacy of remuneration in the lease. Therefore, we

compared the Region's rate of return on the lease to that which would

be provided in a private transaction for the long-term use of assets,

using the average interest rate on treasury bonds as reported by the

Banca d'Italia. However, we stated that for the final determination we

would revisit this methodology: (1) to gather the information necessary

in order to amortize the depreciation of the buildings subject to the

lease; (2) to determine whether payments for extraordinary maintenance

should be considered part of the lease; (3) to make an adjustment to

the benchmark to account for extraordinary maintenance if appropriate;

and (4) to determine whether there was a non-governmental interest rate

that would be a more appropriate benchmark.

We have reconsidered these issues in light of the information

gathered at verification and comments from the interested parties,

summarized below. The record evidence indicates that the average rate

of return on leased commercial property in Italy is 5.7 percent. See

Commercial Experts Report. We have used this rate of return as the

benchmark in evaluating the adequacy of remuneration in the lease. As

an average, this rate reflects different terms, lengths, and locations

of lease contracts throughout Italy. This rate better reflects

commercial practices in Italy than does the rate used in the

preliminary determination. That rate was based on treasury bonds and

would require a number of complicated and highly speculative

adjustments to reflect a representative rate for leasing commercial

property. Thus, in our view the 5.7 percent rate is a more reliable and

representative rate to use in examining whether the facility is being

leased for less than adequate remuneration.

In applying the 5.7 percent rate, we have determined that no

adjustments to this rate are warranted for either depreciation or

extraordinary maintenance. First, we verified that the buildings

covered by the lease are very old. Given the age of the structures, we

have not adjusted the rate upward to reflect the depreciation of the

structures because the likely useful life remaining would be relatively

short.

Second, the record evidence demonstrates that although the Italian

Civil Code obliges the landlord to pay for extraordinary maintenance,

this obligation may be borne by the lessee if specified in the lease.

In particular, we learned at verification that long-term leases often

oblige the lessee to bear responsibility for these costs because of the

long-term costs involved. The Bolzano lease is for a period of 30

years, the maximum allowed under Italian law. Thus, the terms of this

particular contract are such, that a commercial landlord would most

likely have assigned this obligation to the tenant. Further, the

obligation would be factored into the negotiation for the lease rate.

To the extent that Bolzano may face an additional financial obligation

than other parties because of extraordinary maintenance, that is

balanced by the fact that CAS's lease term is much longer than the

norm. Therefore, the average rate of return is an appropriate benchmark

without any adjustments for these terms.

In order to determine whether the Provincial government receives

adequate remuneration under the Bolzano lease, we compared the rent

under the Bolzano lease to the amount that would have been paid using

5.7 percent as the average rate of return. Based on this comparison, we

found that the Province is not receiving an adequate rate of return on

the lease, and therefore, we determine that the facility has been

leased for less than adequate remuneration. Through this lease, the

Autonomous Province of Bolzano made a financial contribution to Bolzano

within the meaning of section 771(5)(D)(iii) of the Act, equal to the

difference between the Bolzano rent and what would have been paid

annually in a lease established in accordance with market conditions.

The lease is specific within the meaning of section 771(5)(D) of the

Act, because the lease is limited to Valbruna/Bolzano. Therefore, we

determine the Bolzano industrial lease provides a countervailable

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

To calculate the benefit, we found the difference between the

amount that would have been paid during the POI if the lease rate had

been determined with reference to market conditions and the actual

rent. We divided the amount by Valbruna/Bolzano's total sales in 1996.

On this basis, we determine the countervailable subsidy to be 0.16

percent ad valorem for Valbruna/Bolzano.

3. Lease Exemption

Under the Province of Bolzano-Valbruna/Bolzano lease, Valbruna/

Bolzano agreed to assume certain environmental reclamation costs

instead of paying rent for the first two years of the lease. In the

preliminary determination, we found that this program conferred a

countervailable subsidy to Valbruna/Bolzano. Based on our review of the

record, our findings at

[[Page 40485]]

verification, and our analysis of the comments submitted by the

interested parties, summarized below, we continue to find this lease

exemption to be a countervailable subsidy, but the basis for the

determination has changed, in part.

To determine whether the program provides a countervailable subsidy

to Valbruna/Bolzano, we examined whether the Province's actions in

granting the lease exemption were consistent with the usual practices

of private landlords. When the Province purchased the land and

buildings, there were a number of environmental problems that required

costly repairs. While such a situation would be extremely unusual, a

commercial landlord may very well have given a similar exemption to a

tenant in order to have these problems addressed. However, a private

landlord would ensure that the amount of repairs met or exceeded the

cost of the rent, the tenant actually did the work, and the landlord

legally had the responsibility to undertake the projects. At

verification, Valbruna presented evidence that the costs incurred

exceeded the amount of rent due. In addition, a list of environmental

issues that Valbruna agreed to remedy was included as an enclosure to

the lease. Valbruna documented that these projects, as well as other

measures related to asbestos clean-up, had been undertaken.

Thus, in order to determine whether the nonpayment of rent for the

first two years constitutes a countervailable subsidy to Valbruna/

Bolzano, we examined whether or not the Province of Bolzano would have

been responsible for these environmental reclamation costs. Under

Italian law, the landlord would normally bear the responsibility for

pre-existing environmental costs under a normal lease agreement. In the

preliminary determination, we countervailed this lease exemption as a

grant because we found that the projects undertaken related to the

plant and equipment which was owned by the company instead of the

buildings which were owned by the Province. However, upon further

examination during verification, we found that most of the projects

undertaken related to modifications of the buildings in order to permit

the installation of new or alteration of existing equipment.

During verification, we received clarification as to when the need

to undertake some of these environmental reclamation projects had been

identified. In particular, we noted that one of the principal measures

which related to noise and air pollution, had been identified several

years prior to the purchase of the land. The Province explained that

local residents had complained in the past regarding air and noise

pollution originating from the Bolzano site. The Province asked Bolzano

to develop a proposal to solve the problem. In 1992, the Province

agreed to Bolzano's proposal to encapsulate the melting furnace in

order to reduce air and noise pollution. By 1995, Bolzano still had not

undertaken the encapsulation project. Instead, it was included in the

round of environmental work covered by the lease payment exemption.

This project accounted for a substantial portion of the costs

undertaken by Valbruna in exchange for the period of free rent. Thus,

the Province imposed an obligation on Bolzano to undertake

environmental measures several years before the signing of the lease.

Then, the Province agreed to forgo revenue in order to see that the

obligation was fulfilled.

Valbruna also reported costs related to the clean up and removal of

asbestos from the buildings. According to the Province, regulations

regarding the removal of asbestos are designed to protect the health

and safety of workers. Thus, normally the employer has primary

responsibility for these efforts. When the employer rents the facility,

the company could, as the tenant, request that the landlord undertake

the asbestos removal on the buildings. However, since Valbruna agreed

to assume the obligation for extraordinary maintenance under the lease,

the company would have no means of requiring the owner to do the

repairs. Thus, the Province agreed to forgo revenue in order to have

the asbestos problem addressed even though it would not have been its

responsibility to pay for the damages.

In both of these instances, the Province did not have an obligation

to undertake the work in question. Thus, since it was the obligation of

Valbruna/Bolzano to pay for these projects, which accounted for

virtually all of the costs incurred, either because the obligation was

incurred before the lease or because the company had assumed the

obligation under the lease, there is no basis for Valbruna/Bolzano's

claim that the rent exemption is not countervailable because it only

covered costs for which the Province was responsible. Therefore, we

find that the relief from rent payment for the first two years of the

Valbruna/Bolzano industrial lease provides a financial contribution

within the meaning of section 771(5)(D)(ii) of the Act, in the form of

revenue forgone, which provides a benefit in the amount of rent that

would normally have been collected. The lease exemption is specific

under section 771(5)(D) of the Act because it was limited to Valbruna/

Bolzano. Accordingly, we determine that the exemption from payment of

rent under the lease of the Bolzano industrial site provides a

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

exemption provides non-recurring subsidies because its provision is

limited, by the terms of the lease, to the first two years. However,

because the benefit from the exemption did not exceed 0.5 percent of

Valbruna/Bolzano's total sales in the years provided, we allocated the

entire amount to the year of receipt. We divided the amount of the rent

exemption for the POI by Valbruna/Bolzano's total sales. On this basis,

we determine the countervailable subsidy to be 0.38 percent ad valorem

for Valbruna/Bolzano.

