Certain Pasta From Italy: Final Results of Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-819]

Certain Pasta From Italy: Final Results of Countervailing Duty

Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of final results of countervailing duty administrative

review.

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

SUMMARY: On April 9, 1998, the Department of Commerce published in the

Federal Register its preliminary results of the administrative review

of the countervailing duty order on certain pasta from Italy for the

period October 17, 1995 through December 31, 1996. For information on

the net subsidy for each reviewed company, as well as for all non-

reviewed companies, see the Final Results of Review section of this

notice. We will instruct the Customs Service (Customs) to assess

countervailing duties as detailed in the Final Results of Review

section of this notice.

EFFECTIVE DATE: August 17, 1998.

FOR FURTHER INFORMATION CONTACT: Vincent Kane or Todd Hansen, AD/CVD

Enforcement, Group I, Office 1, Import Administration, U.S. Department

of Commerce, Room 3099, 14th Street and Constitution Avenue, N.W.,

Washington, D.C. 20230; telephone (202) 482-2815 or 482-1276,

respectively.

Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

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

Act). The Department of Commerce (the Department) is conducting this

administrative review in accordance with section 751(a) of the Act. All

other references are to the Department's regulations at 19 CFR Part 351

et. seq. Antidumping Duties; Countervailing Duties; Final Rule 62 FR

27296 (May 19, 1997), unless otherwise indicated

Background

On July 24, 1996, the Department published in the Federal Register

(61 FR 38544) the countervailing duty order on certain pasta from

Italy.

In accordance with section 351.213(b) of our regulations, this

review of the countervailing duty order covers the producers/exporters

of the subject merchandise for which a review was specifically

requested. They are: Audisio Industrie Alimentari S.r.L. (Audisio); the

affiliated companies Delverde S.r.L., Tamma Industrie Alimentari di

Capitanata, S.r.L., Sangralimenti S.r.L, and Pietro Rotunno S.r.L.

(Delverde/Tamma); La Molisana Industrie Alimentari S.p.A. (La

Molisana); and, Petrini S.p.A. (Petrini). The petitioners in this

review are Borden, Inc., Hershey Foods Corp. and Gooch Foods, Inc. This

review covers 23 programs.

Since the publication of the preliminary results on April 9, 1998

(see Certain Pasta from Italy; Preliminary Results of Countervailing

Duty Administrative Review (63 FR 17372) (Preliminary Results), the

following events have occurred: on May 11, 1998, petitioners and

respondents Delverde/Tamma and La Molisana submitted case briefs; on

May 12, 1998, Delverde/Tamma also submitted an addendum to the case

brief, i.e., a Table of Authorities; and, on May 18, 1998, respondents

Audisio, Delverde/Tamma, La Molisana, Petrini and petitioners filed

rebuttal briefs on May 18, 1998. The Department did not conduct a

hearing in this review because one was not requested.

Scope of Review

The merchandise under review consists of certain non-egg dry pasta

in packages of five pounds (or 2.27 kilograms) or less, whether or not

enriched or fortified or containing milk or other optional ingredients

such as chopped vegetables, vegetable purees, milk, gluten, diastases,

vitamins, coloring and flavorings, and up to two percent egg white. The

pasta covered by this scope is typically sold in the retail market, in

fiberboard or cardboard cartons or polyethylene or polypropylene bags,

of varying dimensions.

Excluded from the scope of this review are refrigerated, frozen, or

canned pastas, as well as all forms of egg pasta, with the exception of

non-egg dry pasta containing up to two percent egg white. Also excluded

are imports of organic pasta from Italy that are accompanied by the

appropriate certificate issued by the Instituto

[[Page 43906]]

Mediterraneo Di Certificazione, by Bioagricoop Scrl, or by QC&I

International Services. Furthermore, multicolored pasta imported in

kitchen display bottles of decorative glass, which are sealed with cork

or paraffin and bound with raffia, is excluded from the scope of this

review.

The merchandise under review is currently classifiable under item

1902.19.20 of the Harmonized Tariff Schedule of the United States

(HTSUS). Although the HTSUS subheading is provided for convenience and

customs purposes, our written description of the scope of this review

is dispositive.

Furthermore, on July 30, 1998, the Department issued a scope ruling

that multipacks consisting of six one-pound packages of pasta, which

are shrinked wrapped into a single package, are within the scope of the

order.

Period of Review

The period of review (POR) for which we are measuring subsidies is

from October 17, 1995, through December 31, 1996. Because it is the

Department's practice to calculate subsidy rates on an annual basis, we

calculated a 1995 rate and a 1996 rate for each company under review.

(For further discussion, see Comments 1 and 5 below.)

Subsidies Valuation Information

Benchmarks for Long-term Loans and Discount Rates: The companies

under review did not take out long-term, fixed-rate, lira-denominated

loans or other debt obligations which could be used as benchmarks in

any of the years in which grants were received or government loans

under review were given. Therefore, we used the Bank of Italy reference

rate, adjusted upward to reflect the mark-up an Italian commercial bank

would charge a corporate customer, as the benchmark interest rate for

long-term loans and as the discount rate for years prior to 1995. In

the Preliminary Results, we used as our benchmark for 1995 and 1996,

the average long-term interest rate available in Italy based upon a

survey of 114 Italian banks reported by the Banca d'Italia , the

Italian central bank. However, in the Final Affirmative Countervailing

Duty Determination; Certain Stainless Steel Wire Rod from Italy, 63 FR

40474, 40477, (July 29, 1998) (SSWR from Italy), the Department

determined, based on information gathered during verification, that the

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

term financing to Italian companies. Accordingly, we have changed the

1995 and 1996 benchmark interest rates used in these final results.

