Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Certain Stainless Steel Wire Rod From Italy

DEPARTMENT OF COMMERCE

International Trade Administration

[C-475-821]

Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Certain Stainless Steel Wire Rod From

Italy

AGENCY: Import Administration, International Trade Administration,

Department of Commerce.

EFFECTIVE DATE: January 7, 1998.

FOR FURTHER INFORMATION CONTACT: Kelly Parkhill, Kathleen Lockard, or

Eric Greynolds, Office of CVD/AD Enforcement VI, Import Administration,

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

Avenue, N.W., Washington, D.C. 20230; telephone (202) 482-2786.

Preliminary Determination

The Department of Commerce (the Department) preliminarily

determines that countervailable subsidies are being provided to

producers and exporters of certain stainless steel wire rod from Italy:

Cogne Accai Speciali S.r.l. (CAS), Acciaierie Valbruna S.r.l.

(Valbruna) and Acciaierie di Bolzano S.p.A. (Bolzano). For information

on the estimated countervailing duty rates, please see the ``Suspension

of Liquidation'' section of this notice.

Petitioners

The petition in this investigation was filed by 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).

Case History

Since the publication of the notice of initiation in the Federal

Register, the following events have occurred. See Notice of Initiation

of Countervailing Duty Investigation: Certain Stainless Steel Wire Rod

(``SSWR'') from Italy, 62 FR 45229 (August 26, 1997) (Initiation

Notice). On September 9, 1997, we issued countervailing duty

questionnaires to the Government of Italy (GOI), the European

Commission (EC), and the producers/exporters of the subject

merchandise. On October 1, 1997, we postponed the preliminary

determination of this investigation until December 29, 1997 (62 FR

52085, October 6, 1997).

On October 2, 1997, we met with representatives of the GOI and the

EC, pursuant to Article 13 of the Agreement on Subsidies and

Countervailing Measures (SCM) . We received responses to our initial

questionnaires from the GOI, the EC, Valbruna/Bolzano, and CAS between

October 27 and November 4, 1997. Between November 10 and December 3, we

issued several supplemental questionnaires to the parties. We received

responses to these supplemental questionnaires between November 24 and

December 11, 1997. CAS also submitted additional information on its

calculation of the average useful life of assets on December 16, 1997.

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/

[[Page 810]]

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.

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 as codified at

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

27295).

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).

Alignment with Final Antidumping Duty Determination

On September 10, 1997, the petitioners submitted a letter

requesting alignment of the final determination in this investigation

with the final determination in the companion antidumping duty

investigations. In accordance with section 705(a)(1) of the Act, we are

aligning the final determination in this investigation with the final

antidumping duty determinations in the antidumping investigations of

certain stainless steel wire rod. See Initiation of Antidumping

Investigations: Stainless Steel Wire Rod From Germany, Italy, Japan,

Korea, Spain, Sweden, and Taiwan, 62 FR 45224 (August 26, 1997).

Period of Investigation

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

calendar year 1996.

Facts Available

Section 776(a)(1) of the Act requires the Department to use facts

available if ``necessary information is not available on the record.''

In three instances, information necessary to our analysis of CAS was

unavailable on the record; therefore, we have resorted to facts

available as discussed in the ``Change in Ownership'' and ``Allocation

Period'' sections below.

Company Histories

The GOI identified three producers of subject merchandise that

exported the subject merchandise to the United States during the POI:

CAS, Valbruna, and Bolzano.

CAS

In the past fifteen years, CAS has undergone several changes in

organization, name, and ownership. From 1982 to 1984, the facilities in

Aosta, where the subject merchandise is produced, were part of Nuova

Sias S.p.A., which was, in turn, wholly-owned by the GOI. From 1984 to

1987, the Aosta facilities operated under Deltasider S.p.A., a wholly-

owned subsidiary of steel producer Finsider S.p.A. Finsider S.p.A. was,

in turn, wholly-owned by the Istituto per la Ricostruzione Industriale

(IRI) of the GOI. In 1987, the Aosta operations were transferred to

Delta Cogne S.p.A., a newly-created, wholly-owned subsidiary of

Deltasider S.p.A. In 1988, IRI began the liquidation of Finsider and

its subsidiaries.

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

was also wholly-owned by IRI and the GOI. In 1989, the Aosta operations

were transferred to ILVA. In December 1989, Cogne S.r.l. was created as

a wholly-owned subsidiary of ILVA S.p.A., 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 remainder and controlling

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

exchanging shares of its own subsidiary, Bolzano. By the end of 1992,

Falck's interest in Cogne S.p.A. was dissolved, and Cogne S.p.A. again

was wholly-owned by ILVA. Based on the information we have about the

swap, we understand that neither the initial swap nor the dissolution

involved any cash transactions.

In 1991, Robles S.r.l. acquired the land and buildings, e.g. the

non-productive assets, of the Aosta facilities from Cogne S.p.A. Robles

S.r.l. was acquired by Compagnie Monegasque de Banque S.A. at the end

of 1991. In 1992, Cogne S.p.A. acquired the shares of Robles S.r.l.,

which became Cogne S.p.A.''s wholly-owned subsidiary. The name of

Robles S.r.l. was changed to Cogne Acciai Speciali, S.r.l. (CAS), later

that year.

In 1993, ILVA prepared to liquidate or privatize all of its

subsidiaries, divisions, and productive units, including Cogne S.p.A.

In preparation for the privatization, Cogne S.p.A. transferred nearly

all of the assets of the Cogne companies to CAS and assumed nearly all

of the liabilities. Concurrently, Cogne S.p.A.''s wholly-owned

subsidiary, CAS, was offered for sale in a bidding process. The sale

was advertised and open to any outside party. Three parties submitted

complete bids for CAS. GE. VAL. S.r.l.''s bid was accepted by Cogne

S.p.A. The CAS shares were transferred based on an initial cash payment

in 1993, and an additional payment in 1995. The transfer of shares also

required additional cash payments if CAS turned profits through 1998.

Cogne S.p.A. was

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later folded into ILVA, which was liquidated, in part, and merged, in

part, into IRITECNA, another IRI company. In 1995, as the result of a

merger, GE. VAL. S.r.l. became MEG S.A. (MEG). CAS has been wholly-

owned by MEG since that time.

Bolzano and Valbruna

From 1985 until 1990, Bolzano, a producer of the subject

merchandise, was a wholly-owned subsidiary of Acciaierie e Ferriere

Lombarde Falck, the main industrial company of Falck. In 1990, ILVA

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

of Bolzano by exchanging 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 dissolved, and Falck again held

virtually all of the stock in Bolzano. Falck decided to sell Bolzano

based on its company-wide strategic decision to withdraw from the steel

industry. Falck contacted Valbruna, as a potential buyer, in late 1994.

Subsequently, the parties entered into negotiations for the transfer of

Bolzano. Falck and Valbruna are both private parties. Each had a

valuation of Bolzano done by an independent international auditing

firm. The valuation studies disagreed, so a third study was

commissioned by the two parties to determine the net equity and cash

flow of Bolzano for purposes of finalizing the purchase price. Since

August 31, 1995, Bolzano has been 99.99 percent-owned by Valbruna, and

since January 1, 1996, the two companies's financial statements have

been consolidated.

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). As Valbruna owns and controls Bolzano, the

companies prepare consolidated financial statements, and both produce

the subject merchandise, we preliminarily determine that it is

appropriate to treat the two SSWR producers as a single company. We

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), appended to Certain

Steel from Austria. The methodology was subsequently upheld by the

Federal Circuit. See Saarstahl AG v. United States, 78 F.3d 1539 (Fed.

Cir. 1996); British Steel plc v. 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.

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 (November 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) (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).

None of the facts in this case indicate that the application of the GIA

methodology is inappropriate; therefore, we are applying the GIA

methodology to analyze the changes in ownership of respondent

companies, CAS and Bolzano.

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 on the record. 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 ``Company Histories'' section above,

ILVA ceased operations following the

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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 Cogne's assets to its

parent company's assets in the year of receipt of the subsidy. For the

untied subsidies provided to Finsider in 1985 and 1986, we were unable

to use an asset ratio in the year of receipt because we did not have

all of the information necessary. Therefore, in accordance with section

776 of the Act, as facts available, we used a ratio of Delta Cogne's

assets to Finsider's assets in 1987, the closest year to the year of

receipt of the untied subsidies for which we have the information. We

plan to obtain information on assets for the relevant years for our

final determination. 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 ``Company 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). In addition, neither Falck nor ILVA acquired a controlling

interest in the other's subsidiary. The companies were not

consolidated, and the interest of ILVA and Falck in each other's

subsidiary was relinquished without financial obligation (see Certain

Steel from Italy). Based on the record information about the structure

of the share exchange, we understand the swap involved no financial

transfers other than the actual shares during acquisition or

dissolution. Therefore, we do not consider it to constitute a

legitimate sale which could give rise to the repayment or

redistribution of subsidies. See, e.g., GIA, 58 FR at 37266. For the

purpose of this preliminary determination, we have not attributed any

portion of (1) ILVA's untied subsidies to Bolzano or (2) 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., 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 Lead Bar 95).

When Falck sold Bolzano to Valbruna in 1995, it 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 ILVA

held a minority interest in Bolzano.

Subsidies Valuation Information

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: As discussed in the ``Affiliated Parties''

section of this notice, we have preliminarily determined that the

relationship between Valbruna and Bolzano warrants treatment as a

single company. Therefore, we calculated a single weighted-average AUL

for Valbruna and Bolzano. Based on the information submitted by the

firms on the average useful life of their non-renewable physical

assets, we preliminarily determine that the AUL for Valbruna/Bolzano is

12 years.

CAS: When we evaluated the information initially submitted by CAS

regarding its non-renewable physical assets, we found that the AUL

calculation included figures which could not be explained by the

company's submitted financial information. It appeared that the AUL

calculated by CAS was distorted by the asset valuation methodology

employed by the company in 1989 and 1993. In addition, it appeared that

CAS's calculated depreciation for 1994 through 1996 reflected the

remaining useful life of assets instead of the actual useful life of

assets, which could have resulted in further distortions. We provided

CAS with a detailed list of questions to ascertain and clarify the

source of the discrepancies. On December 16, 1997, CAS submitted

additional information on its AUL. Based on our examination of this

information and the other information on the record, we concluded that

the company's asset valuation methodology in 1989 and use of

accelerated depreciation from 1994 through 1996 results in a

calculation that does not reflect a reasonable estimate of the average

useful life of non-renewable physical assets. Accordingly, based on the

information available, we conclude that CAS's reported AUL cannot be

used for purposes of allocating non-recurring subsidies over time.