E. Province of Bolzano Law 25/81

The Province of Bolzano Law 25/81 is a general aid measure that

provides grants to companies with limited investments in technical

fixed assets. It targets advanced technology, environmental investment,

or restructuring projects. Restructuring assistance is provided to

companies under Articles 13 through 15. Articles 13 through 15

establish different eligibility requirements, different application

procedures, different levels of available aid, and different types of

aid (grants and loans) than assistance provided under other Articles of

Law 25/81. Therefore, we find it appropriate to examine Articles 13

through 15 of Law 25/81 as a separate program. See, e.g., Live Swine

from Canada; Final Results of Countervailing Duty Administrative

Review, 62 FR 18087, 18091 (April 14, 1997) (Live Swine from Canada).

Bolzano received a total of 18.6 billion lire in restructuring grants

from 1983 through 1992. It also had a small amount from restructuring

loans outstanding during the POI, which were provided at concessionary,

long-term fixed rates.

In our preliminary determination, we did not make a

countervailability finding on Articles 13 through 15 because we did not

have the information to analyze the de facto specificity of assistance

provided solely under the restructuring program, i.e., Articles 13

through 15. As discussed above, we have determined it is appropriate to

examine the restructuring aid provided through these articles as a

separate program. During verification, we obtained Provincial budget

records which listed the total amount from

[[Page 40486]]

loans and grants provided through the restructuring program in the

years 1982 through 1992, because these were the years during which

Bolzano was provided assistance. In each of the years in which Bolzano

received funds under this program Bolzano received a significant

percentage of total assistance awarded. While assistance was provided

to a number of firms during this period, Bolzano received a much larger

share in comparison to the total aid awarded. In fact, Bolzano was the

largest single recipient of restructuring assistance. Bolzano received

far more than the average recipient over this period. Thus, we conclude

that the restructuring assistance granted to Bolzano under Articles 13

through 15 of Law 25/81 is de facto specific within the meaning of

section 771(5A)(D)(iii) of the Act because Bolzano received a

disproportionate share of benefits. The restructuring aid provides a

financial contribution which confers a benefit in the amount of grants,

and interest savings on reduced-rate long-term loans. Therefore, we

determine that Articles 13 through 15 of Provincial Law 25/81 provide a

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

Act.

We note that on July 17, 1996, the EU found in its decision number

96/617/ECSC that the aid granted to Bolzano under Law 25/81 was illegal

because it was not notified to the EU, and was ``incompatible with the

common market pursuant to Article 4(c) of the ECSC treaty.'' See

October 27, 1997, response of the EU, public version on file in the

CRU. As a result, the EU ordered the repayment of all grants and loans

made to Bolzano which were approved after January 1, 1986. The EU

decision did not require the repayment of Bolzano assistance approved

prior to January 1, 1986.

As discussed in the ``Corporate Histories'' section above, Falck

sold Bolzano to Valbruna in 1995. According to the terms of the sale,

Falck retained the liability for repayment of these benefits should the

EU rule against Bolzano. Pursuant to the EU's 1996 ruling, Falck

effectively repaid the assistance under Law 25/81 approved and granted

to Bolzano after 1986. Repayment was effected through Falck receiving a

lower payment from the GOI under an assistance program and the GOI

transferring that amount to the budget of the Province of Bolzano.

Falck is appealing the EU's decision. For the reasons set forth in the

Department's Position on Comment 3 below, we do not consider the

payment by Falck to affect our analysis of the benefit to Bolzano.

Bolzano received grants for four restructuring projects under this

law: one was approved in 1983, another was approved in 1985, and two

were approved in 1988. Because Bolzano submitted a separate application

to the regional authority for each project, we are treating the grants

received under Articles 13 through 15 of Provincial Law 25/81 as non-

recurring. See GIA, 58 FR at 37226. Pursuant to the Department's non-

recurring grant methodology, to calculate the benefit from the

restructuring grants we allocated the grants over Valbruna/Bolzano's

AUL to determine the benefit in each year. To determine the benefit

from the restructuring loans that were still outstanding during the

POI, we compared the long-term fixed-rate provided under the program to

the benchmark rate described in the ``Subsidies Valuation Information''

section above since the company did not have long-term fixed rate loans

from the same period. We then applied the Department's standard long-

term loan methodology and calculated the grant equivalent for the

loans. Next, we applied the methodology discussed in the ``Change in

Ownership'' section above to the grants and loans. We then summed the

benefit amounts attributable to the POI from Bolzano's grants and loans

and divided the total benefit by Valbruna/Bolzano's total sales. On

this basis, we determine the countervailable subsidy to be 0.28 percent

ad valorem for Valbruna/Bolzano.

Programs of the European Union

A. ECSC Article 54 Loans

Article 54 of the 1951 ECSC Treaty established a program to provide

industrial investment loans directly to the iron and steel industries

to finance modernization and the purchase of new equipment. Eligible

companies apply directly to the EU for up to 50 percent of the cost of

an industrial investment project. The Article 54 loan program is

financed by loans taken out by the EU, which are then refinanced at

slightly higher interest rates than those at which the EU obtained

them.

The Department has found Article 54 loans to be specific in several

proceedings, including Electrical Steel from Italy, Certain Steel from

Italy, and UK Lead Bar 94, because loans under this program are

provided only to iron and steel companies. No new information or

evidence of changed circumstances has been submitted in this proceeding

to warrant reconsideration of this finding. This program provides a

financial contribution within the meaning of section 771(5)(D)(i) of

the Act that provides a benefit to the recipient in the difference

between the amount paid on the loan and the amount which would be paid

on a comparable commercial loan that the recipient could actually

obtain.

Valbruna did not use this program. Bolzano and CAS received Article

54 loans. Bolzano had two loans outstanding during the POI, one

denominated in U.S. Dollars, the other in Dutch Guilders. CAS received

one Article 54 loan in 1996 with a variable interest rate on which no

interest or principal payments were due during the POI. Since these

payments would not have been due on a comparable commercial loan, there

is no benefit received during the POI, and thus, we find that the

program is not used with respect to CAS.

With respect to the loans to Bolzano, we would have used as a

benchmark interest rate a long-term borrowing rate for loans

denominated in the appropriate foreign currency in Italy. However, we

were unable to find such rates. Therefore, we used the average yield to

maturity on selected long-term corporate bonds as reported by the U.S.

Federal Reserve for the loan denominated in U.S. dollars, and the long-

term bond rate in the Netherlands as reported by the International

Monetary Fund for the loan denominated in guilders. (We note that

Bolzano entered into the loan contract for the loan denominated in U.S.

dollars in 1979. However, the interest rate for that loan was

renegotiated in 1992. Therefore we have treated it as a new loan from

that point and used a 1992 benchmark).

At verification, we found that Bolzano paid foreign exchange fees

and semi-annual guarantee fees on the Article 54 loans. Thus, we added

these additional expenses into the total amount that Bolzano paid under

the program. We also added an amount equal to the foreign exchange fees

Valbruna/Bolzano pays on commercial loans to the benchmark loan. We

then compared the cost of the benchmark financing for each loan to the

financing Bolzano received under the program and found that both loans

provided a financial contribution. To calculate the benefit in the POI,

we employed the Department's standard long-term loan methodology. We

calculated the grant equivalent and allocated it over the life of each

loan. We then applied the methodology discussed in the ``Change in

Ownership'' section above. We divided the benefit allocated to the POI

by the 1996 sales of Valbruna/Bolzano. On this

[[Page 40487]]

basis, we determine the countervailable subsidy to be less than 0.005

percent ad valorem for Valbruna/Bolzano.

B. European Social Fund

The European Social Fund (ESF) is one of the Structural Funds

operated by the EU. The ESF was established in 1957 to improve workers'

opportunities and raise their standards of living. The ESF principally

provides vocational training and employment aids. There are five

objectives identified under the ESF for funding: Objective 1 covers

projects located in underdeveloped regions, Objective 2 covers areas in

industrial decline, Objective 3 relates to the employment of persons

under 25, Objective 4 relates to vocational training for employees in

companies undergoing restructuring, and Objective 5 relates to

agricultural areas. CAS, Valbruna, and Bolzano received ESF assistance

under Objective 4 during the POI.

