Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Countervailing Duty Determination With Final Antidumping Duty Determination: Stainless Steel Sheet and Strip in Coils from France

DEPARTMENT OF COMMERCE

International Trade Administration

[C-427-815]

Preliminary Affirmative Countervailing Duty Determination and

Alignment of Final Countervailing Duty Determination With Final

Antidumping Duty Determination: Stainless Steel Sheet and Strip in

Coils from France

AGENCY: Import Administration, International Trade Administration,

Department of Commerce

EFFECTIVE DATE: November 17, 1998.

FOR FURTHER INFORMATION CONTACT: Rosa Jeong, Marian Wells or Annika

O'Hara, Office of Antidumping/Countervailing Duty Enforcement, Group I,

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

Street and Constitution Avenue, N.W., Washington, D.C. 20230; telephone

(202) 482-3853, 482-6309, or 482-3798, respectively.

SUPPLEMENTARY INFORMATION:

Preliminary Determination

The Department of Commerce (the Department) preliminarily

determines that countervailable subsidies are being provided to

producers or exporters of stainless steel sheet and strip in coils from

France. 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 the Allegheny

Ludlum Corporation, Armco Inc., Washington Steel Division of Bethlehem

Steel Corporation, United Steel Workers of America, AFL-CIO/CLC, Butler

Armco Independent Union, and Zanesville Armco Independent Organization,

Inc. (collectively referred to hereinafter as the ``petitioners'').

Case History

Since the publication of the notice of initiation in the Federal

Register (see Notice of Initiation of Countervailing Duty

Investigations: Stainless Steel Sheet and Strip in Coils from France,

Italy, and the Republic of Korea, 63 FR 37539 (July 13, 1998)

(Initiation Notice)), the following events have occurred:

On July 14, 1998, we issued countervailing duty questionnaires to

the Government of France (GOF), the European Commission (EC), and the

producers/exporters of the subject merchandise. On August 6, 1998, we

postponed the preliminary determination of this investigation until

November 9, 1998 (see Notice of Postponement of Preliminary

Determination for Countervailing Duty Investigations: Stainless Steel

Sheet and Strip in Coils from France, Italy and the Republic of Korea,

63 FR 43140 (August 12, 1998)).

On September 14, 1998, we received responses from the GOF, the EC,

and Usinor (whose Ugine Division is the sole producer of the subject

merchandise that exported to the United States during the period of

investigation). On October 2, 1998, we issued supplemental

questionnaires to the GOF, the EC, and Usinor. We received responses to

the supplemental questionnaires from the EC on October 13, 1998 and

from Usinor and the GOF on October 21, 1998.

On August 19, 1998, the petitioners requested that the Department

investigate three programs which the Department did not include in its

initiation. After a review of the petitioners' submissions, we

determined that they did not allege the elements necessary for

imposition of a countervailing duty with respect to these programs.

Accordingly, we declined to include the three programs in our

investigation. See Memorandum to Richard W. Moreland, Deputy Assistant

Secretary for AD/CVD Enforcement, ``Petitioners'' Supplemental

Allegations,'' dated October 27, 1998, on file in the Central Records

Unit of the Department of Commerce.

Scope of Investigation

For purposes of these investigations, the products covered are

certain stainless steel sheet and strip in coils. Stainless steel is an

alloy steel containing, by weight, 1.2 percent or less of carbon and

10.5 percent or more of chromium, with or without other elements. The

subject sheet and strip is a flat-rolled product in coils that is

greater than 9.5 mm in width and less than 4.75 mm in thickness, and

that is annealed or otherwise heat treated and pickled or otherwise

descaled. The subject sheet and strip may also be further processed

(e.g., cold-rolled, polished, aluminized, coated, etc.) provided that

it maintains the specific dimensions of sheet and strip following such

processing.

The merchandise subject to this investigation is classified in the

Harmonized Tariff Schedule of the United States (HTSUS) at subheadings:

7219.13.00.30, 7219.13.00.50, 7219.13.00.70, 7219.13.00.80,

7219.14.00.30, 7219.14.00.65, 7219.14.00.90, 7219.32.00.05,

7219.32.00.20, 7219.32.00.25, 7219.32.00.35, 7219.32.00.36,

7219.32.00.38, 7219.32.00.42, 7219.32.00.44, 7219.33.00.05,

7219.33.00.20, 7219.33.00.25, 7219.33.00.35, 7219.33.00.36,

7219.33.00.38, 7219.33.00.42, 7219.33.00.44, 7219.34.00.05,

7219.34.00.20, 7219.34.00.25, 7219.34.00.30, 7219.34.00.35,

7219.35.00.05, 7219.35.00.15, 7219.35.00.30, 7219.35.00.35,

7219.90.00.10, 7219.90.00.20, 7219.90.00.25, 7219.90.00.60,

7219.90.00.80, 7220.12.10.00, 7220.12.50.00, 7220.20.10.10,

7220.20.10.15, 7220.20.10.60, 7220.20.10.80, 7220.20.60.05,

7220.20.60.10, 7220.20.60.15,

[[Page 63877]]

7220.20.60.60, 7220.20.60.80, 7220.20.70.05, 7220.20.70.10,

7220.20.70.15, 7220.20.70.60, 7220.20.70.80, 7220.20.80.00,

7220.20.90.30, 7220.20.90.60, 7220.90.00.10, 7220.90.00.15,

7220.90.00.60, and 7220.90.00.80. Although the HTSUS subheadings are

provided for convenience and Customs purposes, the written description

of the merchandise under investigation is dispositive.