Specifically, consistent with SSWR from Italy, we have used the ABI

interest rate for 1995 and 1996 increased by the average spread charged

by banks on loans to commercial customers. For a further discussion of

the interest rates used in these final results. See Memorandum to File

from Team, ``Calculation Memorandum for Final Results--Interest

Rates,'' dated August 7, 1998.

Allocation Period: In British Steel plc. v. United States, 879

F.Supp. 1254, 1289 (CIT 1995), the U.S. Court of International Trade

(the Court) ruled against the allocation methodology for non-recurring

subsidies that the Department had employed for the past decade, which

was articulated in the General Issues Appendix, appended to the Final

Countervailing Duty Determination; Certain Steel Products from Austria,

58 FR 37225 (July 9, 1993) (GIA). In accordance with the Court's remand

order, the Department determined that the most reasonable method of

deriving the allocation period for non-recurring subsidies is a

company-specific 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).

For non-recurring subsidies received prior to the POR and which

have already been countervailed based on an allocation period

established in the investigation, it is neither reasonable nor

practicable to reallocate those subsidies over a different period of

time. Therefore, for purposes of these final results, the Department is

using the original allocation period assigned to each non-recurring

subsidy received prior to the POR. This conforms with our approach in

Certain Carbon Steel Products from Sweden; Final Results of

Countervailing Duty Administrative Review, 62 FR 16549 (April 7, 1997).

For non-recurring subsidies that were not countervailed in the

original investigation, each company under review submitted an AUL

calculation based on depreciation and value of productive assets

reported in its financial statements. Each company's AUL was derived by

dividing the sum of average gross book value of depreciable fixed

assets over the past ten years by the average depreciation charges over

this period. We found this calculation to be reasonable and consistent

with our company-specific AUL objective. We have used these calculated

AULs for the allocation period for non-recurring subsidies received

during the POR and those non-recurring subsidies received prior to the

POR, which were not countervailed in the investigation.

Benefits to Mills: In cases where semolina (the input product to

pasta) and the subject merchandise were produced within a single

corporate entity, the Department has found that subsidies to the input

product benefit total sales of the corporation, including sales of the

subject merchandise, without conducting an upstream subsidy analysis.

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

Certain Softwood Lumber Products from Canada (57 FR 22570); Final

Affirmative Countervailing Duty Determination: Industrial Phosphoric

Acid from Israel (52 FR 25447); Final Affirmative Countervailing Duty

Determination: Certain Pasta from Italy (61 FR 30288, 30292) (Pasta

from Italy)). This practice was upheld by the Court in Delverde S.r.L.

v. United States, 989 F. Supp. 218 (CIT 1997) (Delverde). In accordance

with our past practice, where the companies under review purchase their

semolina from a separately incorporated company, whether or not they

are affiliated, we have not included subsidies to the mill in our

calculations. However, for those companies where the mill is not

separately incorporated from the producer of the subject merchandise,

we have included subsidies for the milling operations in our

calculations. Where appropriate, we have also included sales of

semolina in calculating the ad valorem subsidy rate.

Changes in Ownership

One of the companies under review, Delverde/Tamma, purchased an

existing pasta factory from an unrelated party. The previous owner of

the purchased factory had received non-recurring countervailable

subsidies prior to the transfer of ownership, which took place in 1991.

We have calculated the amount of the prior subsidies that passed

through to Delverde/Tamma with the acquisition of the factory,

following the spin-off methodology described in the Restructuring

section of the GIA, 58 FR at 37265. (For further discussion, see

Comment 4 below.)

Petrini, another of the companies under review, is controlled by

two members of the Petrini family, who hold a majority-ownership

interest in the company. During the period 1988 through 1994, Petrini

acquired and absorbed a number of affiliated companies, including one

which produced pasta. All but one of these affiliated companies were

wholly-owned by members of the Petrini family prior to their

acquisition by Petrini; the remaining company was majority-

[[Page 43907]]

owned by the Petrini family. Prior to the ownership restructurings,

several of these companies, other than the pasta company, received non-

recurring countervailable subsidies.

The Department does not consider internal corporate restructurings

that transfer or shuffle assets among related parties to constitute a

``sale'' for purposes of evaluating the extent to which subsidies pass

from one party to another. (See, the Restructuring section of the GIA,

58 FR at 37266.) Therefore, we did not apply the methodology from the

Restructuring section of the GIA to these subsidies. Instead, we have

attributed all of the non-recurring subsidies received prior to the

restructurings to Petrini, the only remaining corporate entity.

To determine whether the benefit of any of these subsidies extended

to the subject merchandise, we examined whether these subsidies,

specifically loans and grants pursuant to Law 64/86, should be

considered tied or untied. We have determined that the subsidies in

question are tied to the production of products other than pasta. For a

detailed discussion of this issue, please see Comment 2 below.

Affiliated Parties

In the present review, we have examined several affiliated

companies (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 sufficiently related

where one company owns 20 percent or more of the other company, or

where companies prepare consolidated financial statements. The

Department also stated that companies may be considered sufficiently

related where there are common directors or one company performs

services for the other company. According to the questionnaire, such

companies that produce the subject merchandise or that have engaged in

certain financial transactions with the company subject to review are

required to respond.

