Certain Pasta From Italy: Preliminary Results of New Shipper Countervailing Duty Administrative Review

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-819]

Certain Pasta From Italy: Preliminary Results of New Shipper

Countervailing Duty Administrative Review

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

ACTION: Notice of Preliminary Results of New Shipper Countervailing

Duty Administrative Review.

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SUMMARY: The Department of Commerce is conducting a new shipper

administrative review of the countervailing duty order on certain pasta

from Italy. We preliminarily determine the net subsidy to be 1.14

percent ad valorem for CO.R.EX. S.r.L. for the period January 1, 1997

through December 31, 1997. If the final results remain the same as

these preliminary results, we will instruct the U.S. Customs Service to

assess countervailing duties as detailed in the Preliminary Results of

Review section of this notice.

Interested parties are invited to comment on these preliminary

results.

EFFECTIVE DATE: September 1, 1998.

FOR FURTHER INFORMATION CONTACT: Javier Barrientos, Todd Hansen, or

Vincent Kane, Office of AD/CVD Enforcement, Group I, Import

Administration, U.S. Department of Commerce, Room 3099, 14th Street and

Constitution Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-

4207, 482-1276, or 482-2815, 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.

All other references are to the Department of Commerce's (the

Department) 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 23, 1996, the Department published in the Federal Register

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

Italy.

On January 16, 1998, the Department received a request from

CO.R.EX. S.r.L. (``CO.R.EX.'') for a new shipper review of the

countervailing duty order on certain pasta from Italy pursuant to

section 751(a)(2)(B) of the Tariff Act of 1930, as amended (``the

Act''), and in accordance with 19 CFR 351.214(b) of the Department's

regulations.

On February 25, 1998, we initiated a new shipper review for the

period January 1, 1997 through December 31, 1997 (63 FR 10590). The

review covers an exporter of the subject merchandise, CO.R.EX., and

CO.R.EX.'s subcontractor. (CO.R.EX. does not produce pasta but has a

subcontractor produce pasta for it from semolina supplied by CO.R.EX.)

Also, this review covers 24 programs.

Responses from CO.R.EX. and its subcontractor were received on

April 20, 1998, and supplementary responses were received on May 29,

June 16, and August 14, 1998.

Scope of the 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

[[Page 46412]]

certificate issued by the Instituto 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

orders. (See July 30, 1998 letter from Susan H. Kuhbach, Acting Deputy

Assistant Secretary for Import Administration to Barbara P. Sidari,

Vice President, Joseph A. Sidari Company, Inc.)

Period of Review

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

is calendar year 1997.

Subsidies Valuation Information

Benchmark for Long-term Loans and Discount Rate: The companies

under review did not take out any 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 investigation were given. In the Final

Affirmative Countervailing Duty Determination; Certain Stainless Steel

Wire Rod from Italy, 63 FR 87,077 (July 29, 1998), the Department

determined, based on information gathered during verification, that the

Italian ABI prime rate is the most suitable benchmark for long-term

financing to Italian companies. Therefore, we used the Italian ABI

prime rate increased by the average spread over the ABI prime rate

charged by banks on loans to commercial customers as the benchmark for

long-term loans and the discount rate.

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

F.Supp. 1254, 1289 (CIT 1955), 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 nonrecurring 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). Accordingly, the Department has applied this method to

determine the appropriate allocation period in this review.

Consistent with our approach in the investigation segment of this

proceeding, Final Affirmative Countervailing Duty Determination:

Certain Pasta (``Pasta'') from Italy (61 FR 30288, June 14, 1996)

(``Pasta from Italy''), we determined that the Law 64/86 grant received

by CO.R.EX.'s subcontractor was non-recurring. For purposes of

allocating the Law 64/86 grant, CO.R.EX.'s subcontractor submitted an

AUL calculation based on depreciation and asset values of productive

assets reported in its financial statements. This 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. In this manner, an AUL of 22

years was calculated for CO.R.EX.'s subcontractor. We have used this

calculated AUL for the allocation period for the Law 64/86 industrial

development grant, the only non-recurring subsidy received by

respondents.