In the preliminary determination, there was insufficient evidence

on the record to determine whether Objectives 3 and 4 provide

countervailable subsidies. We noted, however, that the Department had

previously found certain benefits under Objectives 1, 2, or 5(b)

countervailable because assistance was limited to companies in specific

regions. See, e.g., Pasta from Italy, 61 FR at 30294. Nevertheless,

based on the record evidence, we were unable to determine whether the

companies in this proceeding received ESF funding based on their

location. In light of this insufficient record evidence, we explained

that we would continue to examine the specificity of this program for

the final determination.

During verification, we clarified several critical facts related to

the ESF program. First, we clarified that companies may receive ESF

funding directly even if they are not located in Objective 1, 2, or 5

regions. Neither Valbruna nor Bolzano is located in an Objective 2

region. Second, we discovered that funding was provided to companies

subject to this investigation only under Objective 4 of the ESF.

Objective 4 is aimed at vocational training, in particular anticipating

labor market trends, training employees of small and medium-sized

enterprise, and training workers at risk for unemployment. Officials

explained that for Objective 4, there are 13 regional and three

multiregional operational programs in Italy.

At the beginning of each multi-year programming period, the

Regional authorities, GOI, and the EU negotiate the framework and the

budget for projects to be funded and administered pursuant to Objective

4. This negotiation establishes the Single Programming Document, which

includes broad goals for the Objective 4 projects throughout Italy and

sets the budget and more specific goals for each of the operational

programs. The most recent Single Programming Document for Italy covers

the years 1994 through 1999. For the regional operational programs,

normally 45 percent is funded by the EU, 44 percent by the GOI, and 11

percent by the Region. The regional operational programs are

administered by the regions, which each publicly announce opportunities

to receive funding for projects consistent with Objective 4 objectives.

The multiregional operational programs are funded only by the EU and

the GOI with approximately 55 percent of the program funding from the

EU and 45 percent from the GOI. See GOI Verification Report. The GOI

administers these multiregional programs. Although the EU and the GOI

monitor the overall implementation of Objective 4 regional operational

programs, and the EU monitors the overall implementation of Objective 4

multiregional operational programs, neither entity participates in the

project approval process.

The ESF programs under Objectives 1, 2 and 5b are similar to the

projects provided under Objective 4 but identify broader goals and

target different segments. Under Objectives 1, 2, and 5b, the

unemployed, and workers in science and technology are also eligible for

training projects including post graduate training. In Objective 1,

teachers, pupils, and civil servants may also benefit from training

programs that are aimed at strengthening education and training

programs. Thus, even at the broadest level, the Objectives have

different aims.

Based on the fact that the projects funded pursuant to each ESF

Objective are administered by different authorities at the EU, the GOI,

and regional levels, the budgets are set for each separate objective

with no transferability between the objectives, and there is a separate

approval process for projects under different objectives, we find that

Objective 4 of the ESF in Italy should be examined as a separate

program for the purpose of determining whether funding provided under

Objective 4 is specific within the meaning of the Act. See, e.g., Live

Swine from Canada, 62 FR at 18091.

The Department normally examines funding provided from

jurisdictional levels separately to determine whether each level of

funding is specific within the meaning of the Act. Since funding for

Objective 4 projects is provided at three different levels for the

regional operational programs, we have examined each separately to

determine specificity. The Single Programming Document negotiated among

the EU, the GOI, and the regional authorities sets the program goals

and budgets for the Objective 4 projects funded throughout Italy.

Although Objective 4 funding is available throughout the Member States,

the EU negotiates a separate programming document to govern the

implementation and administration of the program with each Member

State. See ``Verification Report of the Responses of the European

Commission of the European Union,'' dated June 1, 1998, public version

on file in the CRU. We find that the EU funding under Objective 4 in

Italy is de jure specific within the meaning of section 771(5A)(D)(iv)

of the Act because it is limited on a regional basis to Italy. See,

e.g., Groundfish from Canada, 51 FR at 10048. GOI funding of Objective

4 projects is available in all areas of Italy except the Objective 1

areas, thus, eligibility is limited on a regional basis to the center

and north of Italy. See GOI Verification Report. On this basis, we also

find the GOI funding to be de jure specific within the meaning of

section 771(5A)(D)(iv) of the Act.

We then examined the funding provided by the Region of Valle

d'Aosta and the Province of Bolzano in the regional operational

programs. We found that the operational programs in both Valle d'Aosta

and the Province of Bolzano are not de jure specific. We also examined

each of the regional authorities' funding pursuant to the de facto

specificity criteria under section 771(5A)(D)(iii) of the Act. In each

case, we found that benefits were distributed to many firms within each

region and that the firms represented a wide variety of the industries

within each region. Further, the steel industry in each region received

a small amount of the total benefits awarded in comparison to other

industries in the region. We determine that the funding provided by

Valle d'Aosta and the Province of Bolzano under their respective

regional operational programs (11 percent) is not specific under

section 771(5A)(D) of the Act, and is therefore, not countervailable.

The Department considers training programs to benefit a company

when the company is relieved of an obligation it would otherwise have

incurred. See Electrical Steel from Italy, 59 FR at 7255. All three

companies subject to this investigation applied for grants to conduct

training programs to increase the production-related skills of their

own employees. Since companies normally fund training to enhance the

[[Page 40488]]

job-related skills of their own employees, we determine that ESF

Objective 4 funds relieve companies of an obligation. The ESF Objective

4 grants are a financial contribution under section 771(5)(D)(i) of the

Act which provide a benefit to the recipient in the amount of the

grant. Therefore, we determine that the ESF grants constitute

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

Act.

The Department normally considers worker training programs to be

recurring. See GIA, 58 FR at 37255. However, ESF Objective 4 grants

relate to specific and individual projects and each project requires

separate government approval. Therefore, we determine that ESF

Objective 4 grants are non-recurring; however, because the Objective 4

grants provided to CAS in 1994 through 1996 and Valbruna/Bolzano in

1996 were less than 0.5 percent of the company's sales, we allocated

the full amount of the Objective 4 non-recurring grants to the years of

receipt.

To calculate the benefit from the regional operational programs, we

used 89 percent of each grant awarded to CAS and Bolzano during the

POI. This percentage represents the amount of funding from the GOI and

EU under the regional operational programs. To calculate the benefit

from the multiregional program, we used 100 percent of the grant

awarded to Valbruna, because only the GOI and EU funded grants provided

under the multiregional operational programs. For Valbruna/Bolzano, we

summed the benefits from the grants and divided by the company's total

sales. For CAS, we divided the benefit by the company's total sales. On

this basis, we determine the countervailable subsidy to be 0.03 percent

ad valorem for CAS and 0.05 percent ad valorem for Valbruna/Bolzano.

II. Programs Determined to be Non-Countervailable

A. Law 46: Technological Innovation Fund

Under the Technological Innovation Fund (FIT) of Law 46/82, the GOI

provides grants to companies for projects that contain a high degree of

technological innovation. In the preliminary determination, we found

that this program was not countervailable because it was not specific

within the meaning of section 771(5A) of the Act. However, we stated

that for the final determination, we would continue to examine whether

the provision of FIT assistance was contingent upon export performance.

We verified that FIT assistance has been awarded to non-exporters,

companies with low-levels of export sales, and companies with high-

levels of export sales and that export performance is not a factor in

the evaluation process. We reviewed applications which were both

accepted and rejected and found that in no case was an application

accepted because of high levels of exports or potential high levels of

exports, and in no case was an application rejected because of a low

level of exports. In all cases, the applications were evaluated based

solely on the degree of technological innovation contained in the

proposal. Thus, we verified that export performance was not a criterion

used in the approval of grants under this program. Therefore, we

determine that the Law 46 FIT program does not meet the definition of

an export subsidy within the meaning of section 771(5A)(B) of the Act,

and we continue to find the program not countervailable.

B. Law 308/82

In response to our request for information on ``other subsidies''

in the questionnaire, the GOI reported that Valbruna received grants

for energy conservation under Law 308/82. However, this program was

found to be non-countervailable in Certain Steel from Italy because it

provided benefits to a wide variety of industries, with no sector

receiving a disproportionate amount. No new information or evidence of

changed circumstances has been submitted in this proceeding to warrant

reconsideration of this determination.

III. Programs Not Used

Based on the information provided in the responses and the results

of verification, we determine that CAS and Valbruna/Bolzano did not

apply for or receive benefits under the following programs during the

POI:

A. Benefits Associated with Finsider-to-ILVA Restructuring

In the preliminary determination, we countervailed the GOI's

coverage of Deltacogne S.p.A.'s losses in conjunction with the

restructuring of Finsider into ILVA. We followed the methodology used

in Electrical Steel from Italy in examining the restructuring of

Deltacogne into Cogne S.r.l. Electrical Steel from Italy, 59 FR at

18366. This approach resulted in a calculation of 120 billion lire in

losses that we assumed remained with Finsider and were covered by IRI.