In the Preliminary Results, and consistent with our determination

in the original investigation, we have treated Delverde S.r.L., Tamma

Industrie Alimentari, S.r.L., Sangralimenti S.r.L., and Pietro Rotunno,

S.r.L. as a single company with a combined rate. We did not receive any

comments on this treatment from the interested parties, and our review

of the record has not led us to change this determination.

Analysis of Programs

I. Programs Previously Determined to Confer Subsidies

A. Local Income Tax (ILOR) Exemptions

Delverde/Tamma claimed an ILOR tax exemption on income tax returns

filed during the POR. In the Preliminary Results and in the original

investigation, we found that this program conferred countervailable

subsidies on the subject merchandise. We did not receive any comments

on this program from the interested parties, and our review of the

record has not led us to change our findings or calculations.

Accordingly, the net subsidies for this program remain unchanged from

the Preliminary Results and are as follows: Delverde/Tamma in 1995-0.01

percent ad valorem and in 1996-0.01 percent ad valorem.

B. Industrial Development Grants Under Law 64/86

La Molisana and Delverde/Tamma benefitted from industrial

development grants during the POR. In the Preliminary Results and in

the original investigation, we found that this program conferred

countervailable subsidies on the subject merchandise. Our review of the

record and our analysis of the comments submitted by the interested

parties, summarized below in Comment 2, have not led us to change our

findings for Delverde/Tamma and Petrini. We did, however, change our

calculations for Delverde/Tamma and La Molisana from the Preliminary

Results because we reassessed the 1995 and 1996 benchmark interest

rates as described in the Subsidies Valuation Information section

above. In addition, we further changed our calculations for La

Molisana. For a discussion of these changes, see the Department's

Position in Comment 6 below, which explains our modification of the net

subsidy calculations for La Molisana. Accordingly, the net subsidies

for this program have changed from the Preliminary Results and are as

follows: La Molisana in 1995-0.76 percent ad valorem and in 1996-1.17

percent ad valorem and Delverde/Tamma in 1995-2.25 percent ad valorem

and in 1996-2.47 percent ad valorem.

C. Industrial Development Loans Under Law 64/86

Delverde/Tamma and La Molisana received industrial development

loans with interest contributions from the Government of Italy (GOI).

In the Preliminary Results and in the original investigation, we found

that this program conferred countervailable subsidies on the subject

merchandise. Our review of the record and our analysis of the comment

submitted by petitioners, summarized below in Comment 2, have not led

us to change our findings or calculations from the Preliminary Results.

Accordingly, the net subsidies for this program remain unchanged and

are as follows: La Molisana in 1995-0.36 percent ad valorem and in

1996-0.24 percent ad valorem and Delverde/Tamma in 1995-0.71 percent ad

valorem and in 1996-0.64 percent ad valorem.

D. Export Marketing Grants Under Law 304/90

Delverde/Tamma received a grant under this program for a market

development project in the United States. In the Preliminary Results

and in the original investigation, we found that this program conferred

countervailable subsidies on the subject merchandise. We did not

receive any comments on this program from the interested parties, and

our review of the record has not led us to change our findings. We did,

however, change our calculations for Delverde/Tamma from the

Preliminary Results because we reassessed the 1995 and 1996 benchmark

interest rates as described in the Subsidies Valuation Information

section above. Accordingly, the net subsidies for this program have

changed from the Preliminary Results and are as follows: Delverde/Tamma

in 1995-0.13 percent ad valorem and in 1996-0.35 percent ad valorem.

E. Lump-Sum Interest Payment Under the Sabatini Law for Companies in

Southern Italy

In the Preliminary Results and in the original investigation, we

found that benefits to operations in the Mezzogiorno under this program

conferred countervailable subsidies on the subject merchandise. Our

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

interested parties, summarized below in Comments 3 and 5, have not led

us to change our findings or calculations for La Molisana. Accordingly,

the net subsidy for this program remains unchanged from the Preliminary

Results and is as follows: for La Molisana in 1995-0.05 percent ad

valorem.

F. Social Security Reductions and Exemptions

1. Sgravi benefits. Delverde/Tamma and La Molisana received

countervailable social security reductions and exemptions during the

POR. In the Preliminary Results and in the original investigation, we

found that

[[Page 43908]]

this program conferred countervailable subsidies on the subject

merchandise. We did not receive any comments on this program from the

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

change our findings or calculations. Accordingly, the net subsidies for

this program remain unchanged from the Preliminary Results and are as

follows: Delverde/Tamma in 1995-1.23 percent ad valorem and in 1996-

0.91 percent ad valorem and La Molisana in 1995-0.90 percent ad valorem

and in 1996-0.70 percent ad valorem.

2. Fiscalizzazione benefits. Delverde/Tamma and La Molisana

received the higher levels of fiscalizzazione deductions available to

companies located in the Mezzogiorno during the POR. In the Preliminary

Results and in the original investigation, we found that this program

conferred countervailable subsidies on the subject merchandise. We did

not receive any comments on this program from the interested parties,

and our review of the record has not led us to change our findings or

calculations. Accordingly, the net subsidies for this program remain

unchanged from the Preliminary Results and are as follows: Delverde/

Tamma in 1995-0.44 percent ad valorem and in 1996-0.20 percent ad

valorem and La Molisana in 1995-0.64 percent ad valorem and in 1996-

0.38 percent ad valorem.