I. Programs Previously Determined to Confer Subsidies

A. Industrial Development Grants Under Law 64/86

Law 64/86 provided assistance to promote industrial development in

the Mezzogiorno. Grants were awarded to companies constructing new

plants or expanding or modernizing existing plants. Pasta companies

were eligible for grants to expand existing plants but not to establish

new plants, because the market for pasta was deemed close to being

saturated. Grants were made only after a private credit institution

chosen by the applicant made a positive assessment of the project.

In 1992, the Italian Parliament decided to abrogate Law 64/86. This

decision became effective in 1993. Projects approved prior to 1993,

however, were authorized to receive grant amounts after 1993.

CO.R.EX.'s subcontractor benefitted from an industrial development

grant during the POR.

In Pasta from Italy, the Department determined that these grants

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

of the Act. They provided a direct transfer of funds from the

Government of Italy (GOI), bestowing a benefit in the amount of the

grant. Also, these grants were found to be regionally specific within

the meaning of section 771(5A). In this new shipper review, neither the

GOI nor the responding companies provided new information which would

warrant reconsideration of this determination.

In Pasta from Italy, the Department treated these grants as ``non-

recurring'' based on the analysis set forth in the Allocation section

of the GIA, 58 FR at 37225. In the current new shipper review, we have

found no reason to depart from this treatment.

In accordance with our past practice, we have allocated the grant,

which exceeded 0.5 percent of sales in the year of receipt, over time.

(See GIA at 58 FR 37226.)

To calculate the countervailable subsidy, we used our standard

grant methodology. We divided the benefit attributable to CO.R.EX.'s

subcontractor in the POR by its pasta sales. We then attributed a

portion of this subsidy to CO.R.EX.'s sales of pasta based on

processing fees paid by CO.R.EX to its subcontractor. Thus, we

determine the countervailable subsidy for this program to be 0.18

percent ad valorem in the POR for CO.R.EX.

B. Social Security Reductions and Exemptions

1. Sgravi Benefits

Pursuant to Law 1089 of October 25, 1968, companies located in the

Mezzogiorno were granted a 10 percent reduction in social security

contributions for all employees on the payroll as of September 1, 1968,

as well as those hired thereafter. Subsequent laws authorized companies

located in the Mezzogiorno to take additional reductions in social

security contributions for employees hired during later periods,

provided that the new hires represented a net increase in the

employment level of the company. The additional reductions ranged from

10 to 20 percentage points. Further, for employees hired during the

period July 1, 1976 to November 30, 1991, companies located in the

Mezzogiorno were granted a full exemption from social security

contributions for a period

[[Page 46413]]

of 10 years, provided that employment levels showed an increase over a

base period.

CO.R.EX.'s subcontractor received Sgravi reductions and exemptions

during the POR.

In Pasta from Italy, the Department determined that the social

security reductions and exemptions were countervailable subsidies

within the meaning of section 771(5) of the Act. They represented

revenue foregone by the GOI and they conferred a benefit in the amount

of the savings received by the companies. Also, they were found to be

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

to companies located in the Mezzogiorno. In this review, neither the

GOI nor the responding companies provided new information which would

warrant reconsideration of this determination.

To calculate the countervailable subsidy, we divided the total

savings in social security contributions realized by CO.R.EX.'s

subcontractor during the POR by its total sales during the same period.

We then attributed a portion of this subsidy to CO.R.EX. based on

processing fees paid by CO.R.EX. to its subcontractor. On this basis,

we calculated the countervailable subsidy from this program to be 0.01

percent ad valorem in 1997 for CO.R.EX.

2. Fiscalizzazione Benefits

In addition to the Sgravi deductions described above, the GOI

provides Social Security benefits of another type, called

``Fiscalizzazione.'' Fiscalizzazione is a nationwide measure which

provides a reduction of certain social security payments related to

health care or insurance. The program provides an equivalent level of

deductions throughout Italy for contributions related to tuberculosis,

orphans, and pensions. However, the program provides a higher deduction

from contributions to the National Health Insurance system for

manufacturing enterprises located in southern Italy compared to those

located in northern Italy. During the POR, the differential was 3.00

percent of base salary.