Excluded from the scope of this petition are the following: (1)

sheet and strip that is not annealed or otherwise heat treated and

pickled or otherwise descaled, (2) sheet and strip that is cut to

length, (3) plate (i.e., flat-rolled stainless steel products of a

thickness of 4.75 mm or more), (4) flat wire (i.e., cold-rolled

sections, rectangular in shape, of a width of not more than 9.5 mm, and

a thickness of not more than 6.35 mm), and (5) razor blade steel. Razor

blade steel is a flat rolled product of stainless steel, not further

worked than cold-rolled (cold-reduced), in coils, of a width of not

more than 23 mm and a thickness of 0.266 mm or less, containing, by

weight, 12.5 to 14.5 percent chromium, and certified at the time of

entry to be used in the manufacture of razor blades. See Chapter 72 of

the HTSUS, ``Additional U.S. Note'' 1(d).

The Department has determined that certain specialty stainless

steel products are also excluded from the scope of these

investigations. These excluded products are described below: Flapper

valve steel is defined as stainless steel strip in coils with a

chemical composition similar to that of AISI 420F grade steel and

containing, by weight, between 0.37 and 0.43 percent carbon, between

1.15 and 1.35 percent molybdenum, and between 0.20 and 0.80 percent

manganese. This steel also contains, by weight, phosphorus of 0.025

percent or less, silicon of between 0.20 and 0.50 percent, and sulfur

of 0.020 percent or less. The product is manufactured by means of

vacuum arc remelting, with inclusion controls for sulphide of no more

than 0.04 percent and for oxide of no more than 0.05 percent. Flapper

valve steel has a tensile strength of 185 kgf/mm\2\, plus or minus 10,

yield strength of 150 kgf/mm\2\, plus or minus 8, and hardness (Hv) of

540, plus or minus 30.

Also excluded is suspension foil, a specialty steel product used,

e.g., in the manufacture of suspension assemblies for computer disk

drives. Suspension foil is described as 302/304 grade or 202 grade

stainless steel of a thickness between 14 and 127 m, with a

thickness tolerance of plus-or-minus 2.01 m, and surface

glossiness of 200 to 700 percent Gs. Suspension foil must be supplied

in coil widths of not more than 407 mm, and with a mass of 225 kg or

less. Roll marks may only be visible on one side, with no scratches of

measurable depth, and must exhibit residual stresses of 2 mm maximum

deflection, and flatness of 1.6 mm over 685 mm length.

Permanent magnet iron-chromium-cobalt alloy stainless strip is also

excluded from the scope of these investigations. This ductile stainless

steel strip contains, by weight, 26 to 30 percent chromium, and 7 to 10

percent cobalt, with the remainder of iron, in widths of 1.016 to 228.6

mm, and a thickness between 0.0127 and 1.270 mm. It exhibits magnetic

remanence between 9,000 and 12,000 gauss, and a coercivity of between

50 and 300 oersteds. This product is most commonly used in electronic

sensors and is currently available, e.g., under the trade name

``Arnokrome III.'' 1

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\1\ ``Arnokrome III'' is a trademark of the Arnold Engineering

Company.

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Electrical resistance alloy steel is also not included in the scope

of these investigations. This product is defined as a non-magnetic

stainless steel manufactured to American Society of Testing and

Materials (ASTM) specification B344 and containing, by weight, 36

percent nickel, 18 percent chromium, and 46 percent iron, and is most

notable for its resistance to high temperature corrosion. It has a

melting point of 1390 degrees Celsius and displays a creep rupture

limit of 4 kilograms per square millimeter at 1000 degrees Celsius.

This steel is most commonly used in the production of heating ribbons

for circuit breakers and industrial furnaces, and in rheostats for

railway locomotives. The product is currently available, e.g., under

the trade name ``Gilphy 36.'' 2

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\2\ ``Gilphy 36'' is a trademark of Imphy, S.A.

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Finally, certain stainless steel strip in coils used in the

production of textile cutting tools (e.g., carpet knives) is also

excluded. This steel is similar to ASTM grade 440F, but containing

higher levels of molybdenum. This steel contains, by weight, carbon of

between 1.0 and 1.1 percent, sulphur of 0.020 percent or less, and

includes between 0.20 and 0.30 percent copper and cobalt. This steel is

sold under, e.g., the proprietary name GIN4Mo.3

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\3\ ``Gin4Mo'' is the proprietary grade of Hitachi Metals

America, Ltd.

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All interested parties are advised that additional issues

pertaining to the scope of these investigations are still pending.

Furthermore, the exclusions outlined above are subject to further

revision and refinement. The Department plans on notifying interested

parties of its determinations on all scope issues in sufficient time

for parties to comment before the final determination.

The Applicable Statute

Unless otherwise indicated, all citations to the statute are

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

the Uruguay Round Agreements Act 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 Part 351 (1998).

Injury Test

Because France 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 France materially injure, or threaten material

injury to, a U.S. industry. On August 9, 1998, 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 France of the

subject merchandise (see Certain Stainless Steel Sheet and Strip From

France, Germany, Italy, Japan, the Republic of Korea, Mexico, Taiwan,

and the United Kingdom, 63 FR 41864 (August 9, 1998)).

Alignment with Final Antidumping Duty Determination

On July 22, 1998, the petitioners submitted a letter requesting

alignment of the final determination in this investigation with the

final determination in the companion antidumping duty investigation.

See Initiation of Antidumping Investigations: Stainless Steel Sheet and

Strip in Coils From France, Germany, Italy, Japan, Mexico, South Korea,

Taiwan, and the United Kingdom, 63 FR 37521 (July 13, 1998). Therefore,

in accordance with section 705(a)(1) of the Act, we are aligning the

final determination in this investigation with the final determinations

in the antidumping investigations of stainless steel sheet and strip in

coils.

Period of Investigation

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

calendar year 1997.