3. Law 407/90 benefits. Delverde/Tamma received the higher level of

Law 407 deductions available to companies located in the Mezzogiorno

during the POR. In the Preliminary Results and in the original

investigation, we found that this program conferred countervailable

subsidies on the subject merchandise. We did not receive any comments

on this program from the interested parties, and our review of the

record has not led us to change our findings or calculations.

Accordingly, the net subsidies for this program remain unchanged from

the Preliminary Results and are as follows: Delverde/Tamma in 1995-0.00

percent ad valorem and in 1996-0.00 percent ad valorem.

4. Law 863 Benefits. Delverde/Tamma and La Molisana received the

higher level of Law 863 deductions available to companies located in

the Mezzogiorno during the POR. In the Preliminary Results and in the

original investigation, we found that this program conferred

countervailable subsidies on the subject merchandise. We did not

receive any comments on this program from the interested parties, and

our review of the record has not led us to change our findings or

calculations. Accordingly, the net subsidies for this program remain

unchanged from the Preliminary Results and are as follows: Delverde/

Tamma in 1995--0.05 percent ad valorem and in 1996--0.11 percent ad

valorem and La Molisana in 1996--0.03 ad valorem.

G. Remission of Taxes on Export Credit Insurance Under Article 33 of

Law 227/77

La Molisana obtained export credit insurance under this program for

its exports to the United States and, therefore, was exempted from the

insurance tax. In the Preliminary Results and in the original

investigation, we found that this program conferred countervailable

subsidies on the subject merchandise. We did not receive any comments

on this program from the interested parties, and our review of the

record has not led us to change our findings or calculations.

Accordingly, the net subsidies for this program remain unchanged from

the Preliminary Results and are as follows: La Molisana in 1995--0.04

percent ad valorem and in 1996--0.04 percent ad valorem.

H. European Social Fund

Delverde/Tamma received European Social Fund grants. In the

Preliminary Results and in the original investigation, we found that

this program conferred countervailable subsidies on the subject

merchandise. We did not receive any comments on this program from the

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

change our findings or calculations. Accordingly, the net subsidies for

this program remain unchanged from the Preliminary Results and are as

follows: for Delverde/Tamma in 1995--0.04 percent ad valorem.

I. Export Restitution Payments

Delverde/Tamma, La Molisana, Audisio and Petrini received export

restitution payments during the POR on shipments of subject merchandise

to the United States. In the Preliminary Results and in the original

investigation, we found that this program conferred countervailable

subsidies on the subject merchandise. We did not receive any comments

on this program from the interested parties, and our review of the

record has not led us to change our findings or calculations.

Accordingly, the net subsidies for this program remain unchanged from

the Preliminary Results and are as follows: Delverde/Tamma in 1995--

0.23 ad valorem and in 1996--0.19 percent ad valorem, La Molisana in

1995--0.08 percent ad valorem and in 1996--0.07 percent ad valorem,

Petrini in 1995--2.27 percent ad valorem and in 1996--0.00 percent ad

valorem, and Audisio in 1995--7.78 percent ad valorem and in 1996--0.00

percent ad valorem.

J. Grant Received Pursuant to the Community Initiative Concerning the

Preparation of Enterprises for the Single Market (PRISMA)

La Molisana received a PRISMA grant in 1996. In the Preliminary

Results, we determined that this program conferred a countervailable

subsidy because the grant represented a transfer of funds from the

administering government, provided a benefit in the amount of the

grant, and was limited to firms located in a designated geographic

region. We did not receive any comments on this program from the

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

change our findings or calculations. Therefore, we find this program to

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

the Act. Accordingly, the net subsidies for this program remain

unchanged from the Preliminary Results and are as follows: La Molisana

in 1995--0.00 percent ad valorem and in 1996--0.10 percent ad valorem.

II. Programs Determined To Be Not Used

In the Preliminary Results, we determined that the producers and/or

exporters of the subject merchandise did not apply for or receive

benefits under the following programs during the POR:

A. VAT Reductions

B. Export Credits Under Law 227/77

C. Capital Grants Under Law 675/77

D. Retraining Grants Under Law 675/77

E. Interest Contributions on Bank Loans Under Law 675/77

F. Interest Grants Financed by IRI Bonds

G. Preferential Financing for Export Promotion Under Law 394/81

H. Corporate Income Tax (IRPEG) Exemptions

I. European Agricultural Guidance and Guarantee Fund

J. Urban Redevelopment Under Law 181

We did not receive any comments on these programs from the

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

change our findings from the Preliminary Results.

Analysis of Comments

Comment 1: Assessment Rate

The petitioners argue that the Department should calculate a single

countervailing duty rate for the entire POR based on the average of

each company's rates for 1995 and 1996. The petitioners, citing to

Certain Cut-to-Length Carbon Steel Plate from Sweden: Final Results of

Countervailing Duty Administrative Review, 61 FR 5381

[[Page 43909]]

(August 24, 1995) (Plate from Sweden), state that the Department has

exercised its discretion in previous administrative reviews and

calculated a single countervailing duty rate where the POR was more

than 12 months. The petitioners also cite to Fresh Cut Roses from

Israel: Final Results of Administrative Review of Countervailing Duty

Order, 48 FR 36635 (August 12, 1983) (Roses from Israel) and Certain

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

Kingdom; Final Results of Countervailing Duty Administrative Review, 62

FR 53306 (October 14, 1997) (UK Bar--1995) as examples of other cases

where the Department has calculated assessment rates for periods that

were not calendar years.