At verification, we discovered new information relevant to the

Department's treatment of the Deltacogne-to-Cogne S.r.l. restructuring.

Deltacogne was merged into ILVA S.p.A. with ILVA receiving all of the

assets and liabilities of Deltacogne. No liabilities or losses remained

in a shell company that were folded into Finsider and assumed by the

GOI. We were able to confirm this by examining the merger contract and

examining information in the 1989 ILVA financial statement. To the

extent there was a difference in the financial condition of Deltacogne

and Cogne S.r.l., it reflects that the companies had different

holdings. Therefore, we find that the ``Benefits Associated with the

Finsider-to-ILVA Restructuring Program'' is not used.

B. Grants for Interest Payments Under Law 193/1984

C. Law 46 and 706 Grants for Capacity Reduction

D. ECSC Article 56(2)(b) Retraining Grants

E. Resider Program

F. Law 675

1. IRI Bonds

2. Mortgage Loans

3. Personnel Retraining Aid

4. Interest Grants on Bank Loans

G. Debt Forgiveness: 1981 Restructuring Plan

H. Law 481/94

I. Decree Law 120/89

J. Law 394/81 Export Marketing Grants and Loans

K. Law 488/92 and Legislative Decree 96/93

L. Law 341/95 and Circolare 50175/95

M. Valle d'Aosta Regional Law 16/88

N. Valle d'Aosta Regional Law 3/92

O. Bolzano Regional Law 44/92

P. Interest Rebates on ECSC Article 54 Loans

Q. ECSC Article 56 Loans

R. European Regional Development Fund

IV. Programs Determined Not to Exist

Based on information provided in the responses and the results of

verification, we determine that the following programs do not exist:

A. R&D Grants to Valbruna

B. Subsidies for Operating Expenses and ``Easy Term'' Funds

C. 1993 European Commission Funds

Interest Party Comments

Comment 1: Province of Bolzano's Purchase of the Bolzano Industrial

Site: Valbruna/Bolzano asserts that the Department properly determined

that the Province of Bolzano did not purchase the Bolzano industrial

site for more than adequate remuneration. Respondent argues that

Valbruna's willingness to purchase the Bolzano industrial site at the

purchase price

[[Page 40489]]

agreed to by the Province and Falck, in the event that the sale was not

consummated, and the fact that the purchase price paid by the Province

was in line with the estimates in an independent appraisal done by an

architect hired by Valbruna, demonstrate that the industrial site was

not purchased for more than adequate remuneration. Valbruna states that

the Province's own estimate of the price of the land, which was

comparable to that paid for neighboring properties on a per-square

meter basis, demonstrates that the purchase was in accordance with

market conditions and could not be for more than adequate remuneration.

The architect's appraisal corroborates this conclusion. Finally,

Valbruna argues that the information about other land transactions in

the Province of Bolzano is an appropriate benchmark to evaluate the

adequacy of remuneration, and this information demonstrates that

Bolzano received no countervailable benefit from the sale of the land.

Petitioners argue that Valbruna cannot be considered an

uninterested party in the land deal. Petitioners state that although

Valbruna claimed it was willing to pay the same price for the property

as the Province in the event that arrangements with Falck fell through,

the chronology of the deal demonstrates that Valbruna knew it would

never have to purchase the site. Petitioners contend that the Share

Purchase Agreement provides evidence that Valbruna would not have been

required to purchase the site. Petitioners further argue that Valbruna

never has provided an adequate appraisal of the property and that the

architect's appraisal is based on a number of inaccurate assumptions.

Petitioners compare the facts related to the Bolzano land sale to the

Cogne land sale, and contend that this comparison reveals that the

Bolzano transaction was not in accordance with market conditions

because unlike Valle d'Aosta, Bolzano's appraisal of the property is

insufficiently detailed. Petitioners contend that other information

also indicates that other parties were not interested in purchasing the

land.

Petitioners also argue that the Department should use the amount of

debt reduction that Bolzano experienced contemporaneously with the sale

of its industrial property as a proxy for the benefit derived from this

transaction since Respondents failed to provide sufficient information

to establish an appropriate benchmark to measure the adequacy of

remuneration in the land deal. Petitioners state that the other sites

--Magnesio, Aluminia, and IVECO--are not comparable to the Bolzano

site. Petitioners argue that the Department should select a benchmark

in order to evaluate whether the site was purchased for more than

adequate remuneration which reflects that the site had minimal

commercial value because of the environmental problems. Petitioners

state that the purchase price for the land was used to improve the

financial health of Bolzano by reducing its financial burdens, and thus

Valbruna received a benefit from the transaction. Petitioners argue

that the primary goal of the land deal was improving Bolzano's balance

sheet.

Respondent replies that Falck's use of the money is irrelevant and

that the reduction of debt resulting from the sale of the land cannot

be demonstrated to be a countervailable benefit.

Department's Position: Regarding the Province's purchase of the

Bolzano industrial site, we agree with Respondent's arguments that the

purchase was not made for more than adequate remuneration. Our findings

at verification on this matter confirmed that: (1) the Cadastral Office

of the Province of Bolzano conducted an appraisal of the land and

buildings prior to purchasing the site from Falck; (2) Valbruna agreed

to purchase the site at the price determined by Bolzano in the event

that the arrangement between the Province and Falck did not come to

fruition; and (3) the Province had fulfilled all of its contractual

agreements to Falck regarding the purchase of the site. On this basis,

we find that the price paid by the Province for the Bolzano industrial

site was in accordance with market conditions.

Regarding Petitioners' argument that the Department should use the

amount of debt reduction that Bolzano experienced contemporaneously

with the sale of its industrial property as a proxy for the benefit

derived from this transaction, the Department disagrees. Because the

Department has determined that the Province did not purchase the site

from Falck for more than adequate remuneration, the Department finds

that Falck and its subsidiaries did not derive a countervailable

benefit from the sale, within the meaning of section 771(5)(E)(iv) of

the Act.

In addition, we also disagree with Petitioners' argument that

Valbruna's agreement to purchase the land from Falck is inappropriate

to consider in determining whether the Province of Bolzano paid more

than adequate remuneration for the industrial site. We recognize that

it was highly unlikely that Valbruna would have to perform on this

obligation. However, given that the Province used the acquisition price

in determining the lease rate, we infer that Valbruna had a strong

commercial interest in ensuring that Falck did not pay more than

adequate remuneration for the site. In addition, under the leasing

agreement between the Province of Bolzano and Valbruna, Valbruna has

the option to purchase the industrial site from the Province within

five years of the signing of the lease. For these reasons, we consider

Valbruna's guarantee to Falck that it would acquire the property for

the price agreed to between Falck and the Province of Bolzano is an

indication that the price paid by the Province of Bolzano for the

Bolzano industrial site was reflective of market considerations.

Therefore, the purchase of the industrial site by the Province of

Bolzano does not constitute a subsidy within the meaning of section

771(5) of the Act.

Comment 2: Bolzano Lease: Valbruna/Bolzano argues that the Province

of Bolzano's lease of the Bolzano industrial site to Valbruna provided

adequate remuneration to the Province and thus did not confer a

benefit. Respondent claims that because the lease covered the

Province's costs, earned a reasonable rate of return based on what was

charged in other provinces, and reflected market-based pricing, it is

provided for adequate remuneration. Regarding the two-year rent

exemption, Respondent argues that the exemption reflected an exchange

between the parties in accordance with market principles in which

Valbruna reciprocated by assuming responsibility for environmental

reclamation and extraordinary maintenance costs usually attributed to

the lessor. Respondent further argues that the Department should

combine Valbruna's annual rent charges with its environmental and

extraordinary maintenance expenses in determining whether the company

paid adequate remuneration to the Province under the lease.

Petitioners argue that the provisional lease agreement with

Valbruna did not reflect normal market conditions and therefore

provides a countervailable subsidy. In calculating the benefit,

Petitioners argue that the Department should not offset rent payments

with any extraordinary maintenance or environmental reclamation

payments by the company. In addition, Petitioners argue that, due to

the length of the lease, the Department should treat the lease as a

long-term loan and use the adjusted Bank of Italy Reference Rate as a

benchmark. Petitioners further argue that Valbruna has failed to

undertake environmental clean-up costs as required under the lease.