CO.R.EX.'s subcontractor received the higher level of

Fiscalizzazione deductions available to companies located in the

Mezzogiorno during the POR.

In Pasta from Italy, the Department determined that the

Fiscalizzazione reductions were countervailable subsidies within the

meaning of section 771(5) of the Act for companies with operations in

southern Italy. They represented revenue foregone by the GOI and

conferred a benefit in the amount of the greater savings accruing to

the companies in southern Italy. In addition, they were found to be

regionally specific within the meaning of section 771(5A). In this

review, neither the GOI nor the responding companies provided new

information which would warrant reconsideration of this determination.

To calculate the countervailable subsidy, we divided the excess

Fiscalizzazione deductions realized by CO.R.EX.'s subcontractor in the

POR by its total sales. We then attributed a portion of the

subcontractor's subsidy to CO.R.EX. based on processing fees paid by

CO.R.EX. to its subcontractor. On this basis, we calculated the

countervailable subsidy from this program for CO.R.EX. to be 0.06

percent ad valorem in the POR.

3. Law 407/90 Benefits

Law 407/90 grants a two-year exemption from social security taxes

when a company hires a worker who has been previously unemployed for a

period of two years or more. A 100 percent exemption was allowed for

companies in southern Italy. However, companies located in northern

Italy received only a 50 percent exemption.

During the POR, CO.R.EX. and its subcontractor received the higher

level of Law 407 exemptions available to companies located in the

Mezzogiorno.

In Pasta from Italy, the Department determined that the 100 percent

exemption provided to companies with operations in southern Italy under

Law 407 was a countervailable subsidy within the meaning of section

771(5). The 100 percent exemption represented revenue foregone by the

GOI and conferred a benefit in the amount of the greater savings

accruing to the companies in southern Italy. In addition, it was found

to be regionally specific within the meaning of section 771(5A). In

this review, neither the GOI nor the responding companies provided new

information which would warrant reconsideration of this determination.

To calculate the countervailable subsidy rate, we divided the

amount of the Law 407 exemptions realized by CO.R.EX. in excess of the

amount available in northern Italy by CO.R.EX.'s sales. We also divided

the amount of the Law 407 exemptions realized by CO.R.EX.'s

subcontractor in the POR in excess of the amount available in northern

Italy by CO.R.EX.'s subcontractor's sales. We then attributed a portion

of the subcontractor's subsidy to CO.R.EX. based on processing fees

paid by CO.R.EX. to its subcontractor. On this basis, we calculated the

countervailable subsidy from this program to be 0.06 percent ad valorem

in the POR for CO.R.EX.

4. Law 863 Benefits

Law 863 provides for a reduction of social security payments of 25

percent for companies in northern Italy that hire employees who are

participating in a training program. Companies in southern Italy

receive a 100 percent reduction in social security payments for such

employees.

CO.R.EX.'s subcontractor received the higher level of Law 863

reductions available to companies located in the Mezzogiorno during the

POR.

In Pasta from Italy, the Department determined that the 100 percent

reduction for companies with operations in the South were

countervailable subsidies within the meaning of section 771(5) of the

Act to the extent that they exceeded the reductions for companies in

the North. They represented revenue foregone by the GOI and confer a

benefit in the amount of the greater savings accruing to the companies

in southern Italy. In addition, they are regionally specific within the

meaning of section 771(5A). In this review, neither the GOI nor the

responding companies provided new information which would warrant

reconsideration of this determination.

To calculate the countervailable subsidy, we divided the amount of

the Law 863 reductions realized by CO.R.EX.'s subcontractor during the

POR in excess of the amount available in northern Italy by its total

sales during the same period. We then attributed a portion of this

subsidy to CO.R.EX. based on processing fees paid by CO.R.EX. to its

subcontractor. On this basis, we calculated the countervailable subsidy

from this program to be 0.03 percent ad valorem in 1997 for CO.R.EX.