The petitioners note that the Department calculated subsidy rates

of zero for calendar year 1996 for respondents Petrini and Audisio,

while these respondents' subsidy rates for 1995 were 2.27 and 7.78

percent, respectively. The petitioners contend that because of the

Department's methodological decision, Petrini and Audisio are able to

avoid paying countervailing duties on all entries of subject

merchandise that occurred during 1996 and will have deposit rates set

at zero for future entries. Petitioners argue that a single rate for

each respondent for the entire review period results in a better

measure of subsidization for the period from October 17, 1995 through

December 31, 1996, i.e., the POR.

The petitioners further argue that calculating a single rate for

each respondent would be more administratively feasible and would

minimize potential confusion for Customs officials and interested

parties.

Respondent Delverde/Tamma argues that with their proposed

methodology, petitioners are simply seeking to offset the fact that the

respondents were subsidized at lower rates in 1996 than in 1995.

Delverde/Tamma notes that, unsurprisingly, there were more entries of

pasta during the eight months in 1996 than during the two and one-half

months during 1995 when entries of subject merchandise were subject to

suspension of liquidation. Thus, Deleverde/Tamma notes, the methodology

recommended by the petitioners would result in excessive countervailing

duties being assessed on POR entries. Further, petitioners' proposed

methodology would result in higher deposit rates for estimated

countervailing duties than the known rate of subsidization in 1996.

Accordingly, Delverde/Tamma argues that the petitioners' proposed

methodology is punitive, and hampers the respondent's ability to

compete by forcing the respondent to deposit more duties than the

current rate of subsidization.

Respondents Audisio, Petrini and La Molisana argue that the

petitioners are trying to characterize as ``Department practice'' a few

exceptions in past cases with unique circumstances. Audisio, Petrini

and La Molisana note that in Plate from Sweden, the Department

calculated a single rate for calendar year 1993, and applied this rate

to entries from December 7, 1992 through December 31, 1993. The

respondents note that in Plate from Sweden the portion of the POR that

fell into calendar year in 1992 was only three weeks, so the Department

applied the 1993 rate to these 1992 entries. Audisio, Petrini and La

Molisana argue that if the Department were to follow the precedent of

Plate from Sweden in the instant review, the rate for 1996 (i.e., zero

for Petrini and Audisio) would also apply to 1995 entries.

Audisio, Petrini and La Molisana further note that the other cases

cited by the petitioners involved unique circumstances. In Roses from

Israel, the Department explained that it used the growing season for

roses rather than a calendar year and UK Bar-1995 involved the unusual

situation where a previously spun-off subsidiary was reacquired during

the POR.

Petrini and Audisio cite to Carbon Black from Mexico; Final Results

of Countervailing Duty Administrative Review, 55 FR 51745 (December 17,

1990), Carbon Steel Wire Rod from Malaysia; Final Results of

Countervailing Duty Administrative Reviews, 56 FR 41649 (August 22,

1991), and Carbon Steel Butt-Weld Pipe Fittings from Thailand; Final

Results of Countervailing Duty Administrative Review, 57 FR 5248

(February 13, 1992) as just a few examples of numerous past first

reviews where the Department calculated separate CVD rates for periods

spanning more than one calendar year and then used only the latter rate

as the cash deposit rate for subsequent entries.

Audisio, Petrini and La Molisana further argue that the

petitioners' contention that a blended rate would be more

administratively feasible is insupportable, as the Department has

already calculated two rates and Customs is fully capable of assessing

duties based on the entry date. Petrini and Audisio note that Customs

does not have any exceptional difficulty in administering liquidation

instructions for antidumping administrative reviews where duties vary

entry-by-entry.

Department's Position: Section 351.213 (e)(2)(ii) of the

Department's regulations state that in a first administrative review,

the POR will cover imports ``during the period from the date of

suspension of liquidation under this part . . . to the end of the most

recently completed calendar or fiscal year. . . .'' There is no

indication in the regulations that where the review period in a first

review covers more than one year, the Department will calculate a

single rate to cover the entire period or two separate rates for each

calendar year falling in the POR. In the cases cited by Petrini and

Audisio, as well as several other first reviews (see, e.g., Certain

Apparel From Argentina; Final Results of Countervailing Duty

Administrative Review, 53 FR 1053 (January 15, 1988)) the Department

has calculated separate rates for each calendar year. In certain

exceptional circumstances, such as Plate from Sweden and Pure and Alloy

Magnesium From Canada: Final Results of the First (1992) Countervailing

Duty Administrative Reviews, 62 FR 13857 (March 24, 1997) where the

review period fell into two calendar years and the portion falling in

the first calendar year was only a few weeks, the Department did not

calculate a rate for the first calendar year and liquidated all entries

at the rate calculated for the second calendar year.

In the review at hand, 10 weeks of the POR fall in the first

calendar year. Additionally, the differences in rates between the two

calendar years are significant for certain respondents. Accordingly, we

have followed our normal practice and calculated two different

assessment rates. The deposit rate is the rate calculated for the most

recently completed calendar year included in the POR, i.e, 1996. Given

the information collected, there is no additional administrative burden

to the Department in calculating two rates. Also, since this is our

normal practice for countervailing duty proceedings, Customs should

have little difficulty following our assessment instructions.