We then examined the GOI's tax depreciation schedule for the steel

sector in Italy to determine whether it reflected average useful life

of the Italian steel companies and, therefore, could be used as a basis

for CAS's allocation period. According to the GOI, the depreciation

schedule was based on information acquired from an industry survey

conducted in 1988. The depreciation schedule had a 17.5 percent

depreciation rate for heavy machinery and automated equipment in the

steel industry, which would result in an AUL of approximately 6 years.

We asked the GOI to provide the survey and calculations used to

determine these rates, but the GOI was unable to provide the survey in

time for this preliminary determination. Therefore, we could not

examine the information contained in the survey to determine whether

the depreciation schedule could serve as a reasonable surrogate for

CAS's

[[Page 813]]

allocation period. We plan to examine this study further to determine

if it reflects the average useful life of assets for the steel industry

in Italy, and may be used as a surrogate for CAS's AUL for the final

determination. However, for purposes of this preliminary determination,

we do not consider it appropriate to use the tax depreciation schedule

of approximately six years as the allocation period, when the AUL for

another producer of the subject merchandise is 12 years. Because there

are only a few producers of the subject merchandise in Italy, we find

that the AUL calculated by Valbruna/Bolzano is more appropriately

representative of the SSWR industry. Therefore, as facts available

under section 776 of the Act, we preliminarily determine that using

Valbruna/Bolzano's allocation period of 12 years is appropriate as the

allocation period of non-recurring subsidies. See Memorandum to the

File Regarding CAS's AUL Calculation, dated December 29, 1997, on file

in the Central Records Unit of the Department of Commerce, Room B-099

(CRU).

Equityworthiness

In analyzing whether a company is equityworthy, the Department

considers whether that company could have attracted investment capital

from a reasonable private investor in the year of the government equity

infusion, based on information available at that time. In this regard,

the Department has consistently stated that a key factor for a company

in attracting investment capital is its ability to generate a

reasonable return on investment within a reasonable period of time.

In making an equityworthiness determination, the Department

examines the following factors, among others:

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

calculated from that firm's financial statements and accounts;

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

economic forecasts, and projects or loan appraisals;

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

government equity infusion;

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

5. Prospects in the marketplace for the product under

consideration.

For a more detailed discussion of the Department's equityworthiness

criteria, see the GIA, 58 FR at 37244.

The Department initiated an investigation of ILVA's

equityworthiness for the periods 1982 through 1988, and 1991 through

1993.1 ILVA has previously been found to be unequityworthy

from 1985 through 1988 and from 1991 through 1992 (see Initiation

Notice Certain Steel from Italy and Final Affirmative Countervailing

Duty Determination: Grain-Oriented Electrical Steel from Italy, 59 FR

18357 (April 18, 1994) (Electrical Steel)). No new information has been

provided in this investigation that would cause us to reconsider these

determinations.

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\1\ As discussed in the ``Allocation Period'' section of this

notice, the Department has determined the appropriate allocation

period for non-recurring subsidies received by CAS to be 12 years.

Therefore, we are not examining ILVA's equityworthiness prior to

1985.

In Electrical Steel, we treated equity infusions given to ILVA

in 1991 and 1992 as interest free loans because they were

provisional until approved by the EC (the approval was granted in

1993). In this investigation, we determined that the benefit streams

from these equity infusions begin in the years they were received,

thus, we examined ILVA's equityworthiness in 1991 and 1992; we have

not examined ILVA's equityworthiness in 1993.

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Equity Methodology

In measuring the benefit from a government equity infusion to an

unequityworthy company, the Department compares the price paid by the

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

exists, i.e., the price of publicly traded shares of the company's

stock or an infusion by a private investor at the time of the

government's infusion (the latter may not always constitute a proper

benchmark based on the specific circumstances in a particular case).

In this investigation, a market benchmark does not exist.

Therefore, the Department is following the methodology described in the

GIA, 58 FR at 37239. See also 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.

Using the grant methodology for equity infusions into an unequityworthy

company is based on the premise that an unequityworthiness finding by

the Department is tantamount to saying that the company could not have

attracted investment capital from a reasonable investor in the infusion

year based on the available information.

Creditworthiness

As stated in our Notice of Initiation (62 FR 45529), we initiated

an investigation of ILVA's creditworthiness from 1982 through 1994,

CAS's creditworthiness from 1994 through 1996, Falck's creditworthiness

from 1992 through 1994, and Bolzano's creditworthiness from 1995

through 1996, to the extent that government equity infusions, long-term

loans, or loan guarantees were provided in those years.2

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\2\ As discussed in the ``Allocation Period'' section of this

notice, the Department has determined the appropriate allocation

period for non-recurring subsidies received by CAS and Valbruna/

Bolzano to be 12 years. Therefore, we have not examined the

creditworthiness of any company prior to 1985. In addition, because

CAS was privatized on December 31, 1993, we have not examined ILVA's

creditworthiness in 1994.

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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. If a

company receives comparable long-term financing from commercial

sources, that company will normally be considered creditworthy. In the

absence of comparable commercial borrowings, the Department examines

the following factors, among others, to determine whether or not a firm

is creditworthy:

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

calculated from that firm's financial statements and accounts.

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

fixed financial obligations with its cash flow.

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

economic forecasts, and projects or loan appraisals.

For a more detailed discussion of the Department's creditworthiness

criteria, see, e.g., Final Affirmative Countervailing Duty

Determinations: Certain Steel Products from France, 58 FR 37304 (July

9, 1993) (Certain Steel from France); and Final Affirmative

Countervailing Duty Determinations: Certain Steel Products from the

United Kingdom, 58 FR 37393 (July 9, 1993).

CAS

ILVA, CAS's former parent company was determined to be

uncreditworthy from 1985 through 1992 in Electrical Steel. No new

information has been presented in this investigation that would lead us

to reconsider this finding. Therefore, we continue to find ILVA

uncreditworthy from 1985 through 1992. In order to determine whether

ILVA was uncreditworthy in 1993, in accordance with the Department's

past practice, we examined financial data for the prior three years.

See, e.g., Certain Steel from France, 58 FR at 37306. In the years

relevant to this finding, ILVA consistently had negative operating

profits, poor cash flow, and difficulty in meeting its short-term

liabilities as indicated by its financial ratios. See

[[Page 814]]

``Creditworthiness Memorandum,'' dated December 29, 1997, on file in

the CRU (Creditworthiness Memo).

CAS did not receive equity infusions, grants, long-term loans, or

loan guarantees in 1994 and 1995. Therefore, we are not examining CAS's

creditworthiness in those years. To determine CAS's creditworthiness in

1996, in accordance with the Department's practice, we analyzed

financial data for the prior three years provided by CAS. As a result

of the debt forgiveness associated with the company's privatization in

1993, the company's poor financial condition improved significantly

over the next two years. Although CAS incurred large losses in 1993,

the company was profitable in 1994 and 1995 and its financial ratios in

those years were at acceptable levels. Therefore, we preliminarily

determine CAS to be creditworthy in 1996. See Creditworthiness Memo.

Bolzano

Falck, Bolzano's former parent company, did not receive equity

infusions, long-term loans or loan guarantees from 1992 through 1994.

Bolzano did not receive equity infusions, loans or loan guarantees in

1995 or 1996. Therefore, we are not examining either Falck's or

Bolzano's creditworthiness in this investigation. See Creditworthiness

Memo.

Discount Rates

We used as the discount rate the average long-term loan rate

available in Italy, based upon a survey of 114 Italian banks reported

by the Banca D'Italia, the central bank of Italy, since the GOI does

not maintain information on the national average long-term fixed

interest rate or the highest long-term fixed interest rate commonly

available to firms. See Electrical Steel. For any year in which a

company was uncreditworthy, we calculated the discount rates for

uncreditworthy firms following the methodology described in the GIA.

Specifically, we added to the long-term loan rate available in Italy a

risk premium of 12 percent of the Italian Bankers Association (ABI)

prime rate.

I. Programs Preliminarily Determined To Be Countervailable

Programs of the Government of Italy

A. Benefits Associated with Finsider-to-ILVA Restructuring

As discussed in the ``Company Histories'' section above, in 1988,

Finsider was liquidated, and its assets (and those of its subsidiaries

such as Delta Cogne) were transferred to the new steel holding/

operating company, ILVA S.p.A. This liquidation and asset transfer was

examined in Certain Steel from Italy and Electrical Steel, and found to

provide countervailable benefits to the production of the merchandise

subject to those investigations. Because of the complexity of the

reorganization examined in Electrical Steel, the Department focused on

the benefits specifically provided to the ILVA specialty steels

division, formerly known as Terni Accai Speciali (TAS), the producer of

subject merchandise in that investigation. In Electrical Steel, the

Department found that the reorganization transferred TAS's productive

assets to ILVA while a significant portion of the liabilities and

losses were left in TAS and were later assumed by IRI. Because both

ILVA and Finsider were wholly-owned by IRI, which was owned by the GOI,

the Department found that the transfer of assets, but not liabilities,

between the companies provided a countervailable benefit to the

specialty steels division of ILVA, and the subject merchandise, in

Electrical Steel.

In this investigation, we have a similar situation, which is

further complicated by the subsequent liquidation of ILVA. In order to

determine the countervailable benefit from the 1988/1989 restructuring,

the Department would normally focus on the liabilities left in the

shell company. However, there were significant changes in the

liabilities and assets for Delta Cogne (the Finsider subsidiary that

was liquidated) and Cogne S.r.l. (the ILVA subsidiary that was created

in 1989 and received the assets of Delta Cogne) between the two years.

We have been unable to obtain a clear picture of the circumstances of

this restructuring, in part because of the subsequent changes in

ownership of CAS, detailed in the ``Company Histories'' section above.

From the evidence on the record, it is unclear whether Delta Cogne's

liabilities were assumed, or whether they were reduced through the sale

of assets. Therefore, in this preliminary determination, we have not

focused on the distribution of liabilities between Delta Cogne and

Cogne S.r.l. Rather, we have focused on the changes in shareholders's

equity in Delta Cogne in 1988 and Cogne S.r.l. in 1989.

Under Articles 2446 and 2447 of the Italian Civil Code, companies

are required to cover their losses through net worth--share capital

plus retained earnings. The shareholder is required to subscribe to

additional shares or place the company in liquidation if the corporate

capital falls below the minimum level. As the sole shareholder of Delta

Cogne, Finsider (wholly-owned by IRI) held this obligation for Delta

Cogne. After the restructuring, ILVA (wholly-owned by IRI) held this

obligation for Cogne S.r.l. Thus, we focused on the specific losses

attributable to Delta Cogne, as shown by the changes in shareholders's

equity and losses recorded on the balance sheet of Delta Cogne in 1988

and the balance sheet of Cogne S.r.l. in 1989, the period after the

transfer. Due to the complexity of the restructuring, we have concluded

that focusing on the changes between the balance sheets of the two

Cogne companies would more accurately capture the assistance provided

to the production of the subject merchandise, instead of focusing on

the total debt forgiveness provided by IRI in connection with the

creation of ILVA (see, e.g., Electrical Steel).