III. Programs Determined To Confer Subsidies in This Review

A. Debt Consolidation Law 341/95

The Ministry of Industry, in accordance with the provisions of Law

341/95, provides interest contributions on medium-term debt

consolidation loans to small- and medium-sized companies located in

depressed areas. The interest rate on these loans is set at the Bank of

Italy's reference rate with the GOI's interest contributions serving to

reduce this rate.

CO.R.EX. obtained a Law 341 loan in 1996 and received interest

contributions on the loan during the POR.

We preliminarily determine that the loan and interest contributions

under

[[Page 46414]]

Law 341 are countervailable subsidies within the meaning of section

771(5). They were a direct transfer of funds from the GOI providing a

benefit in the amount of the difference between interest paid at the

benchmark rate and interest paid by CO.R.EX. after accounting for the

GOI's interest contributions. Also, they were found to be regionally

specific within the meaning of section 771(5A).

Because the loan received by CO.R.EX. is a long-term loan with a

variable interest rate and we did not have a variable benchmark rate,

we treated it as a series of short-term loans and calculated the

interest savings during the POR to be the sum of the interest

contributions received on the loan during the POR and the difference in

interest on the loan as calculated at the reference rate and at the

benchmark rate. On this basis, we determine the countervailable subsidy

for this program to be 0.80 percent ad valorem during the POR.

IV. Programs Preliminarily Determined To Be Not Used

We preliminarily determine that CO.R.EX. and its subcontractor 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

K. Local Income Tax (ILOR) Exemptions

L. Industrial Development Loans Under Law 64/86

M. Export Marketing Grants Under Law 304/90

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

Southern Italy

O. Remission of Taxes on Export Credit Insurance under Article 33 of

Law 227/77

P. European Social Fund

Q. European Regional Development Fund

R. Export Restitution Payments

Preliminary Results of Review

For the period January 1, 1997 through December 31, 1997, we

preliminarily determine the net subsidy for CO.R.EX. to be 1.14 percent

ad valorem. If the final results of this review remain the same as

these preliminary results, the Department will instruct the U.S.

Customs Service to assess countervailing duties at this net subsidy

rate on all entries of the subject merchandise from CO.R.EX. entered on

or after January 1, 1997 and on or before December 31, 1997.

The Department also intends to instruct the U.S. Customs Service to

collect a cash deposit of estimated countervailing duties of 1.14

percent of the f.o.b. invoice value on all shipments of the subject

merchandise from CO.R.EX. entered, or withdrawn from warehouse, for

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

this new shipper review. The cash deposit rates for all other

producers/exporters remain unchanged from the last completed

administrative review (see Final Results of Countervailing Duty

Administrative Review: Certain Pasta from Italy (63 FR 35665, August

14, 1998).)

Public Comment

Parties to this proceeding may request disclosure of the

calculation methodology within five days of publication of this notice

and interested parties may request a hearing no later than 30 days

after the date of publication. Interested parties may submit written

arguments in case briefs on these preliminary results within 30 days of

the date of publication of these preliminary results. Rebuttal briefs,

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

after the time limit for filing the case brief. Parties who submit

written arguments in this proceeding are requested to submit with the

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

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

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

and rebuttal briefs must be served on interested parties in accordance

with 19 CFR 351.303(f).

Representatives of parties to the proceeding may request disclosure

of proprietary information under administrative protective order no

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

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

the case briefs are due.

The Department will publish the final results of this new shipper

review, including the results of its analysis of issues raised in any

case or rebuttal brief or at a hearing.

This administrative review and notice are in accordance with

section 751(a)(2)(B) of the Act and 19 CFR 351.214.

Dated: August 24, 1998.

Joseph A. Spetrini,

Acting Assistant Secretary for Import Administration.

[FR Doc. 98-23510 Filed 8-31-98; 8:45 am]

BILLING CODE 3510-DS-P