Comment 2: Attribution of Subsidies Received by Petrini

The petitioners maintain that the Department's practice of

attributing subsidies where there is cross-ownership requires the

attribution of Law 64 grants and loans to all of Petrini's production

including pasta production. According to the petitioners, the fact that

the restructuring of these companies was preliminarily found by the

Department to have no effect on the countervailability of previously

[[Page 43910]]

bestowed subsidies indicates that the various companies of the Petrini

group are both cross-owned and closely related companies. Because of

this cross-ownership and high degree of relationship, the Petitioners

argue that subsidies should be attributed to all of Petrini's

production, regardless of whether these subsidies were bestowed on a

particular facility in a particular region. The petitioners assert that

the fact that Petrini prepared consolidated financial statements

requires the Department to attribute subsidies received in the South,

whether tied or untied, to the company as a whole. The petitioners

further assert that the Department should choose attribution over

``tying'' in situations involving cross-ownership.

Petrini, in rebuttal, asserts that all of its subsidies are tied to

either subject pasta or non-subject products, but not to both. The

respondent cites section 351.524(b)(5)(i) of the Department's proposed

rules stipulating that where a subsidy is tied to production of a

particular product, the subsidy will be attributed to that product.

Petrini contends that all of its Law 64 subsidies are clearly tied to

non-subject merchandise.

Petrini refers to the one exception to the Department's treatment

of tied subsides which arises when a company producing an input to one

of its products receives a subsidy tied to the input. (See section

351.524(b)(5)(ii) of the Department's proposed regulations.) In this

case, the subsidy is attributed to both the input and the final

product. Petrini states that the record clearly shows that its

companies in the Mezzogiorno do not produce inputs for the subject

merchandise and, in addition, are separately incorporated companies.

Petrini asserts that the Department attributes input subsides to the

input and the final product only when both are produced by the same

company.

Petrini notes that section 351.524(b)(6)(i) provides that the

Department will attribute a subsidy received by a company and tied to a

particular product to that product produced by the company and by any

other company sharing cross-ownership with that company. Petrini states

that none of the former companies that were merged into Petrini

produced pasta.

Finally, Petrini maintains that no loans were provided or financial

transactions conducted between any of the former companies and Petrini.

Department's Position: The Department will normally attribute a

subsidy received by a corporation to the products produced by that

corporation. Hence, for example, if corporation A receives a subsidy,

then that subsidy will normally be attributed to the production of

corporation A. In cases where a subsidy is tied to the production of a

particular product, however, the Department attributes the subsidy to

that product rather than to all of the products produced by a company.

(See e.g. Industrial Nitrocellulose from France; Final Results of

Countervailing Duty Administrative Review, 52 FR 833, 834 (January 9,

1987)).

Law 64 grants and loans are typically provided for plant

construction and the purchase of equipment dedicated to the production

of specific products. Applications and award documents clearly describe

the type of plant and equipment to be purchased with Law 64 funds. To

ensure that these grants and loans are used as intended, the GOI audits

the use of Law 64 benefits. Thus, we conclude that Law 64 benefits

normally are tied to specific products.

The approval documents for the Law 64 grants and loans in question

show that they were tied at the point of bestowal to the production of

non-subject merchandise which is not connected in any way to subject

merchandise. Consequently, they do not benefit, either directly or

indirectly, Petrini's pasta production.

Comment 3: Sabatini Law--Specificity

In the original investigation, the Department concluded that

benefits provided in northern Italy under the Sabatini Law were not

specific and, therefore, not countervailable. In its Preliminary

Results, the Department found that petitioners had provided no new

information which would warrant reconsideration of this determination.

Petitioners claim that they should not be required to provide the

information which would warrant a reconsideration of the determination.

They maintain that this type of information is not available to them

and that the Department should require the GOI to supply the

information, which would enable the Department to determine whether

Sabatini Law benefits in the North during the POR continued to be non-

specific or whether a disproportionate share was received by pasta

companies. Because the GOI failed to supply this information, the

petitioners maintain that the Department should find Sabatini benefits

to be specific to the pasta industry in the North and should

countervail the lump sum payments received by Audisio and Petrini under

this program.

Petrini claims that the Department's practice regarding programs

found to be not countervailable has been to re-examine these programs

only if new information warrants such re-examination.

Department's Position: We agree with Petrini. In the original

investigation, Sabatini Law benefits were found to be widely

distributed and benefitting many companies representing a broad cross

section of industries throughout Italy. Absent information that changes

have occurred which would significantly alter this benefit distribution

pattern, the Department sees no compelling reason to re-open the

question of specificity. The Department has consistently followed this

practice regarding programs previously found not countervailable. See,

e.g., Preliminary Countervailing Duty Determinations and Alignment of

final Countervailing Duty Determinations with Final Antidumping Duty

Determinations: Certain Steel Products from Belgium, 57 FR 57750, 57758

(December 7, 1992) and Preliminary Affirmative Countervailing Duty

Determinations: Extruded Rubber Thread from Malaysia, 56 FR 67276,

67280 (December 30, 1991).