[[Page 63878]]

Company History

The GOF identified the Ugine Division of Usinor as the only

producer of the subject merchandise that exported to the United States

during the POI.

In the early 1980s, Ugine (then called Ugine Aciers) was one of

several producers of stainless steel in France. In 1982, the French

steel company Sacilor acquired a controlling interest in Ugine. In the

following year, Sacilor bought a majority of the shares in another

stainless steel producer, Forges de Gueugnon, which was merged with one

part of Ugine and renamed Ugine-Gueugnon. During the same time, Usinor

was a separate steel company with one division called Usinor Chatillon

producing stainless steel. In 1987, the GOF placed Usinor and Sacilor

in a holding company named Usinor Sacilor. At the same time, Ugine-

Gueugnon and Usinor Chatillon were combined into one company called

Ugine Aciers de Chatillon et Gueugnon (Ugine ACG).

In 1991, Ugine ACG merged with Sacilor and became Ugine s.a., a

subsidiary of the Usinor Sacilor holding company. In 1994, Ugine s.a.

was partially privatized when Usinor Sacilor sold approximately 40

percent of its equity in the company to the general public. However, in

1995, Usinor Sacilor bought back the shares in Ugine s.a. and obtained

a near 100 percent control of the company. In late 1995, Ugine s.a. was

converted into a division of Usinor Sacilor and became ``the Ugine

Division,'' producing stainless steel and alloys. Finally, in 1997,

Usinor Sacilor was renamed Usinor.

The GOF was the majority owner of both Usinor and Sacilor until the

mid-1980s. In 1986, the GOF emerged as the sole owner of both companies

after a capital restructuring. In 1987, the GOF created the Usinor

Sacilor holding company which continued to be wholly owned by the GOF

until 1991 when Credit Lyonnais, a government-owned bank, bought 20

percent of the equity in the company.

In July 1995, the first partial privatization of Usinor Sacilor,

combined with a capital increase, took place. The shares were sold

through a public offering of shares which consisted of a French public

offering, an international public offering, and an employee offering.

In accordance with the French privatization law, a certain portion of

the shares were also sold to a group of so-called ``stable

shareholders,'' some of which were government-owned banks and other

entities. After this privatization, the stable shareholders held

approximately 15 percent of Usinor's total shares, 10 percent of which

were held by government-owned or controlled entities. The GOF continued

to own 9.8 percent of the shares directly. A second offering of shares

to employees took place in June 1996.

In early 1997, the GOF transferred (without remuneration) a small

part of its stake in Usinor to individual French shareholders and

company employees who had held on to their shares for 18 months

following the July 1995 privatization. In October 1997, the GOF sold

most of its remaining shares on the market, leaving it with

approximately one percent of the shares. These shares were to be given

away for free in August 1998.

Change in Ownership

In the General Issues Appendix (GIA), attached to the Final

Affirmative Countervailing Duty Determination: Certain Steel Products

from Austria, 58 FR 37217, 37226 (July 9, 1993), we applied a new

methodology with respect to the treatment of subsidies received prior

to the sale of the company (privatization) or the spinning-off of a

productive unit.

Under this methodology, we estimate the portion of the purchase

price attributable to prior subsidies. We compute this by first

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

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

which nonrecurring subsidies would be attributable to the POI (i.e., in

this case, 1984 for Usinor) and ending one year prior to the

privatization. We then take the simple average of the ratios. The

simple average of these ratios of subsidies to net worth serves as a

reasonable surrogate for the percent that subsidies constitute of the

overall value of the company. Next, we multiply the average ratio by

the purchase price to derive the portion of the purchase price

attributable to repayment of prior subsidies. Finally, we reduce the

benefit streams of the prior subsidies by the ratio of the repayment

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

of privatization. For further discussion of our privatization

methodology, see, e.g., Preliminary Affirmative Countervailing Duty

Determination and Alignment of Final Countervailing Duty Determination:

Stainless Steel Plate in Coils From Italy, 63 FR 47246 (September 4,

1998).

With respect to spin-offs, consistent with the Department's

position regarding privatization, we analyze the spin-off of productive

units to assess what portion of the sale price of the productive units

can be attributable to the repayment of prior subsidies. To perform

this calculation, we first determine the amount of the seller's

subsidies that the spun-off productive unit could potentially take with

it. To calculate this amount, we divide the value of the assets of the

spun-off unit by the value of the assets of the company selling the

unit. We then apply this ratio to the net present value of the seller's

remaining subsidies. We next estimate the portion of the purchase price

going towards repayment of prior subsidies in accordance with the

privatization methodology outlined above.

In the current investigation, we are analyzing: (1) the

privatization of Ugine in 1994 and the subsequent buy-back of Ugine's

shares by Usinor (1995); (2) the 1994 sale of Centrale Siderurgique de

Richemont (CSR); and (3) the privatization of Usinor in 1995, 1996 and

1997.

Subsidies Valuation Information

Benchmarks for Loans and Discount Rates

To calculate the countervailable benefit from loans and non-

recurring grants in 1997, we used Usinor's company-specific cost of

long-term, fixed rate loans as reported by Usinor. For other years, we

used the rates for average yields on long-term private sector bonds in

France as published by the OECD. For years in which Usinor was

determined to be uncreditworthy, we added a risk premium to the

benchmark interest rate in accordance with the methodology consistent

with our practice in Final Affirmative Countervailing Duty

Determination: Certain Steel Products from France, 58 FR 37304 (July 9,

1993) (Certain Steel from France).

Allocation Period

In the past, the Department has relied upon information from the

U.S. Internal Revenue Service (IRS) for the industry-specific average

useful life of assets in determining the allocation period for non-

recurring subsidies. See the GIA. 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) held that the IRS information did

not necessarily reflect a reasonable period based on the actual

commercial and competitive benefit of the subsidies to the recipients.