In 1988, Delta Cogne's share capital was 200 billion lire, with

over 79 billion lire of losses for that year and over 90 billion lire

in losses brought forward. In 1989, Cogne S.r.l.'s share capital was

slightly above 150 billion lire with no losses for the year and none

brought forward. The difference in the value of share capital between

the two Cogne companies does not account for the losses the company had

accrued at that time. The net result is that over 120 billion lire in

losses remained with Finsider and were covered by IRI. The financial

contribution to Cogne is the amount of Delta Cogne's losses that were

covered by IRI when Cogne S.r.l. was created.

Because Cogne S.r.l. was assigned the assets of Delta Cogne but not

the losses for which the company was also responsible, its financial

position improved with the restructuring. Based on our analysis of the

distribution of assets and losses from Delta Cogne to Cogne S.r.l., we

preliminarily determine that Cogne S.r.l. received a financial

contribution within the meaning of section 771(5) of the Act, in the

amount of the losses it was not required to assume which were later

covered by the GOI through IRI. See, e.g., Certain Steel from Austria.

As restructuring benefits were provided only to the state-owned steel

sector in Italy, we find the program to be specific within the meaning

of section 771(5A)(D) of the Act.

To calculate the benefit, we treated the undistributed losses to

Cogne S.r.l. as a grant given in 1989. We further determine that the

distribution of losses is non-recurring, because the restructuring of

the Italian public steel sector required authorization from IRI, the

GOI, and the EC. We allocated this grant over 12 years as discussed in

the

[[Page 815]]

``Allocation'' section above, and applied the Department's standard

methodology for non-recurring grants. Because the company was

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

included a risk premium. We then applied the methodology described in

the ``Change in Ownership'' section of this notice. We divided the

benefit attributable to the POI by CAS's total sales during the POI. On

this basis, we preliminarily determine the countervailable subsidy to

be 4.68 percent ad valorem for CAS.

B. Equity Infusions to ILVA and Finsider

The GOI, through IRI, provided equity infusions to Finsider, ILVA's

predecessor, in 1985 and 1986. IRI also provided equity infusions to

ILVA in 1991 and 1992.

We preliminarily determine that under section 771(5)(E)(i) of the

Act, the equity infusions into Finsider in 1985 and 1986 and into ILVA

in 1991 and 1992 confer a benefit in the amount of each infusion

because the GOI investments were not consistent with the usual

investment practice 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.

As explained in the ``Subsidies Valuation Information'' section, we

have treated equity infusions into unequityworthy companies as grants

given in the year the infusion was received. We have further determined

these infusions to be non-recurring subsidies because each required a

separate authorization from ILVA's or Finsider's shareholder (IRI).

Consistent with the Department's past practice, these equity infusions

are considered to be untied subsidies and, as such, benefit all of the

company's domestic production (see, e.g., Steel Wire Rod from Canada,

and UK Lead Bar 95). Since CAS has been privatized, we followed the

methodology outlined in the ``Change in Ownership'' section above to

determine the amount of each equity infusion attributable to CAS after

the privatization. Because the company was uncreditworthy in the year

of receipt, we applied a discount rate that included a risk premium. We

then divided the benefit allocated to the POI by CAS's total sales

during the POI. On this basis, we preliminarily determine the net

subsidy to be 3.58 percent ad valorem for CAS.

C. Pre-Privatization Assistance and Debt Forgiveness

As discussed in the ``Company Histories'' section above, in 1992,

Cogne S.p.A. acquired the shares of Robles S.r.l., later changing the

company's name to Cogne Acciai Speciali S.r.l. (CAS). According to the

GOI, the primary purpose in the creation of CAS was for the eventual

privatization of the Aosta facility. Initially, CAS held some of the

productive assets and the land on its books, while Cogne S.p.A. held

the remaining assets. In 1993, the land held by CAS was transferred to

Cogne S.p.A. However, from a financial perspective, the two companies

were one; assets flowed between the two without restriction.

During 1993, Cogne S.p.A. (and its owner, ILVA) decided to sell its

shares of CAS through a bidding process. According to CAS's

questionnaire response, at the same time, Cogne S.p.A. also entered

into a liquidation process, similar to a bankruptcy proceeding under

the Italian Civil Code. Concurrently, Cogne S.p.A. and ILVA entered

into negotiations with the Autonomous Region of Valle d'Aosta for the

purchase of the land and buildings of the Aosta facility (see ``Valle

d'Aosta Assistance'' below). Through this bidding process which was

finalized as of December 31, 1993, a private company bought the shares

of CAS from Cogne S.p.A. and the new owner took control of the company

in April 1994. During this entire period, production of merchandise

continued. The land and buildings were sold to the Autonomous Region of

Valle d'Aosta, which then leased them back to the now-privatized CAS.

According to the GOI questionnaire response, Cogne S.p.A. remained as a

shell company, and was later folded into ILVA; ILVA was eventually

liquidated in part and merged in part into IRITECNA, another IRI

subsidiary company.

An examination of the financial statements of Cogne S.p.A. and CAS

as of December 31, 1993, shows how the assets and liabilities were

divided between the two companies in preparation for privatization. CAS

had losses of 33 billion lire, liabilities of 161 billion lire, and 7

billion lire in share capital. Cogne S.p.A. had losses of 257 billion

lire, 411 billion worth of unaccounted liabilities, and 10 billion lire

worth of share capital. CAS received nearly all of the assets of Cogne

S.p.A. Cogne S.p.A. retained nearly all of the liabilities. These

liabilities had to be paid, assumed, or forgiven. The 1993 financial

statement of Cogne S.p.A. also indicates that the distribution of

assets and liabilities between the companies, and the consequences

thereof, was recognized by Cogne S.p.A.'s owner, ILVA: at the point of

CAS's privatization, ILVA issued a guarantee for Cogne S.p.A.'s

liabilities for 380 billion lire. Thus, we conclude that the

distribution of the assets and liabilities between CAS and Cogne S.p.A.

at the time of privatization was made with the knowledge and approval

of ILVA, Cogne's owner, and ILVA's owner, IRI. At the point of

privatization, CAS was relieved of its obligations on a significant

portion of the liabilities the Cogne companies had accrued. CAS has

stated that ILVA was forced to cover these liabilities because it was

Cogne S.p.A.'s sole shareholder and, therefore, like any sole

shareholder (government-owned or private) responsible for the

liabilities under Italian Law. However, according to the GOI, the

liabilities assumed by ILVA, were later covered by IRI. The Department

has consistently treated IRI as a government agency, and IRI's

assumption of liabilities as countervailable. See, e.g., Electrical

Steel.

Based on the information submitted, we conclude that this ultimate

assumption of Cogne S.p.A.'s liabilities by IRI was part of the 3.5

trillion lire of ILVA's debts that were covered by a GOI aid package

which was authorized by the EC. The complexity of the transactions

involved in the internal restructuring and ultimate privatization of

CAS is comparable to that of the benefits associated with Finsider-to-

ILVA restructuring program described above. Thus, instead of focusing

on the total amount of ILVA's debt forgiven or assumed by the GOI, and

finding the amount attributable to CAS, we chose to focus our analysis

on the benefits provided to CAS through the assumption of Cogne

S.p.A.'s liabilities. See, e.g., Electrical Steel, 59 FR at 18366.

In previous cases, the Department has treated forgiven liabilities

as a countervailable subsidy because the forgiven debt confers a

benefit on the production of the new entity (see, e.g., Electrical

Steel, 59 FR at 18359; Trinidad and Tobago, 62 FR at 5506). Therefore,

we preliminarily find that, in connection with the privatization of

CAS, the GOI (through IRI) provided a financial contribution, which

provides a benefit in the amount of 411 billion lire to cover the

liabilities that were not transferred to the newly privatized entity.

The pre-privatization assistance is specific under section 771(5A)(D)

of the Act because it was provided to one

[[Page 816]]

company, CAS, through ILVA and the IRI. Accordingly, we find that the

pre-privatization assistance in the form of debt forgiveness is a

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

Act.

We treat the undistributed liabilities as a grant to CAS, received

at the time of privatization. Because this grant was part of the pre-

privatization activities, and thus was a one-time occurrence, we find

that this assistance is non-recurring. To calculate the benefit, we

applied the Department's standard non-recurring grant methodology, set

forth in the ``Allocation'' section of the GIA. Because the company was

uncreditworthy in 1993, we applied a discount rate that included a risk

premium. We also applied the methodology described in the ``Change in

Ownership'' section above. We then divided the benefit allocated to the

POI by CAS's total sales. On this basis, we preliminarily determine the

countervailable subsidy to be 21.28 percent ad valorem for CAS.

Petitioners also alleged that CAS was provided with a restructuring

fund at the time of privatization that provided countervailable

assistance to the company. According to CAS and the GOI, when CAS was

privatized it was given a restructuring fund of 105 billion lire to

cover the approximately 33 billion lire in losses that were transferred

with the company, and for other costs associated with the transfer. The

restructuring fund was created from an additional transfer of assets to

CAS from Cogne S.p.A. just prior to privatization. We found no

indication of capital infusions by ILVA, IRI, or the GOI before this

restructuring fund was established. We preliminarily determine that any

benefit from this restructuring fund has been captured by

countervailing the net liabilities left in Cogne S.p.A., because the

net liabilities left in Cogne, S.p.A. would have been reduced if the

restructuring fund had not been transferred to CAS. Therefore, we

preliminarily determine that the restructuring fund is already

accounted for in the assumption of liabilities discussed above.

D. 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). This program was examined and found countervailable

in Certain Steel from Italy (58 FR at 37332-3), based on the

availability of benefits only to the private steel sector. No new

information or evidence of changed circumstances has been submitted in

this proceeding to warrant reconsideration of this finding.

Valbruna received payments for capacity reduction in 1985 and 1986.

Falck received payments in 1985. These payments were determined to be

non-recurring grants. Id. 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. We then 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 preliminarily determine the countervailable subsidy

to be 0.12 percent ad valorem for Valbruna/Bolzano.

E. 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 the guarantee. Under the program, loan

payments are calculated based on the lira-foreign currency exchange

rate in effect at the time the loan was approved. The program

establishes a floor and ceiling for exchange rate fluctuations,

limiting the maximum fluctuation a borrower would face to two percent.

If the lire depreciated against the foreign currency, the MOT paid the

difference between the ceiling rate and the actual rate. If the lire

appreciated against the foreign currency, the MOT 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 Final Affirmative Countervailing Duty

Determination: Small Diameter Circular Seamless Carbon and Alloy Steel

Standard, Line and Pressure Pipe (``Seamless Pipe'') from Italy, 60 FR

31992, 31996 (June 19, 1995). 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 to the extent that the lire 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. We

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

preliminarily determine the countervailable subsidy to be 0.08 percent

ad valorem for Valbruna/Bolzano.