Petitioners contend that the Department should treat these unpaid costs

as revenue

[[Page 40490]]

foregone within the meaning of the statute in its final analysis.

Department's Position: Section 771(5)(E) of the Act states that the

adequacy of remuneration with respect to a government's provision of

goods or services shall be determined in relation to prevailing market

conditions for the goods or services provided. When the government

leases land, the Department has determined that examining the rate of

return is a reasonable approach in determining the adequacy of

remuneration in the absence of alternative market reference prices.

See, e.g., German Wire Rod, 62 FR at 54994. As explained above, the

record evidence demonstrates that the average rate of return in Italy

on leased commercial property is 5.7 percent. See Commercial Experts

Report. Based on our comparison of the Province's rate of return under

the Bolzano lease with this benchmark, we determine that the Province

did not receive adequate remuneration. As Valbruna/Bolzano acknowledges

in its case brief, the Province earned less than a 5.7 percent rate of

return on the lease.

Based on our analysis of the Province's rate of return under the

lease, a further examination of whether the Province covered its costs

and whether the terms of the lease reflected market-based pricing is

unnecessary. As we noted in German Wire Rod, the Department identified

the factors of covering costs, earning a reasonable rate of return, and

reflecting market-based pricing as several reasonable options, and not

a three-prong analysis as Valbruna suggests. Because we were able to

obtain a reliable rate of return to serve as the appropriate benchmark,

we have not relied upon additional factors in this final determination.

The record evidence also supports our determination to countervail

the two-year rent exemption Valbruna/Bolzano received under the lease.

The Province agreed to offset Valbruna/Bolzano's rent payments for the

first two years of its lease in exchange for the company's agreement to

pay for extraordinary maintenance and environmental clean-up costs at

the Bolzano plant site. However, the record evidence demonstrates that

in situations involving long-term leases, the lessee often bears

responsibility for extraordinary maintenance costs. See Commercial

Experts Report. While the Italian Civil Code does provide for

extraordinary maintenance to be paid by the landlord in instances where

it is otherwise not specified in the contract, the terms of Valbruna's

contract, in particular the company's thirty-year lease term, lead us

to conclude that a commercial landlord would have assigned the

extraordinary maintenance costs to the tenant, with no special rent

abatement. Thus, we do not consider this arrangement to constitute a

sid pro quo exchange between Valbruna and the Province.

Moreover, the record evidence demonstrates that the Province's

normal practice is to require lessees to pay for environmental clean up

costs. Provincial government officials explained that the Province

normally requires companies to pay for environmental costs and

investments without any kind of rent exemption from the Province. As an

example, Provincial officials described a situation involving Falck,

the former parent company of Bolzano. In 1992, the Province issued a

decision requesting that Falck proceed, at its own expense, with a

noise reduction project. See Province of Bolzano Verification Report,

dated June 1, 1998, public version on file in the CRU. Although Falck

never proceeded with the plan, the Province's request for Falck to

assume responsibility for the costs of the environmental project

provides a concrete example of how companies in the Province are

normally responsible for costs associated with environmental

reclamation projects. This record evidence supports our determination

that the two-year rent exemption provided a financial contribution in

the form of foregone government revenue. On this basis, we also find it

inappropriate to make any adjustments for Valbruna's extraordinary

maintenance or environmental costs.

As discussed above, because we were able to obtain a reliable

average rate of return on commercial leased property, we have not

adopted the Petitioners' proposal that we use the adjusted Bank of

Italy Reference Rate as a benchmark. Although this 5.7 percent rate of

return reflects rates that include different terms, lengths, and

locations in Italy, we consider this benchmark to be a better

reflection of commercial practices than the methodology described in

the preliminary determination and that put forth by Petitioners.

Moreover, the rate used in the preliminary determination was based on

treasury bonds and would require a number of complicated and highly

speculative adjustments to reflect a representative rate for leasing

commercial property.

Petitioners' argument that we should not make an adjustment for the

costs of environmental clean-up because Valbruna failed to undertake

such activity is not supported by the record evidence. We verified that

Valbruna did incur many expenses related to the environmental projects

on the Bolzano site. However, as explained above, we have not made any

adjustments to the rate, and therefore the issue is moot.

Comment 3: Province of Bolzano Law 25/81: Valbruna/Bolzano argues

that for a subsidy to exist, there must be a financial contribution

which confers a benefit. Valbruna/Bolzano contends that the Department

verified that the financial contribution under this program was repaid

and therefore, the subsidy ceases to exist. Respondent argues that the

Department has applied this rationale in cases where Respondents have

repaid grants, citing Certain Fresh Cut Flowers from Peru, 52 FR 6837

(March 5, 1987) and Certain Steel Products from South Africa, 58 FR

62100 (Nov. 24, 1993), as case precedent for treating repaid subsidies

as noncountervailable. Further, Valbruna/Bolzano argues that Falck's

decision to appeal the matter is irrelevant citing Certain Steel

Products from Germany, 58 FR 37315 (July 9, 1993).

Alternatively, to the extent the Department determines that some or

all of the Law 25/81 assistance constitutes a countervailable subsidy,

Respondent contends that the subsidy is not de facto specific. First,

Respondent argues that the Department should assess the specificity of

the program across Law 25/81 as a whole as opposed to treating the

restructuring assistance granted under Articles 13 through 15 as a

separate program. Valbruna argues that under this analysis, Law 25/81

provides aid to a wide variety of industries and enterprises.

Respondent also argues that Bolzano did not receive a disproportionate

share of benefits. Finally, Respondent argues that, in the event that

the Department limits its specificity analysis to Articles 13 through

15, it should examine the aid Bolzano received in the context of the

entire life of the program.

Petitioners take issue with Respondent's arguments regarding the de

facto specificity analysis of the restructuring assistance granted to

Bolzano under Law 25/81. Petitioners argue that the Department should

uphold the decision reached in its preliminary determination and treat

the restructuring assistance granted under Articles 13 through 15 of

Law 25/81 as a separate program. Petitioners contend that under this

analysis, Bolzano received a disproportionate share of benefits in each

award year. Petitioners also argue that the Department should examine

the de facto specificity of the restructuring assistance granted to

Bolzano on a year-by-year basis. With respect to Respondent's repayment

argument, Petitioners counter that

[[Page 40491]]

because Falck has appealed the EU's decision that part of the

assistance provided under the program was illegal and had to be repaid,

the final disposition of the matter has not been settled so the

Department may not consider the funds as being repaid.

Department's Position: We disagree with Respondent's argument that

we should find no benefits from assistance approved after 1986 under

Law 25/81 because part of the subsidy has been repaid. As discussed

above, Falck has appealed the EU's decision, and therefore, we are not

considering this issue. Contrary to Respondent's assertion, this appeal

is relevant to this inquiry because the final disposition of the

repayment has not been settled. In Certain Steel from Germany, the

Department treated grants that would be repaid after the POI as a

contingent liability. During verification in that case, the Department

met with the tax authority that controlled the matter, and found that a

repayment schedule was imminent. Thus, the Department was satisfied

that the decision of the tax authority was final. See Certain Steel

from Germany, 58 FR at 37324. Falck has appealed the EU's decision to

the Court and the matter will likely remain unresolved for a number of

years. Therefore, we are not considering the repayment at this time and

need not address Respondent's arguments pertaining to this issue. We

have appropriately treated this assistance as countervailable and have

allocated to Valbruna/Bolzano the benefit derived from these subsidies

using the Department's standard methodology described in the ``Change

in Ownership'' section above. Should this investigation result in a

countervailing duty order and should an administrative review be

requested, once there is a final judgement concerning Falck's appeal,

we will reconsider this issue at that time.

We also disagree with the Respondent's argument that the aid given

to Bolzano under Articles 13 through 15 of Law 25/81 is not de facto

specific. In our preliminary determination, we found that there were

separate and distinct eligibility requirements, levels of funding,

application procedures, and types of benefits provided under Articles

13 through 15. At verification, we confirmed these facts. Therefore,

consistent with the Department's practice, we have examined the

restructuring assistance under Articles 13 through 15 as a separate

program. See, e.g., Live Swine from Canada, 62 FR at 18091. Respondent

has presented no arguments to counter this finding, but argues that Law

25/81 assistance is not de facto specific using data based on benefits

provided under the entire aid program rather than aid provided solely

under Articles 13 through 15, the restructuring program. However, when

the level of benefits is examined under Articles 13 through 15, the

record evidence supports our finding that Bolzano received a

disproportionate share of assistance in each year in which Bolzano was

provided assistance. Bolzano was the largest single recipient of aid

from the inception of the program through the POI and received a far

higher level of assistance when compared to the other firms that also

received aid.