In accordance with the Court's remand order, the Department calculated

a company-specific allocation period for non-recurring subsidies for

Usinor Sacilor based on the average useful life (AUL) of its non-

[[Page 63879]]

renewable physical assets as 14 years. This remand determination was

affirmed by the Court in British Steel plc v. United States, 929 F.

Supp. 426 (CIT June 6, 1996) (British Steel II).

As discussed below, the current investigation includes untied, non-

recurring subsidies that were found to be countervailable in Certain

Steel from France--i.e., PACS, FIS, and Shareholders' Advances. Because

we have already assigned a company-specific allocation period of 14

years to those previously investigated subsidies, we preliminarily

determine that it is more appropriate to continue to allocating those

subsidies over 14 years.

In the concurrent investigations of stainless steel sheet and strip

from Italy and Korea, we invited parties to comment on whether an

alternative approach may be more appropriate. One option identified is

to determine an individual AUL for each year in which a non-recurring

subsidy is provided to a company, rather than to determine a company-

specific AUL for non-recurring subsidies that could change with each

investigation and result in different allocation periods for the same

subsidy. We also welcome any additional comments on this issue not

raised above.

This investigation includes no other non-recurring subsidies that

have been preliminarily determined to be countervailable. Accordingly,

we have not calculated a new company-specific allocation period for

subsidies not previously investigated. If it becomes necessary for the

purposes of the final determination, we will calculate a new company-

specific allocation period for Usinor based on information provided in

the current proceeding.

Based upon our analysis of the petition and the responses to our

questionnaires, we determine the following:

I. Programs Preliminarily Determined To Be Countervailable GOF

Programs

A. Loans with Special Characteristics (PACS)

A plan was agreed upon in 1978 to help the principal steel

companies, Usinor, Sacilor, Chatillon-Neuves-Maisons, and their

subsidiaries, restructure their massive debt. This plan entailed the

creation of a steel amortization fund, called the Caisse

d'Amortissement pour l'Acier (CAPA), for the purpose of ensuring

repayment of funds borrowed by these companies prior to June 1, 1978.

In accordance with the restructuring plan of 1978, bonds previously

issued on behalf of the steel companies and pre-1978 loans from Credit

National and Fonds de Developpement Economique et Social (FDES) were

converted into ``loans with special characteristics,'' or PACS. As a

result of this process, the steel companies were no longer liable for

the loans and bonds, but did take on PACS obligations.

In 1978, Usinor and Sacilor converted 21.1 billion French francs

(FF) of debt into PACS. From 1980 to 1981, Usinor and Sacilor issued

FF8.1 billion of new PACS. PACS in the amount of FF13.8 billion, FF12.6

billion and FF2.8 billion were converted into common stock in 1981,

1986 and 1991, respectively.

In Certain Steel from France and Final Affirmative Countervailing

Duty Determinations: Certain Hot Rolled Lead and Bismuth Carbon Steel

Products from France, 58 FR 6221 (January 27, 1993) (Lead and Bismuth),

the Department determined that the conversion of PACS to common stock

in 1981 and 1986 constituted equity infusions on terms inconsistent

with commercial considerations because Usinor Sacilor was found to be

unequityworthy during those years. No new information or evidence of

changed circumstances has been submitted in this proceeding to warrant

a reconsideration of our earlier finding. Therefore, we continue to

find that these equity infusions constitute countervailable subsidies

within the meaning of section 771(5) of the Act. Using the allocation

period of 14 years, the 1986 conversion of PACS continues to yield a

countervailable benefit during our POI.

Consistent with our practice in Certain Steel from France, we have

treated the 1986 equity infusion as a non-recurring grant received in

the year PACS were converted to common stock. Because Usinor was

uncreditworthy in the year of receipt, we used discount rates that

include a risk premium to allocate the benefits over time.

Additionally, we followed the methodology described in the ``Change in

Ownership'' section above to determine the amount of each equity

infusion appropriately allocated to Usinor after its privatization. We

divided this amount by Usinor's total sales during the POI.

Accordingly, we preliminarily determine the countervailable subsidy to

be 0.63 percent ad valorem.

B. Shareholders' advances

The GOF provided Usinor and Sacilor grants in the form of

shareholders' advances during the period 1982 to 1986. The purpose of

these advances was to finance the revenue shortfall needs of Usinor and

Sacilor while the GOF planned for the next major restructuring of the

French steel industry. These shareholders' advances carried no interest

and there was no precondition for receipt of these funds. These

advances were converted to common stock in 1986.

In Certain Steel from France and Lead and Bismuth, the Department

determined that the shareholders' advances constituted countervailable

grants because no shares were received for them. No new information or

evidence of changed circumstances has been submitted in this proceeding

to warrant a reconsideration of our earlier finding. Therefore, we

continue to find that these grants constitute countervailable subsidies

within the meaning of section 771(5) of the Act. Using the allocation

period of 14 years, subsidies dating back to 1984 continue to provide

countervailable benefits during the POI of this case.

Consistent with our practice in Certain Steel from France, we have

treated these advances as non-recurring grants. Because Usinor was

uncreditworthy in the years of receipt, we used a discount rate that

includes a risk premium to allocate the benefits over time.

Additionally, we followed the methodology described in the ``Change in

Ownership'' section above to determine the amount of each grant

appropriately allocated to Usinor after its privatization. We divided

this amount by Usinor's total sales during the POI. Accordingly, we

preliminarily determine the countervailable subsidy to be 0.50 percent

ad valorem.