Comment 4: Privatization

Respondent Delverde/Tamma argues that the formula used by the

Department for reallocating benefits upon change of ownership in the

Preliminary Results, has been held unlawful by the Court in Delverde.

Delverde/Tamma notes that the Court in Delverde found that the

Department had failed to follow the instructions on page 258 of the

Statement of Administrative Action (SAA) that the Department ``must

exercise the discretion {afforded to it by new section 771(5)(F) of the

Act} carefully through its consideration of the facts of each case.''

According to Delverde/Tamma, the Department's automatic application of

its spin-off methodology to allocate subsidies received by the previous

owner of Delverde/Tamma's pasta factory to Delverde/Tamma in this

review is contrary to these instructions in the SAA.

Delverde/Tamma argues that it purchased the pasta factory at arm's

length and at fair market value from an unrelated private party.

Accordingly, Delverde/Tamma argues, it did not benefit from the

subsidies received by the previous owners. Delverde/Tamma further

contends that the definition of ``benefit'' resulting from the URAA

amendments requires that the financial contribution accrues to a person

(meaning a commercial entity) who receives funds from the government,

rather than the merchandise. Delverde/

[[Page 43911]]

Tamma argues that because the previous owners of Delverde's pasta

factory received the subsidy grants, the benefit cannot be attributed

to pasta produced by Delverde/Tamma.

The petitioners note that the Court's opinion in Delverde is not

final and, therefore, is not binding. Further, the petitioners note

that the Department has continued to follow the GIA methodology in

other cases subsequent to the issuance of the Court's opinion in

Delverde. The petitioners argue that Delverde/Tamma is incorrect in its

assertion that the Department must change its methodology, citing to

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

United Kingdom; Final Results of Countervailing Duty Administrative

Review, 63 FR 18367, 18371 (April 15, 1998) (UK Bar--1996) where, in

reply to a similar argument, the Department stated:

In its opinion in Delverde, the CIT did not overturn the

Department's methodology. It only directed the Department, on

remand, to provide a fuller explanation of its methodology and how

it applied it to the facts of the change of ownership transaction at

issue. While the CIT did present its views regarding many of the

issues that it wanted the Department to address when explaining its

methodology, it did not, however, order the Department to adopt any

of its views.

The petitioners further note that Delverde/Tamma has provided no

new information concerning its change of ownership. Accordingly, there

is no basis for the Department to reexamine its decision in Pasta from

Italy. The petitioners argue that the Department must continue to apply

the restructuring methodology outlined in the GIA to determine the

amount of subsidies that passed through to Delverde/Tamma following its

purchase of the pasta factory from the previous owners.

Department's Position: As we explained in UK Bar--1996, we

continued to follow the methodology applied in the investigation and

provided the CIT with the full explanations that it had requested in

the remand redetermination in Delverde filed on April 2, 1998. Thus,

for these final results, the Department similarly has not made any

changes to its methodology based on the Delverde opinion. The arguments

which Delverde/Tamma raises in this comment are addressed fully in the

April 2, 1998 remand determination and we stand by our response

therein.

Comment 5: Sabatini Loan

La Molisana argues that the Department should not have included

benefits from a Sabatini loan that was repaid in August 1995, as there

was no cash-flow effect during the POR. La Molisana, citing to Final

Negative Countervailing Duty Determination: Certain Laminated Hardwood

Flooring from Canada, 62 FR 5201, 5210 (February 4, 1997), notes that

it is the Department's practice to countervail benefits from long-term

loans as having occurred at the time the firm would be scheduled to

make a payment on the benchmark loan. Because La Molisana's Sabatini

loan was not outstanding on October 17, 1995 (i.e., the beginning of

the POR), La Molisana argues that there was no benefit from this loan

during the POR.

Petitioners argue that La Molisana is mistaken, and that it has

ignored the fact that the Department has used the firm's total annual

sales for calendar year 1995 to allocate benefits. The petitioners note

that in virtually every instance where the Department allocates

benefits from non-recurring grants and long-term loans, it does so on a

yearly basis. The petitioners assert that many subsidies do not result

in a cash-flow effect in each month of the POR, but it would not be

practicable for the Department to allocate benefits from programs on a

less-than-annual basis.

Department's Position: When calculating a subsidy rate, the

Department measures subsidies for an entire year. The Department uses

annual figures because firms tend to close their books at the end of a

year, enabling a verifiable cut-off date. See Fabricated Automotive

Glass From Mexico; Final Results of Countervailing Duty Administrative

Review, 51 FR 44652, 44654 (December 11, 1986). Additionally, the

proposition of tracing benefits to specific entries of merchandise is

not practicable. Where a firm receives a grant in December, for

example, the benefit from that grant is still applied to entries

throughout the year, including those entries made prior to the receipt

of the grant. See, e.g., Final Affirmative Countervailing Duty

Determinations; Certain Carbon Steel Products from France, 47 FR 39332,

39343 (September 7, 1982):

We compute benefits received by a firm during a period of time

(in this case the [1981] calendar year) and apply them to the total

value of sales for the same period. We do not make adjustments for

the fact that a particular benefit was received earlier or later in

the year for which we are measuring subsidization. Throughout these

steel determinations we have not tied any subsidy to any time period

shorter than a year. * * * Any other approach would not only be

unnecessary as a matter of law, it would be administratively

impossible, given the information and the time available.

See, also, Final Affirmative Countervailing Duty Determination; Certain

Agricultural Tillage Tools From Brazil, 50 FR 34525, 34534 (August 26,

1985).