The Respondent's cite to Certain Steel Products From Belgium 58 FR

37280 (July 9, 1993) as support for its claim that the Department

examines dominant use across the entire life of the program is

misplaced. In that case, we examined disproportionate use of the

Societe Nationale de Credit a l'Industrie (SNCI) program on a year-by-

year basis. We stated, ``[f]or each of the years for which we have data

during this period, the steel industry was the largest single recipient

of SNCI investment lending.'' Steel from Belgium, 58 FR at 37280. The

Department listed the percentage of benefits the steel industry

received in each year the Belgian steel producers used the program. Id.

Thus, the case cited by Respondent does not support the argument

presented. However, as we stated in that case, we normally do not rely

on a single year's worth of data to determine dominance or

disproportionality as that might yield anomalous results. Thus, we

examine all the years in which a company received benefits and

additional years, if warranted, prior to each year assistance was

provided. Whether we examine assistance under Articles 13 through 15 on

a year-by-year basis, or for the span of years during which Bolzano

received assistance, 1982 through 1992, we find that Bolzano received a

disproportionate share of funds awarded.

Comment 4: Early Retirement Benefits under Law 451/94: Valbruna/

Bolzano argues that the Department should affirm its preliminary

determination that Law 451/94 is not countervailable. Valbruna states

the Department correctly found that companies face the same, if not

greater, financial commitments to their workers under Law 451/94 as

under other early retirement programs that are available to non-steel

workers in Italy, such as the extraordinary CIG program. Therefore,

Respondent argues that Law 451/94 does not confer a benefit to Bolzano.

To the extent that Law 451/94 did relieve Bolzano of an obligation,

Respondent argues that it was an additional financial burden imposed by

the GOI exclusively on the Italian steel industry that was over and

above the obligations imposed upon other industries. Respondent states

that under these circumstances the Department's policy is to treat

worker assistance as noncountervailable, citing Certain Steel Products

from Belgium, 58 FR at 37276. Alternatively, Respondent contends that,

should the Department determine that Law 451/94 does provide a

countervailable subsidy, the Department should measure the benefit as

no higher than the difference between the expenses Bolzano would have

incurred during the POI under the extraordinary CIG program and the

expenses the company incurred under Law 451/94.

Petitioners argue that the Department should reverse its

preliminary determination that Law 451/94 early retirement benefits are

not countervailable because information submitted to the record

subsequent to the Preliminary Determination demonstrates that the

program relieves companies of obligations that they would otherwise

incur. Petitioners contend that the verified record demonstrates that

Law 451/94 imposes fewer early retirement costs on companies than the

extraordinary CIG program. Petitioners agree with Respondent's

assertion that the benefit under Law 451/94 should be calculated as the

difference between the expenses Bolzano would have incurred during the

POI under the provisions of the extraordinary CIG program and the

expenses the company incurred under Law 451/94.

Department's Position: The Department's practice is to treat early

retirement benefits as countervailable when the company is relieved of

an obligation it would otherwise incur and that relief is specific. See

GIA, 58 FR at 37255. During verification, GOI officials confirmed that

Italian companies are not free to layoff workers at will. See GOI

Verification Report. We also learned that, absent the Early Retirement

Program under Law 451/94, steel companies would incur the costs

associated with the extraordinary CIG program, including the

contribution of a percentage of the worker's salary and the mandatory

severance contributions under Article 2120. GOI officials also

explained that the Early Retirement Program under Law 451/94 is less

costly from the employer's perspective than the extraordinary CIG

requirements because the company would not be required to contribute a

percentage of salary or continue to set aside Article

[[Page 40492]]

2120 contributions. See GOI Verification Report, dated June 1, 1998, on

file in the CRU. On this basis, we determined that Law 451/94 relieves

steel companies from the obligation to pay the higher costs associated

with the alternative CIG program. Therefore, we have countervailed the

benefits Bolzano received under Law 451/94 in this final determination

by calculating the costs Bolzano would have incurred under the

extraordinary CIG program including the severance contributions that

the company did not face under Law 451/94.

In claiming that Law 451/94 provides a benefit to the workers and

not the steel companies, Valbruna has misconstrued the Department's

practice. As explained in the GIA, where governments simply reimburse

companies for additional payments imposed by special worker assistance

programs, the governments have not relieved the companies of any

obligation. GIA, 58 FR at 37256. In these situations, the Department

considers the workers and not the companies as the recipient of the

benefit. Id. Thus, in Steel from Belgium, the Department did not

countervail the portion of benefits provided to the companies that were

reimbursements for the additional payments imposed by the special steel

program because those payments were never an obligation of the

companies. See Steel from Belgium, 58 FR at 37276. Here, however, the

record evidence demonstrates that because Italian companies are unable

to layoff workers at will, companies are obligated to pay for severance

and pension programs mandated under Italian law. Law 451/94 relieves

the steel companies from the higher costs associated with these other

severance and pension programs, such as the extraordinary CIG, and

therefore is countervailable.

Comment 5: Plant Closure Grants under Law 193/84: Valbruna/Bolzano

argues that the grants Falck received under Articles 2 and 4 of Law

193/84 were tied to the production of tubular and flat steel products,

goods outside the scope of this investigation and, therefore, provided

no benefit to Bolzano's exportation or production of subject

merchandise. Consistent with the Department's practice for ``tied''

subsidies, the grants cannot be said to benefit the subject

merchandise. Citing to Steel Wire Rod from Canada, Respondent also

claims that the Department has refused to accept the ``tied'' nature of

closure benefits only when the assistance is received after the plant

has ceased production. Respondent further argues that the grants under

Law 193/84 are not countervailable because the Department has not

properly determined that the grants received by Falck passed through to

Valbruna upon its purchase of Bolzano. Respondent contends that under

the CIT's ruling in Delverde S.r.l. v. United States, 989 F. Supp. 218

(CIT 1997), because this is a private-to-private arm's length

transaction, the Department must explain how the benefits received by

the previous owner are not reflected in the purchase price and how the

new owner received a benefit.

Petitioners respond that it is the Department's practice to

attribute grants provided for the specific purpose of closing plants to

all merchandise produced by the recipient, noting that the CIT upheld

this practice in British Steel Corp. v. United States, 605 F. Supp. 286

(CIT 1985). Petitioners also argue that, pursuant to its practice, the

Department is not obligated to explain whether or not Falck's benefits

under Law 193/84 were reflected in the market value paid by Valbruna

for the purchase of Bolzano's shares. Petitioners contend that the

Delverde decision is not a binding final and conclusive judgment

reversing Commerce's practice. Therefore, Petitioners argue that the

Department should affirm its finding that the benefits attributable to

Bolzano from Falck's use of Law 193/84 ``passed through'' to Valbruna

when it bought Bolzano from Falck.

Department's Position: The Department disagrees with Respondent's

assertion that the plant closure assistance Falck received under Law

193/84 did not benefit the export or production of the subject

merchandise. The Department's practice with respect to corporate

restructuring through the closure of plants is articulated in the GIA,

58 FR at 37270:

* * * It has been argued that because plant closure results in

the reduction of capacity, subsidies that promote such reduction

cannot fall into the category of benefitting the manufacture,

production or export of subject merchandise. However, * * * the

Department's determination reflects the fact that once inefficient

facilities are closed, the company can dedicate its resources to the

efficient production of the remaining facilities. Therefore, closure

payments for plants producing subject and non-subject merchandise

alike are countervailable.

Moreover, contrary to Respondent's claim, this practice applies

regardless of whether the assistance is received prior to the plant

closure. See e.g., Steel Wire Rod from Canada, 62 FR at 54981. In

British Steel, the CIT upheld the Department's practice ruling that,

``[a]s a company becomes more cost efficient and thereby more price

competitive, there is a direct benefit to the manufacture, production,

and export of all the firm's products.'' British Steel, 605 F. Supp. at

293. The Department's ``tying'' practice is inapplicable to closure

payments because the assistance provided confers a benefit on all of

the company's operations.