C. Steel Intervention Fund (FIS)

The 1981 Corrected Finance Law granted Usinor and Sacilor the

authority to issue convertible bonds. In 1983, the Fonds d'Intervention

Siderurgique (FIS), or steel intervention fund, was created to

implement that authority. In 1983, 1984, and 1985, Usinor and Sacilor

issued convertible bonds to the FIS, which in turn, with the GOF's

guarantee, floated the bonds to the public and to institutional

investors. These bonds were converted to common stock in 1986 and 1988.

In Certain Steel from France and Lead and Bismuth, the Department

determined that the conversion of FIS bonds to common stock in 1986 and

1988 constituted equity infusions on terms inconsistent with commercial

considerations because Usinor Sacilor was found to be unequityworthy

during those years. No new information or evidence of changed

circumstances has been submitted in this proceeding to warrant a

reconsideration of our earlier finding. Therefore, we continue to find

[[Page 63880]]

that these equity infusions constitute countervailable subsidies within

the meaning of section 771(5) of the Act. Using the allocation period

of 14 years, the 1986 and 1988 conversions of FIS bonds yield a benefit

during our POI.

We have treated the 1986 and 1988 equity infusions as non-recurring

grants given in the years the FIS bonds were converted to common stock.

Because Usinor was uncreditworthy in the years of receipt, we used

discount rates that include a risk premium to allocate the benefits

over time. Additionally, we followed the methodology described in the

``Change in Ownership'' section above to determine the amount of each

equity infusion appropriately allocated to Usinor after its

privatization. Dividing this amount by Usinor's total sales during the

POI, we preliminarily determine the countervailable subsidy to be 1.60

percent ad valorem.

D. Investment/Operating subsidies

During the period 1991 to 1997, Usinor received investment and

operating subsidies through a variety of government programs. The

subsidies were provided by the following sources: 1) the European Coal

and Steel Community (ECSC) for research and development; 2) health

insurance offices for investments to reduce work-related illnesses and

accidents, 3) water agencies for projects in the public interest, such

as water protection, pollution control and water rehabilitation. The

subsidies are classified as investment, equipment or operating

subsidies depending on how the funds are used.

Pursuant to section 771(5)(D)(i) of the Act, we preliminarily

determine that these grants provide a financial contribution in the

form of a direct transfer of funds from the ECSC and the GOF to Usinor,

providing benefit in the amount of the grants.

With the exception of ECSC grants, the GOF claims that these grants

are not countervailable because they are not specific. Citing to the

extreme burden of providing all pertinent details of each subsidy,

however, the GOF has not provided any information to demonstrate that

any of these grants are not specific. Therefore, as facts available, we

preliminarily determine that these subsidies are specific under section

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

Because the investment/operating subsidies received during the

period 1991-1997 are less than 0.5 percent of Usinor's sales during the

respective years of receipt, we have expensed these grants in the years

of receipt. To calculate the ad valorem rate of the subsidy, we divided

the 1997 benefit by Usinor's total sales during the POI. Accordingly,

we determine the countervailable subsidy to be 0.11 percent ad valorem.

E. Myosotis project

Since 1988, Usinor has been developing an innovative continuous

thin-strip casting process called ``Myosotis,'' in a joint venture with

the German steelmaker Thyssen. The Myosotis project is intended to

eliminate the separate hot-rolling stage of Usinor's steelmaking

process by transforming liquid metal directly into a coil between two

to five millimeters' thick.

To assist this project, the GOF, through the Ministry of Industry

and Regional Planning and L'Agence pour la Maitrise de L'Energie

(AFME), entered into three agreements with Usinor Sacilor (in 1989) and

Ugine (in 1991 and 1995). The first agreement, dated December 27, 1989,

covered a three-year period and established schedules for the initial

and subsequent payments to Usinor. These payments were contingent upon

the submission of progress reports including a statement of investment

outlays. The final payment was contingent upon the submission of a

final program report and a statement of total expenses. The three

installments were paid in 1989, 1991, and 1993. The 1991 Agreement

between Ugine and the AFME covered the cost of some equipment for the

project. This agreement resulted in two disbursements to Ugine from the

AFME in 1991 and 1992. The 1995 agreement with Ugine provided interest-

free reimbursable advances for the final two-year stage of the project,

with the goal of casting molten steel from ladles to produce thin

strips. The first reimbursable advance was made in 1997. Repayment of

one-third of the reimbursable advance is due July 31, 1999. The

remaining two-thirds are due for repayment on July 31, 2001.

We preliminarily determine that the assistance under this program

constitutes a countervailable subsidy within the meaning of section

771(5) of the Act. They provide financial contributions in the form of

a direct transfer of funds from the GOF to Usinor. Pursuant to section

771(5A)(D) of the Act, the reimbursable advance provides a benefit in

the difference between the amount of the benchmark interest due and the

zero interest paid by Usinor.

With respect to specificity, the GOF has claimed that this program

is available to all industrial sectors in France. However, the GOF has

not supported its claim with documentation demonstrating that the

program was used by other industries. Accordingly, we preliminarily

determine that this program is specific within the meaning of section

771(5A)(D) of the Act because the grants and the advance were provided

exclusively to Usinor (and Thyssen).

We preliminarily determine the subsidies provided between 1989 and

1993 to be non-recurring grants based on the analysis set forth in the

Allocation section of the GIA. Because the amounts received during

these years were less than 0.5 percent of Usinor or Ugine's sales

during their respective year of receipt, we expensed these grants in

the years of receipt.

With respect to the reimbursable advance received in 1997, we are

treating this advance as a long-term interest-free loan. Pursuant to

the Department's general practice regarding fixed-rate, long-term

loans, we have assumed that a payment on a comparable commercial loan

taken out at the same time would not be due until 1998. Because there

would be no effect on Usinor's cash flow during the POI (i.e, no

payment would have been made on a benchmark loan during the POI), we

preliminarily determine that there is no benefit attributable to the

POI. See GIA at 37228-29.