Similarly, where a loan is repaid in the middle of a respondent's

accounting year, the Department applies the allocated benefit amount

from that loan to all entries during that year. Accordingly, we have

included allocated benefits from the grant equivalent calculated for La

Molisana's Sabatini loan in our calculation of La Molisana's subsidy

rate for calendar year 1995.

Comment 6: Calculation of Benefit for Industrial Development Grant

Received in 1996

La Molisana comments that the Department erred when it calculated a

benefit in 1995 from an Industrial Development Grant that was not

received until 1996. La Molisana notes that this error can be corrected

by excluding the benefit amount calculated for 1995 from the

calculation of La Molisana's subsidy rate for that year.

The petitioners argue that the Department did not err in its

calculation of the benefit amount, but erred in allocating the benefit

for 1996 to 1995. The petitioners argue that the Department should not

delete the 1995 benefit amount as suggested by La Molisana, but should

apply this amount to 1996 instead of 1995. The petitioners argue that

applying the smaller amount of benefit for 1996 shown in the

preliminary calculations would result in an understatement of the

benefit for 1996.

Department's Position: We agree with La Molisana that we erred in

our calculations by applying a benefit to 1995 sales for a grant that

was received in 1996. Contrary to the petitioners' assertion, we had

correctly calculated the 1996 benefit amount, although this amount has

changed slightly due to the change in the discount rate, as described

in the Benchmarks for Long-term Loans and Discount Rates section of

this notice, supra.

Final Results of Review

In accordance with 19 CFR 351.221(b)(4)(i), we calculated an

individual subsidy rate for each producer/exporter subject to this

administrative review. For the periods October 17, 1995, through

December 31, 1995, January 1, 1996, through February 13, 1996, and July

24, 1996, through December 31, 1996, we determine the net subsidy rates

for producers/exporters under review to be those specified in the chart

shown below. (In

[[Page 43912]]

accordance with section 703(d) of the Act, countervailing duties will

not be assessed on entries made during the period February 14, 1996,

through July 23, 1996.)

Ad Valorem Rate

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

01/01/96 to 02/

10/17/95 to 12/ 13/96 and 07/

Producer/exporter 31/95 24/96 to 12/31/

96

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

Delverde, S.r.L......................... 5.09 4.88

La Molisana Alimentari S.p.A............ 2.83 2.73

Tamma Industrie Alimentari di

Capitanata, S.r.L...................... 5.09 4.88

Petrini S.p.A........................... 2.27 0.00

Audisio Industrie Alimentari S.r.L...... 7.78 0.00

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

We will instruct Customs to assess countervailing duties as

indicated above. The Department will also instruct Customs to collect

cash deposits of estimated countervailing duties in the percentage

detailed above of the f.o.b. invoice prices on all shipments of the

subject merchandise from the producers/exporters under review, entered,

or withdrawn from warehouse, for consumption on or after the date of

publication of the final results of this administrative review.

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

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

investigated and reviewed companies, the procedures for establishing

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

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

provided for in section 777A(e)(2)(B) of the Act. Requested reviews

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

351.213(b). Pursuant to 19 CFR 351.212(c), for all companies for which

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

rate in effect at the time of entry of the subject merchandise and cash

deposits must continue to be collected at the previously ordered rate.

As such, the countervailing duty cash deposit rate applicable to a

company can no longer change, except pursuant to a request for a review

of that company. See, Federal-Mogul Corporation and The Torrington

Company v. United States, 822 F.Supp. 782 (CIT 1993) and Floral Trade

Council v. United States, 822 F.Supp. 766 (CIT 1993) (interpreting 19

CFR 353.22(e), the antidumping regulation on automatic assessment,

which is identical to 19 CFR 355.22(g), the predecessor to 19 CFR

351.212(c)). Therefore, the cash deposit rates for all companies except

those covered by this review will be unchanged by the results of this

review.

We will instruct Customs to continue to collect cash deposits for

non-reviewed companies, except Barilla G. e R. F.lli S.p.A. (Barilla)

and Gruppo Agricoltura Sana S.r.L. (Gruppo) (which were excluded from

the order during the investigation), at the most recent company-

specific or country-wide rate applicable to the company. Accordingly,

the cash deposit rates that will be applied to non-reviewed companies

covered by this order are those established in the Notice of

Countervailing Duty Order and Amended Final Affirmative Countervailing

Duty Determination: Certain Pasta from Italy (61 FR 38544, July 24,

1996), the most recently published countervailing duty rates for

companies not reviewed in this administrative review. These rates shall

apply to all non-reviewed companies until a review of a company

assigned these rates is completed. In addition, for the periods from

October 17, 1995, through February 13, 1996, and from July 24, 1996,

through December 31, 1996, the assessment rates applicable to all non-

reviewed companies covered by this order is the cash deposit rate in

effect at the time of entry, except for Barilla and Gruppo (which were

excluded from the order during the original investigation).

This notice serves as a reminder to parties subject to

administrative protective order (APO) of their responsibility

concerning the disposition of proprietary information disclosed under

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

return or destruction of APO materials or conversion to judicial

protective order is hereby requested. Failure to comply with the

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

This administrative review and notice are in accordance with

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

Dated: August 7, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-22063 Filed 8-14-98; 8:45 am]

BILLING CODE 3510-DS-P