We also disagree with Respondent's argument that the Delverde

decision overturns the Department's methodology with respect to

analyzing private-to-private change in ownership transactions. The CIT

only directed the Department, on remand, to provide a fuller

explanation of its methodology, and has not ruled on the Department's

final remand determination. As explained in UK lead Bar 96, the

Department continues to follow its existing methodology. UK Lead Bar

96, 63 FR at 18371. Under our existing methodology, we neither presume

automatic extinguishment nor automatic pass through of prior subsidies

in an arm's length transaction. Contrary to the Respondent's contention

on this matter, the Department utilized the pertinent facts of the case

in determining whether the grants received by Falck passed through to

Valbruna. Following the GIA methodology, the Department subjected the

level of previously bestowed subsidies and the purchase price paid by

Valbruna to a series of tests and analyses. These analyses resulted in

the ``pass through ratio'' used in this investigation. Under this

methodology, some of the benefit passes through and some remains with

the seller. On this basis, the Department determined that a portion of

the benefits associated with Falck's closure assistance which were

allocated to Bolzano was not extinguished when Falck sold Bolzano to

Valbruna.

Comment 6: European Social Fund: Valbruna/Bolzano argues that

worker training grants received by Valbruna and Bolzano under the ESF

program did not relieve the company of obligations that they would

otherwise incur. Respondent states that there is no evidence on the

record to suggest that either company had incurred an obligation to

provide training, therefore, the funding did not provide a

countervailable subsidy. Respondent cites the preliminary determination

from Electrical Steel from Italy, 59 FR 4682 at 4690, as evidence that

the Department has agreed in other cases that ``Italian companies have

no legal obligation to retrain their workers.'' Should the Department

determine that funds under the ESF program constitute a subsidy,

Respondent maintains that the subsidy is not de facto specific.

Respondent further argues that should the Department determine that the

ESF

[[Page 40493]]

program confers a countervailable subsidy, it should deduct the amount

of service fees Valbruna paid to Riconversider for processing its

application from the total amount of the grant awarded to Valbruna.

Petitioners argue that the Department, based on verified record

evidence, should find the ESF countervailable on the basis of regional

specificity. Petitioners argue that there are no clear dividing lines

between the Objectives under the ESF as Cogne received funding under

multiple Objectives since 1984. Further, Petitioners point out that the

Province of Bolzano uses the same commission to evaluate applications

under Objectives 3, 4, and 5(b). Petitioners argue that the ESF

assistance is specific because the steel industry was a dominant user

of the program since Riconversider received more than 50 percent of the

funding under the Multiregional operational program during the POI.

Citing Electrical Steel from Italy, 59 FR at 18368, Petitioners argue

that the Department has a consistent policy of countervailing training

benefits intended to train a company's own workers.

Department's Position: We disagree with Respondent that the

training grants under the ESF program do not relieve Valbruna and

Bolzano of obligations. In the final determination of Electrical Steel

from Italy, we reversed the preliminary determination cited by

Respondents, finding that funds used to upgrade the skills of workers

are countervailable because these costs are normally borne by the

company to improve the efficiency of its workforce. See Electrical

Steel from Italy, 59 FR at 18368. In this investigation, we verified

that the training assistance provided to Respondents under ESF

Objective 4 funded training programs to enhance the skills of workers

to improve the production process. See CAS and Valbruna/Bolzano

Verification Reports. Companies have an implicit responsibility to

train their workers on the manufacturing process for their own

production. Therefore, we find that the training programs under

Objective 4 of the ESF relieved the companies of an obligation they

otherwise would have incurred.

We agree with Petitioners, in part, that the Objective 4 program in

Italy is regionally specific. In the case of regional operational

programs, funding for this program is divided between the EU, GOI, and

regional authorities. Funding for multiregional operational programs is

divided equally between the EU and the GOI. The EU portions of the

grants are de jure specific because they are limited to a designated

geographical region within the jurisdiction of the European Union. The

GOI portions of the grants are de jure specific because they are

limited to non-Objective 1 areas, i.e., the center and north of the

country. Because the funds provided by the Authority of the Region of

Valle d'Aosta and the Authority of the Province of Bolzano are not

limited on this basis, the Department analyzed whether the regional

operational programs for Valle d'Aosta and the Province of Bolzano are

provided on a de facto specific basis. The record evidence demonstrates

that within each region grants are awarded to a wide variety of

industries. Also, the steel industry's share of the grants was not

disproportionate to other industries' shares. Therefore, we find that

in the case of the regional operational programs, 89 percent of the

funds are countervailable (45 percent from the EU, 44 percent from the

GOI), and in the case of the multiregional operational funds, 100

percent of the funds are countervailable because these were funded

solely by the GOI and the EU.

Finally, the Department agrees with Respondent that the expenses

Valbruna paid to Riconversider should be deducted from the net amount

the company received under Objective 4 of the ESF program. We verified

that Valbruna had to pay service and commission fees in order to

receive the ESF assistance. See Valbruna/Bolzano Verification Report.

We determine that these fees qualify as an ``* * * application fee,

deposit, or similar payment paid in order to qualify for, or to

receive, the benefit of the countervailable subsidy.'' See section

771(6)(A) of the Act. Thus, in determining the benefit from the grants

disbursed to Valbruna under Objective 4 of the ESF program, the

Department subtracted the amount of money the company paid to

Riconversider to derive the net amount of grants it received under the

program.

Comment 7: ECSC Article 54 Loans: Respondent states that Bolzano

repaid the Dutch Guilder loan it received under the ECSC Article 54

loan program and, since the program was discontinued in 1994, there is

no possibility that Bolzano can receive any additional funding under

the program. Thus, Respondent argues that this loan should not be

included in any cash deposit rate established for Valbruna/Bolzano in

the event of an affirmative final determination, citing Pure and Alloy

Magnesium from Canada, 57 FR 30946 (July 13, 1992) in support of its

position.

Petitioners argue that the Department understated the value of the

benefit accruing to Bolzano as a result of its U.S. Dollar ECSC Article

54 loan. The interest rate for this loan was renegotiated in 1992. For

the purposes of deriving a grant equivalent, the Department based its

calculations from the time when the new interest rate was established.

Petitioners argue that Bolzano was uncreditworthy in 1992 and,

therefore, the Department should have used as a commercial benchmark,

the highest long-term fixed interest rate available in the United

States, plus a risk premium equal to 12 percent of the U.S. prime

interest rate. Petitioners further argue that benefits Bolzano received

under the Article 54 loan should be included in the cash deposit rate

established for Valbruna/Bolzano in the event of an affirmative final

determination.

Department's Position: We disagree with the Respondent's argument

that the countervailable benefit from the Dutch Guilder loan Bolzano

received under the ECSC Article 54 loan program, should not be included

in any cash deposit rate. The Department's practice is to adjust the

cash deposit rate to zero for countervailable subsidies only when there

is a program-wide change, such as termination, and there are no

residual benefits. See Final Affirmative Countervailing Duty

Determination: Certain Pasta from Turkey, 61 FR 30366, 30370 (June 14,

1996). The Department deems a countervailable benefit to be received at

the time when the firm experiences a difference in cash flows, either

in the payments it receives or the outlays it makes. In the case of

loans, the Department measures the receipt of the benefit at the time a

firm is due to make a payment on the loan. In this instance, Bolzano

repaid the Dutch Guilder loan it received after the POI. Moreover,

repayment of a loan does not constitute a program-wide change.

Therefore, consistent with the Department's practice, no change to the

cash deposit rate is warranted.

These circumstances are distinguishable from those in Magnesium

from Canada, where the Respondent repaid the grant in full during the

POI. Thus, the Department did not include the subsidy in the cash

deposit rate because the company's repayment of the grant during the

POI extinguished the possibility of any future benefit. Therefore,

should this investigation result in a countervailing duty order, the

Department will include the net subsidy from this program in Valbruna/

Bolzano's cash deposit rate.

We also disagree with Petitioners' claims that the Department

understated the value of the benefit accruing to Bolzano as a result of

its U.S. Dollar ECSC Article 54 loan. As stated above, in determining

the benefit under this

[[Page 40494]]

program, we derived our grant equivalent based on the year in which the

interest rate was renegotiated. We agree that the renegotiation of the

interest rate on the loan in 1992 can be viewed as the bestowal date of

the loan and have calculated a new grant equivalent based on the

renegotiated terms. However, contrary to Petitioners' claim, we do not

find Falck to have been uncreditworthy in 1992 and, therefore, we have

not added a risk premium to the benchmark rate.