F. Law 227/77 Export Loans and Remission of Taxes

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 an Italian or foreign 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.

Interest payments are assessed on an annual basis, with contributions

made by the Mediocredito every six months. In order to obtain the

interest subsidy,

[[Page 817]]

an application which includes the export supply contract and the

commercial loan agreement must be submitted to the Mediocredito. Upon

approval, Mediocredito notifies the borrower of the new terms and

conditions.

The export credit financing under Law 227/77 provides a financial

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

confers a benefit in the amount of Mediocredito's interest

contribution. The Department's practice is to treat export loan

programs, through which the government provides a benefit to the

foreign importer, the same as programs that provide benefits directly

to the exporter. See e.g., Final Affirmative Countervailing Duty

Determination: Steel Wheels from Brazil, 54 FR 15523 (April 18, 1989)

and Porcelain-on-Steel Cookingware from Mexico: Final Results of

Countervailing Administrative Review, 56 FR 26064 (June 6, 1991). The

contribution is made in connection with the exportation of the

merchandise and provides a direct benefit to the production and

distribution of products. We also find that Law 227/77 export financing

is specific under 771(5A)(B) because it is provided solely to finance

exports. Therefore, we preliminarily determine that Law 227/77 export

financing constitutes a countervailable subsidy within the meaning of

section 771(5) of the Act.

The GOI reported that under Law 227/77, ``[i]nterest subsidies are

provided within the guidelines of the international agreement OECD

Consensus'' and as such would qualify for an Item (k) exemption (GOI

October 28, 1997, Questionnaire Response, on file in the CRU). Annex I

to the WTO Agreement on Subsidies and Countervailing Measures contains

the Illustrative List of prohibited export subsidies. Item (k) of Annex

1 states that certain export financing programs are not considered to

be prohibited export subsidies if certain conditions are met, namely,

``* * * if a Member is a party to an international undertaking on

official export credits * * * or if in practice, a Member applies the

interest rate provisions of the relevant undertaking * * * .''

We are aware of the exemption under Item (k); however, we are

unable to determine whether the interest rate available under Law 227/

77 conforms with the OECD guidelines. We are countervailing the

assistance provided by this program in accordance with our benefit-to-

recipient standard (see SAA at 928) and will continue to examine this

issue for the final determination.

CAS and Bolzano did not use this program. 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 order to obtain Law 227/77 export financing, a company must have

already obtained a commercial loan. Thus, a company does not know at

the time it takes out the commercial loan whether it will receive the

reduced interest rate available under Law 227/77. Therefore, we

consider these interest contributions to be grants. Because Law 227/77

provides on-going interest contributions over the life of the loan, we

find that it provides recurring grants. See GIA. We divided the total

amount paid by the Mediocredito on the Valmix loan during the POI by

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

we preliminarily determine the countervailable subsidy to be 0.15

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 ``Company Histories'' section above, in 1993,

the GOI privatized CAS. While the company operations were sold in a

bidding process to the company's present owners, the land and buildings

were sold to the Autonomous Region of Valle d'Aosta. The Regional

Council of Valle d'Aosta, under Regional Law 4 of January 26, 1993,

authorized negotiations with the ILVA Group for the acquisition of the

property and buildings, including the hydroelectric plants which were

the property of ILVA Centrali Elettrische S.p.A. (ICE). This ``urgent''

law also outlined a plan for the Region to reclaim and recover the

environmental condition of the industrial area of Cogne. As also stated

in the law, a fundamental goal was ``to enhance the industrial

activities of `Cogne S.p.A.' in order to ensure adequate employment

levels.''

Protocol agreements for the triangular transaction were signed by

the Region, ILVA, and GE. VAL. S.r.l., the purchaser of CAS's shares

(now MEG), on November 19, 1993. The Region, through its wholly-owned

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

land, including the ICE hydroelectric plants 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 in accordance with a third-party estimate, and (4) to supply

electricity directly to CAS from the ICE plants. These commitments were

conditional upon ILVA entering into a contract with a private party for

the transfer of CAS by December 31, 1993, and transferring CAS with a

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

vacate and abandon areas of the property not used in production

activity and (2) to guarantee that at least 800 employees would be

employed by CAS after 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 section 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 goods or services, a benefit is

normally conferred if the goods or services are provided for less than

adequate remuneration, or, in the case of the government acquiring

goods, for more than adequate remuneration. The adequacy of

remuneration is normally determined in relation to prevailing market

conditions for the good or service provided in the country of

exportation. Section 771(5)(E) of the Act states, ``[p]revailing market

conditions 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

purchaser of the good or service 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 (e.g., private

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

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

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 (October 22,

1997) (German Wire Rod) at 54994.

[[Page 818]]

In order to determine whether Valle d'Aosta acquired the Cogne

industrial area for more than adequate remuneration, we would normally

have compared this acquisition to a similar market transaction, e.g., a

comparable sale of commercial real estate. The Autonomous Region of

Valle d'Aosta provided information on the market for industrial land

within its borders. The Region indicated that because of the location

and terrain of its land, there is very little viable industrial

property. The Region reported that it has purchased other industrial

areas, but that the largest was only 12 hectares, in comparison to the

100 hectares of the Cogne industrial site. Therefore, we understand

that there are no private purchases of industrial sites comparable in

size to the Cogne industrial property that are representative of the

prevailing market conditions by which to assess the adequacy of

remuneration for the purchase of the Cogne industrial site. We also

found no information about any other market transactions that could

serve as an appropriate benchmark in determining the adequacy of

remuneration.

We next turned to the actual purchase price for the site to examine

whether this price was determined in reference to market principles.

The acquisition price that the Region paid for the Cogne industrial

site was determined by a third-party study, undertaken by a private

firm. We examined a copy of this study provided by the Region. At the

Region's request, the Descriptive Report provided by American Appraisal

Italia S.r.l., presented estimated purchase prices for the Cogne

industrial site based on valuation of the land and buildings contained

in the area. The appraisal included a detailed inventory of the many

buildings and structures on the property, which could continue to be

used, and the costs involved to destroy the others. The study was

conducted in reference to market-based principles and included a

thorough examination of the value of the property, including estimates

based on different scenarios for the future use of the property. We

understand that this appraisal was used by the parties in their

negotiations. Based on our examination, we conclude that the prices

contained in the Appraisal are a reasonable benchmark for determining

whether the price paid by the Region was determined in reference to

market conditions. Because the price paid for the Cogne industrial area

was not more than the estimates, we preliminarily determine that the

Autonomous Region of Valle d'Aosta did not acquire the site for more

than adequate remuneration. Therefore, we preliminarily determine that

the 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 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 prevailing market conditions for the good or

service provided in the country of exportation. Section 771(5)(E) of

the Act states, ``[p]revailing market conditions 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 country or within the area where the respondent is

located. In these situations, there may be no alternative market prices

available in the country (e.g., private prices, competitively-bid

prices, or other types of market reference prices). Hence, it becomes

necessary to examine other options for determining whether the good has

been provided for less than adequate remuneration. 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, specifically market prices, when

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

which reflects adequate remuneration.

The Region agreed in the 1993 protocol agreement to lease part of

the acquired industrial site to CAS. That agreement also explains that

the Region decided to undertake the transaction, because ``* * * of the

seriousness of the general economic situation and that of the steel

industry at the present time, [the Region] has decided to intervene

with actions specifically aimed at fostering the continuation of this

activity, with the precise objective of protecting jobs * * * .'' The

landlord-tenant relationship between CAS and the Region was developed

based on the understandings and stipulations enumerated in the protocol

agreements and Regional Law No. 17 of 1994.

Until an official lease was signed between CAS and Struttura Valle

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

use of the Cogne site was governed by a lease which had been signed by

CAS and Cogne S.p.A. The protocol agreements required that this lease

be established for a transition period. The Region accepted the terms

of lease established between the two affiliated Cogne companies until

another could be negotiated. An official lease between Structure and

CAS was not signed until April 1996. The terms of the CAS-Structure

contract granted CAS a 30-year lease. The lease required CAS to vacate

certain areas and buildings between the beginning of 1995 and the end

of 1996. Under both the CAS-Cogne S.p.A. lease and the CAS-Structure

lease, the annual rent of 770 million lire was due in quarterly

deferred payments. The lease also stipulated that CAS held

responsibility for extraordinary maintenance.

We would normally evaluate the adequacy of remuneration of lease

rates in reference to an alternative market price, e.g., lease rates of

comparable commercial real estate. However, as discussed above, there

is little industrial property in Valle d'Aosta. We also understand that

there is no comparable commercially leased property in the region.

Unlike the situations examined by the Department in other cases, there

are no other leases that could possibly serve as a benchmark for

determining the adequacy of remuneration. See, e.g., German Wire Rod

and Trinidad and Tobago.

We therefore examined the Structure-CAS lease to see if its terms

appear to reflect normal market conditions. Most of the lease

provisions establish CAS's obligations to return part of the property

it formerly occupied, the time limits for the removal of its equipment,

the incentives for meeting the deadlines, and the penalties for failing

to meet these deadlines. We note that the lease includes a clause under

which CAS is entitled to a payment for vacating the agreed-upon areas

within the specified time limits. However, CAS reported that it has not

received such a payment to date. The lease also contains provisions

relating to the disposal of industrial waste because Valle d'Aosta has

not constructed the waste disposal facility discussed in the protocol

agreement. Other clauses regarding indemnity, taxes, etc., seem

comparable to those likely to be in a lease between two private

parties, and appear to reflect

[[Page 819]]

conditions that would be set for a normal commercial lease.

However, as noted in the preamble of the lease, the Structure-CAS

lease was intended to further implement the protocol agreements. The

preamble of the protocol agreements states, ``* * * the Region, which

is aware that the steel production activity carried on, at the present

time, by Cogne constitutes a very significant reality in the economic

and industrial structure of Valle d'Aosta, and is also aware of the

seriousness of the general economic situation and that of the steel

industry at the present time, has decided to intervene with actions

specifically aimed at fostering the continuation of this activity, with

the precise objective of protecting jobs * * *'' (emphasis added). The

parties specifically agreed that under the protocol agreement CAS would

maintain at least 800 employees at the facility. These goals would not

normally be included in an agreement negotiated between private

parties; a lessee would not normally be obligated to commit to a

certain employment level. Also, in response to our questions about the

return on its investment, the Region of Valle d'Aosta clarified its

goals related to the transaction, stating ``* * * it is not possible

for use [sic] to provide within this context a detailed financial

analysis of the time required to recoup the costs and the annual

estimated rate of return on the investment made by the Region at the

time the purchase was made * * * as such an analysis would not take

into account the social, environmental and urban renewal

considerations, which it should be stressed were decisive for the

decision to approve the Regional Law that authorized the purchase.'' A

private actor considering the purchase leaseback of real estate would

normally undertake a detailed financial analysis before leasing a large

piece of property. Thus, we preliminarily conclude that the

negotiations between CAS and the Autonomous Region of Valle d'Aosta

were not conducted in reference to normal market considerations.