Accordingly, we preliminarily determine the countervailable subsidy

rate for this program to be 0.00 percent ad valorem.

The GOF and Usinor have claimed that this program constitutes a

noncountervailable (i.e., ``green-light'') research subsidy pursuant to

section 771(5B)(B) of the Act. The GOF and Usinor note that in November

1996, the EC approved the Myosotis assistance under Article 2 of the

State Aids Code, which permits certain research and development

assistance provided it does not exceed 25 percent of the total cost of

the project. The GOF and Usinor argue that the Department likewise

should find this program not countervailable because the project meets

the requirements for ``green-light'' treatment as established under

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

We have not addressed this claim because the subsidy rate of 0.00

percent as calculated above for this program, even treated as

countervailable, has no impact on the net countervailable subsidy rate

of this investigation.

F. Related party grants

Usinor's financial statements identify ``grants from related

parties'' in the years 1992-1995. Information provided by Usinor

demonstrates that these grants do not constitute a separate program

[[Page 63881]]

from the Myosotis program and investment/operating subsidies discussed

above. Specifically, a yearly breakdown of these grants shows that the

amount of each grant corresponds to the amounts provided under the

Myosotis program or investment/operating subsidies. Therefore, we have

determined that this program will not be investigated as a separate

program. See ``Myosotis'' and ``Investment/Operating Subsidies''

sections of this notice.

G. Ugine 1991 Grant

Ugine's 1991 financial statements indicate that Ugine received FF

26,318 thousand in subsidies and also note that FF 16,295 thousand of

``share'' in subsidies were posted to income. Information provided by

Usinor indicates that these amounts reflect the funds received under

the Myosotis project as well as investment and operating subsidies.

Specifically, a breakdown of these grants shows that the amount of each

grant corresponds to the amounts provided under the Myosotis program or

investment/operating subsidies. Because Myosotis and investment/

operating subsidies are being investigated separately in this

proceeding, we have determined that this program will not be

investigated as a separate program. See ``Myosotis'' and ``Investment/

Operating Subsidies'' sections of this notice.

EC Programs

European Social Fund. The European Social Fund (ESF), one of the

Structural Funds operated by the EC, was established in 1957 to improve

workers' employment opportunities and raise their living standards. The

main purpose of the Fund is to render the employment of workers easier

and to increase their geographical and occupational mobility within the

European Union. It provides support for vocational training,

employment, and self-employment.

The member states are responsible for identifying and implementing

the individual projects that are selected to receive ESF financing. The

member states must also contribute to the financing of the projects. In

general, the maximum benefit provided by the ESF is 50 percent of the

project's total cost for projects geared toward Objectives 2, 3, 4, and

5b (see below). For Objective 1 projects, the ESF contributes a maximum

of 75 percent of the project's total cost.

Like the other EC Structural Funds, the ESF contributes to the

attainment of the five different objectives identified in the EC's

framework regulations for Structural Funds: Objective 1 is to promote

development and structural adjustment in underdeveloped regions,

Objective 2 addresses areas in industrial decline, Objective 3 relates

to combating long-term unemployment and creating jobs for young people

and people excluded from the labor market, Objective 4 focuses on the

adaptation of workers to industrial changes and changes in production

systems, and Objective 5 pertains to rural development. Recently, the

EC added a sixth objective under which assistance is provided to

sparsely populated areas in northern Europe.

Ugine s.a. received an ESF grant for worker readaptation training

in 1995. In the same year, the company also received an approximately

equivalent amount from the GOF as cofinancing for the project. In 1997,

the Ugine Division of Usinor received an ESF grant for training workers

in a new production process at its cold-rolling mill in Isbergues. No

GOF cofinancing of this project was received during the POI.

The Department considers worker assistance programs to provide a

countervailable benefit to a company when the company is relieved of a

contractual or legal obligation it would otherwise have incurred. See

Final Affirmative Countervailing Duty Determination: Certain Pasta From

Italy, 61 FR 30287, 30294 (June 14, 1996) (Pasta From Italy). Usinor

has stated that the ESF grants did not relieve the company of any

contractual or legal obligations. The GOF has not provided any

information as to whether the grants relieved the company of any such

obligations and we have no information about the exact purpose or use

of the 1995 grant. However, as discussed further below, its small size

resulted in the grant being expensed in the year of receipt. We have,

therefore, decided not to seek further information about the exact

purpose of this grant or whether it relieved Ugine of any legal or

contractual obligations.

The 1997 grant was provided to train Ugine's workers in a new

production process. Since companies normally incur the costs of

training to enhance the job-related skills of their employees, we

preliminarily determine that the 1997 ESF grant relieved Ugine of an

obligation it would have otherwise incurred.

We preliminarily determine that the 1997 ESF grant is

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

grant is a financial contribution as described in section 771(5)(D)(i)

of the Act which provides a benefit to the recipient in the amount of

the grant.

Consistent with prior cases, we have examined the specificity of

the funding. Because the EC has not provided any information about the

distribution of ESF grants, we are assuming for purposes of this

preliminary determination, as facts available under section 776(b) of

the Act, that the funds provided by the EC are specific.

The Department normally considers the benefits from worker training

programs to be recurring. See GIA at 37255. However, consistent with

the Department's past practice and our understanding that ESF grants

relate to specific, individual projects which require separate

government approval, we are treating the benefit as a non-recurring

grant. See Stainless Steel Wire Rod from Italy, 63 FR 40474, 40488

(July 29, 1998) and Pasta from Italy at 30295. As stated above, the

value of the 1995 ESF grant and the accompanying GOF contributions were

less than 0.5 percent of Ugine's total sales in that year. Similarly,

the 1997 ESF grant was less than 0.5 percent of Ugine's 1997 sales.