Comment 8: Effective Interest Rates: Petitioners argue that the

Department should add to the benchmark interest rate for long-term

loans used in the preliminary determination, an additional spread that

is representative of what Italian banks normally charge in bank fees to

corporate clients. Petitioners also argue that the Department, in

making this upward adjustment, should rely on the average interest rate

spread on the ABI verified during its discussion with an official from

a private Italian Bank.

Department's Position: We agree with Petitioners' argument that the

Department should add a spread onto the benchmark in order to determine

an effective long-term interest rate. As stated earlier in the

``Subsidies Valuation Information'' section, for purposes of this final

determination, our long-term lira-denominated benchmark is based on the

Italian Interbank Rate (ABI) because we verified that commercial banks

in Italy consider the ABI rate the most suitable benchmark for long-

term financing available to Italian companies. Commercial banks add a

spread ranging from 0.55 percent to 4 percent onto that rate depending

on the financial health of the recipient. Therefore, in years in which

companies under investigation were creditworthy, we added the average

of that spread (i.e., 2.275 percent) onto the ABI rate to calculate a

benchmark.

During verification, a commercial banker informed us that the

interest rate charged to their clients is all inclusive and covers all

fees, commissions, and other charges associated with the loan. See

Commercial Experts Report. Therefore, by including the spread provided

to us by an Italian commercial bank, we have calculated the effective

cost of the loan because the benchmark interest rate includes all other

charges associated with the loan.

Comment 9: Assumption of Losses: CAS argues that the Department

erred in attributing any pre-1993 subsidies to CAS that were provided

to its predecessors and its predecessor's parent companies.

Specifically, CAS states that, because Deltacogne's accumulated losses

were not ``distributed'' to Cogne during the Finsider-to-ILVA

Restructuring, neither Cogne nor any other party that subsequently

owned the Aosta facility received a countervailable benefit. Respondent

states that there is no need for the losses of a predecessor company to

be distributed to a successor company. CAS argues that the Department

erred in calculating a benefit to CAS from this program because the

``losses'' involved no governmental transfers. CAS cites other cases

(Seamless Pipe from Italy and OCTG from Italy) where the Department

refused to investigate alleged assumptions on behalf of Dalmine

(another subsidiary of Finsider/ILVA) because there was no record

evidence demonstrating that the company's liabilities were forgiven by

the GOI. Further, CAS argues that the facts discovered at verification

confirm that ILVA's possible responsibility for a part of Deltacogne's

liabilities did not represent debt-forgiveness on the part of the

government. CAS states that no Deltacogne liabilities were assumed by

IRI through the restructuring process because Deltacogne was not placed

into liquidation, but was merged into ILVA.

Petitioners argue that the Department's preliminary analysis with

respect to the 1989 restructuring program understated the actual

benefit to CAS by focusing solely on losses instead of losses and

liabilities. Petitioners argue that the Department's practice supports

countervailing both the coverage of losses and the assumption/

forgiveness of liabilities as separate subsidy events. In support of

their position, Petitioners cite Electrical Steel from Italy which

involved the same circumstances, but a different Finsider subsidiary,

Terni Acciai Speciali S.r.l. (TAS), where the Department countervailed

both liabilities and losses that were not distributed to ILVA as a

result of the restructuring. Petitioners argue that the facts

discovered at verification regarding the method through which

Deltacogne was transferred to ILVA do not change the countervailability

of Deltacogne's losses and liabilities that were not distributed to

Cogne S.r.l., and to do so would elevate form over substance. Debts

left in ILVA are part of the same program. Petitioners assert that when

assets are redistributed and liabilities/losses are left in a shell

company, there need not be a separate government action to show a

benefit to the continuing entity. Petitioners state that it is the

Department's well-established practice to find that relieving the

continuing entity of the burden of liabilities and/or losses is a

countervailable event citing Certain Steel from Austria, Electrical

Steel from Italy, and Steel Wire Rod from Trinidad and Tobago. Thus,

Petitioners argue that the Department should countervail all

undistributed liabilities and losses with respect to the 1989

restructuring and creation of Cogne S.r.l. Petitioners state that the

transformation in corporate form from Cogne S.r.l. to Cogne S.p.A.

shortly after the creation of the company is important because it shows

that liabilities remained with ILVA through this restructuring.

CAS responds that the statute requires a determination that the

government provided a financial contribution to the entity, which is

not demonstrable in this case. CAS also states that losses are not

countervailable subsidies.

Department's Position: Based on the facts discovered at

verification, the situation described in the preliminary determination

does not accurately describe the events related to the restructuring of

Deltacogne into ILVA and the creation of Cogne S.r.l. Thus, we have

modified our approach to this program. As described in the ``Benefits

Associated with the Restructuring of Finsider'' program above, our

review of the record indicates that no liabilities/losses remained in

Finsider as a result of the restructuring of Deltacogne into ILVA and

subsequently, Cogne S.r.l. Because of the manner in which the

operations of the Aosta facility were transferred from Deltacogne to

ILVA and from ILVA to Cogne S.r.l., the record evidence does not

demonstrate the extent to which all the liabilities and losses were

distributed to Cogne S.r.l. that belonged to those operations. Several

operations were included in Deltacogne (Aosta factory, hydroelectric

plants, Verres steel works) which were merged into ILVA and then spun-

off into separate entities. Information contained in the financial

statements does not demonstrate that liabilities and losses that

properly belonged to the Aosta operations were not distributed to Cogne

S.r.l.

As the Petitioners point out, if liabilities or losses remained in

ILVA that should have transferred to Cogne S.r.l., we would treat that

as a separate subsidy event from the one originally alleged and

examined, which involved the assumption of liabilities and losses left

in Deltacogne S.p.A. by the GOI through Finsider S.p.A. See, e.g.,

Certain Steel from Austria, 58 FR at 37217.

In this respect, CAS is mistaken that assumption of losses by the

government is not countervailable. The Department's

[[Page 40495]]

long-standing practice has been to treat the assumption of losses as a

countervailable event because such governmental action confers a

benefit. See e.g., Certain Steel from Austria, 58 FR at 37217 and

Electrical Steel from Italy. 59 FR at 18359. If losses are not

distributed to the new company through a restructuring process, a

benefit is conferred upon the productive assets of the new entity.

Under Italian law, losses must eventually be accounted for--either

offset by future profits or by a reduction in share capital. If,

however, losses are assumed by the government that the company

otherwise would bear responsibility for, then there is a benefit to the

new company which receives the productive assets free of the losses

associated with previous years of inefficient production.

Further, we disagree with CAS's interpretation of the statutory

requirements regarding financial contributions. CAS apparently presumes

that the URAA reversed the Department's practice in this regard.

However, the SAA specifically states that ``practices countervailable

under the current law [the pre-URAA statute] will be countervailable

under the revised statute.'' SAA at 925. Moreover, the definition of

``financial contribution'' contained in section 771(5)(D) of the Act is

``not intended to be exhaustive'' but sufficiently broad to encompass

the same types of government actions countervailed under the pre-URAA

statute. Id. at 927. Thus, as with the assumption of liabilities, the

assumption of losses by the government provides the equivalent of a

direct transfer of funds that confers a benefit which is

countervailable under section 771(5) of the Act. See, e.g., Steel Wire

Rod from Trinidad and Tobago, 62 FR at 55012.

Respondent's reference to the initiations of OCTG from Italy and

Seamless Pipe from Italy is without merit because the Department's

legal standard in initiations is fundamentally different than that in

preliminary and final determinations. At the initiation stage, the

Department evaluates whether the information contained in the petition

is sufficient to warrant investigation of alleged subsidies. See

section 702(c) of the Act. Thus, a determination at the initiation

stage that the petition contains insufficient evidence to warrant

investigation is qualitatively different than a determination based

upon the record evidence that there is no countervailable benefit from

a program. Nevertheless, Respondent seems to be arguing that the

Department should determine, based on the record evidence, that there

is no benefit to CAS from this program. However, as discussed above, we

have examined the record evidence in this case and determined that CAS

did not receive countervailable benefits.

Therefore, while we agree with Petitioners that liabilities and

losses left in ILVA that were not properly distributed to Cogne S.r.l.

would constitute countervailable benefits that do not require a

separate government action, we cannot reasonably conclude from the

record evidence that liabilities and losses were not distributed to

Cogne S.r.l. As such, we have found this program to be ``not used.''

Comment 10: CAS Does Not Benefit from Equity Infusions: CAS argues

that the equity infusions to Deltasider and ILVA conferred no

countervailable benefit

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