We then turned to the terms establishing the lease rates in order

to determine whether the Region charged a lease rate that reflects an

adequate return on its investment. Because we have no market leases

with which to compare this lease, we determined that it was appropriate

to construct a reference price for the lease of the land, using

standard real estate analysis principles. See, e.g., Edward John

Golden, The Art and Science of Real Estate Investment Analysis (1980).

The type of transaction presented here is normally called a purchase

leaseback: the Region purchased the land and now leases it back to the

former owner/occupant. In evaluating a purchase leaseback, one way to

conceptualize the transaction is to think of it as an asset that is

being borrowed. In a lease, an asset is borrowed for a set period of

time and the price of the transaction is normally established based on

the value of the use of the asset over time. There are several ways to

value commercial property over time, the most conservative of which

accounts for the depreciation of the buildings. Only the value

associated with the buildings is amortized; land values are held

constant and the benchmark price reflects only the interest paid with

respect to the land.

In the instant case, the market value of the land and buildings

covered by the lease was established by the third party appraisal

discussed above. We used the purchase price for the land and buildings

currently used by CAS (not including the vacated property). We would

have adjusted for the depreciation of the buildings over time by

amortizing their value. However, because we did not have a breakdown of

the value of the land and buildings, we could not make this adjustment.

We will examine this issue further for our final determination. In

addition, we noted that according to the GOI, Italian law obligates

landlords to cover the costs of extraordinary maintenance. Under the

Structure-CAS lease, CAS was assigned the obligation to perform

extraordinary maintenance and the parties negotiated a rate which would

take those maintenance costs into consideration. Although CAS reported

costs for extraordinary maintenance during the years of the lease, we

were unable to examine fully these costs to ensure that the values

reported by CAS as extraordinary maintenance did not include work more

appropriately termed normal maintenance. In addition, we did not have

the information to calculate an adjustment to our benchmark for the

cost of extraordinary maintenance. Therefore, we did not make an

adjustment for maintenance for the preliminary determination. We will

also examine this issue for our final determination.

To determine if the lease was established consistent with market

principles, we examined the return to the Region of Valle d'Aosta on

their investment in the industrial site. Thus, we multiplied the value

of the asset, i.e., the price paid by the Region for the land and

buildings, by an interest rate that represents the return an investor

would expect to earn on an alternative investment. For this preliminary

determination, we used the average interest rate on treasury bonds as

reported by the Banca D'Italia. However, the Department normally does

not use government interest rates in benchmark calculations. See, e.g.,

Final Affirmative Countervailing Duty Determination Oil Country Tubular

Goods from Israel, 52 FR 1649 (January 15, 1987). Therefore, we will

seek a rate for the final determination that may be more indicative of

market behavior. We used this analysis to establish a benchmark for

determining whether the annual lease rate charged by the Region

reflected adequate remuneration. We compared this amount to the amount

actually paid by CAS during the POI. Based on this comparison, we found

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

investment. This finding corroborates our conclusion that the lease

terms were not established based on normal market conditions.

Therefore, we preliminarily determine that the lease was provided 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 was actually paid. The lease is specific

within the meaning of section 771(5A)(D) of the Act, because the lease

rate is limited to CAS. Therefore, we preliminarily determine that the

CAS industrial lease is 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 amount

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

this basis, we preliminarily determine the countervailable subsidy to

be 0.53 percent ad valorem for CAS.

3. Provision of Electricity. As described above, the Autonomous

Region of Valle d'Aosta also acquired the shares of ICE, the operator

of the hydroelectric plants, which is now known as Compagnia Valdostana

delle Acque S.p.A. (Valdostana), when it purchased the Cogne industrial

site. The Region planned to supply electricity directly to CAS, and had

applied to establish a consortium, with CAS as a shareholder, to sell

directly to customers instead of to ENEL, the National Electricity

Board. Petitioners alleged that this provision of electricity may

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

[[Page 820]]

However, according to Valle d'Aosta and the GOI, the application to

establish the consortium has not been approved and Valdostana has not

been permitted to supply electricity to CAS. Instead, Valdostana

continues to sell its production to the National Electricity Board,

ENEL. CAS purchases electricity from ENEL in accordance with the

standard provisions applied to other commercial electricity users in

Italy. Therefore, as Valdostana has not created a special consortium to

provide electricity to CAS, and CAS appears to obtain its electricity

through ENEL like other firms in Italy, we preliminarily find that this

program does not exist.

4. Waste Plant. As described above, Valle d'Aosta agreed to

construct a waste plant, for CAS and other users, as one of the terms

of the protocol agreements. Petitioners alleged that the construction

of the waste plant, which would have been used by CAS, constituted a

countervailable subsidy. However, Valle d'Aosta reported that the waste

plant is still in the planning stages and construction has not begun.

Also, there is no indication from information on the record that funds

have yet been expended on this facility. However, we will continue to

examine this issue for the final determination. Based on the above, we

preliminarily determine that this program does not exist.

5. Loans Provided to CAS to Transfer Its Property. In the protocol

agreements of November 1993, the Autonomous Region of Valle d'Aosta

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

involved with the transfer of CAS property off the portion of the site

not subject to the lease. After the environmental reclamation of the

land, Valle d'Aosta planned to develop facilities for small and medium-

sized enterprises on this portion of the site. Accordingly, the

Regional Council authorized this financing in Law 37 of August 30,

1995. The law authorized financing up to 25 billion lire, ``to cover

the expenses for the transfer of installations, warehouses, utilities

and offices from the area.'' See Questionnaire Response from the GOI,

dated October 28, 1997, on file in the CRU. While the financing was

discussed in the protocol agreements, we found no indication in the

appraisal, or elsewhere, that these loans were factored into the

purchase price for the land. Therefore, we are analyzing the transfer

loans as a separate subsidy event to determine whether they are

countervailable.

Finaosta provided this financing in three separate loan agreements

over 1996 and 1997 with the interest rate set at 50 percent of the

Rendistato interest rate (as published in SOLE 24 Ore) for each loan.

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

schedule was established. Each tranche received an eighteen-month,

interest-free grace period.

In accordance with ECSC procedures, the GOI notified this loan to

the EC for evaluation of whether it constituted ``State assistance'' to

CAS. In its decision of June 15, 1995, the EC determined that the loan

was not aid, but instead an indemnity to CAS. The EC found that the

total savings from the reduced interest rate, estimated at 4.6 billion

lire, was less than the cost of the transfers, 4.9 billion lire,

according to an independent estimate. The EC also stated that the

Autonomous Region of Valle d'Aosta had unilaterally terminated part of

CAS's lease (for the property to be vacated), and the loan represented

compensation for the costs associated with the partial termination of

the contract by the landlord.

Notwithstanding the EC's determination, we conclude from the facts

presented in this proceeding that the transfer loan is not an

indemnity. Pursuant to the protocol agreements, all parties agreed that

CAS would vacate part of the property before any lease was signed. The

transfer of property from part of the land was one of the conditions of

the leaseback. From the information on the record, there is no

indication that the lease, or any of the other agreed-upon

stipulations, was unilaterally terminated. In addition, according to

the protocol agreements, the Autonomous Region of Valle d'Aosta agreed

to provide ``financing'' for the costs. CAS reported that it submitted

invoices and estimates to Finaosta in order to receive each individual

loan. CAS also reported that an independent appraiser estimated the

cost of the relocation at 4.945 billion lire (see submission from CAS,

dated December 17, 1997, on file in the CRU).

Thus, we compared the interest rate provided under these loans to

the average interest rates on medium and long-term loans as established

by the GOI's survey and found that the rate provided was lower.

Therefore, through these transfer loans, the Region of Valle d'Aosta

made a financial contribution that provided a benefit to the recipient

in the difference between what CAS pays on these loans and what CAS

would pay on a comparable commercial loan. The transfer loans are de

jure specific within the meaning of section 771(5)(D) of the Act,

because their provision is limited, by law, to CAS. Therefore, we

preliminarily determine that the transfer loans are a countervailable

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

In the POI, CAS received a benefit from one of the relocation

loans. To calculate the benefit, we employed the Department's standard

long-term loan methodology. See, e.g., GIA. We divided the benefit by

the 1996 sales of CAS. On this basis, we preliminarily determine the

countervailable subsidy to be 0.37 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.

Administered by the Industry, Craft, and Energy Department (ICED), the

program was initiated in 1993. Any firm in Valle d'Aosta may apply to

the ICED to have part of its costs covered for a specific

environmentally friendly project. According to the application

procedures established by the ICED, a firm must submit a separate

application for each individual project. A technical consultant

committee appointed by the ICED evaluates each application to determine

whether the proposed project would reduce environmental pollution in

the province. Each project must receive the approval of the technical

consultant committee in order to receive funding from the Regional

Authority. Once a project is approved, the Regional Authority will

provide a grant of up to 30 percent of the cost of the project. These

grants provide a financial contribution within the meaning of section

771(5)(D)(i) of the Act.

We analyzed whether the program is specific in law (de jure

specificity), or in fact (de facto specificity), within the meaning of

section 771(5A)(D) (i) and (iii) of the Act. We examined the

eligibility criteria contained in the law, and find that the law is not

de jure specific because the enacting legislation does not explicitly

limit eligibility to an enterprise or industry or group thereof. We

then examined data on the provision of assistance under this program to

determine whether Law 64/92 meets the criteria for de facto specificity

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

program, the authorities have approved the applications of nine firms

in several different industries. 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 grants given to these

firms. CAS and a firm in the food and beverage industry received close

to two-thirds of

[[Page 821]]

the total assistance awarded, with each firm receiving approximately

one-third of the total assistance. The remaining third of the

assistance was distributed to the other seven firms. As such, CAS

received a disproportionate share of the total assistance under this

program. On this basis, we find Law 64/92 to be de facto specific

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

preliminarily determine that Law 64/92 provides a countervailable

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

CAS received funding for three projects under this law: two were

approved in 1995 and one was approved in 1996. As CAS submitted a

separate application to the regional authority for each project, we are

treating the grants received under this program as non-recurring (see

GIA). However, the total of the two grants approved in 1995 did not

exceed 0.5 percent of sales in 1995. As such, these grants would be

attributable solely to 1995 and would not be allocated over time (see

GIA). In addition, the grant approved in 1996 is also less than 0.5

percent of sales in 1996. As such, we are allocating the entire value

of this grant to the POI.