Therefore, that grant was expensed in the year of receipt. Dividing the

amount of the ESF grant by the Ugine Division's 1997 total sales, we

preliminarily determine the countervailable subsidy to be 0.00 percent

ad valorem for this program.

II. Programs Preliminarily Determined Not To Be Countervailable GOF

Programs

A. Purchase of power plant

In 1994, Usinor sold the shares of Centrale Siderurgique de

Richemont (CSR) to Electricite de France (EDF), a government-owned

entity. CSR was set up to convert gas generated by steel plants in the

Lorraine region into electricity for sale to l'Union Siderurgique de

L'Energie (USE). USE, in turn, sold the electricity to steel producers

in the region. At the time of the transaction, both CSR and USE were

owned by Usinor and Usinor factories purchased their electricity from

USE.

In addition to the physical assets of CSR (i.e., land, buildings,

plant and equipment), the 1994 transaction also provided EDF the

exclusive right to supply electricity to USE for a 15-year period.

Prior to the transaction, Usinor and EDF conducted independent

valuations of the transaction based on detailed projections of future

costs and revenues associated with the operation of CSR and sales of

electricity to USE. The projected revenues were calculated using

detailed estimates of yearly outputs, consumption and rates. Similarly,

projected costs were based on estimated costs for purchasing gas,

[[Page 63882]]

operating expenses, as well as costs for developing an electric power

system. After negotiations, Usinor and EDF agreed on a purchase price

of FF 1 billion, which represented a compromise between the independent

valuations of the transaction by Usinor and EDF.

We examined whether Usinor received more than a reasonable market

price from the EDF in this transaction. We preliminarily determine that

although FF 1 billion represented a large gain over the book value of

CSR's physical assets, the purchase price was based on a reasonable

valuation of the future sales of electricity by EDF to Usinor. The

valuation is supported by reasonable estimates of projected costs and

revenues. There is no evidence to indicate that the transaction was

anything other than an arm's length transaction for full market value.

Accordingly, we preliminarily determine that this program does not

constitute a countervailable subsidy within the meaning of section

771(5) of the Act.

B. Related party loans

Usinor's 1992 and 1993 financial statements identify ``interest

free loans to related parties'' in the amounts of FF 622 million in

1993 and FF 455 million in 1992. According to Usinor, these loans

consist of interest-free advances by Usinor and other Usinor Group

entities to non-consolidated entities within the Usinor Group.

Information provided by Usinor indicates that the funds for these loans

were provided out of Usinor's self-generated cash flow. Because there

is no financial contribution as defined under section 771(5)(D) of the

Act, we preliminarily determine that these loans do not constitute a

countervailable subsidy.

C. Work/training contracts

Employers who hire young people (16-25 years of age) through

various government-administered work/training or apprenticeship

contracts may receive grants and an exemption from social security

contributions. The contracts also impose training requirements for

those employees and establish minimum compensation set in proportion to

the SMIC (the indexed minimum wage) according to the age of the young

person and the duration of the contract. This program is administered

by Delegation Generale a l'Emploi et a la Formation Professionnelle of

Ministere de l'Emploi et de la Solidarite at the national level, and

locally by Directions Departementales du Travail, de l'Emploi et de la

Formation Professionnelle (DDTEFP) (Departmental Labor, Employment and

Professional Training Head Offices). The purpose of this program is to

encourage the permanent employment of young people.

Usinor has entered into two types of such contracts: (1)

apprenticeship contracts and (2) contracts of specific duration

(including qualification agreements and adaptation agreements). Any

employer can hire an apprentice and enter into an apprenticeship

contract providing training for the apprentice. Qualification and

adaptation agreements require approval by the DDTEFP. Approval is

dependent upon (1) adoption of an agreement with an educational

institution or training entity; and (2) the company's approval of a

standard agreement adopted by the GOF and an occupational organization.

Usinor received lump-sum payments and exemptions from social security

contributions as a result of these contracts.

We analyzed whether the benefits provided under this program are

specific ``in law or fact'' within the meaning of section 771(5A) of

the Act. We preliminarily determine that the program is not de jure

specific because the receipt of the benefits, in law, is not contingent

on export performance or on the use of domestically sourced goods over

imported goods; nor are the benefits limited to an enterprise, industry

or region.

Pursuant to section 771(5A)(D)(iii) of the Act, a subsidy is de

facto specific if one or more of the following factors exists: (1) the

number of enterprises, industries or groups thereof, which use a

subsidy is limited; (2) there is predominant use of a subsidy by an

enterprise, industry, or group; (3) there is disproportionate use of a

subsidy by an enterprise, industry, or group; or (4) the manner in

which the authority providing a subsidy has exercised discretion

indicates that an enterprise or industry is favored over others. As

explained in the Statement of Administrative Action (SAA) (H.R. Doc.

No. 316, Vol. I, 103d Cong., 2d Session (1994) at 931), the fourth

criterion normally serves to support the analysis of other de facto

specificity criteria.

Assistance under this program was distributed to a wide variety of

industries in the majority of the regions of France. Therefore, the

program is not limited based on the number of users. The evidence also

indicates that the steel industry did not receive a predominant or a

disproportionate share of the total funding. Given our findings that

the number of users is large and that there is no predominant or

disproportionate use of the program by the steel industry, we do not

reach the issue of whether administrators of the program exercised

discretion in awarding benefits. Accordingly, we preliminarily

determine that this program is not specific and has not conferred

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

Act.

D. Electric arc furnaces

In 1996, the GOF agreed to provide assistance in the form of

reimbursable advances to benefit Usinor's research and development

efforts to improve and increase the efficiency of the melting process--

the first stage in steel production. The first disbursement of funds

occurred on July 17, 1998.

The Department deems benefits to have been received at the time

that there is an effect on the recipient's cash flow. See GIA at 37228-

29. Because Usinor did not receive any payments until 1998, there is no

benefit during the POI of this investigation. On this basis, we

preliminarily determine that this program did not provide any

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

Act.

III. Programs Preliminarily Determined To Be Not Used

Based on the information provided in the responses, we determine

that Usinor did not apply for or receive benefits under the following

programs during the POI:

GOF Programs

A. Export Financing under Natexis Banque Programs

B. DATAR Regional Development Grants (PATs)

C. DATAR 50 Percent Taxing Scheme

D. DATAR Tax Exemption for Industrial Expansion

E. DATAR Tax Credit for Companies Located in Special Investment Zone

F. DATAR Tax Credits for Research

G. GOF Guarantees

H. Long-Term Loans from CFDI

EC Programs

A. Resider II Program

B. Youthstart

C. ECSC Article 54 Loans

D. ECSC Article 56(2)(b) Redeployment/Readaptation Aid

E. Grants from the European Regional Development Fund (ERDF)

IV. Programs Preliminarily Determined Not To Exist

Forgiveness of shareholders' loans

Usinor's 1994 and 1995 financial statements indicate that the

balance in the account identified as ``loans granted

[[Page 63883]]

by the shareholders'' or ``borrowings granted by the shareholders'' was

reduced from FF 2.161 billion in 1993 to FF 1.92 billion in 1994 (i.e.,

a reduction in the amount of FF 241 million). At the end of 1995, the

balance in the same account was zero. The petitioners alleged that the

reduction in the loan balance represented a debt forgiveness by the GOF

in order to make the company more attractive to investors prior to its

privatization.

Information provided by Usinor and the GOF indicates that there was

no loan forgiveness. Rather, the decreases of the loan balances in the

financial statements represent a combination of loan payments by the

company and the elimination of any disclosure requirement in accordance

with GAAP, due to a reduction in shareholdings. Specifically, the 1995

reduction reflects the elimination of disclosure requirements

applicable to loans from Credit Lyonnais, as the result of the

reduction in Credit Lyonnais' ownership interest in Usinor from 20

percent to less than 10 percent at the time of Usinor's privatization.

There were no disclosed shareholder loans at the end of 1995 because

there were no shareholders with an interest of 10 percent or greater.

International accounting standards require disclosure of transactions

between a business entity and owners of more than 10 percent of shares.

For 1994, the reduction is accounted for by repayments of certain

outstanding loans during that year as supported by repayment

documentation. On this basis, we preliminarily determine that this

program does not exist.

V. Programs for Which We Need More Information

Resider I

The EC's September 14, 1998 questionnaire response on Resider II

included information about a predecessor program, Resider I, which was

in effect between 1988 and 1992. The purpose of both Resider programs,

which are financed by the EC's structural funds, is to diversify

economic activities in steel-producing areas that are adversely

affected by the restructuring of the steel industry.

In its September 15, 1998 response, Usinor stated that it had not

applied for, used, or benefitted from subsidies under Resider II during

the POI. As indicated above, we have, therefore, preliminarily

determined that Resider II was not used during the POI. However, with

respect to Resider I, we asked Usinor in our October 2, 1998

supplemental questionnaire if the company had received any form of aid

under this program. In its October 22, 1998 supplemental response, the

company stated that it had been unable to locate information to respond

to this question but that it would try to do so for verification.

The EC's response indicated that both Resider I and II are

administered by government agencies in the member states and that these

agencies maintain files on the individual companies that receive

benefits under these programs. Therefore, in our October 2 supplemental

questionnaire to the GOF, we requested information regarding Usinor's

use of the Resider programs. In its October 22, 1998 response, the GOF

stated that it had been unable to obtain this information but that it

would try to do so for verification.

Because we do not have sufficient information to make a preliminary

determination with respect to Resider I, we have decided to seek more

information on this program before our final determination.

Verification

In accordance with section 782(i)(1) of the Act, we will verify the

information submitted by the 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 an individual rate for Usinor, the sole manufacturer of the

subject merchandise. We preliminarily determine that the total

estimated net countervailable subsidy rate is 2.84 percent ad valorem.

Because we only investigated one producer/exporter, Usinor's rate will

also serve as the ``all others'' rate. Therefore, the ``all others''

rate is 2.84 percent ad valorem. In accordance with section 703(d) of

the Act, we are directing the U.S. Customs Service to suspend

liquidation of all entries of stainless steel sheet and strip in coils

from France 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 above. This

suspension will remain in effect until further notice.

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.

In accordance with section 705(b)(2) of the Act, 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 57 days from the date of publication of this preliminary

determination, at the U.S. Department of Commerce, 14th Street and

Constitution Avenue N.W., Washington, DC 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

1870, 14th Street and Constitution Avenue, NW., Washington, DC 20230.

Requests for a public hearing should contain: (1) the party's name,

address, and telephone number; (2) the number of participants; (3) the

reason for attending; and (4) a list of the issues to be discussed. An

interested party may make an affirmative presentation only on arguments

included in that party's case brief and may make a rebuttal

presentation only on arguments included in that party's rebuttal brief.

Parties should confirm by telephone the time, date, and place of the

hearing 48 hours before the scheduled time.

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

publication of this notice. 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 publication of this

notice. Written arguments should be submitted in accordance with 19 CFR

351.309 and will be considered if received within the time limits

specified above.

[[Page 63884]]

This determination is published pursuant to sections 703(f) and

777(i) of the Act.

Dated: November 9, 1998.

Robert S. LaRussa,

Assistant Secretary for Import Administration.

[FR Doc. 98-30736 Filed 11-16-98; 8:45 am]

BILLING CODE 3510-DS-P