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 preliminarily 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. The Law became effective in 1987, and is

administered by the ICED. Under the provisions of the Law, funding can

only be provided to companies for participation in shows, fairs, and

exhibitions in Italy and abroad, and for participation in delegations

for commercial promotion abroad. Companies apply for funding up to 30

percent of costs for promotional activities in Italy (up to 10 million

lire) and 40 percent of the costs for 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 & Cable Fair and a grant of 12.7 million lire for participation in

the Dusseldorf Wire Fair. While neither show was held in the United

States, both included numerous U.S. participants.

Law 12/87 provides a financial contribution within the meaning of

section 771(5) 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

informational services, do not constitute countervailable subsidies.

(See, e.g., Fresh Cut Flowers from Mexico, 49 FR 15007 (1984)).

However, where such activities promoted a specific product, or provided

financial assistance to a firm, we have found the programs to

constitute export subsidies. (See, e.g., Fresh Atlantic Groundfish from

Canada, 51 FR 10041 (1986); and Fresh Cut Flowers from Israel, 52 FR

3316 (1987)). Because financial assistance under this law was provided

to CAS for the promotion of its exports, we preliminarily find 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 ongoing events (see

GIA.) Each project funded by a grant requires a separate application

and approval by the regional authority. However, the grants did not

exceed 0.5 percent of CAS's total exports in the year they were

received. Therefore, in accordance with our practice, we allocated the

entire amount of the grant 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 preliminarily 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 ``Company Histories'' section above, in 1995,

Falck sold Bolzano to Valbruna. Concurrent with the change in

ownership, Falck and Bolzano entered into negotiations to sell the

Bolzano industrial site land to the Province of Bolzano. Two pieces of

property (land and buildings) were subject to these negotiations, the

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

``Stabilimento Erre,'' owned by Immobiliare Toce, a subsidiary of

Gruppo Falck with real estate holdings. The purchase price for the

Stabilimento Sede and Stabilimento Erre, approximately 63 billion lire,

was established by the cadastral office of the Province. The Province

paid for the property in full, with funds authorized under the

Provincial Council Resolution 850 of February 20, 1995. Valbruna

entered into concurrent negotiations with the Province for a long-term

lease of the Bolzano industrial site.

1. Purchase of Bolzano 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 goods or services, a benefit is

normally conferred if the goods or services are provided for less than

adequate remuneration, or, in the case of the government acquiring

goods, for more than adequate remuneration. In assessing the adequacy

of remuneration of this transaction, we have applied the standards

discussed in the ``Purchase of the Cogne Industrial Site'' above.

In order to determine whether the Province of Bolzano acquired the

Bolzano industrial site for more than adequate remuneration, we would

normally have compared this acquisition to a similar market transaction

in the Province. Although the Province of Bolzano provided some

information on the provincial territory and market for industrial

property, like the Autonomous Region of Valle d'Aosta, there is very

little industrial property in the Province. The Province reported that

only 530 hectares are occupied by industrial firms. The Province also

reported that no other property transactions occurred around the time

that it purchased the Bolzano industrial site. Thus, we understand that

there are no private purchases of industrial sites comparable in size

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 area. As such, there is no

information on the record about other market transactions that could

serve as an appropriate benchmark in determining whether the Province

purchased the property for more than adequate remuneration.

Valbruna indicated that it had agreed to purchase the Bolzano site

at the price determined by the province, if the province and Falck were

unable to reach an agreement for the purchase of the property. While

Valbruna was a party to the series of transactions, as a private party,

its interests would not have been served by agreeing to pay an inflated

price for the property. Therefore, Valbruna can be considered an

uninterested third party for purposes of evaluating whether the price

of the property was established in reference to market conditions.

Since Valbruna agreed to pay the price determined by the cadastral

office if the province did not purchase the site, we preliminarily

determine that the price the Province of Bolzano paid was established

in accordance with normal market

[[Page 822]]

conditions. On this basis, we conclude that the Province of Bolzano did

not purchase the Bolzano industrial site for more than adequate

remuneration. Therefore, we preliminarily determine that the purchase

of the Bolzano industrial site does not constitute a subsidy within the

meaning of section 771(5) of the Act.

2. Lease of Bolzano Industrial Site. As discussed above, under

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

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

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

provided for less than adequate remuneration, or, in the case of the

government acquiring goods, for more than adequate remuneration. In

assessing the adequacy of remuneration of this lease agreement, we

applied the standards discussed in the ``Lease of the Cogne Industrial

Site'' above.

Concurrent with the sale of Bolzano and the sale of the property,

Valbruna/Bolzano began negotiations with the Province of Bolzano to

lease the Bolzano industrial site (including the Stabilimento Sede and

the Stabilimento Erre) from the Province. Valbruna/Bolzano and the

Province of Bolzano signed a thirty-year lease on July 31, 1995, for

the Bolzano industrial site.

With respect to the lease of land and buildings, adequacy of

remuneration would normally be evaluated in reference to an alternative

market price, e.g., lease rates of comparable commercial real estate.

However, as described above, there is little comparable commercial

property in the Province. We also understand that there is no

comparable commercially-leased property in the Province which could be

used to establish a benchmark to evaluate the adequacy of remuneration

in Valbruna/Bolzano's lease. The Province did provide some information

on two leases it has with other private parties, however, the amount of

property covered by these leases is much smaller than that covered by

the Valbruna/Bolzano lease, and therefore, inappropriate for comparison

purposes. Thus, there are no other leases that could possibly serve as

a benchmark for determining the adequacy of remuneration.

We therefore examined the lease for the Bolzano industrial site to

determine whether its terms reflected normal market conditions. In

general, the terms of the lease appear to reflect conditions that would

be set for a normal commercial lease. However, as discussed in the

public version of the November 4, 1997, response of the GOI (public

version on file in the CRU), the lease requires Valbruna/Bolzano to

maintain a minimum employment level of 650 employees at Bolzano. We

note that this minimum employment level requirement can be waived under

certain circumstances, such as technological improvement.

Notwithstanding the waiver provision, however, the record evidence

indicates that the Province of Bolzano intended to preserve jobs at the

Bolzano facility through this lease. Although the Province claimed that

it includes similar requirements in the leases it has offered other

parties, we do not find this clause to be indicative of normal market

considerations because such employment obligations would not normally

be included in agreements negotiated between private parties. Thus, we

preliminarily conclude that the negotiations between Valbruna/Bolzano

and the Province of Bolzano were not conducted in reference to normal

market considerations.

We then turned to the terms establishing the lease rates in order

to determine whether the Province of Bolzano charged a lease rate that

reflects adequate remuneration. Because we have no market leases with

which to compare this lease, we determined that it was appropriate to

construct a reference price for the property using standard real estate

analysis principles, as described in the ``Valle d'Aosta'' section

above. We again followed the most conservative methodology in valuing

the asset over time. In the instant case, the value of the property was

found to be equivalent to a market-determined price. We would have made

an adjustment to account for the depreciation of the buildings over

time by amortizing their value. However, as we did not have a breakdown

of the value of the land and buildings, we could not make this

adjustment. We plan to add amortization of buildings to the calculated

lease rate for the final determination.

According to the GOI, Italian law obligates landlords to cover the

cost of extraordinary maintenance. Under the lease, Valbruna/Bolzano

was assigned the obligation to perform extraordinary maintenance and

the parties negotiated a rate which would take those maintenance costs

into consideration. However, we did not have the information to

calculate an adjustment to our benchmark for the cost of extraordinary

maintenance. Therefore, we did not make such an adjustment for the

preliminary determination. We will examine this issue for our final

determination.

As described above, we used this analysis as a benchmark for

determining whether the region obtained an adequate return on its

investment, because we had no comparable market-determined leases to

use in determining the adequacy of remuneration. Thus, we multiplied

the value of the asset, i.e., the price paid by the Region for the land

and buildings, by an interest rate that represents the return an

investor would expect to earn on an alternative investment. As

described above, for this preliminary determination, we used the

average interest rate on treasury bonds as reported by the Banca

D'Italia. We used this analysis to establish a benchmark for

determining whether the annual lease rate charged by the region

reflected adequate remuneration. We compared this amount to the amount

actually paid by Valbruna/Bolzano during the POI. Based on this

comparison, we found that the Region is not receiving an adequate rate

of return on its investment. This finding corroborates our conclusion

that the lease terms were not establish based on normal market

conditions. Therefore, we preliminarily find that the lease was

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

Province of Bolzano made a financial contribution to Valbruna/Bolzano

within the meaning of section 771(5)(D) 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 was actually

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

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

Therefore, we preliminarily determine that the Bolzano industrial lease

is 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 had been

determined with reference to market conditions and the amount that

actually was paid. We divided this amount by Valbruna/Bolzano's total

sales in 1996. On this basis, we preliminarily determined the

countervailable subsidy to be 0.47 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. The GOI stated in its public version of the November 4, 1997,

response that these costs were, in fact, more than the uncollected rent

to date. However, in order to determine whether the nonpayment of rent

for the first two

[[Page 823]]

years constituted 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. Valbruna/Bolzano reported some of the projects

undertaken and their associated costs connected with this environmental

reclamation. Most of the projects undertaken by Valbruna/Bolzano in

exchange for the non-payment of rent related only to the plant and

equipment owned by the company. The Province would not have had an

obligation to undertake costs associated with plant and equipment it

did not own. We preliminarily 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.

We preliminarily determine that the lease exemption was specific

under section 771(5A)(D) of the Act because it was provided to a single

enterprise, Valbruna/Bolzano. Therefore, we preliminarily 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.

To calculate the countervailable subsidy, we treated the exemption

as a grant. Because the exemption from payment of the lease is limited

to a specific period of time, which could not be extended without

extraordinary government action, we find that it is non-recurring (see

GIA). The lease stipulates payments every six months. Therefore, we

treat each nonpayment as a non-recurring grant. There was one

nonpayment in 1995, two in 1996, and one after the POI. Because the

total amount in each year was less than 0.5 percent of Valbruna/

Bolzano's total sales in the year of receipt, we allocate the grants to

the year of receipt. Thus, we have allocated the full amount of the

grants received during 1996 to the POI, in accordance with the

Department's practice. We divided the grants received in 1996 by

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

determine the countervailable subsidy to be 0.38 percent ad valorem for

Valbruna/Bolzano.

Programs of the European Commission

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 EC 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 EC, which are then refinanced at

slightly higher interest rates than those at which the EC obtained

them.

The Department has found Article 54 loans to be specific in several

proceedings, including Electrical Steel, Certain Steel from Italy, and

UK Lead Bar 94, because loans under this program are provided only to

the iron and steel industries. 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 to

the extent that it provides loans with an interest rate less than what

the recipient would pay on a comparable commercial loan and 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.

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 with a variable interest rate on which no interest

or principal were due during the POI. Consistent with the Department's

loan methodology, the benefit would be received after the POI, and

thus, the program is not used.

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.3 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 also 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 basis, we preliminarily

determine the countervailable subsidy to be 0.02 percent ad valorem for

Valbruna/Bolzano.

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

\3\ 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.

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

II. Programs Preliminarily Determined To Be Not Countervailable

A. Law 46: Deliberazione Grants under the Technological Innovation Fund

Under the Deliberazione Law 46/82, Technological Innovation Fund

(FIT), the GOI provides grants to companies for projects that contain a

high degree of technological innovation. The program is administered

through the Ministry of Industry. Eligibility criteria were established

by the Interdepartmental Committee for Economic Planning (CIPI) in a

resolution dated March 30, 1983, and a special technical committee

evaluates all applications.

Each application must include a detailed description of the

proposed technical project, which is evaluated by the technical

committee on both its scientific and industrial merits and economic and

environmental impact. If a proposal is deemed successful, the company

will be termed ``innovative'' or ``highly innovative'' and then will

become eligible for funding at 35 percent or 50 percent, respectively.

The Ministry of Industry, acting on the opinions of the CIPI, then

issues a decree declaring a specific company and project eligible for

benefits. Through Law 46, the GOI makes a financial contribution that

provides a benefit in the form of grants or low-interest loans.

Valbruna, Bolzano, Delta Cogne (a CAS predecessor company), and Falck

received assistance under this program during the allocation periods.

We analyzed whether the program is specific in law (de jure

specificity), or in fact (de facto specificity), within the meaning of

section 771(5A)(D) (i) and (iii) of the Act. First, we examined the

eligibility criteria contained in the law. The CIPI resolutions

identified the

[[Page 824]]

following broad categories as priority sectors for eligibility and

participation in the program: automobile and automotive components,

electronics, steel, aerospace, chemicals, motorcycle, agri-food, and

environmental. Small and medium-sized enterprises from any sector are

also eligible to participate in the program. We find that the FIT

portion of Law 46/82 is not de jure specific because the enacting

legislation, by including all small and medium enterprises, does not

explicitly limit eligibility to a specific enterprise or industry or

group thereof.

We then examined data on the distribution of assistance under this

program to determine whether the Deliberazione program meets the

criteria for de facto specificity under section 771(5A)(D)(iii) of the

Act. We found Law 46 Deliberazione benefits were distributed to a large

number of firms in a wide variety of industries. The GOI also provided

information on the sector-specific provision of benefits under the

program. The electronics and chemicals industries received the largest

percent of assistance provided to any of the sectors. In addition,

``other industries'' not specifically named received a large percentage

of assistance. We found that the steel sector received 1.5 percent of

total benefits awarded, and did not receive more than 3 percent of

annual benefits awarded in any single year covered by the allocation

periods. The steel industry received far less than a number of the

other industries. Therefore, we preliminarily determine that the Law

46/82 Deliberazione program is not specific under section 771(5A)(D) of

the Act.

We sought information from the GOI to determine whether export

performance was a factor in determining eligibility for Deliberazione

benefits. The GOI responded that export performance was not an

eligibility criterion, but did indicate that a high percentage of

exports, in terms of turnover, is one of the criteria examined under

the economic impact analysis. Based on the information on the record,

we do not find that the Law 46/82 Deliberazione Fund for Technological

Innovation program meets the definition of an export subsidy within the

meaning of section 771(5A)(B) of the Act. However, we will continue to

examine whether provision of Law 46 Deliberazione assistance may be

contingent upon export performance for the final determination.

B. Law 451/94 Early Retirement Benefits

Under Article 8 of Law 451/94, the GOI authorized an early

retirement program to be implemented between 1994 and 1996. Under this

program, a maximum of 15,500 (later amended to 17,100) workers could be

retired early. Under Law 451/94, employees in the public and private

iron and steel sector become eligible for retirement at age 50 for men

and 47 for women. In order to qualify, the worker must have had 15

years of contributions to the early retirement program (under the

provisions of Decree Law 503/92) or at least 30 years of regular

contributions. The program was implemented to meet Italy's commitments

for capacity reductions under the ECSC plan for rationalization of the

iron and steel sector.

The provisions of Law 451/94 are similar to the early retirement

provisions the Department has examined in prior cases (e.g., Law 181/

89, 193/84 and 223/91 in Certain Steel from Italy and Electrical

Steel). The GOI, through the program, makes a contribution to the

retirement program to allow each participating worker to retire with a

full pension. These programs were designed to ease the collateral

impact of the steel crises, allowing workers to retire instead of

facing large numbers of layoffs.

The Department's practice with respect to early retirement and

other prepension programs is articulated in the GIA, 58 FR at 37255:

``. . . in order for worker assistance programs to be countervailable,

the company must be relieved of an obligation it would otherwise have

incurred.'' In Certain Steel from Italy, we found that because of

social unrest, companies could not layoff workers at will, thus early

retirement programs provided a countervailable benefit because they

allowed companies to reduce their payrolls. However, in Electrical

Steel, the Department reversed this finding, determining that, when a

company lays off workers, the company actually faces higher costs when

a worker uses an early retirement provision instead of a standard

severance package.

In this investigation, we examined whether Law 451/94 and similar

provisions relieved any company of obligations to its workers. Bolzano

is the only company that had workers retire under Law 451/94 during or

before the POI. According to that company and the GOI, companies are

able to lay off or fire workers at will. The obligations to those

workers are dictated by Italian Labor Law. Pursuant to Article 2120 of

the Italian Civil Code, workers are provided a minimum notice period

and severance pay of approximately one month's salary. In order to

participate in the early retirement program, workers, through the

company, must apply to the GOI for consideration. Companies must

continue to pay salaries until the applications are settled, through

the end of the month following the approval of the application.

Therefore, companies face the same, if not greater, financial

commitments to their workers under Law 451/94 as they do under Article

2120 of the Italian Civil Code which governs obligations to workers in

all industries. Accordingly, we preliminarily determine that Law 451/94

did not relieve companies of any obligation that they normally would

incur, and, as such, we preliminarily find that Law 451/94 is not

countervailable.

C. 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 For Which We Need More Information

A. Province of Bolzano Law 25/81

The Province of Bolzano established programs under Law 25/81 to aid

the commercial development of the province. In general, under this law,

the province provides grants to companies whose technical fixed assets

are below 8.5 billion lire, and targets advanced technology, energy

consumption, and ecology projects. However, there are separate and

distinct eligibility requirements set forth and benefits provided under

Article 14 of Law 25/81. Under Article 14, companies in the

manufacturing and mining sectors with at least 20 employees may qualify

for restructuring grants. Unlike funding provided under other

provisions of the law, there are no limitations on capital investment

for companies which qualify for benefits under Article 14 (and Article

22 for conversion benefits). Therefore, we find it appropriate to

examine Article 14 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). Under Article 14 of Law

25/81, the Province of Bolzano provides

[[Page 825]]

financial contributions in the form of grants and low-interest loans.

Bolzano received restructuring grants pursuant to Article 14 in the

years 1983, 1985, 1987, and 1988. It also received loans under Article

14, all of which were repaid prior to the POI. It did not receive

assistance under any other Article of this law.

We note that on July 17, 1996, the EC found in its decision

numbered 96/617/ECSC that the aid granted to Bolzano was illegal

because it was not notified to the EC, and was ``incompatible with the

common market pursuant to Article 4(c) of the ECSC treaty.'' See

October 27, 1997, response of the EC, public version on file in the

CRU. As a result, the EC ordered that all grants and loans made to

Bolzano after January 1, 1986, be repaid. According to the EC's policy,

Bolzano was not required to repay benefits conferred prior to January

1, 1986.

As discussed in the ``Company 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 EC

decide against Bolzano. Thus, the level of benefits attributable to

production of subject merchandise does not change subsequent to the

sale of Bolzano.

We analyzed whether Article 14 of Law 25/81 is specific in law (de

jure specificity), or in fact (de facto specificity), within the

meaning of section 771(5A)(D) (i) and (iii) of the Act. We examined the

eligibility criteria contained in Article 14, and found that the

Article is not de jure specific because the enacting legislation does

not explicitly limit eligibility to an enterprise or industry or group

thereof. While the Province of Bolzano provided general information on

the amount of benefits awarded per year under the entire law, we do not

have information on the distribution of benefits under Article 14 of

Law 25/81. Since we must examine distribution under Article 14 to

determine if the program is specific, it is necessary to gather

additional information from the Province of Bolzano. Therefore, for the

purposes of this preliminary determination, we do not have enough

information to evaluate whether Article 14 of Law 25/81 is specific

under the Act. However, we will continue to examine whether Article 14

of Law 25/81 assistance may be de facto specific for the final

determination.

B. European Social Fund

The European Social Fund (ESF) is one of the Structural Funds

operated by the EC. The ESF was established in 1957 to improve workers'

opportunities and raise their standards of living. It is based on

Articles 123-128, 130(a)-130(e) of the EEC Treaty. 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 employment of persons under

25, Objective 4 relates to restructuring companies, and Objective 5

relates to agricultural areas. The ESF provides funding for projects to

train workers and promote employment. While funding is ultimately

approved and provided by the EC, each Member State, in this case the

GOI, is responsible for selecting plans to submit to the Commission.

Each project must conform with the priorities and timetables approved

by the Commission. All EC funding for Italian projects is paid to the

Italian Ministry of the Treasury in ECUs. The Ministry then distributes

funding to the approved participants, including national matching

funds. Funds are distributed in three sections: one part upon approval

of the project; one part after the program has been monitored; and the

third after the conclusion of the program. Most projects last three to

five years.

While the ESF funds general employment programs around the EU,

under certain circumstances, companies may receive funding directly to

implement training programs, or to recruit new employees. When provided

to a company, the ESF provides a financial contribution to recipients

which provides a benefit to the recipient in the form of a grant.

Cogne, Valbruna, and Bolzano received ESF grants.

The Department has examined the ESF grant program in previous

investigations and found it to be regionally specific within the

meaning of section 771(5A) of the Act, because benefits have been

provided under Objectives 1, 2, or 5(b) (see, e.g., Pasta). However the

companies in this investigation received grants under Objectives 3 and

4. The EC indicated that Objectives 3 and 4 are broad initiatives that

allow participation from companies in all areas. In Pasta, however, the

Department found that only companies located in Objective 1, 2, or 5(b)

regions received funds directly under this program. Since Cogne,

Valbruna, and Bolzano are located in Objective 2 regions, the program

may still be regionally-specific. Even though the companies implemented

projects that received approval under Objective 3 and/or 4, the ESF may

have provided funds directly to these companies because of their

locations in Objective 2 regions. However, based on the information on

the record, we are unable to determine whether the companies received

funds due to their location. In addition, we were unable to obtain

information on the distribution of assistance under Objectives 3 and 4.

Therefore, we do not have enough information to make a determination on

whether the assistance provided to Cogne, Valbruna and Bolzano is

specific. We will continue to examine whether this assistance is

specific for the final determination.

IV. Programs Preliminarily Determined To Be Not Used

We preliminarily determine that the companies under investigation

did not apply for or receive benefits under the following programs

during the POI:

A. Grants for Interest Payments Under Law 193/1984

Article 3 of Law 193/1984, which came into effect on May 31, 1984,

provided grants for interest payments on medium-term loans outstanding

between January 1, 1983, and September 7, 1984 (three months after the

law came into effect). These grants reduced the rate of interest on

medium-term financing to 11 percent, with no reduction to exceed 10

percentage points. This program was available only to steel companies

with medium-term debts outstanding during the period indicated. Bolzano

received a grant for interest payments on two loans incurred during

this period; Valbruna received interest payment grants in 1985 and 1986

for payments corresponding to debts on bond issuances which were

outstanding during the eligibility period. Cogne did not receive any

grants for interest payments under this program.

Because Bolzano was aware that it would receive grants on interest

payments for loans provided after May 31, 1984, we treat Bolzano's

grants as reduced-interest loans. However, because the loans for which

Bolzano received interest payment grants were repaid in full prior to

the POI, there is no benefit attributable to the POI. Thus, Bolzano

effectively did not use this program during the POI.

At the time Valbruna made its bond issuances, the company did not

know that the GOI would provide grants for interest payments under law

193/1984. Therefore, we are treating the assistance on interest

payments on the two bond issuances as grants. Because Valbruna did not

receive the grants on an ongoing basis, the Department considers this

[[Page 826]]

program to be non-recurring and therefore employed its standard non-

recurring grant methodology (see GIA).

However the grants on interest payments Valbruna received in the

years 1985 and 1986 were less than 0.5 percent of Valbruna's total

sales in each of those years. Therefore, in accordance with the

Department's practice, these non-recurring grant amounts are allocated

to the year of receipt. Thus, Valbruna received no benefit under this

program during the POI.

B. Law 46 and 706 Grants for Capacity Reduction

Article 20 of Law 46/1982 provided capital account grants for

private steel companies that reduced their production capacity of raw,

semi-finished, or rolled steel by closing down plants which were

technologically obsolete or had marginal economic viability. The grants

provided up to 100,000 lire for every ton of raw steel capacity which

was reduced and up to 150,000 lire for every ton of semi-finished or

rolled capacity which was reduced. In Certain Steel from Italy (58 FR

37333), the Department found that capacity reduction grants under Law

46 were specific because they were available only to companies in the

private steel sector. Falck received grants in 1983 and 1984, which are

outside the 12 year allocation period we are using in this

investigation. Cogne, as a government-owned steel company, was

presumably ineligible for grants under this program. However, the

record evidence compiled in this investigation to date does not

definitively state that only the private steel sector could receive

assistance, and information on the record indicates that the GOI

provided grants to one steel company in the Valle D'Aosta, where Cogne

is located. Although, for purposes of this preliminary determination,

we have concluded that benefits under this program were not used, we

will request clarification on which company in Valle d'Aosta received

grants under this program.

Section 4 of Decree Law 706/1985 was designed to complete the steel

sector restructuring program and was a follow-on to the Law 46 capacity

reduction program. It provided capital investment grants to steel

producers which reduced production capacity by scrapping the rolling

mills and the furnaces producing long products. None of the companies

under investigation received grants under this program.

C. ECSC Article 56(2)(b) Retraining Grants

In 1994, Bolzano received a grant under the ECSC Article 56(2)(b).

This grant was referenced on a line item of its financial statements,

which led us, in part, to initiate on the ``subsidies for operating

expenses and easy-term funds'' program (see Initiation Notice and

``Programs Determined Not to Exist'' section below). This program has

been examined in several investigations by the Department and found to

provide recurring benefits (see e.g., German Wire Rod). No information

or evidence of changed circumstances has been submitted during this

proceedings to warrant reconsideration of the recurring nature of the

program. Therefore, since the grants were received in 1994, there are

no benefits attributable to the POI and the program was not used.

D. Resider (II) Program

The Resider program was established by the EC to fund projects for

the reclamation of steel areas. The Resider II program funds projects

for the period 1993 through 1999. The Autonomous Region of Valle

d'Aosta received funding under this program in 1996 to clean up the

environmental damage on the Cogne industrial land that CAS no longer

occupies. According to CAS, the GOI, and the EC, there is no connection

between the benefits provided under this program and CAS. The

assistance was provided after the land was purchased by the Autonomous

Region of Valle d'Aosta. Further, as discussed in the ``Valle d'Aosta

Assistance'' section above, the appraised value of the Cogne industrial

site was reduced based on the costs of the reclamation. However, given

the close proximity of the CAS facility to the area under reclamation,

we will continue to examine whether CAS benefits from the reclamation

project.

E. Law 675

1. IRI Bonds. We note that Delta Cogne, a predecessor of CAS, was

assigned 54 billion lire worth of IRI debenture bonds on which the GOI

made interest contributions between 1986 and 1993. In 1994, presumably

because of the privatization of CAS, the bonds were assigned to another

party. According to CAS, the bonds remained with Cogne S.p.A.

Therefore, we believe that any debt obligation for which CAS may have

been relieved would be captured in the ``Pre-Privatization Assistance''

program described above. During verification, we plan to examine the

payment of interest contributions by the GOI and the assignment of the

bonds. However, we preliminarily find that no benefits were provided to

the subject merchandise under this program during the POI, and as such,

this program was not used.

2. Mortgage Loans

3. Personnel Retraining Aid

4. Interest Grants on Bank Loans

F. Debt Forgiveness: 1981 Restructuring Plan

G. Law 481/94

H. Decree Law 120/89

I. Law 394/81 Export Marketing Grants and Loans

J. Law 488/92 and Legislative Decree 96/93

K. Law 341/95 and Circolare 50175/95

L. Valle d'Aosta Regional Law 16/88

M. Valle d'Aosta Regional Law 3/92

N. Bolzano Regional Law 44/92

O. Interest Rebates on ECSC Article 54 Loans

P. ECSC Article 56 Loans

Q. European Regional Development Fund

V. Programs Preliminarily Determined Not To Exist

Based on information provided by the GOI, we preliminarily

determined that the following programs do not exist:

A. R&D Grants to Valbruna

We initiated on this program based on information contained in the

petition regarding a program that provided research and development

grants, which was discussed in an EC publication. According to the GOI,

this program is the same as the Law 46 Deliberazione technological

innovation program discussed in the ``Programs Preliminarily Determined

To Be Not Countervailable'' section above. Accordingly, we

preliminarily determine that this program does not exist.

B. Subsidies for Operating Expenses and ``Easy Term'' Funds

We initiated on this program based upon information contained in

the petition and references in the annual reports of Valbruna and

Bolzano, indicating receipt of ``subsidies for operating expenses'' and

``easy term funds.'' However, the companies reported that the line

items in the annual reports refer to other programs examined in this

investigation: European Social Fund, Law 308/82, and ECSC Article

56(2)(b) Retraining Aid.

[[Page 827]]

C. 1993 European Commission Funds

We initiated on this program based on information in the petition

indicating that the EC may have funded bailouts for state-owned and

private-owned steel producers in Italy. However, based on information

submitted on the record of this proceeding, the EC was examining the

GOI's program. Therefore, it appears this program is identical to the

Pre-Privatization Assistance program discussed above in the ``Programs

Preliminarily Determined To Be Countervailable'' section of this

notice.

Verification

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

information submitted by respondents prior to making our final

determination.

Suspension of Liquidation

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

calculated individual rates for each of the companies under

investigation. As discussed in the ``Affiliated Parties'' section of

this notice, we calculated a single rate for Valbruna/Bolzano. To

calculate the ``all others'' rate, we weight-averaged the company rates

by each company's exports of the subject merchandise to the United

States.

In accordance with section 703(d) of the Act, we are directing the

U.S. Customs Service to suspend liquidation of all entries of certain

stainless steel wire rod from Italy, which are entered or withdrawn

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

of this notice in the Federal Register, and to require a cash deposit

or bond for such entries of the merchandise in the amounts indicated

below. This suspension will remain in effect until further notice. We

also note that pursuant to section 705(a)(1) of the Act, this

investigation is now aligned with the antidumping investigations of

certain stainless steel wire rod.

Ad Valorem Rate

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

Net

Producer/Exporter subsidy

rate %

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

CAS.......................................................... 30.47

Valbruna/Bolzano............................................. 1.22

All Others................................................... 19.48

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

ITC Notification

In accordance with section 703(f) of the Act, we will notify the

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

ITC all nonprivileged and nonproprietary information relating to this

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

business proprietary information in our files, provided the ITC

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

under an administrative protective order, without the written consent

of the Assistant Secretary, Import Administration.

If our final determination is affirmative, the ITC will make its

final determination within 45 days after the Department makes its final

determination.

Public Comment

In accordance with 19 CFR 351.310, we will hold a public hearing,

if requested, to afford interested parties an opportunity to comment on

this preliminary determination. The hearing is tentatively scheduled to

be held on March 9, 1998, at the U.S. Department of Commerce, 14th

Street and Constitution Avenue, N.W., Washington, D.C. 20230.

Individuals who wish to request a hearing must submit a written request

within 30 days of the publication of this notice in the Federal

Register to the Assistant Secretary for Import Administration, U.S.

Department of Commerce, Room B-099, 14th Street and Constitution

Avenue, N.W., Washington, DC 20230. Parties should confirm by telephone

the time, date, and place of the hearing 48 hours before the scheduled

time.

Requests for a public hearing should contain: (1) the party's name,

address, and telephone number; (2) the number of participants; and, (3)

to the extent practicable, an identification of the arguments to be

raised at the hearing. In addition, six copies of the business

proprietary version and six copies of the nonproprietary version of the

case briefs must be submitted to the Assistant Secretary no later than

50 days from the date of publication of the preliminary determination.

As part of the case brief, parties are encouraged to provide a summary

of the arguments not to exceed five pages and a table of statutes,

regulations, and cases cited. Six copies of the business proprietary

version and six copies of the nonproprietary version of the rebuttal

briefs must be submitted to the Assistant Secretary no later than 55

days from the date of publication of the preliminary determination. An

interested party may make an affirmative presentation only on arguments

included in that party's case or rebuttal briefs. Written arguments

should be submitted in accordance with 19 CFR 351.309 and will be

considered if received within the time limits specified above.

This determination is published pursuant to section 703(f) of the

Act.

Dated: December 29, 1997.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-271 Filed 1-6-98; 8:45 am]

BILLING CODE 3510-DS-P